CarMax Reports Record Fourth Quarter and Fiscal Year 2004 Results;
RICHMOND, Va., March 30 -- CarMax, Inc. today reported record results for the fourth quarter and fiscal year ended February 29, 2004.
* For the quarter, net earnings increased 18% to $22.5 million, or 21
cents per share, compared with $19.1 million, or 18 cents per share,
earned in the fourth quarter of fiscal 2003.
-- Fiscal 2004 fourth quarter earnings per share includes 1 cent
realized from the sale of a new car franchise.
* For the year, net earnings were $116.5 million, or $1.10 per share, a
23% increase compared with net earnings of $94.8 million, or 91 cents
per share, reported in fiscal 2003.
-- Fiscal 2004 earnings per share includes 1 cent realized from the
sale of new car franchises.
-- Excluding $7.8 million, or 7 cents per share, of costs associated
with the October 1, 2002, separation from Circuit City Stores,
Inc., fiscal 2003 net earnings were $102.6 million, or 98 cents per
share.
Sales Components
(In millions) Three Months Ended Fiscal Year Ended
February 29 or 28 (1) February 29 or 28 (1)
2004 2003 Change 2004 2003 Change
Used vehicle sales $844.0 $699.2 21 % $3,470.6 $2,912.1 19 %
New vehicle sales 116.7 117.8 (1)% 515.4 519.8 (1)%
Wholesale vehicle
sales 115.5 89.0 30 % 440.6 366.6 20 %
Other sales and
revenues (2) 40.7 40.7 0 % 171.1 171.4 0 %
Net sales and
operating
revenues $1,116.9 $946.6 18 % $4,597.7 $3,969.9 16 %
(1) Percent calculations and amounts shown are based on amounts presented
on the attached consolidated statements of earnings and may not sum
due to rounding.
(2) 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.
Retail Vehicle Sales Change
Three Months Ended Fiscal Year Ended
February 29 or 28 February 29 or 28
2004 2003 2004 2003
Comparable store
vehicle sales:
Used vehicle units 5 % 0 % 6 % 8 %
New vehicle units 3 % 3 % (1)% (3)%
Total units 5 % 0 % 5 % 6 %
Used vehicle dollars 9 % (1)% 7 % 8 %
New vehicle dollars 7 % 3 % 1 % (3)%
Total dollars 9 % 0 % 6 % 6 %
Total vehicle sales:
Used vehicle units 17 % 12 % 18 % 16 %
New vehicle units (5)% 3 % (3)% (7)%
Total units 15 % 11 % 16 % 13 %
Used vehicle dollars 21 % 11 % 19 % 17 %
New vehicle dollars (1)% 3 % (1)% (7)%
Total dollars 18 % 10 % 16 % 12 %
Earnings Highlights
(In millions except
per share data) Three Months Ended Fiscal Year Ended
February 29 or 28 (1) February 29 or 28 (1)
2004 2003 Change 2004 2003 Change
Net earnings $22.5 $19.1 18% $116.5 $94.8 23%
Separation costs 0.0 0.2 NM(2) 0.0 7.8 NM(2)
Net earnings excluding
separation costs $22.5 $19.3 17% $116.5 $102.6 14%
Diluted weighted
average shares
outstanding 105.9 104.5 1% 105.6 104.6 1%
Net earnings per
share $0.21 $0.18 17% $1.10 $0.91 21%
Separation costs per
share 0.00 0.00 NM(2) 0.00 0.07 NM(2)
Net earnings per share
excluding separation
costs $0.21 $0.18 17% $1.10 $0.98 12%
(1) All per share amounts are presented on a fully diluted basis.
(2) Not meaningful.
