CarMax Reports Record Fourth Quarter and Fiscal Year 2007 Results
Releases Fiscal 2008 Expectations
RICHMOND, Va., March 29 -- CarMax, Inc. today reported record results for the fourth quarter and fiscal year ended February 28, 2007. All share and per share amounts have been adjusted for the effect of the 2-for-1 stock split on March 26, 2007.
-- Total fourth quarter sales increased 16% to $1.88 billion from $1.62
billion in the fourth quarter of fiscal 2006. For the fiscal year,
total sales increased 19% to $7.47 billion from $6.26 billion.
-- Comparable store used unit sales increased 12% for the fourth quarter.
For the fiscal year, comparable store used unit sales increased 9%.
-- Total used unit sales grew 18% in the fourth quarter and 16% for the
fiscal year.
-- For the fourth quarter, net earnings increased 15% to $42.1 million, or
19 cents per share, compared with $36.7 million, or 17 cents per share,
in the fourth quarter of fiscal 2006. For the fiscal year, net
earnings increased 48% to $198.6 million, or 92 cents per share,
compared with $134.2 million, or 63 cents per share, in fiscal 2006.
-- Results for the fourth quarter of fiscal 2007 included an asset
impairment charge of 1 cent per share related to one of our new car
franchises. Results for the fourth quarter of fiscal 2006 included a
benefit of 1 cent per share for favorable CarMax Auto Finance items.
Fourth Quarter Business Performance Review
"We've had a great year at CarMax and are pleased to wrap up fiscal 2007 with another quarter of solid performance," said Tom Folliard, president and chief executive officer.
Sales. "We posted our second consecutive quarter of double-digit used unit comp growth, up 12% in the fourth quarter," said Folliard. "Similar to the first nine months of the year, we benefited from strong store and Internet traffic and continued excellent execution by our store teams." Compared with earlier quarters of this year, our average used vehicle selling price moderated slightly in the fourth quarter. In the fourth quarter of last year, our average selling price reflected the rebound in SUV and truck sales, which had been adversely affected by the spike in gasoline prices earlier that year.
Wholesale vehicle sales were relatively flat in the fourth quarter, as the increase in unit sales was offset by a decline in our average wholesale selling price. We believe the decline in wholesale price reflects the difficult comparison with last year's fourth quarter. Our wholesale selling prices were unusually strong in the second half of last year, due in part to the large number of vehicles destroyed by Hurricanes Katrina, Rita, and Wilma, which caused a supply/demand imbalance, particularly for older, higher mileage cars that make up the majority of our wholesale sales.
Gross Profit. Our total gross profit per unit of $2,651 was slightly below the prior year's quarter, primarily because of a $60 per unit decline in wholesale vehicle profits. As expected, our wholesale profit per unit was lower than in last year's fourth quarter, which had benefited from the unusually strong demand and pricing for older cars in the wake of Hurricane Katrina. However, our wholesale profit per unit did strengthen compared with the third quarter of fiscal 2007, as we typically generate our highest wholesale margins in the fourth quarter when the seasonal demand for older, higher mileage cars normally peaks.
CarMax Auto Finance. "We again reported strong financial results at CarMax Auto Finance," said Folliard. CAF income rose 25%, to $31.7 million, despite the 1 cent per share of favorable valuation adjustments recorded last year. CAF income benefited from our strong sales performance and an improvement in the gain on loans originated and sold.
The gain on loans originated and sold as a percent of loans originated and sold (the gain percentage) increased to 4.0% in this year's fourth quarter compared with 3.6% in the fourth quarter of fiscal 2006. Over the long-term, we expect our gain percentage to be in the range of 3.5% to 4.5%. We were at or below the lower end of this range throughout fiscal 2006. Our gain percentage began returning to more normalized levels last summer, coincident with the general stabilization in our funding costs.
