CarMax Reports Second Quarter 2004 Results
RICHMOND, Va., Sept 20 -- CarMax, Inc. today reported results for the fiscal 2005 second quarter and six month period ended August 31, 2004.
* Total sales increased 7% to $1.32 billion from $1.24 billion in the
second quarter of last year.
* Second quarter net earnings were $29.9 million, or 28 cents per share,
compared with $39.6 million, or 37 cents per share, earned in the
second quarter of fiscal 2004.
* For the third quarter of fiscal 2005 ending November 30, 2004, CarMax
expects comparable store used unit sales performance in the range of
-8% to -2%, and earnings per share in the range of 12 cents to 17
cents.
Sales Components
Three Months Ended Six Months Ended
(In millions) August 31(1) August 31(1)
2004 2003 Change 2004 2003 Change
Used vehicle sales $ 987.4 $ 938.7 5.2 % $1,972.7 $1,828.9 7.9 %
New vehicle sales 137.5 139.6 (1.5)% 274.3 276.0 (0.6)%
Wholesale vehicle
sales 152.1 113.0 34.6 % 309.0 213.7 44.6 %
Other sales and
revenues(2) 46.5 45.1 3.1 % 92.5 90.7 2.0 %
Net sales and
operating revenues $1,323.5 $1,236.5 7.0 % $2,648.5 $2,409.3 9.9 %
(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 appraisal purchase
processing fees. The use of appraisal purchase processing fees was
phased out during the second quarter of fiscal 2004.
Retail Vehicle Sales Changes
Three Months Ended Six Months Ended
August 31 August 31
2004 2003 2004 2003
Comparable store
vehicle sales:
Used vehicle units (7)% 6 % (5)% 8 %
New vehicle units 13 % (9)% 12 % (4)%
Total units (5)% 4 % (3)% 7 %
Used vehicle dollars (6)% 7 % (3)% 8 %
New vehicle dollars 13 % (8)% 12 % (3)%
Total dollars (4)% 5 % (1)% 6 %
Total vehicle sales:
Used vehicle units 4 % 18 % 6 % 20 %
New vehicle units (1)% (10)% (1)% (4)%
Total units 3 % 15 % 5 % 18 %
Used vehicle dollars 5 % 20 % 8 % 20 %
New vehicle dollars (1)% (8)% (1)% (3)%
Total dollars 4 % 15 % 7 % 16 %
Earnings Highlights
Three Months Ended Six Months Ended
(In millions except August 31 August 31
per share data)
2004 2003 Change 2004 2003 Change
Net earnings $29.9 $39.6 (24.6)% $65.2 $74.9 (12.9)%
Diluted weighted
average shares 105.5 105.9 (0.3)% 105.6 105.3 0.3 %
outstanding
Diluted net earnings
per share $0.28 $0.37 (24.3)% $0.62 $0.71 (12.7)%
Selected Operating Ratios
(In millions) Three Months Ended
August 31
2004 %(1) 2003 %(1)
Net sales and
operating revenues $1,323.5 100.0% $1,236.5 100.0%
Gross profit $ 163.2 12.3% $ 163.1 13.2%
CarMax Auto Finance
income $ 20.7 1.6% $ 22.7 1.8%
Selling, general and
administrative
expenses $ 134.7 10.2% $ 120.7 9.8%
Operating profit
(EBIT)(2) $ 49.2 3.7% $ 64.6 5.2%
Net earnings $ 29.9 2.3% $ 39.6 3.2%
(In millions) Six Months Ended
August 31
2004 %(1) 2003 %(1)
Net sales and
operating revenues $2,648.5 100.0% $2,409.3 100.0%
Gross profit $ 330.4 12.5% $ 310.9 12.9%
CarMax Auto Finance
income $ 42.6 1.6% $ 48.4 2.0%
Selling, general and
administrative
expenses $ 265.4 10.0% $ 236.3 9.8%
Operating profit
(EBIT)(2) $ 107.6 4.1% $ 122.6 5.1%
Net earnings $ 65.2 2.5% $ 74.9 3.1%
(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.
Gross Profit Margin
Three Months Ended August 31
2004 2003
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle gross
profit margin 11.7% $1,846 11.9% $1,860
New vehicle gross
profit margin 3.7% $ 890 4.0% $ 959
Total retail vehicle
gross profit margin 10.7% $1,766 10.9% $1,780
Wholesale vehicle gross
profit margin 11.0% $ 406 10.0% $ 334
Other gross profit
margin 56.3% $ 385 76.0% $ 520
Total gross profit
margin 12.3% $2,395 13.2% $2,472
Six Months Ended August 31
2004 2003
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle gross
profit margin 11.7% $1,855 11.5% $1,781
New vehicle gross
profit margin 3.6% $ 859 3.9% $ 909
Total retail vehicle
gross profit margin 10.7% $1,770 10.5% $1,702
Wholesale vehicle gross
profit margin 11.3% $ 423 9.8% $ 333
Other gross profit
margin 58.7% $ 398 75.9% $ 530
Total gross profit
margin 12.5% $2,423 12.9% $2,393
(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.
