CarMax Reports Third Quarter Results
RICHMOND, Va., Dec. 17, 2003 -- CarMax, Inc. today reported results for the fiscal 2004 third quarter and nine months ended November 30, 2003.
THIRD QUARTER EARNINGS:
* Third quarter net earnings increased 29% to $19.1 million, or 18
cents per share, compared with $14.7 million, or 14 cents per share,
earned in the third quarter of fiscal 2003.
-- The company had expected third quarter earnings in the range of
16 cents to 18 cents per share, most likely at the mid-point of
the range.
-- Excluding $4.5 million of costs associated with the October 1,
2002, separation from Circuit City, earnings in the prior
year's third quarter were $19.2 million, or 18 cents per share.
NINE MONTH EARNINGS:
* For the nine month period, net earnings increased 24% to $93.9
million, or 89 cents per share, compared with $75.7 million, or 72
cents per share, earned in the prior year period.
-- Excluding $7.6 million of separation costs, earnings in the
prior year's nine month period were $83.3 million, or 80 cents
per share.
FOURTH QUARTER AND FULL YEAR EXPECTATIONS:
* The company estimates that fourth quarter earnings per share will be
in the range of 19 cents to 22 cents, bringing full year fiscal 2004
earnings per share expectations to a range of $1.08 to $1.11.
-- The company expects fourth quarter comparable store used unit
sales growth to be in the range of 5% to 7%. A fourth quarter
expectation in this range leads to a full year comparable store
used unit sales growth expectation of 6% or 7%.
In this release, CarMax provides information including and excluding individual cost items to provide greater understanding of the company's operating performance.
Sales Components
(Dollar amounts Three Months Ended Nine Months Ended
in millions) November 30 (2) November 30 (2)
2003 2002 Change 2003 2002 Change
Used vehicle sales $797.8 $690.3 16 % $2,626.6 $2,212.9 19 %
New vehicle sales 122.7 117.8 4 % 398.7 402.1 (1)%
Wholesale vehicle
sales 111.4 87.5 27 % 325.1 277.6 17 %
Other sales and
revenues(1) 39.7 41.2 (3)% 130.4 130.7 0 %
Net sales and
operating
revenues(1) $1,071.5 $936.8 14 % $3,480.8 $3,023.3 15 %
(1) Other sales and revenues include extended warranty revenues, service
department sales, finance fees received from third-party lenders, and
appraisal purchase processing fees. The use of appraisal purchase
processing fees was phased out during the first half of fiscal 2004.
(2) Percent calculations and amounts shown are based on amounts presented
on the consolidated statements of earnings.
Retail Vehicle Sales Change
Three Months Ended Nine Months Ended
November 30 November 30
2003 2002 2003 2002
Comparable store
vehicle sales:
Used vehicle units 2 % 8 % 6 % 11 %
New vehicle units 2 % (16)% (2)% (5)%
Total units 2 % 5 % 5 % 9 %
Used vehicle dollars 4 % 8 % 7 % 11 %
New vehicle dollars 5 % (17)% 0 % (4)%
Total dollars 4 % 3 % 6 % 9 %
Total vehicle sales:
Used vehicle units 13 % 17 % 18 % 17 %
New vehicle units 1 % (20)% (3)% (10)%
Total units 12 % 12 % 16 % 14 %
Used vehicle dollars 16 % 17 % 19 % 18 %
New vehicle dollars 4 % (21)% (1)% (10)%
Total dollars 14 % 9 % 16 % 13 %
Earnings Highlights
(Dollar amounts in
millions except Three Months Ended Nine Months Ended
per share data) November 30 November 30
2003 2002 Change 2003 2002 Change
Net earnings $19.1 $14.7 29 % $93.9 $75.7 24 %
Separation costs 0.0 4.5 NM(2) 0.0 7.6 NM(2)
Net earnings excluding
separation costs $19.1 $19.2 (1)% $93.9 $83.3 13 %
Diluted weighted
average shares
outstanding 106.0 104.5 1 % 105.5 104.6 1 %
Net earnings
per share(1) $0.18 $0.14 29 % $0.89 $0.72 24 %
Separation costs
per share 0.00 0.04 NM(2) 0.00 0.08 NM(2)
Net earnings per share
excluding
separation costs(1) $0.18 $0.18 0 % $0.89 $0.80 11 %
(1) All per share amounts are presented on a fully diluted basis.
(2) Not meaningful.