SG&A. The SG&A ratio increased 10 basis points to 10.7% from 10.6% in the fourth quarter of fiscal 2006. As expected, we had significantly higher pre- opening costs in this year's fourth quarter due to differences in the timing of store openings. In addition, this year's fourth quarter SG&A expense included an impairment charge of approximately $4.9 million, or 1 cent per share, related to the write down of intangible assets associated with one of our new car franchises. Excluding the impairment loss and assuming pre- opening costs at a level similar to the prior year, we estimate the SG&A ratio would have declined approximately 30 basis points versus last year's fourth quarter.
As previously reported, we adopted the new accounting rules for stock- based compensation in the first quarter of fiscal 2007, and results for the prior year were restated to enhance comparability. We recognized $6.5 million, or 2 cents per share, of share-based compensation in the fourth quarter of fiscal 2007, $5.9 million of which was included in SG&A, compared with $6.1 million, or 2 cents per share, in last year's fourth quarter, all of which was included in SG&A.
Superstore Openings. We opened four stores during the fourth quarter: a standard superstore in Fresno; satellite superstores in Austin and East Haven; and a satellite superstore in Charlottesville, Va., which was our first entry into a small market. We adjusted our store footprint, inventory level, and staffing model in Charlottesville to accommodate the expected smaller aggregate sales opportunity in this market. We believe this store will help us better understand our long-term opportunities in smaller markets, as well as having possible application in larger markets in fill-in situations or where real estate availability is constrained. For the fiscal year, we opened a total of ten superstores, including five standard and five satellite superstores, expanding our store base by 15%.
Supplemental Financial Information
Sales Components
Three Months Ended Fiscal Years Ended
(in millions) February 28 (1) February 28 (1)
2007 2006 Change 2007 2006 Change
Used vehicle sales $1,507.4 $1,243.9 21.2 % $5,872.8 $4,771.3 23.1 %
New vehicle sales 95.6 103.5 (7.7)% 445.1 502.8 (11.5)%
Wholesale vehicle
sales 222.5 223.8 (0.6)% 918.4 778.3 18.0 %
Other sales and
revenues:
Extended service
plan revenues 29.3 25.1 16.5 % 114.4 97.9 16.9 %
Service department
sales 22.0 23.0 (4.1)% 90.6 93.4 (3.0)%
Third-party finance
fees, net 6.1 4.5 35.3 % 24.3 16.3 49.3 %
Total other sales
and revenues 57.4 52.6 9.1 % 229.3 207.6 10.5 %
Net sales and
operating revenues $1,882.8 $1,623.8 16.0 % $7,465.7 $6,260.0 19.3 %
(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.
Retail Vehicle Sales Changes
Three Months Ended Fiscal Years Ended
February 28 February 28
2007 2006 2007 2006
Comparable store
vehicle sales:
Used vehicle units 12 % (3)% 9 % 4 %
New vehicle units (8)% (3)% (11)% 1 %
Total units 11 % (3)% 8 % 4 %
Used vehicle dollars 14 % 4 % 16 % 8 %
New vehicle dollars (8)% (4)% (12)% 1 %
Total dollars 13 % 3 % 13 % 8 %
Total vehicle sales:
Used vehicle units 18 % 6 % 16 % 15 %
New vehicle units (8)% 1 % (11)% 1 %
Total units 17 % 5 % 14 % 14 %
Used vehicle dollars 21 % 13 % 23 % 19 %
New vehicle dollars (8)% 0 % (11)% 2 %
Total dollars 19 % 12 % 20 % 17 %
Retail Vehicle Sales Mix
Three Months Ended Fiscal Years Ended
February 28 February 28
2007 2006 2007 2006
Vehicle units:
Used vehicles 96 % 94 % 95 % 93 %
New vehicles 4 6 5 7
Total 100 % 100 % 100 % 100 %
Vehicle dollars:
