CarMax Reports Third Quarter 2004 Results
RICHMOND, Va., Dec. 17, 2004 -- CarMax, Inc. today reported results for the fiscal 2005 third quarter and nine month period ended November 30, 2004.
* Total sales increased 13% to $1.22 billion from $1.07 billion in the
third quarter of last year.
* Third quarter comparable store used unit sales rose 2%.
* Third quarter net earnings were $18.0 million, or 17 cents per share,
compared with $19.1 million, or 18 cents per share, earned in the third
quarter of fiscal 2004.
* For the fourth quarter ending February 28, 2005, CarMax expects
comparable store used unit sales growth in the range of 2% to 7% and
earnings per share in the range of 19 cents to 23 cents.
Sales Components
(In millions) Three Months Ended Nine Months Ended
November 30(1) November 30(1)
2004 2003 Change 2004 2003 Change
Used vehicle sales $926.0 $797.8 16.1% $2,898.8 $2,626.6 10.4%
New vehicle sales 114.2 122.7 (6.9)% 388.5 398.7 (2.6)%
Wholesale vehicle
sales 132.7 111.4 19.1% 441.7 325.1 35.9%
Other sales and
revenues(2) 42.8 39.7 7.7% 135.3 130.4 3.7%
Net sales and
operating
revenues $1,215.7 $1,071.5 13.5% $3,864.2 $3,480.8 11.0%
(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 service plan 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 Nine Months Ended
November 30 November 30
Comparable store vehicle
sales:
Used vehicle units 2 % 2 % (3)% 6 %
New vehicle units 11 % 2 % 12 % (2)%
Total units 2 % 2 % (2)% 5 %
Used vehicle dollars 3 % 4 % (1)% 7 %
New vehicle dollars 9 % 5 % 11 % 0 %
Total dollars 4 % 4 % 0 % 6 %
Total vehicle sales:
Used vehicle units 15 % 13 % 8 % 18 %
New vehicle units (6)% 1 % (3)% (3)%
Total units 13 % 12 % 7 % 16 %
Used vehicle dollars 16 % 16 % 10 % 19 %
New vehicle dollars (7)% 4 % (3)% (1)%
Total dollars 13 % 14 % 9 % 16 %
Earnings Highlights
(In millions except
per share data) Three Months Ended Nine Months Ended
November 30 November 30
2004 2003 Change 2004 2003 Change
Net earnings $18.0 $19.1 (5.3)% $83.2 $93.9 (11.4)%
Diluted weighted
average shares
outstanding 105.7 106.0 (0.2)% 105.7 105.5 0.1 %
Diluted net
earnings per
share $0.17 $0.18 (5.6)% $0.79 $0.89 (11.2)%
Selected Operating Ratios
(In millions) Three Months Ended November 30
2004 % (1) 2003 % (1)
Net sales and operating
revenues $1,215.7 100.0% $1,071.5 100.0%
Gross profit $145.4 12.0% $126.2 11.8%
CarMax Auto Finance
income $20.4 1.7% $17.6 1.6%
Selling, general and
administrative expenses $137.2 11.3% $114.3 10.7%
Operating profit
(EBIT)(2) $29.4 2.4% $30.8 2.9%
Net earnings $18.0 1.5% $19.1 1.8%
(In millions) Nine Months Ended November 30
2004 % (1) 2003 % (1)
Net sales and operating
revenues $3,864.2 100.0% $3,480.8 100.0%
Gross profit $475.9 12.3% $437.1 12.6%
CarMax Auto Finance
income $63.0 1.6% $66.1 1.9%
Selling, general and
administrative
expenses $402.6 10.4% $350.5 10.1%
Operating profit
(EBIT)(2) $137.0 3.5% $153.4 4.4%
Net earnings $83.2 2.2% $93.9 2.7%
(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 November 30
2004 2003
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle gross
profit margin 11.2% $1,765 10.9% $1,693
New vehicle gross
profit margin 3.7% $886 3.8% $925
Total retail vehicle
gross profit margin 10.4% $1,700 10.0% $1,624
Wholesale vehicle
gross profit margin 11.8% $440 9.9% $338
Other gross profit
margin 50.5% $339 59.3% $418
Total gross profit
margin 12.0% $2,284 11.8% $2,237
Nine Months Ended November 30
2004 2003
%(1) $/unit(2) %(1) $/unit(2)
Used vehicle gross
profit margin 11.6% $1,826 11.3% $1,754
New vehicle gross profit
margin 3.7% $866 3.9% $914
Total retail vehicle
gross profit margin 10.6% $1,748 10.3% $1,679
Wholesale vehicle gross
profit margin 11.4% $428 9.8% $335
Other gross profit
margin
56.1% $379 70.8% $496
Total gross profit
margin 12.3% $2,379 12.6% $2,346
(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.
