CarMax Reports Record Third Quarter Results

RICHMOND, Va.--(BUSINESS WIRE)-- CarMax, Inc. (NYS: KMX) today reported record results for the third quarter ended November 30, 2012.

  • Net sales and operating revenues increased 15% to $2.60 billion from $2.26 billion in the third quarter of last year.
  • Used unit sales in comparable stores increased 12% for the quarter.
  • Total used unit sales rose 16% in the third quarter.
  • Total wholesale unit sales increased 10% in the third quarter.
  • CarMax Auto Finance (CAF) income increased 16% to $72.5 million in the third quarter.
  • Net earnings grew 15% to $94.7 million, or $0.41 per diluted share, compared with $82.1 million, or $0.36 per diluted share, in the third quarter of fiscal 2012.

Third Quarter Business Performance Review


"We are pleased to report strong increases in used and wholesale vehicle unit sales and CAF income, which drove solid bottom-line earnings growth," said Tom Folliard, president and chief executive officer. "Our strong comparable store sales growth allowed us to leverage SG&A expenses, even as we expanded our store base."

Sales . Used vehicle sales improved significantly, with total used units climbing 16% and comparable store used units up 12%. The comparable store used unit growth was driven by improved conversion, which we believe benefited from a variety of factors, including more compelling credit offers from third-party finance providers and CAF, increased inventory selection, improved customer sentiment and continued strong in-store execution. The used vehicle average selling price was similar to the prior year's quarter.

Wholesale vehicle unit sales grew 10% compared with last year's quarter. Wholesale unit sales benefited from an increase in appraisal traffic, while the appraisal buy rate was similar to the prior year's quarter.

Other sales and revenues increased 5% compared with the prior year's third quarter, as an increase in extended service plan (ESP) revenues was largely offset by a reduction in net third-party finance fees. Third-party subprime providers, who purchase subprime financings at a discount, originated 14% of used vehicle unit sales in the current quarter compared with 9% in the prior year quarter. ESP revenues climbed 22% due to both the growth in used vehicle sales and an increase in ESP penetration.

Gross Profit . Total gross profit increased 14% to $345.2 million from $303.2 million in the third quarter of fiscal 2012, primarily reflecting the increased used and wholesale vehicle unit sales, as well as higher other gross profit.

Used vehicle gross profit rose 15% to $227.0 million driven by the 16% increase in used unit sales. Used vehicle gross profit per unit was relatively consistent at $2,146 versus $2,171 in last year's third quarter.

Wholesale gross profit increased 11% to $73.6 million, driven by the 10% increase in wholesale unit sales. Wholesale vehicle gross profit per unit remained stable at $923 compared with $914 in the prior year quarter.

Other gross profit rose 18% to $43.7 million, as improved ESP and service department profits were partially offset by the lower net third-party finance fees.

CarMax Auto Finance . CAF income increased 16% to $72.5 million compared with $62.6 million in last year's third quarter. The growth in CAF income was largely attributable to the 15% increase in average managed receivables, which grew to $5.48 billion from $4.77 billion in the prior year period. The increase in average managed receivables reflected the rise in CAF origination volume throughout fiscal 2012 and fiscal 2013 as we transitioned back to our pre-recession origination strategy, higher average amounts financed and the growth in retail unit sales.

The allowance for loan losses was 1.0% of managed receivables as of November 30, 2012, compared with 0.9% as of November 30, 2011. Continued favorable loss experience partially offset the effect of the change in credit mix resulting from the transition in origination strategy.

SG&A . Selling, general and administrative expenses increased 14% to $257.3 million from $225.8 million in the prior year's third quarter. The increase primarily reflected the combination of the 9% increase in our store base since the beginning of last year's third quarter (representing the addition of 10 stores) and higher variable selling costs resulting from the 12% increase in comparable store used unit sales. SG&A per retail unit declined to $2,393 versus $2,436 in the prior year's quarter as the leverage resulting from the comparable store unit sales growth was partially offset by higher costs related to growing our store base.

Superstore Openings . As of November 30, 2012, we had opened eight of the ten used car superstores that we plan to open in fiscal 2013. During the third quarter, we opened three stores, entering the Des Moines and Denver markets, and adding our tenth store in the Los Angeles market.

Share Repurchase Program . During the third quarter of fiscal 2013, we repurchased 1.7 million shares of common stock for $60.2 million pursuant to our share repurchase program. The repurchase activity had no effect on reported third quarter net earnings per share.

