CarMax Reports Fourth Quarter and Fiscal Year 2003 Sales and Earnings
Releases Fiscal Year 2004 Expectations
RICHMOND, Va., March 31 -- CarMax, Inc. today reported results for the fourth quarter and fiscal year ended February 28, 2003.
-- For the quarter, net earnings were $19.1 million, or 18 cents per
share, compared with $18.4 million, or 18 cents per share, earned in
the fourth quarter of fiscal 2002.
-- For the year, net earnings were $94.8 million, or 91 cents per share,
including $7.8 million, or 7 cents per share, of non-tax-deductible
costs associated with the October 1, 2002, separation from Circuit
City Stores, Inc.
-- Excluding the separation costs, fiscal year 2003 earnings were
$102.6 million, or 98 cents per share.
-- Fiscal year 2002 net earnings were $90.8 million, or 87 cents per
share, including $0.4 million of separation costs. Excluding
the separation costs, fiscal year 2002 earnings were
$91.2 million, or 88 cents per share.
SALES
Total net sales and operating revenues for the fourth quarter rose 11 percent to $946.6 million from $855.1 million in the fourth quarter last year. For fiscal 2003, total net sales and operating revenues rose 12 percent to $3.97 billion from $3.53 billion in fiscal 2002.
Sales Components
Three Months Ended Fiscal Year Ended
(Dollar amounts February 28 February 28
in millions) 2003 2002 %Change 2003 2002 %Change
Used vehicle sales $699.2 $629.4 11% $2,912.1 $2,497.2 17%
New vehicle sales 117.8 114.5 3% 519.8 559.9 (7)%
Wholesale
vehicle sales 89.0 74.3 20% 366.6 325.6 13%
Other sales
and revenues(1) 40.7 36.9 10% 171.4 151.1 13%
Net sales and
operating
revenues(1) $946.6(2) $855.1 11% $3,969.9 $3,533.8 12%
(1) CarMax now classifies finance fees received from third-party lenders
in other sales and revenues. Other sales and revenues also include
extended warranty revenues, service department sales and appraisal
processing fees collected from consumers for the purchase of their
vehicles. Previously, third-party finance fees were recorded as a
reduction to selling, general and administrative expenses. As a
result of this change, other sales and revenues have been
reclassified for the three month and fiscal year periods ended
February 28, 2002, and for the fiscal year period ended
February 28, 2003. Third-party finance fees were $3.7 million in the
fourth quarter of fiscal 2003 compared with $3.8 million in the same
period last year. For the fiscal year ended February 28, 2003,
third-party finance fees were $16.2 million compared with
$15.7 million in the prior fiscal year.
(2) The sum of the individual sales and revenue lines do not equal net
sales and operating revenues due to rounding.
Comparable Store Retail Vehicle Sales Change
Three Months Ended Fiscal Year Ended
February 28 February 28
2003 2002 2003 2002
Vehicle units:
Used vehicles 0% 23% 8% 24%
New vehicles 3% 11% (3)% 21%
Total 0% 22% 6% 23%
Vehicle dollars:
Used vehicles (1)% 25% 8% 30%
New vehicles 3% 12% (3)% 24%
Total 0% 23% 6% 28%
EARNINGS
(Amounts in millions Three Months Ended Fiscal Year Ended
except per share data) February 28 February 28
2003 2002 % Change 2003 2002 % Change
Net earnings $19.1 $18.4 4% $94.8 $90.8 4%
Separation costs 0.2 0.4 NM(2) 7.8 0.4 NM(2)
Earnings excluding
separation costs $19.3 $18.8 3% $102.6 $91.2 12%
Diluted weighted
average shares
outstanding 104.5 104.5 -- 104.6 104.0 1%
Net earnings
per share $0.18 $0.18(1) -- $0.91 $0.87(1) 5%
Earnings per share
cost of separation
costs 0.00 0.00 -- 0.07 0.00 NM(2)
Earnings per share
excluding separation
costs $0.18 $0.18 -- $0.98 $0.88(3) 11%
(1) All per share amounts are presented on a fully diluted basis. CarMax
was a wholly owned subsidiary of Circuit City Stores, Inc. during
part of the periods presented. Historical earnings per share as
previously reported for the CarMax Group included the entire dilutive
effect of options and restricted stock applied only to the CarMax
Group shares then outstanding. The current CarMax, Inc. consolidated
financial statements present earnings per share to reflect the
capital structure effective with the separation of CarMax from
Circuit City Stores, Inc. Consequently, the options and restricted
stock dilutive effect is spread over the larger number of CarMax,
Inc. shares outstanding. For the fourth quarter ended February 28,
2002, previously reported earnings per CarMax Group share were 17
cents. For the fiscal year ended February 28, 2002, previously
reported earnings per CarMax Group share were 82 cents.
