CarMax Reports Record First Quarter Results
Releases Second Quarter Expectations
RICHMOND, Va., June 20 -- CarMax, Inc. today reported record results for the first quarter ended May 31, 2005.
* Total sales increased 19% to $1.58 billion from $1.32 billion in the
first quarter last year.
* Comparable store used unit sales rose 6% for the quarter.
* Total used unit sales grew 19% for the quarter.
* Net earnings increased 13% to $39.8 million, or 37 cents per share,
compared with $35.3 million, or 33 cents per share, reported in the
first quarter of fiscal 2005.
* First quarter fiscal 2006 earnings included 3 cents per share
resulting from a CarMax Auto Finance favorable valuation
adjustment of retained interests and the favorable terms of a CAF
public securitization completed in April.
* For the second quarter of fiscal 2006 ending August 31, 2005, CarMax
expects comparable store used unit sales growth in the range of 3% to
9%, and earnings per share in the range of 29 cents to 34 cents.
Sales Components
(In millions) Three Months Ended May 31 (1)
2005 2004 Change
Used vehicle sales $1,203.8 $985.4 22.2 %
New vehicle sales 134.1 136.8 (2.0)%
Wholesale vehicle sales 189.5 156.9 20.8 %
Other sales and revenues (2) 51.0 46.0 10.9 %
Net sales and operating revenues $1,578.4 $1,325.0 19.1 %
(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, and third-party finance fees.
Retail Vehicle Sales Changes
Three Months Ended May 31
2005 2004
Comparable store vehicle sales:
Used vehicle units 6 % (3)%
New vehicle units 0 % 11 %
Total 5 % (2)%
Used vehicle dollars 9 % 0 %
New vehicle dollars 2 % 12 %
Total 8 % 2 %
Total vehicle sales:
Used vehicle units 19 % 7 %
New vehicle units (4)% (1)%
Total 17 % 7 %
Used vehicle dollars 22 % 11 %
New vehicle dollars (2)% 0 %
Total 19 % 9 %
Retail Vehicle Sales Mix
Three Months Ended May 31
2005 2004
Vehicle units:
Used vehicles 93 % 91 %
New vehicles 7 9
Total 100 % 100 %
Vehicle dollars:
Used vehicles 90 % 88 %
New vehicles 10 12
Total 100 % 100 %
Retail Unit Sales
Three Months Ended May 31
2005 2004
Used vehicles 74,143 62,353
New vehicles 5,604 5,844
Total 79,747 68,197
Average Retail Selling Prices
Three Months Ended May 31
2005 2004
Used vehicles $16,117 $15,663
New vehicles $23,763 $23,224
Weighted average $16,654 $16,311
Earnings Highlights
(In millions except per share data) Three Months Ended May 31 (1)
2005 2004 Change
Net earnings $39.8 $35.3 12.7 %
Diluted weighted average shares
outstanding 106.2 105.8 0.4 %
Net earnings per share $0.37 $0.33 12.1 %
(1) All per share amounts are presented on a fully diluted basis.
Selected Operating Ratios
(In millions) Three Months Ended May 31
2005 %(1) 2004 %(1)
Net sales and operating revenues $1,578.4 100.0 % $1,325.0 100.0 %
Gross profit $197.8 12.5 % $167.2 12.6 %
CarMax Auto Finance income $27.1 1.7 % $21.8 1.6 %
Selling, general, and
administrative expenses $159.2 10.1 % $130.7 9.9 %
Operating profit (EBIT) (2) $65.6 4.2 % $58.4 4.4 %
Net earnings $39.8 2.5 % $35.3 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
Three Months Ended May 31
2005 2004
$/unit(1) %(2) $/unit(1) %(2)
Used vehicle gross profit $1,801 11.1 % $1,864 11.8 %
New vehicle gross profit $804 3.4 % $828 3.5 %
Wholesale vehicle gross profit $631 14.9 % $439 11.6 %
Other gross profit $396 61.9 % $412 61.0 %
Total gross profit $2,480 12.5 % $2,452 12.6 %
(1) Calculated as category gross profit divided by its respective units
sold, except the other and the total categories, which are divided by
total retail units sold.
(2) Calculated as a percentage of its respective sales or revenue.
Business Performance Review
Sales and Earnings. "We are pleased with our earnings growth, particularly in light of sales that were lower than expected in April and May," said Austin Ligon, president and chief executive officer. "Our sales pace began to lose some momentum in April and weakened further in May, reflecting a softening used car market environment. We believe some of the same factors that affected the marketplace last spring and summer put pressure on the market this spring, including an atypical rise in wholesale auction prices and higher gas prices.
