CarMax Reports Record Third Quarter Results
Releases Fourth Quarter Expectations
RICHMOND, Va., Dec. 21 -- CarMax, Inc. today reported results for the third quarter ended November 30, 2005.
* Total sales increased 17% to $1.42 billion from $1.22 billion in the
third quarter of last year.
* Comparable store used unit sales rose 3% for the quarter.
* Total used unit sales grew 13% for the quarter.
* Net earnings increased 46% to $26.4 million, or 25 cents per share,
compared with $18.0 million, or 17 cents per share, earned in the third
quarter of last year.
-- Earnings for the current year's quarter included a benefit of 3
cents per share from CarMax Auto Finance favorable items, while the
prior year's third quarter included a similar benefit of 1 cent per
share.
* For the fourth quarter of fiscal 2006 ending February 28, 2006, CarMax
expects comparable store used unit sales performance in the range of -4%
to +2%, and earnings per share in the range of 25 cents to 31 cents.
Sales Components
Three Months Ended Nine Months Ended
(In millions) November 30 (1) November 30 (1)
2005 2004 Change 2005 2004 Change
Used vehicle
sales $1,087.1 $926.0 17.4 % $3,527.4 $2,898.8 21.7 %
New vehicle
sales 113.3 114.2 (0.8)% 399.3 388.5 2.8 %
Wholesale vehicle
sales 174.2 132.7 31.3 % 554.5 441.7 25.6 %
Other sales
and revenues
(2) 49.3 42.8 15.2 % 155.0 135.3 14.5 %
Net sales and
operating
revenues $1,424.0 $1,215.7 17.1 % $4,636.2 $3,864.2 20.0 %
(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, and third-party finance fees.
Retail Vehicle Sales Changes
Three Months Ended Nine Months Ended
November 30 November 30
2005 2004 2005 2004
Comparable store vehicle
sales:
Used vehicle units 3 % 2 % 7 % (3)%
New vehicle units (6)% 11 % 2 % 12 %
Total units 3 % 2 % 6 % (2)%
Used vehicle dollars 7 % 3 % 10 % (1)%
New vehicle dollars (5)% 9 % 3 % 11 %
Total dollars 6 % 4 % 9 % 0 %
Total vehicle sales:
Used vehicle units 13 % 15 % 18 % 8 %
New vehicle units (2)% (6)% 1 % (3)%
Total units 12 % 13 % 17 % 7 %
Used vehicle dollars 17 % 16 % 22 % 10 %
New vehicle dollars (1)% (7)% 3 % (3)%
Total dollars 15 % 13 % 19 % 9 %
Retail Vehicle Sales Mix
Three Months Ended Nine Months Ended
November 30 November 30
2005 2004 2005 2004
Vehicle units:
Used vehicles 93 % 93 % 93 % 92 %
New vehicles 7 7 7 8
Total 100 % 100 % 100 % 100 %
Vehicle dollars:
Used vehicles 91 % 89 % 90 % 88 %
New vehicles 9 11 10 12
Total 100 % 100 % 100 % 100 %
Retail Unit Sales
Three Months Ended Nine Months Ended
November 30 November 30
2005 2004 2005 2004
Used vehicles 66,680 58,908 216,439 183,657
New vehicles 4,675 4,765 16,599 16,365
Total 71,355 63,673 233,038 200,022
Average Retail Selling Prices
Three Months Ended Nine Months Ended
November 30 November 30
2005 2004 2005 2004
Used vehicles $16,147 $15,591 $16,157 $15,650
New vehicles $24,081 $23,804 $23,896 $23,562
Weighted average $16,667 $16,205 $16,708 $16,297
Earnings Highlights
Three Months Ended Nine Months Ended
(In millions except per November 30 November 30
share data)
2005 2004 Change 2005 2004 Change
Net earnings $26.4 $18.0 46.4 % $107.7 $83.2 29.3 %
Diluted weighted average
shares outstanding 106.4 105.7 0.7 % 106.3 105.7 0.6 %
Net earnings per share (1) $0.25 $0.17 47.1 % $1.01 $0.79 27.8 %
(1) All per share amounts are presented on a fully diluted basis.