(2) Not meaningful.
(3) EPS effect of $0.4 million in separation costs adds one cent to
year-end EPS excluding separation costs due to rounding.
BUSINESS PERFORMANCE REVIEW
Selected Operating Ratios
(Dollar amounts Three Months Ended February 28
in millions) 2003 % 2002 %
Net sales and
operating revenues $946.6 100.0% $855.1 100.0%
Gross profit $110.3 11.7% $104.0 12.2%
CarMax Auto Finance income $21.2 2.2% $14.2 1.7%
Selling, general
and administrative
expenses $99.6 10.5% $88.3 10.3%
Separation costs $0.2 0.0% $0.4 0.0%
Selling, general
and administrative expenses
excluding separation costs $99.4 10.5% $87.9 10.3%
Operating profit (EBIT)* $32.0 3.4% $29.9 3.5%
Operating profit (EBIT)*
excluding separation costs $32.2 3.4% $30.3 3.5%
Net earnings $19.1 2.0% $18.4 2.2%
Net earnings excluding
separation costs $19.3 2.0% $18.8 2.2%
(Dollar amounts Fiscal Year Ended February 28
in millions) 2003 % 2002 %
Net sales and
operating revenues $3,969.9 100.0% 3,533.8 100.0%
Gross profit $468.2 11.8% $419.4 11.9%
CarMax Auto Finance income $82.4 2.1% $66.5 1.9%
Selling, general and
administrative expenses $392.4 9.9% $334.5 9.5%
Separation costs $7.8 0.2% $0.4 0.0%
Selling, general and
administrative expenses
excluding separation costs $384.6 9.7% $334.1 9.5%
Operating profit (EBIT)* $158.2 4.0% $151.4 4.3%
Operating profit (EBIT)*
excluding separation costs $166.0 4.2% $151.8 4.3%
Net earnings $94.8 2.4% $90.8 2.6%
Net earnings excluding
separation costs $102.6 2.6% $91.2 2.6%
*Operating profit equals earnings before interest and taxes.
Gross Margins by Category
Three Months Ended Fiscal Year Ended
February 28 February 28
2003 2002 2003 2002
Used vehicle sales 10.7% 10.8% 10.8% 10.9%
New vehicle sales 3.4% 3.8% 4.0% 4.5%
Wholesale sales 7.4% 9.5% 5.5% 5.6%
Other sales
and revenues 61.8% 65.8% 66.5% 68.3%
"We are very pleased that we delivered annual earnings within the range that we had forecast at the beginning of the year," said Austin Ligon, president and chief executive officer. "We are especially pleased to have met earnings expectations in the fourth quarter when sales were interrupted by unusually harsh winter weather in many of our markets." On April 2, 2002, CarMax had forecast fiscal 2003 earnings per share in the range of 95 cents to $1.00 per share, excluding the costs of separation from Circuit City, which were forecast to be approximately 8 cents per share. Earnings information excluding separation costs is presented to provide the investor additional data with which to evaluate operating performance. With the December 18, 2002, third quarter earnings release, fourth quarter earnings per share were forecast in the range of 18 cents to 20 cents per share, which the company moderated to 17 cents to 18 cents per share with the release of fourth quarter comparable store sales on March 6, 2003.
