CarMax Reports First Quarter Results
Releases Second Quarter Expectations
RICHMOND, Va., June 17 -- CarMax, Inc. today reported results for the fiscal 2005 first quarter ended May 31, 2004.
* Total sales increased 13% to $1.32 billion from $1.17 billion in the
first quarter of last year.
* Net earnings were $35.3 million, or 33 cents per share, compared with
$35.3 million, or 34 cents per share, in last year's first quarter.
* For the second quarter of fiscal 2005 ending August 31, 2004, CarMax
expects comparable store used unit sales performance in the range
of -5% to +1%, and earnings per share in the range of 30 cents to
35 cents.
Sales Components
(In millions)
Three Months Ended May 31 (1)
2004 2003 Change
Used vehicle sales $985.4 $890.1 11%
New vehicle sales 136.8 136.4 0%
Wholesale vehicle sales 156.9 100.7 56%
Other sales and revenues (2) 46.0 45.6 1%
Net sales and operating
revenues $1,325.0 $1,172.8 13%
(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, third-party finance fees, and, in the first
quarter of fiscal 2004, appraisal purchase processing fees. The use
of appraisal purchase processing fees was phased out during the first
half of fiscal 2004.
Retail Vehicle Sales Changes
Three Months Ended
May 31
2004 2003
Comparable store vehicle sales:
Used vehicle units (3)% 10%
New vehicle units 11 % 3%
Total (2)% 9%
Used vehicle dollars 0 % 9%
New vehicle dollars 12 % 3%
Total 2 % 8%
Total vehicle sales:
Used vehicle units 7 % 23%
New vehicle units (1)% 3%
Total 7 % 21%
Used vehicle dollars 11 % 21%
New vehicle dollars 0 % 3%
Total 9 % 18%
Earnings Highlights
(In millions except per share data)
Three Months Ended May 31 (1)
2004 2003 Change
Net earnings $35.3 $35.3 0 %
Diluted weighted average
shares outstanding 105.8 104.8 1 %
Net earnings per share $0.33 $0.34 (3)%
(1) All per share amounts are presented on a fully diluted basis.
Gross Profit Margin
Three Months Ended May 31
2004 2003
% (1) $/unit (2) % (1) $/unit (2)
Used vehicle gross
profit margin 11.8% $1,864 11.1% $1,699
New vehicle gross
profit margin 3.5% $828 3.7% $861
Total retail vehicle
gross profit margin 10.8% $1,775 10.1% $1,622
Wholesale vehicle
gross profit margin 11.6% $439 9.5% $332
Other gross profit
margin 61.0% $412 75.8% $540
Total gross profit
margin 12.6% $2,452 12.6% $2,312
(1) Calculated as a percentage of its respective sales or revenue.
(2) Calculated as category gross profit dollars divided by the respective
units sold, except the other and the total categories, which are
divided by total retail units sold.
Selected Operating Ratios
(In millions) Three Months Ended May 31
2004 % (1) 2003 % (1)
Net sales and operating
revenues $1,325.0 100.0% $1,172.8 100.0%
Gross profit $167.2 12.6% $147.8 12.6%
CarMax Auto Finance
income $21.8 1.6% $25.7 2.2%
Selling, general, and
administrative expenses $130.7 9.9% $115.6 9.9%
Operating profit (EBIT)(2) $58.4 4.4% $58.0 4.9%
Net earnings $35.3 2.7% $35.3 3.0%
(1) Calculated as the ratio of the applicable amount to net sales and
operating revenues.
(2) Operating profit equals earnings before interest and income taxes.
BUSINESS PERFORMANCE REVIEW
Overview. "Although we were quite disappointed with our used car sales performance for the quarter, we were pleased to be able to achieve net earnings in line with our originally projected range," said Austin Ligon, president and chief executive officer. "Nonetheless, we continue to see considerable volatility in our used car sales and take a very cautious outlook toward the second quarter."