Supplemental Financial Information

Sales Components

 
  Three Months Ended   Nine Months Ended
November 30 (1) November 30 (1)
(In millions)   2012

 

2011

  Change   2012   2011   Change
Used vehicle sales $ 2,068.7 $ 1,766.7   17.1 % $ 6,449.6   $ 5,853.2   10.2 %
New vehicle sales 45.7 46.0 (0.7) % 162.5 154.7 5.0 %
Wholesale vehicle sales 427.7 390.3 9.6 % 1,332.5 1,325.9 0.5 %
Other sales and revenues:
Extended service plan revenues 48.6 39.8 22.2 % 152.7 131.0 16.6 %
Service department sales 24.8 23.5 5.9 % 76.4 74.6 2.4 %
Third-party finance fees, net     (13.1)     (5.6)   (131.2) %     (38.9)     (11.8)   (229.8) %
Total other sales and revenues     60.4     57.6   4.9 %     190.2     193.9   (1.9) %
Total net sales and operating revenues   $ 2,602.4   $ 2,260.5   15.1 %   $ 8,134.9   $ 7,527.8   8.1 %
 

(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.

Comparable Store Used Vehicle Sales Changes

 
  Three Months Ended   Nine Months Ended
November 30 November 30
    2012

 

2011

  2012

 

2011

Used vehicle units 12 % (3) % 5 % 0 %
Used vehicle dollars 13 % 3 % 6 % 7 %
 

Total Used Vehicle Sales Changes

 
  Three Months Ended   Nine Months Ended
November 30 November 30
    2012   2011   2012

 

2011

Used vehicle units 16 %   (1) % 9 % 2 %
Used vehicle dollars 17 % 5 % 10 % 8 %
 

Unit Sales

     
  Three Months Ended

 

Nine Months Ended

November 30

 

November 30

    2012   2011

 

2012

 

2011

Used vehicles 105,815 90,975 329,422 302,311
New vehicles 1,705 1,719 6,164 5,952
Wholesale vehicles 79,747 72,805 246,059 242,752
 

Average Selling Prices

 
  Three Months Ended   Nine Months Ended
November 30 November 30
   

2012

 

2011

  2012   2011
Used vehicles $ 19,344   $ 19,221 $ 19,375   $ 19,170
New vehicles $ 26,681 $ 26,611 $ 26,241 $ 25,863
Wholesale vehicles $ 5,214 $ 5,215 $ 5,267 $ 5,316
 

Selected Operating Ratios

             
  Three Months Ended Nine Months Ended
November 30 November 30
(In millions)   2012   % (1)   2011 (2)   % (1)   2012   % (1)   2011 (2)   % (1)
Net sales and operating revenues $ 2,602.4 100.0 $ 2,260.5 100.0 $ 8,134.9 100.0 $ 7,527.8 100.0
Gross profit $ 345.2 13.3 $ 303.2 13.4 $ 1,095.1 13.5 $ 1,040.6 13.8
CarMax Auto Finance income $ 72.5 2.8 $ 62.6 2.8 $ 223.3 2.7 $ 196.1 2.6
Selling, general, and administrative
expenses $ 257.3 9.9 $ 225.8 10.0 $ 765.6 9.4 $ 697.3 9.3
Interest expense $ 8.1 0.3 $ 8.4 0.4 $ 24.4 0.3 $ 25.4 0.3
Earnings before income taxes $ 152.5 5.9 $ 131.6 5.8 $ 529.2 6.5 $ 514.2 6.8
Net earnings $ 94.7 3.6 $ 82.1 3.6 $ 327.1 4.0 $ 318.8 4.2
 

(1)

  Calculated as the ratio of the applicable amount to net sales and operating revenues.

(2)

As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012, fiscal 2012 reflects the revisions to correct our accounting for sale-leaseback transactions.

Gross Profit

           
Three Months Ended Nine Months Ended
November 30 November 30
(In millions)   2012   2011   Change   2012   2011   Change
Used vehicle gross profit $ 227.0 $ 197.5 15.0 % $ 718.2 $ 662.7 8.4 %
New vehicle gross profit 0.9 2.0 (55.9) % 4.1 5.1 (21.1) %
Wholesale vehicle gross profit 73.6 66.5 10.6 % 230.5 231.6 (0.4) %
Other gross profit     43.7     37.2   17.5 %     142.3     141.2   0.8 %
Total   $ 345.2   $ 303.2   13.9 %   $ 1,095.1   $ 1,040.6   5.2 %
 

Gross Profit per Unit

               
Three Months Ended Nine Months Ended
November 30 November 30
    2012   2011   2012   2011
    $ per unit(1)   %(2)   $ per unit(1)   %(2)   $ per unit(1)   %(2)   $ per unit(1)   %(2)
Used vehicle gross profit $ 2,146 11.0 $ 2,171 11.2 $ 2,180 11.1 $ 2,192 11.3
New vehicle gross profit $ 518 1.9 $ 1,164 4.4 $ 659 2.5 $ 865 3.3
Wholesale vehicle gross profit $ 923 17.2 $ 914

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