Selected Operating Ratios
Three Months Ended Nine Months Ended
(In millions) November 30 November 30
2005 % (1) 2004 % (1) 2005 % (1) 2004 % (1)
Net
sales
and
operating
revenues $1,424.0 100.0% $1,215.7 100.0% $4,636.2 100.0% $3,864.2 100.0%
Gross
profit $177.2 12.4% $145.4 12.0% $583.5 12.6% $475.9 12.3%
CarMax
Auto
Finance
income $28.0 2.0% $20.4 1.7% $78.9 1.7% $63.0 1.6%
Selling,
general, and
administrative
expenses $161.7 11.4% $137.2 11.3% $486.2 10.5% $402.6 10.4%
Operating
profit
(EBIT) (2) $43.4 3.0% $29.4 2.4% $176.1 3.8% $137.0 3.5%
Net earnings $26.4 1.9% $18.0 1.5% $107.7 2.3% $83.2 2.2%
(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 Nine Months Ended
November 30 November 30
2005 2004 2005 2004
$/unit(1) %(2) $/unit(1) %(2) $/unit(1) %(2) $/unit(1) %(2)
Used
vehicle
gross
profit $1,758 10.8% $1,765 11.2% $1,807 11.1% $1,826 11.6%
New
vehicle
gross
profit $866 3.6% $886 3.7% $943 3.9% $866 3.7%
Wholesale
vehicle
gross
profit $726 16.8% $440 11.8% $641 15.3% $428 11.4%
Other
gross
profit $374 54.0% $339 50.5% $395 59.3% $379 56.1%
Total
gross
profit $2,483 12.4% $2,284 12.0% $2,504 12.6% $2,379 12.3%
(1) Calculated as category gross profit divided by its respective units
sold, except the other and 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. "Our third quarter used car sales growth reflected increased traffic compared with last year's third quarter, as well as continuing strong execution," said Austin Ligon, president and chief executive officer. "We were able to sustain positive momentum even as the cross-shopping benefit from this summer's new car employee pricing programs waned. Subsequently, new car sales and traffic levels dropped significantly, reflecting the limited model year close-out vehicle availability that resulted from the success of the employee pricing programs." The new car employee pricing programs ended in late September and early October.
"The effect on sales from hurricanes occurring during the quarter was actually slightly positive," said Ligon. "As anticipated, we were able to fully recover the sales lost to weather-related store closures in south Florida and in Houston from Hurricanes Wilma and Rita. And we saw a slight benefit from replacement purchases made by consumers displaced by Hurricane Katrina.
"Wholesale sales continued to be exceptionally strong, as we benefited from higher year-over-year wholesale prices, strong appraisal traffic, and geographic expansion," Ligon said. "Even with the precipitous drop in SUV prices, we did not see as much of a total deceleration in overall wholesale used car pricing as normally occurs during the third quarter. We believe both the continued strength of compact and mid-size car prices, driven by gasoline price concerns, and the more limited availability of model year close-out vehicles contributed to this situation.
"New vehicle sales declined modestly, reflecting the performance of the broader new car marketplace following the end of the employee discount programs," said Ligon. "Other sales and revenues benefited from increases in extended service plan revenues and service department sales."
Margins. "We are quite pleased with the strength in our gross profit per unit in what is typically our toughest and most volatile quarter of the year," said Ligon. "Our used vehicle gross profit per unit was similar to last year's third quarter, and we benefited from an unusually high wholesale gross profit. We adjusted our appraisal offers to incorporate the anticipated drop in wholesale pricing that typically occurs in the fall. However, our wholesale auctions reflected the more modest actual price declines, giving us more wholesale margin than we had planned despite a solid improvement in appraisal purchase rates. We remained active buyers of SUVs throughout the period unlike many of our new car franchise competitors.
"Margins on other sales and revenues grew as a result of the growth in extended service plan revenues, which have no associated cost of sales, and the growth in our service margin, reflecting improved overhead expense absorption," Ligon said.
CarMax Auto Finance. CAF income increased 37%, to $28.0 million in this year's third quarter from $20.4 million in the same quarter last year. CAF income benefited from the growth in total sales and managed receivables, a favorable valuation adjustment, and the favorable effect of the public securitization completed in September. This year's third quarter CAF income included a benefit of 2 cents per share primarily related to lowering the loss rate assumptions on certain previously securitized receivables. Last year's third quarter CAF income included a similar 1 cent per share benefit. This year's third quarter also included a 1 cent per share benefit related to the September public securitization. CAF continued to benefit from robust demand in the asset-backed securities market and the strength and consistency of CAF's receivables performance.
For loans originated and sold in the quarter, the gain as a percent of loans sold was 3.6% in the current year's third quarter compared with 3.5% in last year's third quarter. The reported gains as a percent of loans sold of 5.0% in this year's third quarter and 4.1% in last year's third quarter include the benefits related to the valuation adjustments and the new public securitization.