Used vehicles 94 % 92 % 93 % 90 %
New vehicles 6 8 7 10
Total 100 % 100 % 100 % 100 %
Unit Sales
Three Months Ended Fiscal Years Ended
February 28 February 28
2007 2006 2007 2006
Used vehicles 86,900 73,449 337,021 289,888
New vehicles 3,953 4,302 18,563 20,901
Wholesale vehicles 50,692 47,191 208,959 179,548
Average Selling Prices
Three Months Ended Fiscal Years Ended
February 28 February 28
2007 2006 2007 2006
Used vehicles $17,180 $16,715 $17,249 $16,298
New vehicles $24,031 $23,848 $23,833 $23,887
Wholesale vehicles $4,277 $4,590 $4,286 $4,233
Selected Operating Ratios
(in millions) Three Months Ended
February 28
2007 % (1) 2006(2) % (1)
Net sales and operating
revenues $1,882.8 100.0 % $1,623.8 100.0 %
Gross profit $240.8 12.8 % $207.2 12.8 %
CarMax Auto Finance income $31.7 1.7 % $25.5 1.6 %
Selling, general, and
administrative expenses $201.8 10.7 % $171.9 10.6 %
Operating profit (EBIT) (3) $70.7 3.8 % $60.8 3.7 %
Net earnings $42.1 2.2 % $36.7 2.3 %
Fiscal Years Ended
(in millions) February 28
2007 % (1) 2006(2) % (1)
Net sales and operating
revenues $7,465.7 100.0 % $6,260.0 100.0 %
Gross profit $971.1 13.0 % $790.7 12.6 %
CarMax Auto Finance income $132.6 1.8 % $104.3 1.7 %
Selling, general, and
administrative expenses $776.2 10.4 % $674.4 10.8 %
Operating profit (EBIT) (3)
Net earnings $198.6 2.7 % $134.2 2.1 %
(1) Calculated as the ratio of the applicable amount to net sales and
operating revenues.
(2) Restated to reflect the adoption of SFAS 123R.
(3) Operating profit equals earnings before interest and income taxes.
Gross Profit
Three Months Ended Fiscal Years Ended
February 28 February 28
2007 2006 2007 2006
$/unit(1) %(2) $/unit(1) %(2) $/unit(1) %(2) $/unit(1) %(2)
Used
vehicle
gross
profit $1,826 10.5% $1,810 10.7% $1,903 10.9% $1,808 11.0%
New vehicle
gross
profit $1,172 4.8% $899 3.7% $1,169 4.9% $934 3.9%
Wholesale
vehicle
gross
profit $805 18.4% $865 18.2% $742 16.9% $700 16.1%
Other gross
profit $404 64.0% $380 56.2% $431 66.8% $391 58.5%
Total gross
profit $2,651 12.8% $2,665 12.8% $2,731 13.0% $2,544 12.6%
(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.
Earnings Highlights
Three Months Ended Fiscal Years Ended
(in millions except February 28 February 28
per share data)
2007 2006(1) Change 2007 2006(1) Change
Net earnings $42.1 $36.7 14.9 % $198.6 $134.2 48.0 %
Weighted average
shares outstanding (2) 219.8 213.3 3.0 % 216.7 212.8 1.8 %
Net earnings per share (2) $0.19 $0.17 11.8 % $0.92 $0.63 46.0 %
(1) Restated to reflect the adoption of SFAS 123R.
(2) Share and per share amounts are presented on a fully diluted basis
and have been adjusted for the effect of the 2-for-1 stock split in
March 2007.
Fiscal 2008 Expectations
Superstore Openings and Capital Expenditures. We plan to expand our used car superstore base by approximately 17% in fiscal 2008, opening 13 used car superstores, including 5 standard and 8 satellite superstores. We plan to enter five new markets and expand our presence in six existing markets. The fiscal 2008 store opening plan contains a mix of market sizes, ranging from San Diego, which is our first new larger market in several years, to Omaha and Jackson, Miss.
In fiscal 2008, we also plan to open three additional car buying centers, in the Raleigh, Tampa, and Dallas markets. These sites will expand a test begun in fiscal 2007, when we opened our first car buying center in the Atlanta market. These test stores are part of our longer-term efforts to increase both appraisal traffic and retail vehicle sourcing self-sufficiency.