Selected Operating Ratios
(In millions) Three Months Ended February 29 or 28
2004 %(1) 2003 %(1)
Net sales and
operating revenues $1,116.9 100.0% $946.6 100.0%
Gross profit $133.8 12.0% $110.3 11.7%
CarMax Auto
Finance income $18.9 1.7% $21.2 2.2%
Selling, general,
and administrative
expenses $117.8 10.5% $99.6 10.5%
Separation costs $0.0 0.0% $0.2 0.0%
Selling, general,
and administrative
expenses excluding
separation costs $117.8 10.5% $99.4 10.5%
Operating profit
(EBIT)(2) $36.4 3.3% $32.0 3.4%
Operating profit (EBIT)
excluding
separation costs (2) $36.4 3.3% $32.2 3.4%
Net earnings $22.5 2.0% $19.1 2.0%
Net earnings excluding
separation costs $22.5 2.0% $19.3 2.0%
(In millions) Fiscal Year Ended February 29 or 28
2004 %(1) 2003 %(1)
Net sales and
operating revenues $4,597.7 100.0% $3,969.9 100.0%
Gross profit $570.9 12.4% $468.2 11.8%
CarMax Auto Finance
income $85.0 1.8% $82.4 2.1%
Selling, general,
and administrative
expenses $468.4 10.2% $392.4 9.9%
Separation costs $0.0 0.0% $7.8 0.2%
Selling, general,
and administrative
expenses excluding
separation costs $468.4 10.2% $384.6 9.7%
Operating profit
(EBIT) (2) $189.8 4.1% $158.2 4.0%
Operating profit
(EBIT) excluding
separation costs (2) $189.8 4.1% $166.0 4.2%
Net earnings $116.5 2.5% $94.8 2.4%
Net earnings excluding
separation costs $116.5 2.5% $102.6 2.6%
(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 February 29 or 28
2004 2003
%(1) $ / unit(2) %(1) $ / unit(2)
Used vehicle gross
profit margin 11.0% $1,705 10.7% $1,598
New vehicle gross
profit margin 3.0% $724 3.4% $791
Total retail vehicle
gross profit margin 10.0% $1,625 9.6% $1,519
Wholesale vehicle gross
profit margin 11.9% $432 7.4% $258
Other gross profit
margin 57.7% NM(3) 61.8% NM(3)
Total gross profit
margin 12.0% NM(3) 11.7% NM(3)
Fiscal Year Ended February 29 or 28
2004 2003
% (1) $ / unit (2) % (1) $ / unit (2)
Used vehicle gross
profit margin 11.3% $1,742 10.8% $1,648
New vehicle gross
profit margin 3.7% $872 4.0% $931
Total retail vehicle
gross profit margin 10.3% $1,666 9.7% $1,572
Wholesale vehicle gross
profit margin 10.4% $359 5.5% $192
Other gross profit
margin 67.7% NM(3) 66.5% NM(3)
Total gross profit
margin 12.4% 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 and Earnings. "Our fiscal 2004 earnings reflect strong unit sales growth driven by both our new store opening program and comp unit sales just below the midpoint of our expected range," said Austin Ligon, president and chief executive officer. "We are very pleased that we achieved strong earnings growth for both the year and the quarter while absorbing the penalty that comes with ramping up store growth and the expected decline in CarMax Auto Finance (CAF) spreads. Fiscal 2004 was the first year since we resumed geographic growth that we added to our store base at the top of our targeted 15 to 20% rate. We opened nine new used car superstores in fiscal 2004 compared with five in fiscal 2003, resulting in appreciably higher preopening expenses. In addition, the SG&A ratio is significantly higher in a new store compared with a mature store, reflecting the sales ramp that occurs over time." The costs related to being a standalone company were approximately $13.5 million higher in fiscal 2004 than in fiscal 2003.
"As expected, compared with fiscal 2003, CAF income was up only modestly at 3% for the year and declined 11% in the quarter," said Ligon. "This resulted from spreads returning to more normal ranges during the second half. For more than two years, we benefited from much higher than normal spreads due to consumer loan rates falling more slowly than our cost of funds. Now that the spreads have returned to normal ranges, the comparisons are more challenging."
Margins. "Our gross margin dollars per used unit met our target for the year," said Ligon. "As we expected, in the fourth quarter the wholesale price environment settled down from the volatility of the model year changeover period. In the fourth quarter, we hit our gross margin dollar per unit target other than the residual effect of the third quarter price reductions we took to improve our pricing position and spur sales. Our proprietary buying and inventory processes and systems continue to help us 'buy right' and 'price right.' As a result, we believe we continued to take market share.
"The increases in our gross profit margins for the quarter and the year primarily reflect the previously disclosed change to our appraisal cost recovery (ACR) method," Ligon said. The change to a new 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.
