CarMax Reports Record First Quarter Results
RICHMOND, Va., June 20 -- CarMax, Inc. today reported record first quarter results for the quarter ended May 31, 2007.
* Total sales increased 14% to $2.15 billion from $1.89 billion in the
first quarter of last year.
* Comparable store used unit sales rose 6% for the quarter.
* Total used unit sales grew 15% for the first quarter.
* Net earnings increased 15% to $65.4 million, or 30 cents per diluted
share, compared with $56.8 million, or 27 cents per diluted share,
earned in the first quarter of fiscal 2007.
First Quarter Business Performance Review
Sales. "Comparable store used unit sales growth of 6% kicked off another good first quarter and what we are confident will be another year of growth for CarMax," said Tom Folliard, president and chief executive officer. We are pleased with our sales performance this quarter, particularly given what we believe was a somewhat weak retail environment and the fact that we were up against 6% comparable store used unit sales growth in the first quarter of each of the last two years. Broad-based increases in traffic, both in our stores and on our website, and solid execution by our store teams continued to positively affect our results. Credit availability via CarMax Auto Finance and our third-party finance providers remained consistent with prior quarters, also enabling our strong sales performance. We believe we continued to gain share in the late-model used vehicle market.
Wholesale unit sales increased 7%, in line with our expectations and reflecting the challenging comparison with the first quarter of last year when wholesale unit sales grew by 21%. Other sales and revenues climbed 11%, supported by an 18% increase in the sales of extended service plans and a 10% net increase in third-party finance fees.
Gross Profit. Our total gross profit per retail unit of $2,801 was up modestly from the prior year's first quarter, with an improvement in wholesale gross profit per unit largely offset by a reduction in new vehicle profits. Our average gross profit per unit on our retail used cars was slightly higher than in the first quarter of fiscal 2007, and it climbed from the fourth quarter level primarily as a result of normal seasonal trends. The increase in wholesale gross profit per unit reflected the continuation of our multi- year efforts to improve both our car-buying process and our in-store auctions.
CarMax Auto Finance. "We had another strong quarter at CAF," said Folliard. CAF income climbed 14%, despite the inclusion of approximately $6 million of favorable items in last year's first quarter. CAF benefited from our solid sales growth, an improvement in the gain on loans originated and sold, and the increase in total managed receivables.
The gain on loans originated and sold as a percent of loans sold increased to 4.2% in this year's first quarter compared with 3.4% in the first quarter of last year. Since last year, we have been able to gradually increase the rates charged to consumers to reflect previous increases in our own cost of funds. Over the long-term, we continue to expect that our gain percentage will generally be in the range of 3.5% to 4.5%.
As a result of our normal quarterly review of the valuation of our retained interest in securitized receivables, we recorded an immaterial favorable valuation adjustment in the quarter. While the loss trend on receivables originated since late 2005 has been higher than on receivables originated in 2003 and 2004, the higher losses were expected and were already incorporated into our existing loss assumptions. The receivables originated in these earlier years experienced losses well below both CAF's historical averages and our targeted loss rates. Following a period of testing and validation, CAF gradually expanded its credit offers beginning in late 2005 in order to maximize originations while remaining within targeted loss rates.
SG&A. Our SG&A ratio was modestly unfavorable in this year's first quarter, at 10.0% compared with 9.9% in the corresponding quarter last year. As expected, our SG&A spending this year related to planned strategic, operational, and Internet initiatives precluded achieving overhead leverage from our sales growth.
Earnings and Earnings Per Share. Net income increased by 15% to $65.4 million, from $56.8 million in the first quarter of fiscal 2007. As expected, our diluted weighted average shares outstanding increased by 3%, primarily as a result of stock option exercises in fiscal 2007 and the effect of the increase in our stock price on the calculation of fully diluted common shares. As a result, earnings per share increased at a slower pace than the growth in net income.
Superstore Openings. During the first quarter, we opened three used car superstores, entering the Tucson market with a standard superstore, and the Milwaukee market with two satellite superstores. Vehicle reconditioning for the Milwaukee satellites is provided by our standard superstore in Kenosha, Wisconsin, which has available capacity. We also opened a car-buying center in the Raleigh market, expanding the test we began last year in Atlanta. The car-buying centers focus on appraisals and vehicle purchases and are part of our long-term effort to increase vehicle sourcing self-sufficiency. We plan to open an additional ten used car superstores and two car-buying centers during the remainder of fiscal 2008.