Sales. "This quarter's shortfall in used unit sales was partially offset by higher-than-expected wholesale sales, driven in large part by an increase in the rate of appraisal purchases completed per appraisal offers made," said Ligon. "Last year we enhanced our systems support for buyers and the process that our sales consultants use to deliver an appraisal to a customer. We believe that these process and systems enhancements have contributed to the continuing increase in our buy rate.
"Our new car comp sales showed strong increases, exceeding the national performance of three brands we represent: DaimlerChrysler, Nissan, and Toyota," Ligon continued. "Manufacturers' heavy advertising in May supported all of our new car brands, which is usual for the season. Overall, our new car sales were flat, reflecting the fact that we disposed of four franchises last year.
"Sales in our 'other' category were relatively flat, reflecting the change in our appraisal cost recovery (ACR) process that we made beginning in last year's second quarter, offset by an increase in service sales," Ligon said. Previously, the company had charged an appraisal purchase processing fee to customers from whom it bought vehicles to cover the expense of the appraisal, buying, and wholesaling operations. This fee was reported in other revenue. The company now recovers these expenses by factoring the costs into the purchase offers made. The appraisal purchase processing fee was phased out in the second quarter of last fiscal year.
Margins. "Used car gross margin dollars per unit increased, reflecting our ACR methodology change as it has in the last three quarters," said Ligon. "Absent the ACR change, used car gross margin dollars per unit were flat. We were able to hold margin in used cars despite our pricing tests during the quarter. The wholesale margin increase also reflects the ACR change, as well as the firmness in wholesale pricing during the quarter. The lower margins in other revenue resulted from the ACR change and from somewhat lower service margins."
CarMax Auto Finance. "As we expected, CAF gain spreads were at more normal levels than the excess spreads we recorded in last year's first quarter," said Ligon. "In May, we repurchased the remaining outstanding receivables in the 2001-1 public securitization and sold them into the warehouse facility. As is usual with auto loan securitizations, we exercised our option to call the notes when outstanding receivables reached 10% of the original pool balance. We recognized an EPS benefit of approximately 1 cent because of the difference between the original cost of funds of these receivables -- which were originated in a higher interest rate market -- and today's funding costs. The gain on loans originated during the quarter was 3.8% and reflected an approximate 100-basis-point rise in our cost of funds, primarily during the second half of the quarter, that was only partially offset by increases in our rates to customers. The majority of the difference between 3.8% and the gain we will report of 3.5% is due to the effect of our calling the 2001-1 securitization. For the year, we continue to expect that CAF gain spreads will be slightly below the mid-point of the 3.5 to 4.5% normalized range."
SG&A Ratio. "Our first quarter SG&A ratio was consistent with last year's first quarter at 9.9%, despite the deleveraging effect of negative used unit comps," Ligon said. "The quarter benefited from shifts in the timing of certain planned spending - such as relocation expense and other expenses associated with our store growth. We expect to incur a portion of these expenses later in the year."
SECOND QUARTER EXPECTATIONS * Comparable store used unit performance: A range of -5% to +1%. * Earnings per share: A range of 30 cents to 35 cents.
"The midpoint of the second-quarter comp range estimate assumes that for the rest of the quarter, the sales environment remains as volatile as we encountered in April and May," Ligon said. "We have chosen to provide significantly wider ranges for the second quarter's comp unit performance and EPS expectations because the sales volatility we continue to experience is making forecasting even more difficult than usual. We also have chosen not to provide our outlook for the second half of the year until we see a more consistent trend that would allow us to issue an updated forecast."
CONFERENCE CALL INFORMATION
CarMax will host a conference call for investors at 10:00 a.m. Eastern time today, June 17, 2004. Domestic investors may access the call at 1-888-298-3261 (conference I.D.:7927752). International investors should dial 1-706-679-7457 (conference I.D.:7927752). 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 http://www.streetevents.com/.