SG&A. "Selling, general, and administrative expenses as a percent of net sales and operating revenues increased slightly to 11.4% in this year's third quarter from 11.3% in last year's quarter," Ligon said. "As expected, the moderate rate of increase in unit comps was not sufficient to provide SG&A leverage. Having a larger percentage of our store base comprised of stores not yet at basic maturity and last year's lower-than-normal corporate bonuses were also contributing factors. At the end of this year's third quarter, 49% of our stores were less than four years old, compared with 40% at the end of last year's third quarter."
Earnings. "We finished the quarter with earnings of 25 cents per share, at the top end of our guidance range," said Ligon. "Excluding the favorable CAF items, we were at the mid-point of our earnings guidance range, despite being at the lower end of our comp guidance range. As already discussed, we benefited from the unusually strong wholesale margins."
Fourth Quarter and Fiscal 2006 Expectations
"For the fourth quarter, we currently expect used unit comp performance in the range of -4% to +2%, assuming we don't experience abnormal winter weather events," Ligon said. "We have a particularly challenging comparison to last year's 12% used unit comps, which included 5 percentage points attributable to rolling out a new subprime finance provider. We expect fourth quarter earnings per share in the range of 25 to 31 cents, implying full year fiscal 2006 earnings per share in the range of $1.27 to $1.33. This represents annual EPS growth of between 19 and 24% compared with the $1.07 per share earned in fiscal 2005. We expect the fourth quarter CAF gains on loans sold to be approximately 3.5%."
The company plans to release fourth quarter sales and earnings results on Thursday, March 30, 2006, before the opening of the New York Stock Exchange. CarMax will host a conference call for investors at 9:00 a.m. Eastern time on that day. Information on this conference call will be available on the company's investor information home page at http://investor.carmax.com/.
Future Guidance
"After careful consideration, we have decided that for our next fiscal year, we'll issue guidance on comparable store used unit sales and on earnings per share only for the full fiscal year," said Ligon. "We will no longer issue quarterly guidance. This decision reflects our continuing focus on longer-term store, sales, and earnings growth and on return on invested capital, and our recognition that the performance in shorter-term periods can be more volatile than over the longer term. As we report our quarterly results, we plan to comment on how our performance is tracking against our annual guidance."
Store Openings
CarMax opened four superstores during the third quarter, including two standard superstores and two satellite superstores. In November, the company entered the Virginia Beach and Wichita markets with standard superstores, and in September, satellite superstores were added in the Miami and Nashville markets. To date in fiscal 2006, CarMax has opened nine superstores, including five standard superstores and four satellite superstores. No superstore openings are planned for the fourth quarter of fiscal 2006.
During the fiscal year ending February 28, 2007, CarMax plans to expand its used car superstore base by approximately 16%, consistent with the company's target for used car superstore annual growth in the range of 15% to 20%. The company expects to open approximately 11 used car superstores, including five standard superstores and six satellite superstores, as follows:
Fiscal 2007 Store Opening Plan
Standard Satellite Total
Superstores Superstores Superstores
Hartford / New New
Haven, Conn. mid-sized market 1 1 2
Columbus, Ohio New
mid-sized market 1 1 2
Oklahoma City, New
Okla. mid-sized market 1 - 1
Los Angeles, Existing large
Calif. market - 2 2
Charlottesville, New small market
Va. - 1 1
Fredericksburg, Existing large
Va. (Washington, market
D.C. market) 1 - 1
Austin, Tex. Existing
mid-sized market - 1 1
Charlotte, N.C. Existing
mid-sized market 1 - 1
Total superstore
openings 5 6 11
"With an estimated television viewing audience of approximately 185,000, Charlottesville, Va., represents our first entry into a small market," said Ligon. "We will be adjusting our store footprint, inventory, and our staffing model in this store, as a result of the smaller overall sales opportunities provided by this market. This store's performance over the next few years will help us better understand our longer-term opportunities in small markets."