Business Performance Review
Sales. "We are pleased that our used unit sales growth was much stronger in the third quarter than in the first half of the year," said Austin Ligon, president and chief executive officer. "Used car sales trends in the quarter, though not robust, were better than we experienced in the late spring and summer. Total new car sales declined as we continued our program to reduce the number of new car franchises we own to a select core. New car comp unit sales were particularly healthy.
"The wholesale sales growth reflects an increase in the number of appraisals made and a continuing strong buy rate," said Ligon. The buy rate is the ratio of vehicle purchases completed to the appraisal offers made. "Our appraisal purchases continue to provide more than 50% of the used vehicles we retail. We dispose of the cars that don't meet our standards at our own in-store wholesale auctions.
"The growth in other sales and revenue reflects increases in extended service plan sales, service, and third-party nonprime finance fees," said Ligon. "The increases were offset in part by the cost of providing subprime financing." CarMax began making available a subprime finance provider throughout its store base in August 2004. As is customary in the subprime finance industry, the subprime provider purchases the loan contracts at a discount. This discount is reflected in the CarMax income statement as an offset to the fees received from third-party providers lending to prime and nonprime customers.
Margins. "Gross profit per unit for both used and wholesale vehicle sales was up this quarter compared with last year as a result of continuing refinements to our appraisal cost recovery (ACR) methodology," Ligon said. The company recovers expenses associated with its appraisal, buying, and wholesaling operations by factoring the costs into the purchase offers made on customers' cars. "The lower margin on other revenue resulted from higher service operations costs and from the subprime financing discount that partially offsets third-party finance fee revenue."
CarMax Auto Finance. "CAF income growth reflects our total sales growth, as well as an approximately 1 cent EPS benefit from the adjustment in the valuation of our retained interests in securitized receivables," said Ligon. "Including the valuation adjustment, the CAF gain as a percent of loans sold was 4.1%, compared with 3.8% in last year's third quarter. As we expected, excluding the valuation adjustment, the CAF gain spread would have been 3.6%, at the low end of the 3.5 to 4.5% range we consider to be normal. We have been able to raise our rates modestly as our cost of funds has increased."
SG&A Ratio. "Our third quarter SG&A ratio was 11.3% compared with 10.7% in last year's third quarter," Ligon said. "The increase primarily reflects the higher SG&A at our newer stores, which make up a growing proportion of our store base. None of the stores we have opened since we reinitiated growth has yet reached base maturity, which we project to be after 48 months.
"The higher SG&A ratio also reflects store unit bonuses that were higher than originally expected," said Ligon. "At the beginning of the quarter, we set bonus targets in line with our original expectations for the quarter. Because we saw stronger sales, bonuses were higher. "
Fourth Quarter Expectations * Comparable store used unit growth: A range of 2% to 7%. * Earnings per share: A range of 19 cents to 23 cents.
"Sales trends have continued to improve since September. Consequently, assuming we don't experience abnormal winter weather events, for the fourth quarter we expect used unit comp growth in the range of 2 to 7% and earnings per share in the range of 19 to 23 cents," said Ligon. "These expectations take into account the adverse calendar shifts in the fourth quarter. We lose a Saturday because Christmas Day falls on Saturday this year, and we lose one selling day because fiscal 2004 included 29 days in February."
Future Financial News Releases
Beginning with the first quarter of fiscal 2006, ending May 31, 2005, we plan to issue one financial release per quarter covering sales and earnings performance, and we will cease issuing a separate sales release. For the fourth quarter and year-end of the current fiscal year, CarMax plans to issue a sales release on March 4, 2005, and an earnings release on March 30, 2005. CarMax plans to announce its fiscal 2006 earnings release schedule on March 30, 2005.