Longer-Term Growth Expectations. "We are very pleased with the success thus far of our new markets and the net sales increases experienced in the markets where we have added satellite superstores," said Ligon. "We continue to expect to deliver average annual earnings growth of approximately 20% once our CAF income comparisons have cycled around to reflect spreads in the normal range for each period.
"As we said in September, cannibalization of comp store unit sales is running somewhat higher than we anticipated," Ligon continued. This results from the expected rate of cannibalization occurring somewhat faster than we projected. Our analysis of these trade areas reinforces our belief that the ultimate amount of cannibalization will not be higher than we originally planned. This faster rate of cannibalization does not have an impact on store economics or earnings. The faster cannibalization rate does have an impact on reported comps, however. As a result, we have adjusted our longer-term used unit comp store growth expectation to a range of 4 to 8%, down from 5 to 9%. We believe this adjustment is neutral to the economics of our business model, including our longer-term earnings expectations."
New Store Performance
"In total, our 15 stores opened since resuming store growth have continued to somewhat outperform original sales expectations," Ligon said. "Because of the significant mix of satellite stores, which tend to have lower total sales, the average sales expectations at maturity for the new stores opened to date is roughly 80% of the average sales levels of the group of stores in our base when we resumed store growth. The new satellite stores have been the most consistent performers, with sales running somewhat above expectations in almost every instance. A significant portion of this satellite overperformance is due to the cannibalization discussed above. This consistency of performance results from these stores opening in established markets with established sales and awareness levels. Our standalone market stores are more varied in their performance as might be expected given that each is growing in a completely new market for CarMax. Some have opened above, some in line, and some below original expectations.
"All of the newly opened stores have continued to show strong operational execution early in their life, significantly and consistently above that experienced during our 1996-1999 growth period," Ligon added. "The newly opened stores also continue to perform within the profitability ranges outlined in our July 2003 investor note, with most of the stores performing at or above the midpoint of the appropriate profitability range. Overall, we continue to be pleased with our store opening program. At this point, we think the most appropriate expectation for investors is that both sales and earnings for our new stores will be in line with expectations outlined in the investor note."
Fiscal 2005 Expectations
* Fiscal 2005 total used unit growth: "Our revenue and earnings growth
expectations are based on expanding our store base by 15 to 20%
annually, as well as on our comparable store used unit growth," Ligon
said. "Consequently, to give investors a more complete picture, we are
adding total used unit growth expectations to our guidance. For fiscal
2005, we expect total used unit growth in the range of 18 to 22%. We
remind investors that unit growth does not equate to revenue growth.
Total revenues will also be affected by changes in average retail
prices and by our dispositions of new car franchises."
* Fiscal 2005 comparable store used unit growth: "We expect fiscal 2005
comparable store used unit growth in the range of 3 to 7%," said Ligon.
"Our sales run rates are strong. However, comp store growth is still
challenged, we believe, by the exceptionally strong sales base we
established over the past three years, especially following the high
levels of customer traffic stimulated by the widespread introduction of
0% financing after 9/11."
* Fiscal 2005 earnings per share: "We expect fiscal 2005 pretax earnings
growth of 12 to 17%," said Ligon. "We anticipate that our effective
tax rate will increase from 38.5% to 39.0% as we expand our store base
into states with higher tax rates. Consequently our earnings per share
growth will be slightly lower at 10 to 15%, to a range of $1.21 to
$1.26. Our fiscal 2005 pretax earnings growth would be expected in the
range of 19 to 24% if our CAF spread remained at the 4.7% that it was
in fiscal 2004. However, we expect CAF's spread to be somewhat of a
challenge compared with fiscal 2004. For fiscal 2005, we expect CAF's
gain as a percent of loans sold to be slightly below the midpoint of
our 3.5 to 4.5% normalized range. In fiscal 2004, we benefited from
spreads higher than the normal range in the first half of the year,
bringing the spread for the year to 4.7%.
"In fiscal 2005, we will still be experiencing the growth penalty of
opening new stores, which have higher SG&A rates, while none of our
newer stores will have reached mature levels of revenue," Ligon said.