A replay of the call will be available beginning at approximately 2:00 p.m. Eastern time on June 17 and will run through midnight, June 24, 2004. Domestic investors may access the recording at 1-800-642-1687 (conference I.D.:7927752) and international investors at 1-706-645-9291 (conference I.D.:7927752). A replay of the call also will be available on the company's investor information home page or at http://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 53 used car superstores in 25 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 May 31, 2004, the company sold 228,407 used cars, which is 91 percent of the total 250,009 vehicles the company sold during that period. For more information, access the CarMax Web site at http://www.carmax.com/.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands except per share data)
Three Months Ended May 31
2004 %(1) 2003 %(1)
Sales and operating
revenues:
Used vehicle sales $985,375 74.4 $890,142 75.9
New vehicle sales 136,765 10.3 136,399 11.6
Wholesale vehicle
sales 156,871 11.8 100,733 8.6
Other sales and
revenues 45,979 3.5 45,561 3.9
Net sales and operating
revenues 1,324,990 100.0 1,172,835 100.0
Cost of sales 1,157,760 87.4 1,025,064 87.4
Gross profit 167,230 12.6 147,771 12.6
CarMax Auto Finance
income 21,816 1.6 25,748 2.2
Selling, general, and
administrative
expenses 130,688 9.9 115,553 9.9
Interest expense 493 -- 754 0.1
Interest income 53 -- 122 --
Earnings before income
taxes 57,918 4.4 57,334 4.9
Provision for income
taxes 22,588 1.7 22,074 1.9
Net earnings $35,330 2.7 $35,260 3.0
Weighted average
common shares:
Basic 103,864 103,156
Diluted 105,774 104,762
Net earnings per share:
Basic $0.34 $0.34
Diluted $0.33 $0.34
(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)
May 31 February 29
2004 2003 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $61,676 $32,029 $61,643
Accounts receivable, net 92,624 73,940 72,358
Automobile loan receivables
held for sale 25,137 20,428 18,781
Retained interests in securitized
receivables 126,431 145,020 145,988
Inventory 523,666 430,386 466,061
Prepaid expenses and other
current assets 6,959 8,464 8,650
Total current assets 836,493 710,267 773,481
Property and equipment, net 267,509 218,069 244,064
Deferred income taxes -- 3,098 185
Other assets 19,255 20,218 19,287
TOTAL ASSETS $1,123,257 $951,652 $1,037,017
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $156,408 $139,824 $145,517
Accrued expenses and other
current liabilities 50,226 47,125 55,674
Accrued income taxes 21,891 16,136 4,050
Deferred income taxes 31,957 29,948 32,711
Short-term debt 28,182 14,532 4,446
Total current liabilities 288,664 247,565 242,398
Long-term debt, excluding
current installments 100,000 100,000 100,000
Deferred revenue and other
liabilities 14,713 11,984 13,866
Deferred income taxes 376 -- --
TOTAL LIABILITIES 403,753 359,549 356,264
SHAREHOLDERS' EQUITY 719,504 592,103 680,753
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,123,257 $951,652 $1,037,017
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
May 31
2004 2003
Operating Activities:
Net earnings $35,330 $35,260
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,282 4,063
Amortization of restricted stock awards 31 32
Gain on disposition of assets (62) --
Provision for deferred income taxes (193) (6,974)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (20,266) (17,491)
Increase in automobile loan receivables held for
sale (6,356) (16,849)
Decrease (increase) in retained interests in
securitized receivables 19,557 (10,004)
(Increase) decrease in inventory (57,605) 36,064
Decrease in prepaid expenses and other
current assets 1,691 4,172
Decrease in other assets 32 1,423
Increase in accounts payable, accrued expenses and
other current liabilities, and accrued
income taxes 25,336 41,856
Increase in deferred revenue and other liabilities 847 1,080
Net cash provided by operating activities 2,624 72,632
Investing Activities:
Purchases of property and equipment (46,455) (34,901)
Proceeds from sales of property and equipment 18,790 --
Net cash used in investing activities (27,665) (34,901)
Financing Activities:
Increase (decrease) in short-term debt, net 23,736 (41,519)
Equity issuances, net 1,338 1,202
Net cash provided by (used in) financing activities 25,074 (40,317)
Increase (decrease) in cash and cash equivalents 33 (2,586)
Cash and cash equivalents at beginning of period 61,643 34,615
Cash and cash equivalents at end of period $61,676 $32,029