Second Quarter Business Performance Review
Sales. "Our used car business continued to experience widespread sales volatility and softness throughout the quarter," said Austin Ligon, president and chief executive officer. "We believe these effects are occurring broadly across the late model used car market. We also believe current economic factors, such as higher gas prices, have contributed to the market environment. Newer model used cars also appear to be affected by the unusually intense and volatile incentive competition among new car manufacturers -- particularly the domestic manufacturers. The sales softness in the second quarter was exacerbated by the severe weather experienced in Florida and the southeastern United States in August. Despite the sales softness, our best information indicates that we are maintaining or gaining used car market share.
"We posted strong new car comp sales increases, reflecting the strength of the principal brands we represent -- DaimlerChrysler, Nissan, and Toyota," Ligon continued. "Total new car sales declined modestly, as the comp sales increases were more than offset by the impact of having disposed of four new car franchises since last year's first quarter." In accordance with our plan to divest non-strategic new car franchises, during the second quarter CarMax returned the rights to its Laurel Mitsubishi franchise to the manufacturer.
"Wholesale sales continued to benefit from the steps we've taken to improve our 'buy rate,' or the ratio of appraisal purchases completed to appraisal offers made, and from higher wholesale prices," said Ligon. "Similar to the first quarter, enhanced systems support and a new, more consistent appraisal delivery process contributed to a year-over-year increase in our buy rate.
"Other sales and revenues increased approximately 3%, as growth in our service revenue was partially offset by a decrease in third-party finance fees," Ligon said. "In August, we rolled out Drive Financial Services, a new third-party finance provider focused on subprime customers. As is customary in the subprime finance industry, Drive purchases the loan contracts at a discount. This discount is reflected in our income statement as an offset to the fees received from third-party providers lending to prime and nonprime customers."
Margins. "Used car gross profit dollars per unit declined modestly compared with the second quarter of last year, reflecting the impact of the slower overall used car sales pace," said Ligon. "We adjust vehicle prices based on our proprietary inventory pricing model in order to maintain high inventory turns. However, during the first two months of the quarter, we maintained inventories at lower than original plan but higher than current sales rates. We did this in order to be able to take advantage of an upturn in sales during the peak sales months of the summer, if that were to occur. This reduced our turns and pressured gross margin. However, in August we reduced our inventory levels, as is our practice. We target having our lowest inventory position of the year during the week following Labor Day, in order to minimize the inherent inventory risk associated with the new car model year changeover in the fall. Despite the soft used car sales trends, we were successful in reducing inventories to target levels at August 31."
The lower margin on other sales and revenues resulted primarily from lower service margin and the inclusion of the Drive discount in third-party finance fee revenue.
CarMax Auto Finance. "As expected, CAF income was lower than last year," said Ligon. "The CAF gain as a percent of loans sold was 3.9% in this year's second quarter, which is in line with our expectations for a normalized gain spread, compared with 4.8% in last year's second quarter. The decline in the gain spread reflects the change in the underlying interest rate environment, with funding costs having risen faster than consumer rates. For the balance of the year, we expect that CAF gain spreads will be at the lower end of the 3.5% to 4.5% normalized range."
SG&A Ratio. "Our second quarter SG&A ratio increased to 10.2% in this year's second quarter compared with a 9.8% ratio in last year's second quarter," said Ligon. "The higher ratio resulted from the deleveraging associated with negative used unit comps."
Third Quarter Expectations * Comparable store used unit performance: A range of -8% to -2%. * Earnings per share: A range of 12 cents to 17 cents.
"The third quarter, which coincides with the new car model year changeover period, is typically both our lowest volume period seasonally and our most difficult quarter to predict," said Ligon. "The continuing sales volatility and weakness combined with the normally challenging model year changeover period makes forecasting especially difficult. This year's hurricane season isn't helping. While we are encouraged by our sales in the beginning of September - excluding the weather-affected Southeast markets - our estimates for the quarter assume that market conditions remain volatile."