"For the year, earnings growth resulted from healthy used unit comp growth of 8 percent, coupled with excellent performance from all our new stores and continuing strong performance at CarMax Auto Finance," said Ligon. "We benefited from continuing strong sales execution at our stores open for more than a year, where comp store used unit growth continues to illustrate the power of the CarMax consumer offer and, consequently, our ability to take market share.
"Our new stores delivered results significantly above our expectations. We believe our strategy of opening new stores with experienced store, operations, merchandising and sales management is proving to be effective, delivering solid execution quickly," Ligon said. "As expected, fiscal 2003 earnings growth was moderated by incremental SG&A expenses related to the diseconomies of scale that result from our being an independent company and to our growth plan.
"As we indicated with our sales release, the severe winter weather impact in the fourth quarter was partially offset by the strong performance at our new stores," said Ligon. "We were able to meet our targets for average gross margin dollars per used car despite the shortfall in sales. New car margins dropped from last year as a result of increased competitive pressures brought about by the slower overall new car sales environment versus a year ago. Wholesale margins were in line with expectations, but below the exceptional performance last year resulting from the post 9/11 demand and the overall sales environment. Our other sales and revenue margins were down due to reduced service revenue that resulted from the severe winter weather and the completion of the rollout of our new electronic repair order, or ERO, system. Implementation and training for ERO temporarily interrupted technician productivity.
"Also helping to offset our fourth quarter used unit comp shortfall, our cost of funds at CarMax Auto Finance reached an all-time low resulting in increased spreads and profit," Ligon said. "CAF's portfolio of managed receivables continued to perform in line with our expectations. It now appears certain pools may exceed the high end of our previously published loss assumption of 2.1 percent by 20 to 30 basis points reflecting the impact of the decline in wholesale values and the weakened economy. At the same time, some pools of receivables are experiencing lower than expected prepayment rates. We have adjusted both our loss and prepayment assumptions accordingly. These offsetting adjustments had no material impact on earnings or the fair value of the retained interests. We are pleased with the portfolio's strength despite the weakness in the economy."
FISCAL 2004 EXPECTATIONS
-- Fiscal 2004 comparable store used unit growth: 5% to 9%
-- Fiscal 2004 earnings per share: $1.00 to $1.10
-- First quarter 2004 comparable store
used unit growth: 7% to 9%
-- First quarter 2004 earnings per share: 29 cents to 31 cents
"How the nation's economy and, specifically, our used car business will be affected by the war is unknown," Ligon said. "This early into the conflict, we have not detected a change in our sales rates, and we currently believe that in fiscal 2004 we will deliver used unit comp growth in the range of 5 percent to 9 percent. This forecast includes a continuation of the reduced approval rates from our non-prime loan providers that we experienced in last year's fourth quarter.
"As anticipated, the expense leverage that we normally would expect from used unit comp growth will be more than offset in fiscal 2004 by the full-year effect of incremental expenses associated with being a stand-alone company," said Ligon. "We estimate the full-year effect to be approximately $20-$22 million. We experienced roughly $9 million of these expenses in fiscal 2003, most of which occurred between the October 1, 2002, separation and our fiscal year-end. Approximately half of the incremental expenses relate to employee medical benefits and workers compensation, including benefits administration. Other larger incremental expenses relate to insurances, such as directors and officers liability; necessary incremental staff, such as legal and treasury; and expenses related to independent company activity, such as the NYSE listing, SEC filings and the cost of a board of directors.
"Our forecast also projects a lowering of the yield spread at CarMax Auto Finance as we go through the year," Ligon said. "CAF's gain income as a percent of loans sold is projected to decrease to approximately 4.6 percent in fiscal 2004 compared to 5.8 percent in fiscal 2003 and 6.0 percent in fiscal 2002. For the first quarter, however, we expect CAF's gains to be roughly flat to the 5.5 percent experienced in the first quarter last year. Even if a strengthening of the economy doesn't cause our cost of funds to rise, we would anticipate some compression in spreads as the market lowers rates offered to consumers.