Selected Operating Ratios
(Dollar amounts in millions)
Three Months Ended November 30
2003 %(1) 2002 %(1)
Net sales and
operating revenues $1,071.5 100.0% $ 936.8 100.0%
Gross profit $ 126.2 11.8% $ 106.9 11.4%
CarMax Auto Finance
income $ 17.6 1.6% $ 19.2 2.1%
Selling, general,
and administrative
expenses $ 114.3 10.7% $ 101.8 10.9%
Separation costs $ 0.0 0.0% $ 4.5 0.5%
Selling, general,
and administrative
expenses excluding
separation costs $ 114.3 10.7% $ 97.3 10.4%
Operating profit
(EBIT) (2) $ 30.8 2.9% $ 24.4 2.6%
Operating profit
(EBIT) excluding
separation costs (2) $ 30.8 2.9% $ 28.9 3.1%
Net earnings $ 19.1 1.8% $ 14.7 1.6%
Net earnings
excluding
separation costs $ 19.1 1.8% $ 19.2 2.0%
Nine Months Ended November 30
2003 %(1) 2002 %(1)
Net sales and
operating revenues $3,480.8 100.0% $3,023.3 100.0%
Gross profit $ 437.1 12.6% $ 357.9 11.8%
CarMax Auto Finance
income $ 66.1 1.9% $ 61.2 2.0%
Selling, general,
and administrative
expenses $ 350.5 10.1% $ 292.8 9.7%
Separation costs $ 0.0 0.0% $ 7.6 0.3%
Selling, general,
and administrative
expenses excluding
separation costs $ 350.5 10.1% $ 285.2 9.4%
Operating profit
(EBIT) (2) $ 153.4 4.4% $ 126.2 4.2%
Operating profit
(EBIT) excluding
separation costs (2) $ 153.4 4.4% $ 133.8 4.4%
Net earnings $ 93.9 2.7% $ 75.7 2.5%
Net earnings
excluding
separation costs $ 93.9 2.7% $ 83.3 2.8%
(1) Each percentage represents a ratio of the applicable amount to net
sales and operating revenues.
(2) Operating profit equals earnings before interest and income taxes.
Gross Profit Margin
Three Months Ended November 30
2003 2002
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle
gross profit margin 10.9% $1,693 10.6% $1,610
New vehicle
gross profit margin 3.8% $925 4.4% $1,027
Total retail vehicle
gross profit margin 10.0% $1,624 9.7% $1,551
Wholesale vehicle
gross profit margin 9.9% $338 3.6% $123
Other gross
profit margin 59.3% NM(3) 62.5% NM(3)
Total gross
profit margin 11.8% NM(3) 11.4% NM(3)
Nine Months Ended November 30
2003 2002
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle
gross profit margin 11.3% $1,754 10.8% $1,663
New vehicle
gross profit margin 3.9% $914 4.2% $973
Total retail vehicle
gross profit margin 10.3% $1,679 9.8% $1,589
Wholesale vehicle
gross profit margin 9.8% $335 4.9% $171
Other gross
profit margin 70.8% NM(3) 68.0% NM(3)
Total gross
profit margin 12.6% NM(3) 11.8% NM(3)
(1) Gross profit margin percentages are calculated as a percentage of the
respective sales and revenues category.
(2) Dollars per unit are calculated as gross profit margin dollars divided
by the respective unit sales.
(3) Not meaningful.
Business Performance Review
Sales. "We are pleased that both our comp store used unit sales growth and our earnings per share for the quarter came in at the high end of our revised expectations," said Austin Ligon, president and chief executive officer. "As we previously reported, in the second half of the quarter we experienced a pickup in our comp store used car sales rate. We continue to believe there were two main factors that contributed to the pickup. First, we reduced our margin targets on selected cars at mid-quarter to improve our price position. Second, we saw wholesale prices decline at a faster pace in October and November, consistent with our expectations."
Margins. "Net earnings benefited from our sales growth and from an increase in our total gross profit margin," Ligon said. "The gross profit margin increase primarily reflects better recovery of the costs of our buying operation and higher-than-expected wholesale margins."
The change to a new appraisal cost recovery (ACR) method has had the effect of increasing reported used and wholesale margins and decreasing the reported other sales and revenues margin. Previously, the company had charged an appraisal processing fee to customers from whom it bought vehicles to cover the expense of the appraisal, buying, and wholesaling operations. The company now recovers these expenses by factoring the costs into the purchase offers made.
"The new ACR method also is allowing us to increase our margins in used and wholesale vehicles with the goal of fully recovering all costs of our buying operation, including the expense of land on which we hold vehicles waiting for wholesale," said Ligon. "Absent the effect of the ACR change, our gross profit dollars per used vehicle would have declined as a result of the price reductions we took on selected used cars this quarter to improve our price position.