Supplemental Financial Information
Sales Components
(In millions) Three Months Ended May 31(1)
2007 2006 Change
Used vehicle sales $1,708.4 $1,461.1 16.9%
New vehicle sales 112.6 118.4 (4.9%
Wholesale vehicle sales 261.2 247.3 5.6%
Other sales and revenues:
Extended service plan revenues 33.9 28.8 17.6%
Service department sales 24.1 23.2 4.2%
Third-party finance fees, net 7.0 6.4 9.6%
Total other sales and revenues 65.0 58.3 11.4%
Net sales and operating revenues $2,147.1 $1,885.1 13.9%
(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.
Retail Vehicle Sales Changes
Three Months Ended May 31
2007 2006
Comparable store vehicle sales:
Used vehicle units 6% 6%
New vehicle units (5)% (11)%
Total 5% 4%
Used vehicle dollars 8% 13%
New vehicle dollars (5)% (12)%
Total 7% 11%
Total vehicle sales:
Used vehicle units 15% 14%
New vehicle units (5)% (12)%
Total 14% 12%
Used vehicle dollars 17% 21%
New vehicle dollars (5)% (12)%
Total 15% 18%
Retail Vehicle Sales Mix
Three Months Ended May 31
2007 2006
Vehicle units:
Used vehicles 95% 94%
New vehicles 5 6
Total 100% 100%
Vehicle dollars:
Used vehicles 94% 92%
New vehicles 6 8
Total 100% 100%
Unit Sales
Three Months Ended May 31
2007 2006
Used vehicles 96,766 84,266
New vehicles 4,720 4,947
Wholesale vehicles 57,714 53,786
Average Selling Prices
Three Months Ended May 31
2007 2006
Used vehicles $17,480 $17,167
New vehicles $23,717 $23,783
Wholesale vehicles $4,413 $4,483
Selected Operating Ratios
(In millions) Three Months Ended May 31
2007 %(1) 2006 %(1)
Net sales and operating revenues $2,147.1 100.0% $1,885.1 100.0%
Gross profit $284.2 13.2% $248.3 13.2%
CarMax Auto Finance income $37.1 1.7% $32.4 1.7%
Selling, general, and
administrative $213.8 10.0% $187.0 9.9%
expenses
Operating profit (EBIT) (2) $107.5 5.0% $93.7 5.0%
Net earnings $65.4 3.0% $56.8 3.0%
(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
2007 2006
$/unit(1) %(2) $/unit (1) %(2)
Used vehicle gross profit $1,934 11.0% $1,924 11.1%
New vehicle gross profit $1,008 4.2% $1,215 5.1%
Wholesale vehicle gross profit $800 17.7% $723 15.7%
Other gross profit $455 71.0% $462 70.7%
Total gross profit $2,801 13.2% $2,783 13.2%
(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.
Earnings Highlights
(In millions except per share data) Three Months Ended May 31
2007 2006 Change
Net earnings $65.4 $56.8 15.1%
Diluted weighted average shares
outstanding 220.1 214.1 2.8%
Net earnings per share $0.30 $0.27 11.1%
Fiscal 2008 Expectations
"For the full year, we reiterate our expectations for comparable store used unit sales growth in the range of 3% to 9% and earnings per share in the range of $1.03 to $1.14," said Folliard.
Second Quarter Fiscal 2008 Earnings Release Date
We currently plan to release second quarter sales and earnings results on Wednesday, September 19, 2007, before the opening of the New York Stock Exchange. We will host a conference call for investors at 9:00 a.m. EDT on that date. Information on this conference call will be available on our investor information home page at investor.carmax.com in early September.
Conference Call Information
We will host a conference call for investors at 9:00 a.m. EDT today, June 20, 2007. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 9749170. A live webcast of the call will be available on our investor information home page at investor.carmax.com and at www.streetevents.com.
A webcast replay of the call will be available at investor.carmax.com beginning at approximately 1:00 p.m. EDT on June 20, 2007, through July 20, 2007. A telephone replay also will be available through June 27, 2007, and may be accessed by dialing 1-800-642-1687 (international callers dial 1-706- 645-9291). The conference I.D. for both domestic and international callers is 9749170.
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., we currently operate 80 used car superstores in 38 markets. The CarMax consumer offer is structured around four core equities: low, no-haggle prices; a broad selection; high quality vehicles; and customer-friendly service. During the twelve months ended May 31, 2007, we retailed 349,521 used vehicles and sold 212,887 wholesale vehicles at our in- store auctions. For more information, access the CarMax website at www.carmax.com.