"We believe our corporate overhead expenditures as a percent of sales
will remain flat compared with fiscal 2004, even though we expect to
absorb approximately $4 million in additional expenses related to being
a standalone company. Among these expenses are costs related to
outsourcing our payroll systems, which previously had been supplied by
Circuit City. We also expect another $3 million to $5 million of
incremental standalone costs in fiscal 2006 when we must outsource our
data center, which is now housed at Circuit City. This should be the
last major incremental standalone cost increase we will incur."
* First quarter fiscal 2005 total used unit growth: "In the fiscal 2004
first quarter, total used units grew 23%, making that quarter our most
challenging quarterly growth comparison," Ligon said. "In this year's
first quarter, we expect total used units to grow in the range of 14 to
16%."
* First quarter fiscal 2005 comparable store used unit growth: "The comp
store used unit growth of 10% in fiscal 2004's first quarter is also
our most challenging quarterly comp comparison," said Ligon. "In
addition, fiscal 2005's first quarter contains one fewer Saturday than
in last year's first quarter. Even so, we believe we can deliver
first-quarter comp store used unit growth in the range of 1 to 3%."
* First quarter fiscal 2005 earnings per share: "We expect EPS in this
year's first quarter in the range of 33 to 35 cents," Ligon said. "In
the first quarter, we expect to see our highest SG&A increase for any
quarter of the year, reflecting the addition of three new stores
compared with two in last year's first quarter. We also will be
challenged by the comparison to a higher-than-normal 5.5% CAF spread
reported in the first quarter of fiscal 2004."
Supplemental CAF Information to be Posted on the Company's Web Site
Beginning in fiscal 2005, CarMax will provide summary information on the performance of each outstanding public securitization on a monthly basis. This information will be posted to the company's investor information Web site on the 15th day following the end of each month, or the next business day if the 15th falls on a non-business day. The information will be located at http://investor.carmax.com/ under the financial reports tab. Information for March 2004 will be available on the Web site by the close of business on April 15, 2004.
Conference Call Information
CarMax will host a conference call for investors at 9:00 a.m. Eastern time today, March 30, 2004. Domestic investors may access the call at 1-888-298-3261 (conference I.D.: 5979279). International investors should dial 1-706-679-7457 (conference I.D.: 5979279). 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 1:00 p.m. Eastern time on March 30 and will run through midnight, April 6, 2004. Domestic investors may access the recording at 1-800-642-1687 (conference I.D.: 5979279) and international investors at 1-706-645-9291 (conference I.D.: 5979279). 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, a Fortune 500 company, is the nation's leading specialty retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 50 used car superstores in 24 markets. CarMax also operates 12 new car franchises, all of which are integrated or co-located with its used car superstores. During the twelve month period ended February 29, 2004, the company sold 224,099 used cars, which is 91 percent of the total 245,740 vehicles the company sold during that period. For more information, access the CarMax Web site at www.carmax.com.
Forward-Looking Statements
The company cautions readers that the statements in this release about the company's future business plans, operations, opportunities, or prospects, including without limitation any statements or factors regarding expected sales, margins, or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking 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 more details on 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 or current reports as filed with or furnished to the Securities and Exchange Commission.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
Three Months Ended
February 29 or 28
2004 %(1) 2003 %(1)
Sales and operating revenues:
Used vehicle sales $843,995 75.6 $699,157 73.9
New vehicle sales 116,703 10.4 117,782 12.4
Wholesale vehicle sales 115,491 10.3 88,972 9.4
Other sales and revenues 40,676 3.6 40,729 4.3