"The wholesale margin also benefited from the flatter-than-normal pricing early in the quarter, said Ligon. "During the first half of the quarter we received higher prices at our in-store wholesale auctions than we had expected."
SG&A. "Last year's third quarter SG&A ratio of 10.9% reflected 50 basis points of one-time separation costs. This year's SG&A ratio of 10.7% reflects added costs of being a stand-alone company and the added expenses for our growth plan," Ligon said. "Growth plan expenses relate to a higher number of newly opened stores this year compared with last year, as well as the continued building of management bench strength to support future store growth." The company estimates that incremental costs related to being a stand-alone company were approximately $1.5 million more in the third quarter this year than in the same quarter last year. October 1 was the first anniversary of the company becoming a stand-alone company and was the anniversary of the major step-function increase in expenses related to operating independently.
CAF. Third quarter CarMax Auto Finance income was $17.6 million, down 8% compared with $19.2 million last year, reflecting the effect of rising funding costs, which more than offset the benefit of the growth in the loan portfolio. CAF gain income as a percent of loans sold was 3.8% in the current quarter versus 5.4% in the corresponding period last year. "With third quarter funding costs rising faster than consumer rates, we experienced a compression in spreads generally in line with our projections," said Ligon. "We expect the CAF spread to be near the mid-point of our normalized 3.5 to 4.5% range in the fourth quarter." During the third quarter, the company adjusted the upper end of the cumulative default range assumption used in valuing its retained interests from 2.4% to 2.5%. This adjustment had no material impact on the company's earnings and related only to the performance of the 2001-1 and 2001- 2 pools of receivables.
Fourth Quarter and Full Year Expectations
"With the improvement in our used car sales rate, we now believe fourth quarter comp store used unit growth will be in the range of 5 to 7%, bringing the year's used unit comp growth to 6 or 7%," Ligon said. "Earnings per share for the fourth quarter should be in the range of 19 cents to 22 cents, bringing the expected earnings for the year to a range of $1.08 to $1.11 per share. In addition, pending sales of new car franchises, if they occur in the fourth quarter, could add a penny to fourth quarter earnings."
Conference Call Information
CarMax will host a conference call for investors at 9:00 a.m. Eastern today, December 17, 2003. Domestic investors may access the call at 1-888-298-3261 (conference I.D.: 4314399). International investors should dial 1-706-679-7457 (conference I.D.: 4314399). 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 December 17, 2003, and will run through midnight, December 24, 2003. Domestic investors may access the recording at 1-800-642-1687 (conference I.D.: 4314399) and international investors at 1-706-645-9291 (conference I.D.: 4314399). A replay of the call also will be available on the company's investor information home page or at www.streetevents.com.
About CarMax
CarMax is the nation's leading specialty retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 46 used car superstores in 22 markets. CarMax also operates 14 new car franchises, 12 of which are integrated or co-located with its used car superstores. During the twelve month period ended November 30, 2003, the company sold 216,230 used cars, which is 91 percent of the total 238,118 vehicles the company sold during that period. For more information, access the CarMax Web site at www.carmax.com.