"With an estimated 38.5 percent tax rate reflecting expansion into states with higher tax rates, we now expect fiscal 2004 earnings per share in the range of $1.00 to $1.10," said Ligon. "For the first quarter, we believe we will see used unit comp growth in the range of 7 percent to 9 percent and earnings per share in the range of 29 cents to 31 cents."
NEW STORE OPENINGS
As anticipated, CarMax opened a standard used car superstore on March 12, entering the Las Vegas market. The Las Vegas store was originally planned for late in the fourth quarter of fiscal 2003. CarMax will complete its planned entry into the Las Vegas market in the fiscal third quarter with the opening of a satellite store. As previously announced, CarMax plans to enter the Kansas City market in April with a standard used car superstore and to add 6 or 7 more superstores during the remainder of fiscal 2004, including the Las Vegas satellite superstore.
CONFERENCE CALL INFORMATION
A conference call for investors will be held today, March 31, 2003, beginning at 10:00 a.m. Eastern. Domestic investors may access the call at 1-888-810-3139 and international investors at 1-630-395-0357. The pass code for the call is "CarMax." A live Web cast of the call will be available on the company's investor information home page at http://investor.carmax.com/ or at www.streetevents.com. A replay of the call will be available beginning at approximately 2:00 p.m. Eastern on March 31 and will run through 5:00 p.m. Eastern on April 7, 2003. Domestic investors may access the recording at 1-888-568-0159 and international investors at 1-402-530-7823. No pass code is required. A replay of the call also will be available on the CarMax investor information home page or at www.streetevents.com.
SUPPLEMENTAL INFORMATION TO BE POSTED ON WEB SITE
Excel spreadsheets that provide quarterly earnings statements for fiscal years 2001, 2002 and 2003 will be posted today on the CarMax investor Web site home page, http://investor.carmax.com/, under the "Current Information" section. This quarterly information includes earnings statements consistent with the company's current presentation: separate line items for used vehicle sales, new vehicle sales, wholesale vehicle sales (previously recorded as reductions to cost of sales) and other sales and revenue; a separate line item for CarMax Auto Finance income; and the inclusion of third-party finance fees in other sales and revenue. These earnings statements also reflect the capital structure effective with the separation of CarMax from Circuit City.
ABOUT CARMAX
CarMax is the nation's leading specialty retailer of used cars. With headquarters in Richmond, Va., CarMax operates 41 used car superstores in 19 markets. CarMax also operates 17 new car franchises, 15 of which are integrated or co-located with its used car superstores. During the fiscal year ended February 28, 2003, the company sold 190,100 used vehicles, which is 89 percent of the total 212,500 vehicles the company sold during the year. For more information, access the CarMax Web site at www.carmax.com.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations. These risk factors are set forth in detail in the CarMax, Inc. SEC filings.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
Three Months Ended
February 28
2003 %(1) 2002 %(1)
Sales and operating revenues:
Used vehicle sales $699,157 73.9 $629,392 73.6
New vehicle sales 117,782 12.4 114,526 13.4
Wholesale vehicle sales 88,972 9.4 74,282 8.7
Other sales and revenues 40,729 4.3 36,942 4.3
Net sales and operating revenues 946,640 100.0 855,142 100.0
Cost of sales 836,295 88.3 751,161 87.8
Gross profit 110,345 11.7 103,981 12.2
CarMax Auto Finance income 21,231 2.2 14,206 1.7
Selling, general
and administrative expenses 99,573 10.5 88,258 10.3
Interest expense 547 0.1 257 --
Interest income 169 -- -- --
Earnings before income taxes 31,625 3.3 29,672 3.5