About CarMax
CarMax, a Fortune 500 company, is the nation's leading specialty retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 55 used car superstores in 26 markets. CarMax also operates 11 new car franchises, all of which are integrated or co-located with its used car superstores. During the twelve month period ended August 31, 2004, the company sold 230,653 used cars, which is 91 percent of the total 252,169 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)
(Amounts in thousands except per share data)
Three Months Ended
August 31
2004 %(1) 2003 %(1)
Sales and operating
revenues:
Used vehicle sales $ 987,359 74.6 $ 938,726 75.9
New vehicle sales 137,516 10.4 139,600 11.3
Wholesale vehicle
sales 152,118 11.5 112,995 9.1
Other sales and
revenues 46,514 3.5 45,136 3.7
Net sales and
operating revenues 1,323,507 100.0 1,236,457 100.0
Cost of sales 1,160,307 87.7 1,073,352 86.8
Gross profit 163,200 12.3 163,105 13.2
CarMax Auto Finance
income 20,744 1.6 22,677 1.8
Selling, general and
administrative
expenses 134,726 10.2 120,714 9.8
Loss on franchise
dispositions, net 11 -- 460 --
Interest expense 324 -- 383 --
Interest income 66 -- 182 --
Earnings before
income taxes 48,949 3.7 64,407 5.2
Provision for
income taxes 19,090 1.4 24,797 2.0
Net earnings $ 29,859 2.3 $ 39,610 3.2
Weighted average
common shares:
Basic 104,002 103,484
Diluted 105,512 105,864
Net earnings per
share:
Basic $ 0.29 $ 0.38
Diluted $ 0.28 $ 0.37
Six Months Ended
August 31
2004 %(1) 2003 %(1)
Sales and operating
revenues:
Used vehicle sales $1,972,734 74.5 $1,828,868 75.9
New vehicle sales 274,281 10.4 275,999 11.5
Wholesale vehicle
sales 308,989 11.7 213,728 8.9
Other sales and
revenues 92,493 3.5 90,697 3.8
Net sales and
operating revenues 2,648,497 100.0 2,409,292 100.0
Cost of sales 2,318,067 87.5 2,098,416 87.1
Gross profit 330,430 12.5 310,876 12.9
CarMax Auto Finance
income 42,560 1.6 48,425 2.0
Selling, general and
administrative
expenses 265,414 10.0 236,267 9.8
Loss on franchise
dispositions, net 11 -- 460 --
Interest expense 817 -- 1,137 --
Interest income 119 -- 304 --
Earnings before
income taxes 106,867 4.0 121,741 5.1
Provision for income
taxes 41,678 1.6 46,870 1.9
Net earnings $ 65,189 2.5 $ 74,871 3.1
Weighted average
common shares:
Basic 103,933 103,320
Diluted 105,643 105,313
Net earnings per
share:
Basic $ 0.63 $ 0.72
Diluted $ 0.62 $ 0.71
(1) Percents are calculated as a percentage of net sales and operating
revenues and may not equal totals due to rounding.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
August 31 February 29
2004 2003 2004
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 56,607 $ 45,328 $ 61,643
Accounts receivable, net 69,795 71,008 72,358
Automobile loan
receivables held for sale 3,164 20,402 18,781
Retained interests in
securitized receivables 139,525 148,042 145,988
Inventory 492,011 409,477 466,061
Prepaid expenses and
other current assets 5,473 11,167 8,650
Total current assets 766,575 705,424 773,481
Property and equipment,
net 310,268 236,606 244,064
Deferred income taxes 1,635 3,208 185
Other assets 19,216 20,398 19,287
TOTAL ASSETS $1,097,694 $965,636 $1,037,017
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 131,495 $ 115,366 $ 145,517
Accrued expenses and other
current liabilities 59,691 59,331 55,674
Accrued income taxes 2,676 8,736 4,050
Deferred income taxes 33,556 28,912 32,711
Short-term debt 4,644 3,353 4,446
Total current liabilities 232,062 215,698 242,398
Long-term debt, excluding
current installments 100,000 100,000 100,000
Deferred revenue and
other liabilities 15,179 12,921 13,866
TOTAL LIABILITIES 347,241 328,619 356,264
SHAREHOLDERS' EQUITY 750,453 637,017 680,753
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,097,694 $965,636 $1,037,017
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Six Months Ended
August 31
2004 2003
Operating Activities:
Net earnings $ 65,189 $ 74,871
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 8,844 8,373
Amortization of restricted stock awards 51 65
(Gain) loss on disposition of assets (83) 475
Provision for deferred income taxes (605) (8,120)
Changes in operating assets and liabilities:
Decrease (increase) decrease in accounts
receivable, net 2,563 (14,559)
Decrease (increase) in automobile loan
receivables held for sale 15,617 (16,823)
Decrease (increase) in retained interests
in securitized receivables 6,463 (13,026)
(Increase) decrease in inventory (25,950) 56,973
Decrease in prepaid expenses and other
current assets 3,177 1,469
Decrease in other assets 71 772
(Decrease) increase in accounts payable,
accrued expenses and other current
liabilities, and accrued income taxes (8,926) 25,480
Increase in deferred revenue and other
liabilities 1,313 2,017
Net cash provided by operating activities 67,724 117,967
Investing Activities:
Purchases of property and equipment (118,624) (82,662)
Proceeds from sales of property and equipment 43,659 24,910
Net cash used in investing activities (74,965) (57,752)
Financing Activities:
Increase (decrease) in short-term debt, net 198 (52,698)
Equity issuances, net 2,007 3,196
Net cash provided by (used in) financing
activities 2,205 (49,502)
(Decrease) increase in cash and cash
equivalents (5,036) 10,713
Cash and cash equivalents at beginning of year 61,643 34,615
Cash and cash equivalents at end of period $ 56,607 $ 45,328