We currently estimate gross capital expenditures will total approximately $300 million in fiscal 2008. Planned expenditures primarily relate to new store construction and land purchases associated with future year store openings. Compared with the approximately $192 million spent in fiscal 2007, the fiscal 2008 capital spending estimate reflects more real estate purchases for future development in larger, multi-store markets. In addition, the fiscal 2007 capital spending amount was lower than originally projected, due in part to the acquisition of some store sites pursuant to ground lease.
Fiscal 2008 Sales. "We currently anticipate comparable store used unit growth for fiscal 2008 in the range of 3% to 9%," said Folliard. "We also expect wholesale unit sales growth to be consistent with our total used unit sales increase. Total revenues are expected to climb by between 14% and 20%, reflecting our expectations for used unit comp growth, new store openings, a modest increase in used vehicle average selling price, and a continued decline in our new vehicle sales."
Fiscal 2008 Earnings Per Share. "We currently anticipate fiscal 2008 earnings per share in the range of $1.03 to $1.14, representing EPS growth in the range of 12% to 24%," said Folliard. "We expect modest improvement in both used vehicle and wholesale gross profits per unit in fiscal 2008, as we continue to refine and improve our car-buying processes.
"We expect CAF income to increase modestly, but at a pace slower than anticipated sales growth, primarily reflecting the headwind created by the $13 million of favorable CAF items reported in fiscal 2007," continued Folliard. "The CAF gain percentage is anticipated to be slightly above the midpoint of our normalized 3.5% to 4.5% range in fiscal 2008, assuming no significant change in the interest rate environment.
"We expect to begin generating a modest amount of SG&A leverage with comparable store used unit sales growth at the midpoint of our expectation range," said Folliard. "This expectation reflects an increase in planned SG&A spending to support strategic, operational, and Internet initiatives, as well as an increase in pre-opening costs for the larger number of planned store openings.
"Our effective tax rate for fiscal 2008 is expected to be similar to the fiscal 2007 rate," said Folliard. "However, our diluted share count is expected to increase by approximately 3%, reflecting the effects of the recent increase in our stock price and option exercises on the weighted average share calculation."
First Quarter Fiscal 2008 Earnings Release Date
We currently plan to release first quarter sales and earnings results on Wednesday, June 20, 2007, before the opening of the New York Stock Exchange. We will host a conference call for investors at 9:00 a.m. Eastern time on that date. Information on this conference call will be available on our investor information home page at investor.carmax.com in early June.
About CarMax
CarMax, a Fortune 500 company and one of the Fortune 2007 "100 Best Companies to Work For," is the nation's largest retailer of used cars. Headquartered in Richmond, Va., CarMax currently operates 79 used car superstores in 38 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 February 28, 2007, the company retailed 337,021 used cars, which is 95% of the total 355,584 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)
(In thousands except per share data)
Three Months Ended Twelve Months Ended
February 28 February 28
Restated(2) Restated(2)
2007 %(1) 2006 %(1) 2007 %(1) 2006 %(1)
Sales and operating
revenues:
Used
vehicle
sales $1,507,407 80.1 $1,243,909 76.6 $5,872,816 78.7 $4,771,325 76.2
New
vehicle
sales 95,565 5.1 103,491 6.4 445,144 6.0 502,805 8.0
Wholesale
vehicle
sales 222,450 11.8 223,758 13.8 918,408 12.3 778,268 12.4
Other
sales and
revenues 57,406 3.0 52,616 3.2 229,288 3.1 207,569 3.3
Net sales
and
operating
revenues 1,882,828 100.0 1,623,774 100.0 7,465,656 100.0 6,259,967 100.0
Cost of
sales 1,641,995 87.2 1,416,576 87.2 6,494,594 87.0 5,469,253 87.4
Gross
profit 240,833 12.8 207,198 12.8 971,062 13.0 790,714 12.6
CarMax Auto
Finance
income 31,745 1.7 25,461 1.6 132,625 1.8 104,327 1.7
Selling,
general,
and
administrative
expenses 201,835 10.7 171,853 10.6 776,168 10.4 674,370 10.8
Interest
expense 924 - 2,094 0.1 5,373 0.1 4,093 0.1
Interest
income 230 - 435 - 1,203 - 1,023 -
Earnings
before
income
taxes 70,049 3.7 59,147 3.6 323,349 4.3 217,601 3.5
Provision
for income
taxes 27,911 1.5 22,474 1.4 124,752 1.7 83,381 1.3
Net earnings 42,138 2.2 $36,673 2.3 $198,597 2.7 $134,220 2.1
Weighted
average
common
shares: (3)
Basic 214,482 209,796 212,454 209,270
Diluted 219,828 213,322 216,739 212,846
Net earnings
per share: (3)
Basic $0.20 $0.17 $0.93 $0.64
Diluted $0.19 $0.17 $0.92 $0.63
(1) Percents are calculated as a percentage of net sales and operating
revenues and may not equal totals due to rounding.