Forward-Looking Statements
Statements in this release about the company's future business plans, prospects, and financial performance are forward-looking statements that are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. For additional information on important factors that could affect expectations, see the company's Annual Report on Form 10-K for the fiscal year ended February 28, 2003, and its quarterly and current reports on file with the Securities and Exchange Commission.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Amounts in thousands except per share data)
Three Months Ended
November 30
2003 %(1) 2002 %(1)
Sales and
operating revenues:
Used vehicle sales $797,752 74.4 $690,318 73.7
New vehicle sales 122,681 11.4 117,849 12.6
Wholesale
vehicle sales 111,352 10.4 87,493 9.3
Other sales
and revenues 39,749 3.7 41,159 4.4
Net sales and
operating revenues 1,071,534 100.0 936,819 100.0
Cost of sales 945,292 88.2 829,879 88.6
Gross profit 126,242 11.8 106,940 11.4
CarMax Auto Finance
income 17,649 1.6 19,220 2.1
Selling, general,
and administrative
expenses 114,282 10.7 101,810 10.9
Gain on franchise
dispositions 1,207 0.1 -- --
Interest expense -- -- 299 --
Interest income 164 -- 274 --
Earnings before
income taxes 30,980 2.9 24,325 2.6
Provision for
income taxes 11,927 1.1 9,608 1.0
Net earnings $19,053 1.8 $14,717 1.6
Weighted average
common shares:
Basic 103,647 103,047
Diluted 105,955 104,516
Net earnings
per share:
Basic $0.18 $0.14
Diluted $0.18 $0.14
Nine Months Ended
November 30
2003 %(1) 2002 %(1)
Sales and
operating revenues:
Used vehicle
sales $2,626,620 75.5 $2,212,925 73.2
New vehicle
sales 398,680 11.5 402,053 13.3
Wholesale
vehicle sales 325,080 9.3 277,617 9.2
Other sales
and revenues 130,446 3.7 130,709 4.3
Net sales and
operating revenues 3,480,826 100.0 3,023,304 100.0
Cost of sales 3,043,708 87.4 2,665,410 88.2
Gross profit 437,118 12.6 357,894 11.8
CarMax Auto Finance
income 66,074 1.9 61,168 2.0
Selling, general,
and administrative
expenses 350,549 10.1 292,844 9.7
Gain on franchise
dispositions 746 -- -- --
Interest expense 1,137 -- 1,714 0.1
Interest income 468 -- 568 --
Earnings before
income taxes 152,720 4.4 125,072 4.1
Provision for
income taxes 58,797 1.7 49,403 1.6
Net earnings $93,923 2.7 $75,669 2.5
Weighted average
common shares:
Basic 103,428 102,973
Diluted 105,526 104,602
Net earnings
per share:
Basic $0.91 $0.73
Diluted $0.89 $0.72
(1) Each percentage represents a ratio of the applicable amount to net
sales and operating revenues. Percentages may not total due to
rounding.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
November 30 February 28
2003 2002 2003
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $54,962 $31,654 $34,615
Accounts receivable, net 60,853 59,559 56,449
Automobile loan receivables
held for sale 18,997 15,860 3,579
Retained interests in
securitized receivables 135,004 140,530 135,016
Inventory 449,744 401,596 466,450
Prepaid expenses and other
current assets 10,328 7,497 12,636
Total current assets 729,888 656,696 708,745
Property and equipment, net 239,553 142,840 187,158
Deferred income taxes 3,505 -- --
Other assets 20,360 21,850 21,714
TOTAL ASSETS $993,306 $821,386 $917,617
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $127,899 $108,003 $117,587
Accrued expenses and other
current liabilities 49,984 30,211 44,682
Accrued income taxes 9,355 709 --
Deferred income taxes 28,677 22,927 29,783
Short-term debt 6,267 4,485 56,051
Current installments of
long-term debt -- 826 --
Total current liabilities 222,182 167,161 248,103
Long-term debt, excluding
current installments 100,000 100,000 100,000
Deferred revenue and other
liabilities 13,319 10,800 10,904
Deferred income taxes -- 3,244 4,041
TOTAL LIABILITIES 335,501 281,205 363,048
STOCKHOLDERS' EQUITY 657,805 540,181 554,569
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $993,306 $821,386 $917,617
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Nine Months Ended
November 30
2003 2002
Operating Activities:
Net earnings $93,923 $75,669
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,253 11,950
Amortization of restricted stock awards 94 45
(Gain) loss on disposition of assets (588) 118
Provision for deferred income taxes (8,652) 1,227
Changes in operating assets and liabilities:
Increase in accounts receivable, net (4,404) (9,118)
Increase in automobile loan receivables
held for sale (15,418) (13,716)
Decrease (increase) in retained
interests in securitized receivables 12 (19,847)
Decrease (increase) in inventory 16,706 (2,512)
Decrease (increase) in prepaid expenses
and other current assets 2,308 (5,432)
Decrease (increase) in other assets 1,999 (847)
Increase in accounts payable, accrued
expenses and other current liabilities,
and accrued income taxes 30,390 32,820
Increase in deferred revenue and
other liabilities 2,415 2,384
Net cash provided by operating activities 131,038 72,741
Investing Activities:
Purchases of property and equipment (137,201) (71,318)
Proceeds from sales of property and equipment 72,496 37,926
Net cash used in investing activities (64,705) (33,392)
Financing Activities:
Decrease in short-term debt, net (49,784) (5,355)
Issuance of long-term debt -- 100,000
Payments on long-term debt -- (77,782)
Equity issuances, net 3,798 556
Dividends paid -- (28,400)
Net cash used in financing activities (45,986) (10,981)
Increase in cash and cash equivalents 20,347 28,368
Cash and cash equivalents at
beginning of period 34,615 3,286
Cash and cash equivalents at
end of period $54,962 $31,654