About CarMax
CarMax, a Fortune 500 company, and one of the Fortune 2005 "100 Best Companies to Work For," is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 67 used car superstores in 31 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 November 30, 2005, the company sold 285,950 used cars, which is 93% of the total 306,820 vehicles the company retailed during that period. For more information, access the CarMax website 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
2005 %(1) 2004 %(1)
Sales and operating
revenues:
Used vehicle sales $1,087,097 76.3 $926,023 76.2
New vehicle sales 113,299 8.0 114,199 9.4
Wholesale vehicle sales 174,235 12.2 132,669 10.9
Other sales and revenues 49,349 3.5 42,820 3.5
Net sales and operating
revenues 1,423,980 100.0 1,215,711 100.0
Cost of sales 1,246,807 87.6 1,070,265 88.0
Gross profit 177,173 12.4 145,446 12.0
CarMax Auto Finance income 27,971 2.0 20,439 1.7
Selling, general, and
administrative expenses 161,727 11.4 137,170 11.3
Gain on franchise
dispositions, net - - 692 0.1
Interest expense 430 - - -
Interest income 262 - 175 -
Earnings before
income taxes 43,249 3.0 29,582 2.4
Provision for
income taxes 16,837 1.2 11,537 0.9
Net earnings $26,412 1.9 $18,045 1.5
Weighted average common shares:
Basic 104,727 104,070
Diluted 106,442 105,735
Net earnings per share:
Basic $0.25 $0.17
Diluted $0.25 $0.17
Nine Months Ended
November 30
2005 %(1) 2004 %(1)
Sales and operating
revenues:
Used vehicle sales $3,527,416 76.1 $2,898,757 75.0
New vehicle sales 399,314 8.6 388,480 10.1
Wholesale vehicle sales 554,510 12.0 441,658 11.4
Other sales and revenues 154,953 3.3 135,313 3.5
Net sales and operating
revenues 4,636,193 100.0 3,864,208 100.0
Cost of sales 4,052,677 87.4 3,388,332 87.7
Gross profit 583,516 12.6 475,876 12.3
CarMax Auto Finance income 78,866 1.7 62,999 1.6
Selling, general, and
administrative expenses 486,236 10.5 402,584 10.4
Gain on franchise
dispositions, net - - 681 -
Interest expense 1,999 - 817 -
Interest income 588 - 294 -
Earnings before
income taxes 174,735 3.8 136,449 3.5
Provision for
income taxes 67,083 1.4 53,215 1.4
Net earnings $107,652 2.3 $83,234 2.2
Weighted average common shares:
Basic 104,547 103,978
Diluted 106,281 105,673
Net earnings per share:
Basic $1.03 $0.80
Diluted $1.01 $0.79
(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 28
2005 2004 2005
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $34,977 $25,762 $29,099
Accounts receivable, net 55,616 63,694 76,167
Automobile loan receivables
held for sale 1,527 3,540 22,152
Retained interest in
securitized receivables 158,930 131,621 147,963
Inventory 606,366 503,682 576,567
Prepaid expenses and
other current assets 11,381 9,248 13,008
Total current assets 868,797 737,547 864,956
Property and
equipment, net 465,990 368,654 406,301
Deferred income taxes 5,869 667 -
Other assets 26,484 26,302 21,756
TOTAL ASSETS $1,367,140 $1,133,170 $1,293,013
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $173,341 $133,015 $170,646
Accrued expenses and
other current
liabilities 75,266 53,388 65,664
Accrued income taxes 21,571 4,481 1,179
Deferred income taxes 19,572 31,030 26,315
Short-term debt 4,707 6,331 65,197
Current portion of
long-term debt 40,042 - 330
Total current liabilities 334,499 228,245 329,331
Long-term debt, excluding
current portion 85,036 111,940 128,419
Deferred revenue and
other liabilities 29,322 23,749 29,260
Deferred income taxes - - 5,027
TOTAL LIABILITIES 448,857 363,934 492,037
SHAREHOLDERS' EQUITY 918,283 769,236 800,976
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,367,140 $1,133,170 $1,293,013
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Nine Months Ended
November 30
2005 2004
Operating Activities:
Net earnings $107,652 $83,234
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 19,193 13,334
Amortization of restricted stock awards 53 79
Gain on disposition of assets (777) (810)
Provision for deferred income taxes (17,639) (2,163)
Changes in operating assets and
liabilities:
Decrease in accounts receivable, net 20,551 8,664
Decrease in automobile loan receivables
held for sale 20,625 15,241
(Increase) decrease in retained interest
in securitized receivables (10,967) 14,367
Increase in inventory (29,799) (37,621)
Decrease (increase) in prepaid expenses
and other current assets 1,627 (598)
Increase in other assets (434) (394)
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities, and accrued income taxes 37,804 (11,500)
Increase in deferred revenue and other
liabilities 800 1,772
Net cash provided by operating activities 148,689 83,605
Investing Activities:
Purchases of property and equipment (153,490) (176,341)
Proceeds from sales of assets 78,217 52,657
Net cash used in investing activities (75,273) (123,684)
Financing Activities:
(Decrease) increase in short-term debt, net (60,490) 1,885
Issuance of long-term debt 105,229 -
Payments of long-term debt (116,764) -
Equity issuances, net 4,487 2,313
Net cash (used in) provided by
financing activities (67,538) 4,198
Increase (decrease) in cash and cash
equivalents 5,878 (35,881)
Cash and cash equivalents at beginning
of year 29,099 61,643
Cash and cash equivalents at end
of period $34,977 $25,762