CarMax Reports Record Second Quarter Results

CarMax Reports Record Second Quarter Results

RICHMOND, Va.--(BUSINESS WIRE)-- CarMax, Inc. (NYS: KMX) today reported record second quarter results for the quarter ended August 31, 2013.

  • Net sales and operating revenues increased 18% to $3.25 billion.
  • Used unit sales in comparable stores increased 16%.
  • Total used unit sales rose 21%.
  • Total wholesale unit sales increased 10%.
  • CarMax Auto Finance (CAF) income increased 12% to $84.4 million.
  • Net earnings grew 26% to $140.3 million. Net earnings per diluted share rose 29% to $0.62.

"We are very pleased with our continued strong sales and earnings growth," said Tom Folliard, president and chief executive officer. "The improvement was driven by several contributors, including double-digit growth in used and wholesale unit sales and CAF income."


Second Quarter Business Performance Review

Sales . Total used vehicle unit sales grew 21% and comparable store used units grew 16% versus the prior year's second quarter. Comparable store used unit sales benefited from improved execution in our stores and an attractive consumer credit environment, as well as a modest increase in store traffic.

Wholesale vehicle unit sales grew 10% compared with last year's quarter. Wholesale unit sales benefited from an increase in the appraisal buy rate and the growth in our store base.

Other sales and revenues increased 5% year-over-year, as an increase in extended service plan (ESP) revenues was largely offset by a reduction in net third-party finance fees. ESP revenues climbed 23%, reflecting both the increase in used unit sales and higher ESP penetration. Net third-party finance fees declined $9.2 million as the third-party subprime providers (those who purchase financings at a discount) originated 18% of used vehicle unit sales in the current quarter versus 15% in the prior year's second quarter. We believe that attractive offers by our third-party providers continued to support the increase in subprime financings.

Gross Profit . Total gross profit increased 18% to $434.7 million. Used vehicle gross profit rose 21%, consistent with the increase in used unit sales, and used vehicle gross profit per unit remained comparable to the prior year at $2,174. Wholesale vehicle gross profit increased 3%, as the 10% increase in wholesale unit sales was partially offset by a decrease in wholesale vehicle gross profit per unit, which declined $58 to $849. Other gross profit increased 27%, driven by stronger ESP and service department profits, partially offset by the reduction in net third-party finance fees.

SG&A . Selling, general and administrative expenses increased 11% to $283.2 million. The increase reflected both higher variable selling costs resulting from the 16% increase in comparable store used unit sales and the 12% increase in our store base since the beginning of last year's second quarter (representing the addition of 13 stores.) SG&A per retail unit declined $174 to $2,067, as our comparable store used unit growth generated significant overhead leverage.

CarMax Auto Finance .(1) CAF income increased 12% to $84.4 million. Average managed receivables grew 24% to $6.52 billion, reflecting the rise in CAF origination volumes in recent years resulting from an expansion of CAF's loan penetration rate, as well as our retail unit sales growth and higher average amounts financed. The effect of the increase in managed receivables on CAF income was partially offset by a lower total interest margin rate, which declined to 7.0% of average managed receivables in the current quarter from 7.6% in last year's second quarter. The interest margin reflects the spread between interest and fees charged to consumers and our funding costs.

As a percent of ending managed receivables, the allowance for loan losses increased modestly to 1.0% as of August 31, 2013, compared with 0.9% as of August 31, 2012.

Superstore Openings . During the second quarter of fiscal 2014, we opened two stores, including one in Katy, Texas (our fifth store in the Houston market), and one in Fairfield, California (our third store in the Sacramento market.)

Share Repurchase Program . During the second quarter, we repurchased 1.0 million shares of common stock for $48.7 million pursuant to our share repurchase program. As of August 31, 2013, we had $414.8 million remaining available for repurchase under the program.

 

(1)

Although CAF benefits from certain indirect overhead expenditures, we have elected not to allocate indirect costs to CAF in order to avoid making arbitrary allocation decisions.

 
   

Supplemental Financial Information

 

Sales Components

   

Three Months Ended August 31 (1)

Six Months Ended August 31 (1)
(In millions)   2013

 

2012

  Change   2013   2012   Change
Used vehicle sales $ 2,639 .5 $ 2,192 .0   20 .4 % $ 5,341 .3 $ 4,380 .9   21 .9 %
New vehicle sales 60 .0 61 .4 (2 .3) % 112 .4 116 .9 (3 .8) %
Wholesale vehicle sales 474 .9 437 .1 8 .7 % 965 .6 904 .8 6 .7 %
Other sales and revenues:
Extended service plan revenues 65 .0 52 .9 22 .9 % 129 .6 104 .2 24 .5 %
Service department sales 27 .3 26 .8 2 .0 % 54 .7 51 .6 6 .0 %
Third-party finance fees, net     (21 .2)     (12 .1)   (76 .0) %     (47 .0)     (25 .9)     (81 .5) %
Total other sales and revenues     71 .1     67 .6   5 .2 %     137 .3     129 .9     5 .8 %
Total net sales and operating revenues   $ 3,245 .6   $ 2,758 .0   17 .7 %   $ 6,556 .6   $ 5,532 .4     18 .5 %
 

(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 (1)

 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicle units 16 % 5 % 16 % 2 %
Used vehicle dollars 15 % 5 % 17 % 4 %
 

(1)

 

As of August 31, 2013 and August 31, 2012, the number of stores included in the comparable store base were 112 and 105, respectively.

 
       

Total Used Vehicle Sales Changes

 

Three Months Ended Six Months Ended

 

August 31 August 31
    2013   2012   2013   2012
Used vehicle units 21 % 8 % 22 % 6 %
Used vehicle dollars 20 % 9 % 22 % 7 %
 
       

Unit Sales

 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicles 134,854 111,316 272,008 223,607
New vehicles 2,187 2,352 4,136 4,459
Wholesale vehicles 91,243 82,771 179,599 166,312
 
       

Average Selling Prices

 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicles $ 19,428 $ 19,494 $ 19,485 $ 19,389
New vehicles $ 27,313 $ 25,982 $ 27,066 $ 26,073
Wholesale vehicles $ 5,044 $ 5,133 $ 5,213 $ 5,292
 
               

Selected Operating Ratios

 
Three Months Ended Six Months Ended
August 31 August 31
(In millions)   2013  

% (1)

  2012   % (1)   2013   % (1)   2012   % (1)
Net sales and operating revenues $ 3,245 .6 100 .0 $ 2,758 .0 100 .0 $ 6,556 .6 100 .0 $ 5,532 .4 100 .0
Gross profit $ 434 .7 13 .4 $ 368 .0 13 .3 $ 882 .8 13 .5 $ 749 .9 13 .6
CarMax Auto Finance income $ 84 .4 2 .6 $ 75 .7 2 .7 $ 171 .4 2 .6 $ 150 .9 2 .7

Selling, general, and administrative expenses

$ 283 .2 8 .7 $ 254 .7 9 .2 $ 573 .4 8 .7 $ 508 .3 9 .2
Interest expense $ 7 .8 0 .2 $ 8 .2 0 .3 $ 15 .6 0 .2 $ 16 .3 0 .3
Earnings before income taxes $ 227 .1 7 .0 $ 181 .1 6 .6 $ 464 .4 7 .1 $ 376 .7 6 .8
Net earnings $ 140 .3 4 .3 $ 111 .6 4 .0 $ 286 .9 4 .4 $ 232 .4 4 .2
 

(1)

 

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

 
           

Gross Profit


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