Forward-Looking Statements
We caution readers that the statements contained in this release about our future business plans, operations, opportunities, or prospects, including without limitation any statements or factors regarding expected sales, margins, or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following: changes in the general U.S. or regional U.S. economy; intense competition within our industry; significant changes in retail prices for used and new vehicles; a reduction in the availability or our access to sources of inventory; our ability to acquire suitable real estate; the significant loss of key employees from our store, regional, or corporate management teams; the efficient operation of our information systems; changes in the availability or cost of capital and working capital financing; the occurrence of adverse weather events; seasonal fluctuations in our business; the geographic concentration of our superstores; the regulatory environment in which we operate; the effect of various litigation matters; the effect of new accounting requirements or changes to generally accepted accounting principles; and the occurrence of certain other material events. We disclaim any intent or obligation to update our forward-looking statements.
For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2007, and our quarterly or current reports as filed with or furnished to the Securities and Exchange Commission.
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended May 31
2007 %(1) 2006 %(1)
Sales and operating revenues:
Used vehicle sales $1,708,391 79.6 $1,461,120 77.5
New vehicle sales 112,615 5.2 118,408 6.3
Wholesale vehicle sales 261,152 12.2 247,296 13.1
Other sales and revenues 64,976 3.0 58,315 3.1
Net sales and operating revenues 2,147,134 100.0 1,885,139 100.0
Cost of sales 1,862,913 86.8 1,636,884 86.8
Gross profit 284,221 13.2 248,255 13.2
CarMax Auto Finance income 37,068 1.7 32,394 1.7
Selling, general, and
administrative expenses 213,814 10.0 186,966 9.9
Interest expense 2,016 0.1 1,947 0.1
Interest income 378 -- 267 --
Earnings before income taxes 105,837 4.9 92,003 4.9
Provision for income taxes 40,482 1.9 35,227 1.9
Net earnings $65,355 3.0 $56,776 3.0
Weighted average common shares:
Basic 215,293 210,530
Diluted 220,130 214,111
Net earnings per share:
Basic $0.30 $0.27
Diluted $0.30 $0.27
(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
UNAUDITED
(In thousands)
May 31 May 31 February 28
2007 2006 2007
ASSETS
Current assets:
Cash and cash equivalents $22,029 $26,043 $19,455
Accounts receivable, net 68,367 70,400 71,413
Automobile loan receivables held for
sale 1,410 11,834 6,162
Retained interest in securitized
receivables 221,894 167,899 202,302
Inventory 863,511 738,705 836,116
Prepaid expenses and other current
assets 11,116 12,123 15,068
Total current assets 1,188,327 1,027,004 1,150,516
Property and equipment, net 702,431 516,305 651,850
Deferred income taxes 43,694 28,605 40,174
Other assets 42,698 44,218 43,033
TOTAL ASSETS $1,977,150 $1,616,132 $1,885,573
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $249,327 $224,301 $254,895
Accrued expenses and other current
liabilities 65,069 56,104 68,885
Accrued income taxes 43,272 53,033 23,377
Deferred income taxes 10,367 8,821 13,132
Short-term debt 3,680 1,108 3,290
Current portion of long-term debt 131,264 30,781 148,443
Total current liabilities 502,979 374,148 512,022
Long-term debt, excluding current
portion 33,469 134,534 33,744
Deferred revenue and other liabilities 113,129 53,883 92,432
TOTAL LIABILITIES 649,577 562,565 638,198
SHAREHOLDERS' EQUITY 1,327,573 1,053,567 1,247,375
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,977,150 $1,616,132 $1,885,573
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Three Months Ended May 31
2007 2006
Operating Activities:
Net earnings $65,355 $56,776
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 10,835 8,075
Stock-based compensation expense 9,332 6,686
Loss (gain) on disposition of assets 46 (2)
Deferred income tax benefit (6,486) (18,770)
Net decrease (increase) in:
Accounts receivable, net 3,046 6,221
Automobile loan receivables held
for sale, net 4,752 (7,695)
Retained interest in
securitization receivables (19,592) (9,591)
Inventory (27,395) (69,005)
Prepaid expenses and other
current assets 3,952 (912)
Other assets 335 (218)
Net increase in:
Accounts payable, accrued
expenses and other current
liabilities, and accrued
income taxes 10,522 54,044
Deferred revenue and other
liabilities 20,697 22,476
Net cash provided by operating activities 75,399 48,085
Investing Activities:
Capital expenditures (60,883) (25,139)
Proceeds from sales of assets 4 59
Net cash used in investing activities (60,879) (25,080)
Financing Activities:
Increase in short-term debt, net 390 645
Payments on long-term debt (17,454) (29,234)
Equity issuances, net 3,725 6,313
Excess tax benefits from stock-based
payment arrangements 1,393 3,555
Net cash used in financing activities (11,946) (18,721)
Increase in cash and cash equivalents 2,574 4,284
Cash and cash equivalents at beginning of
year 19,455 21,759
Cash and cash equivalents at end of period $22,029 $26,043
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