(2) Restated to reflect the adoption of SFAS 123R.
(3) Share and per share amounts have been adjusted for the effect of the
2-for-1 stock split in March 2007.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands)
Restated(1)
February 28 February 28
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $ 19,455 $ 21,759
Accounts receivable, net 71,413 76,621
Automobile loan receivables
held for sale 6,162 4,139
Retained interest in
securitized receivables 202,302 158,308
Inventory 836,116 669,700
Prepaid expenses and other
current assets 15,068 11,211
Total current assets 1,150,516 941,738
Property and equipment, net 651,850 499,298
Deferred income taxes 40,174 24,576
Other assets 43,033 44,000
TOTAL ASSETS $1,885,573 $1,509,612
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 254,895 $ 188,614
Accrued expenses and other
current liabilities 68,885 66,871
Accrued income taxes 23,377 5,598
Deferred income taxes 13,132 23,562
Short-term debt 3,290 463
Current portion of long-term
debt 148,443 59,762
Total current liabilities 512,022 344,870
Long-term debt, excluding
current portion 33,744 134,787
Deferred revenue and other
liabilities 92,432 49,852
TOTAL LIABILITIES 638,198 529,509
SHAREHOLDERS' EQUITY 1,247,375 980,103
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,885,573 $1,509,612
(1) Restated to reflect the adoption of SFAS 123R.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Twelve Months Ended
February 28
Restated(1)
2007 2006
Operating Activities:
Net earnings $ 198,597 $ 134,220
Adjustments to reconcile
net earnings to net cash provided
by operating activities:
Depreciation and amortization 34,551 26,692
Share-based compensation expense 31,826 21,632
Loss (gain) on disposition of assets 88 (764)
Deferred income tax benefit (14,169) (19,088)
Impairment of long-lived assets 4,891 __
Net decrease (increase) in:
Accounts receivable, net 5,208 (454)
Automobile loan receivables held
for sale, net (2,023) 18,013
Retained interest in securitized
receivables (43,994) (10,345)
Inventory (166,416) (93,133)
Prepaid expenses and other current
assets (3,857) 1,797
Other assets (3,924) (5,975)
Net increase (decrease) in:
Accounts payable, accrued expenses
and other current liabilities,
and accrued income taxes 85,633 35,133
Deferred revenue and other
liabilities 10,389 9,785
Net cash provided by operating
activities 136,800 117,513
Investing Activities:
Capital expenditures (191,760) (194,433)
Proceeds from sales of assets 4,569 78,340
Net cash used in investing activities (187,191) (116,093)
Financing Activities:
Increase (decrease) in short-term
debt, net 2,827 (64,734)
Issuance of long-term debt 64,000 174,929
Payments on long-term debt (76,362) (116,993)
Equity issuances, net 35,411 6,035
Excess tax benefits from share-based
payment arrangements 22,211 3,978
Net cash provided by financing
activities 48,087 3,215
(Decrease) increase in cash and cash
equivalents (2,304) 4,635
Cash and cash equivalents at beginning
of year 21,759 17,124
Cash and cash equivalents at end of
period $ 19,455 $ 21,759
(1) Restated to reflect the adoption of SFAS 123R.