"In April, we began to take steps to counter the current challenges in the market," Ligon said. "We saw prices for low-mileage, late model vehicles at major wholesale auctions increase in an unprecedented fashion this spring. Our analysis suggests that reduced supplies of off-lease cars combined with an unexpected shortage of off-rental cars have been a major factor in these increases. In response, we have not increased our appraisal offers at the same rate as the steep increase in the major wholesale auction market prices. We believe that doing so has helped keep our retail prices more in line with demand, helping to keep our cars attractive to consumers as they compare their options in the new and used car marketplace. We also believe that our appraisal offers are consistent with the broader market trade-in offers, as evidenced by our buy rate, which was ahead of the buy rate for first quarter last year.
"We also began to bring our inventories in line with our sales pace, and they are currently where we want them," said Ligon. "Last year, anticipating a stronger summer selling season, we kept our inventories higher than our spring sales pace. If the sales rate increases as this summer progresses, we believe we have sufficient reconditioning capacity to provide replacement units through the summer.
"Our 6% growth in comp store used unit sales reflected 3 percentage points added by DRIVE-financed sales," Ligon continued. "The tax-refund seasonal increase in DRIVE sales did not extend into April, as we had originally forecast. Consequently, DRIVE-financed sales were 1 percentage point below our original comp estimates for the quarter, but still in line with the expected overall contribution in the range of 3 to 5% of total sales.
"As expected, new vehicle total sales declined, reflecting our disposing of five new car franchises since last year's first quarter," said Ligon. "New vehicle unit comps were flat. Our remaining franchise sales were generally in line with the overall performance of the brands we represent."
Margins. "We were within our target range for retail used vehicle gross profit per car, which declined slightly compared with last year," said Ligon. "Our retail pricing and the higher auction prices put some pressure on used vehicle gross profit. Our in-house wholesale auction prices usually reflect the general wholesale market trends. As a result, our higher in-store auction prices yielded a strong increase in wholesale vehicle gross profit per car. The somewhat lower retail margins and higher wholesale margins roughly offset one another, and we achieved total gross profit per car in line with our expectations."
CarMax Auto Finance. CarMax Auto Finance income increased to $27.1 million in this year's first quarter from $21.8 million in last year's first quarter. The majority of the increase resulted from a favorable valuation adjustment and the favorable terms of the public securitization completed in April. The current quarter CAF income included a benefit of 2 cents per share from the adjustment in the valuation of the retained interest in securitized receivables. We lowered the loss assumptions on previously securitized receivables, reflecting the favorable market conditions and the continued excellent performance of CAF's portfolio. CAF's first quarter income also included a benefit of 1 cent per share related to the 2005-1 public securitization. The cost of funds and credit enhancements on this securitization were better than expected as a result of the strong market demand for asset-backed securities, together with CAF's strong portfolio performance.
In May 2005, CAF repurchased and subsequently resold into the warehouse facility the remaining receivables related to the 2001-2 public securitization. In May 2004, CAF completed a similar repurchase and resale related to the 2001-1 securitization. Each transaction added approximately 1 cent per share to quarterly earnings.
For loans originated and sold in the first quarter of fiscal 2006, the gain was 3.3% compared with 3.8% in last year's first quarter. The reported gain as a percent of all loans sold for the current year's quarter was 4.3%, which includes the effect of the items previously discussed.
SG&A. "As we expected, the SG&A ratio at 10.1% was higher than in last year's first quarter when the ratio was at 9.9%," said Ligon. "The increase reflects primarily the larger percentage of our store base that is made up of stores not yet at base maturity. In this year's first quarter, 45% of our stores were newer stores; in last year's first quarter, that percentage was 35%. The current year's SG&A ratio also reflects the March 30 rollout of marketwide advertising in Los Angeles. We are pleased to report that sales in our Los Angeles stores are strong enough to continue our full marketing program in Los Angeles."
Second Quarter Fiscal 2006 Expectations. "The volatility of the used car market environment has hampered our ability to forecast our performance in the short term," Ligon said. "Consequently, our forecasts for this year's second quarter comp sales and earnings are in wider ranges than we normally would issue. We now believe that second quarter comp store used unit sales will grow in a range of 3% to 9%, with second quarter earnings per share in the range of 29 to 34 cents. These expectations assume continued softness in the used car marketplace, and they also reflect the anniversary of DRIVE's rollout to our entire store base last August. We expect the CAF gain on loans sold will be somewhat below the normalized range of 3.5% to 4.5% as the increase in our cost of funds continues to outpace rises in consumer rates." CarMax plans to release second quarter sales and earnings results on Wednesday, September 21, 2005, before the opening of the New York Stock Exchange.