Net sales and operating
revenues 1,116,865 100.0 946,640 100.0
Cost of sales 983,095 88.0 836,295 88.3
Gross profit 133,770 12.0 110,345 11.7
CarMax Auto Finance income 18,889 1.7 21,231 2.2
Selling, general, and
administrative expenses 117,825 10.5 99,573 10.5
Gain on franchise dispositions 1,580 0.1 -- --
Interest expense -- -- 547 0.1
Interest income 215 -- 169 --
Earnings before income taxes 36,629 3.3 31,625 3.3
Provision for income taxes 14,103 1.3 12,492 1.3
Net earnings $22,526 2.0 $19,133 2.0
Weighted average common shares:
Basic 103,730 103,044
Diluted 105,935 104,506
Net earnings per share:
Basic $0.22 $0.19
Diluted $0.21 $0.18
Years Ended
February 29 or 28
2004 %(1) 2003 %(1)
Sales and operating revenues:
Used vehicle sales $3,470,615 75.5 $2,912,082 73.4
New vehicle sales 515,383 11.2 519,835 13.1
Wholesale vehicle sales 440,571 9.6 366,589 9.2
Other sales and revenues 171,122 3.7 171,438 4.3
Net sales and operating
revenues 4,597,691 100.0 3,969,944 100.0
Cost of sales 4,026,803 87.6 3,501,705 88.2
Gross profit 570,888 12.4 468,239 11.8
CarMax Auto Finance income 84,963 1.8 82,399 2.1
Selling, general, and
administrative expenses 468,374 10.2 392,417 9.9
Gain on franchise dispositions 2,327 0.1 -- --
Interest expense 1,137 -- 2,261 0.1
Interest income 683 -- 737 --
Earnings before income taxes 189,350 4.1 156,697 3.9
Provision for income taxes 72,900 1.6 61,895 1.6
Net earnings $116,450 2.5 $94,802 2.4
Weighted average common shares:
Basic 103,503 102,983
Diluted 105,628 104,570
Net earnings per share:
Basic $1.13 $0.92
Diluted $1.10 $0.91
(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
(In thousands)
Feb. 29, 2004 Feb. 28, 2003
ASSETS
Current assets:
Cash and cash equivalents $61,643 $34,615
Accounts receivable, net 72,358 56,449
Automobile loan receivables held for sale 18,781 3,579
Retained interests in securitized receivables 145,988 135,016
Inventory 466,061 466,450
Prepaid expenses and other current assets 8,650 12,636
Total current assets 773,481 708,745
Property and equipment, net 244,064 187,158
Deferred income taxes 185 --
Other assets 19,287 21,714
TOTAL ASSETS $1,037,017 $917,617
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $145,517 $117,587
Accrued expenses and other current liabilities 55,674 44,682
Accrued income taxes 4,050 --
Deferred income taxes 32,711 29,783
Short-term debt 4,446 56,051
Total current liabilities 242,398 248,103
Long-term debt, excluding current installments 100,000 100,000
Deferred revenue and other liabilities 13,866 10,904
Deferred income taxes -- 4,041
TOTAL LIABILITIES 356,264 363,048
STOCKHOLDERS' EQUITY 680,753 554,569
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,037,017 $917,617
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
February 29 or 28
2004 2003
Operating Activities:
Net earnings $116,450 $94,802
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 16,181 14,873
Amortization of restricted stock awards 122 77
(Gain) loss on disposition of assets (1,462) 30
Provision for deferred income taxes (1,298) 8,880
Changes in operating assets and liabilities:
Increase in accounts receivable, net (15,909) (6,008)
Increase in automobile loan receivables
held for sale (15,202) (1,435)
Increase in retained interests in securitized
receivables (10,972) (14,333)
Decrease (increase) in inventory 389 (67,366)
Decrease (increase) in prepaid expenses and
other current assets 3,986 (10,571)
Decrease (increase) in other assets 4,647 (845)
Increase in accounts payable, accrued expenses
and other current liabilities, and accrued
income taxes 48,570 51,375
Increase in deferred revenue and other
liabilities 2,962 2,488
Net cash provided by operating activities 148,464 71,967
Investing Activities:
Purchases of property and equipment (181,338) (122,032)
Proceeds from sales of property and equipment 107,493 41,621
Net cash used in investing activities (73,845) (80,411)
Financing Activities:
(Decrease) increase in short-term debt, net (51,605) 46,211
Issuance of long-term debt -- 100,000
Payments of long-term debt -- (78,608)
Equity issuances, net 4,014 570
Dividends paid -- (28,400)
Net cash (used in) provided by financing
activities (47,591) 39,773
Increase in cash and cash equivalents 27,028 31,329
Cash and cash equivalents at beginning of year 34,615 3,286
Cash and cash equivalents at end of year $61,643 $34,615
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