About CarMax
CarMax, a Fortune 500 company, is the nation's leading specialty retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 58 used car superstores in 27 markets. CarMax also operates nine new car franchises, all of which are integrated or co-located with its used car superstores. During the twelve month period ended November 30, 2004, the company sold 238,200 used cars, which is 92% of the total 259,402 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 November 30
2004 %(1) 2003 %(1)
Sales and operating revenues:
Used vehicle sales $926,023 76.2 $797,752 74.4
New vehicle sales 114,199 9.4 122,681 11.4
Wholesale vehicle sales 132,669 10.9 111,352 10.4
Other sales and revenues 42,820 3.5 39,749 3.7
Net sales and operating
revenues 1,215,711 100.0 1,071,534 100.0
Cost of sales 1,070,265 88.0 945,292 88.2
Gross profit 145,446 12.0 126,242 11.8
CarMax Auto Finance income 20,439 1.7 17,649 1.6
Selling, general and
administrative expenses 137,170 11.3 114,282 10.7
Gain on franchise dispositions, net 692 0.1 1,207 0.1
Interest expense - - - -
Interest income 175 - 164 -
Earnings before income taxes 29,582 2.4 30,980 2.9
Provision for income taxes 11,537 0.9 11,927 1.1
Net earnings $18,045 1.5 $19,053 1.8
Weighted average common shares:
Basic 104,070 103,647
Diluted 105,735 105,955
Net earnings per share:
Basic $0.17 $0.18
Diluted $0.17 $0.18
Nine Months Ended November 30
2004 %(1) 2003 %(1)
Sales and operating revenues:
Used vehicle sales $2,898,757 75.0 $2,626,620 75.5
New vehicle sales 388,480 10.1 398,680 11.5
Wholesale vehicle sales 441,658 11.4 325,080 9.3
Other sales and revenues 135,313 3.5 130,446 3.7
Net sales and operating
revenues 3,864,208 100.0 3,480,826 100.0
Cost of sales 3,388,332 87.7 3,043,708 87.4
Gross profit 475,876 12.3 437,118 12.6
CarMax Auto Finance income 62,999 1.6 66,074 1.9
Selling, general and
administrative expenses 402,584 10.4 350,549 10.1
Gain on franchise dispositions, net 681 - 746 -
Interest expense 817 - 1,137 -
Interest income 294 - 468 -
Earnings before income taxes 136,449 3.5 152,720 4.4
Provision for income taxes 53,215 1.4 58,797 1.7
Net earnings 83,234 2.2 $ 93,923 2.7
Weighted average common shares:
Basic 103,978 103,428
Diluted 105,673 105,526
Net earnings per share:
Basic $ 0.80 $ 0.91
Diluted $ 0.79 $ 0.89
(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)
November 30 February 29
2004 2003 2004
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $25,762 $54,962 $61,643
Accounts receivable, net 63,694 60,853 72,358
Automobile loan receivables
held for sale 3,540 18,997 18,781
Retained interests in
securitized receivables 131,621 135,004 145,988
Inventory 503,682 449,744 466,061
Prepaid expenses and other
current assets 9,248 10,328 8,650
Total current assets 737,547 729,888 773,481
Property and equipment, net 368,203 239,553 244,064
Deferred income taxes 667 3,505 185
Other assets 18,642 20,360 19,287
TOTAL ASSETS $1,125,059 $993,306 $1,037,017
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 133,015 $ 127,899 $ 145,517
Accrued expenses and other
current liabilities 53,388 49,984 55,674
Accrued income taxes 4,481 9,355 4,050
Deferred income taxes 31,030 28,677 32,711
Short-term debt 6,331 6,267 4,446
Total current liabilities 228,245 222,182 242,398
Long-term debt, excluding
current installments 111,940 100,000 100,000
Deferred revenue and other
liabilities 15,638 13,319 13,866
TOTAL LIABILITIES 355,823 335,501 356,264
SHAREHOLDERS' EQUITY 769,236 657,805 680,753
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,125,059 $ 993,306 $1,037,017
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Nine Months Ended November 30
2004 2003
Operating Activities:
Net earnings $ 83,234 $ 93,923
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 13,334 12,253
Amortization of restricted stock awards 79 94
Gain on disposition of assets (810) (588)
Provision for deferred income taxes (2,163) (8,652)
Changes in operating assets and
liabilities:
Decrease (increase) decrease in accounts
receivable, net 8,664 (4,404)
Decrease (increase) in automobile
loan receivables held for sale 15,241 (15,418)
Decrease in retained interests in
securitized receivables 14,367 12
(Increase) decrease in inventory (37,621) 16,706
(Increase) decrease in prepaid
expenses and other current assets (598) 2,308
(Increase) decrease in other assets (394) 1,999
(Decrease) increase in accounts
payable, accrued expenses and other
current liabilities, and accrued
income taxes (11,500) 30,390
Increase in deferred revenue and
other liabilities 1,772 2,415
Net cash provided by operating
activities 83,605 131,038
Investing Activities:
Purchases of property and equipment (176,341) (137,201)
Proceeds from sales of assets 52,657 72,496
Net cash used in investing activities (123,684) (64,705)
Financing Activities:
Increase (decrease) in short-term debt,
net 1,885 (49,784)
Equity issuances, net 2,313 3,798
Net cash provided by (used in) financing
activities 4,198 (45,986)
(Decrease) increase in cash and cash
equivalents (35,881) 20,347
Cash and cash equivalents at beginning
of year 61,643 34,615
Cash and cash equivalents at end of
period $ 25,762 $ 54,962