Store Openings. CarMax opened four superstores during the first quarter. We expanded our presence in the Los Angeles market, adding both a standard and a satellite superstore and bringing to five the total store count in this large market. We entered the Jacksonville market with a standard superstore, and we added a satellite superstore in the Kansas City market. CarMax plans to open five additional superstores during the balance of the fiscal year, bringing total fiscal 2006 store openings to nine.
About CarMax
CarMax, a Fortune 500 company, and one of the Fortune 2005 "100 Best Companies to Work For," is the nation's leading specialty retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 62 used car superstores in 28 markets. CarMax also operates seven new car franchises, all of which are integrated or co-located with its used car superstores. During the twelve month period ended May 31, 2005, the company sold 264,958 used cars, which is 93 percent of the total 285,354 vehicles the company retailed 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
2005 %(1) 2004 %(1)
Sales and operating revenues:
Used vehicle sales $1,203,805 76.3 $985,375 74.4
New vehicle sales 134,093 8.5 136,765 10.3
Wholesale vehicle sales 189,492 12.0 156,871 11.8
Other sales and revenues 50,970 3.2 45,979 3.5
Net sales and operating revenues 1,578,360 100.0 1,324,990 100.0
Cost of sales 1,380,601 87.5 1,157,760 87.4
Gross profit 197,759 12.5 167,230 12.6
CarMax Auto Finance income 27,071 1.7 21,816 1.6
Selling, general, and
administrative expenses 159,235 10.1 130,688 9.9
Interest expense 1,194 0.1 493 -
Interest income 135 - 53 -
Earnings before income taxes 64,536 4.1 57,918 4.4
Provision for income taxes 24,718 1.6 22,588 1.7
Net earnings $39,818 2.5 $35,330 2.7
Weighted average common shares:
Basic 104,387 103,864
Diluted 106,185 105,774
Net earnings per share:
Basic $0.38 $0.34
Diluted $0.37 $0.33
(1) Percents are calculated as a percentage of net sales and operating
revenues, and percentages may not total due to rounding.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 31 February 28
2005 2004 2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $33,518 $61,676 $29,099
Accounts receivable, net 79,970 92,624 76,167
Automobile loan receivables
held for sale 35,559 25,137 22,152
Retained interests in securitized
receivables 144,363 126,431 147,963
Inventory 583,289 523,666 576,567
Prepaid expenses and other
current assets 4,975 6,959 13,008
Total current assets 881,674 836,493 864,956
Property and equipment, net 439,091 274,812 406,301
Other assets 21,732 22,631 21,756
TOTAL ASSETS $1,342,497 $1,133,936 $1,293,013
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $177,952 $156,408 $170,646
Accrued expenses and other
current liabilities 65,035 50,226 65,664
Accrued income taxes 25,408 21,891 1,179
Deferred income taxes 24,602 31,957 26,315
Short-term debt 41,428 28,182 65,197
Current installments of
long-term debt 351 - 330
Total current liabilities 334,776 288,664 329,331
Long-term debt, excluding
current installments 128,315 100,000 128,419
Deferred revenue and other
liabilities 30,325 25,392 29,260
Deferred income taxes 4,315 376 5,027
TOTAL LIABILITIES 497,731 414,432 492,037
SHAREHOLDERS' EQUITY 844,766 719,504 800,976
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,342,497 $1,133,936 $1,293,013
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
May 31
2005 2004
Operating Activities:
Net earnings $39,818 $35,330
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 5,926 4,282
Amortization of restricted stock awards 20 31
Loss (gain) on disposition of assets 12 (62)
Provision for deferred income taxes (2,425) (193)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (3,803) (20,266)
Increase in automobile loan receivables
held for sale (13,407) (6,356)
Decrease in retained interests in
securitized receivables 3,600 19,557
Increase in inventory (6,722) (57,605)
Decrease in prepaid expenses and other
current assets 8,033 1,691
Decrease in other assets 24 32
Increase in accounts payable, accrued
expenses and other current liabilities,
and accrued income taxes 33,118 25,336
Increase in deferred revenue and other
liabilities 688 847
Net cash provided by operating activities 64,882 2,624
Investing Activities:
Purchases of property and equipment (55,056) (46,455)
Proceeds from sales of assets 16,705 18,790
Net cash used in investing activities (38,351) (27,665)
Financing Activities:
(Decrease) increase in short-term debt, net (23,769) 23,736
Payments on long-term debt (83) -
Equity issuances, net 1,740 1,338
Net cash (used in) provided by financing
activities (22,112) 25,074
Increase in cash and cash equivalents 4,419 33
Cash and cash equivalents at beginning
of year 29,099 61,643
Cash and cash equivalents at end of period $33,518 $61,676