Provision for income taxes 12,492 1.3 11,276 1.3
Net earnings $19,133 2.0 $18,396 2.2
Weighted average common shares:
Basic 103,044 102,520
Diluted 104,506 104,511
Net earnings per share:
Basic $0.19 $0.18
Diluted $0.18 $0.18
Years Ended
February 28
2003 %(1) 2002 %(1)
Sales and operating revenues:
Used vehicle sales $2,912,082 73.4 $2,497,150 70.7
New vehicle sales 519,835 13.1 559,943 15.8
Wholesale vehicle sales 366,589 9.2 325,552 9.2
Other sales and revenues 171,438 4.3 151,114 4.3
Net sales and
operating revenues 3,969,944 100.0 3,533,759 100.0
Cost of sales 3,501,705 88.2 3,114,366 88.1
Gross profit 468,239 11.8 419,393 11.9
CarMax Auto Finance income 82,399 2.1 66,473 1.9
Selling, general
and administrative expenses 392,417 9.9 334,464 9.5
Interest expense 2,261 0.1 4,958 0.1
Interest income 737 -- 12 --
Earnings before income taxes 156,697 3.9 146,456 4.1
Provision for income taxes 61,895 1.6 55,654 1.6
Net earnings 94,802 2.4 90,802 2.6
Weighted average common shares:
Basic 102,983 102,039
Diluted 104,570 104,022
Net earnings per share:
Basic $0.92 $0.89
Diluted $0.91 $0.87
(1) Percents of net sales and operating revenues may not total due to
rounding.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Feb. 28, 2003 Feb. 28, 2002
ASSETS
Current assets:
Cash and cash equivalents $34,615 $3,286
Accounts receivable, net 56,449 50,441
Automobile loan receivables held for sale 3,579 2,144
Retained interests in securitized receivables 135,016 120,683
Inventory 466,450 399,084
Prepaid expenses and other current assets 12,636 2,065
Total current assets 708,745 577,703
Property and equipment, net 187,158 120,976
Other assets 21,714 21,543
TOTAL ASSETS $917,617 $720,222
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $117,587 $87,160
Accrued expenses and other current liabilities 44,682 25,775
Deferred income taxes 29,783 22,009
Short-term debt 56,051 9,840
Current installments of long-term debt -- 78,608
Total current liabilities 248,103 223,392
Long-term debt, excluding current installments 100,000 --
Deferred revenue and other liabilities 10,904 8,416
Deferred income taxes 4,041 2,935
TOTAL LIABILITIES 363,048 234,743
STOCKHOLDERS' EQUITY 554,569 485,479
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $917,617 $720,222
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years Ended
February 28
2003 2002
Operating Activities:
Net earnings $94,802 $90,802
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 14,873 16,340
Amortization of restricted stock awards 77 100
Loss on disposition of property and equipment 30 --
Provision for deferred income taxes 8,880 3,162
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable,
net (6,008) 7,232
(Increase) decrease in automobile loan
receivables held for sale (1,435) 704
Increase in retained interests in
securitized receivables (14,333) (46,542)
Increase in inventory (67,366) (51,947)
(Increase) decrease in prepaid expenses and
other current assets (10,571) 241
(Increase) decrease in other assets (845) 1,639
Increase in accounts payable, accrued
expenses and other current liabilities 51,375 19,330
Increase in deferred revenue and other
liabilities 2,488 1,580
Net cash provided by operating activities 71,967 42,641
Investing Activities:
Purchases of property and equipment (122,032) (41,417)
Proceeds from sales of property and equipment 41,621 98,965
Net cash (used in) provided by
investing activities (80,411) 57,548
Financing Activities:
Increase in short-term debt, net 46,211 8,853
Issuance of long-term debt 100,000 --
Payments on long-term debt (78,608) (112,600)
Equity issuances, net 570 (1,958)
Dividends paid (28,400) --
Net cash provided by (used in)
financing activities 39,773 (105,705)
Increase (decrease) in cash and cash equivalents 31,329 (5,516)
Cash and cash equivalents at beginning of year 3,286 8,802
Cash and cash equivalents at end of year $34,615 $3,286
Photo: http://www.newscom.com/cgi-bin/prnh/20011214/CARMAXLOGO