CarMax Reports Quarterly Results

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CarMax Reports Quarterly Results

RICHMOND, Va.--(BUSINESS WIRE)-- CarMax, Inc. (NYS: KMX) today reported results for the second quarter ended August 31, 2012.

  • Net sales and operating revenues increased 7% to $2.76 billion from $2.59 billion in the second quarter of last year.
  • Used unit sales in comparable stores increased 5% for the quarter.
  • Total used unit sales rose 8% in the second quarter.
  • Total wholesale unit sales declined 2% in the second quarter.
  • CarMax Auto Finance (CAF) income increased 19% to $75.7 million from $63.8 million in the prior year quarter.
  • Net earnings were $111.6 million, or $0.48 per diluted share, compared with $111.2 million, or $0.48 per diluted share, in the second quarter of fiscal 2012.

Second Quarter Business Performance Review


"We are pleased with our improved retail sales in the second quarter, as used unit comps strengthened and we continued to open new stores," said Tom Folliard, president and chief executive officer. "Net earnings were flat, as the contributions from the growth in retail sales and CAF income were offset by higher SG&A costs, which were pressured by the ramp in our store growth rate, and the tough comparisons in our wholesale operations."

Sales . Used vehicle sales improved, with total used units climbing 8% and comparable store used units up 5%. The comparable store used unit growth was driven by improved conversion, which was supported by better credit offers and continued strong in-store execution. The used vehicle average selling price was similar to the prior year's quarter.

Wholesale vehicle unit sales declined 2% compared with last year's quarter, following increases of 23% and 20% in the second quarters of the two previous fiscal years. Appraisal traffic in the current quarter was higher than in the prior year period; however, the appraisal buy rate was lower, which we believe reflected the effect of moderating wholesale vehicle valuations.

Other sales and revenues declined 1% compared with the prior year's second quarter, as an increase in extended service plan (ESP) revenues was more than 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 7% in the prior year quarter. ESP revenues climbed 18% largely due to the growth in our retail vehicle sales and an increase in ESP penetration.

Gross Profit . Total gross profit increased to $368.0 million from $354.3 million in the second quarter of fiscal 2012, as increased used vehicle gross profits more than offset modest reductions in wholesale, new and other gross profit. Used vehicle gross profit climbed 8% to $241.8 million driven by the 8% increase in used unit sales. Used gross profit per unit remained similar at $2,172 versus $2,178 in last year's second quarter. Wholesale gross profit declined 5% to $75.1 million, reflecting the combination of the 2% decrease in wholesale unit sales and a 2% reduction in wholesale gross profit per unit to $907 from $929 in the prior year quarter. Other gross profit fell less than 1% to $49.5 million, similar to the change in other sales and revenues.

CarMax Auto Finance . CAF income increased 19% to $75.7 million compared with $63.8 million in last year's second quarter. The improvement in CAF income was primarily due to the 14% increase in average managed receivables, which grew to $5.25 billion from $4.60 billion in last year's second quarter. The increase in average managed receivables reflected the growth in CAF origination volume throughout fiscal 2012 and the first half of fiscal 2013 as we transitioned back to a pre-recession origination strategy, as well as higher average selling prices and retail unit sales growth over this period.

The allowance for loan losses increased modestly, to 0.9% of managed receivables as of August 31, 2012, compared with 0.8% as of August 31, 2011. Low unit charge-offs and strong recovery rates continued to largely offset the effect of the change in credit mix resulting from the transition in origination strategy.

SG&A . Selling, general and administrative expenses increased 11% to $254.7 million from $229.9 million in the prior year's second quarter. The increase primarily reflected the 8% increase in our store base since the beginning of last year's second quarter (representing the addition of eight stores) and higher growth-related costs resulting from the ramp in our store growth rate. Growth-related costs include pre-opening expenses, relocation expenses, and the cost of building and maintaining management bench strength to support future growth. SG&A per retail unit increased to $2,241 versus $2,197 in the prior year's quarter mainly due to the costs associated with this year's higher store growth rate.

Superstore Openings . We plan to open ten superstores in fiscal 2013, double the number opened in fiscal 2012. During the second quarter of fiscal 2013, we opened three used car superstores, entering the Ft. Myers, Florida, market with two stores and opening a third store in the Nashville, Tennessee, market.

Supplemental Financial Information

Sales Components

  

(In millions)

Three Months EndedSix Months Ended

August 31 (1)

August 31(1)

2012

 

2011

 

Change

2012

 

2011

 

Change

Used vehicle sales$2,192.0$2,015.08.8%$4,380.9$4,086.57.2%
New vehicle sales61.446.931.0%116.9108.77.5%
Wholesale vehicle sales437.1457.9(4.5)%904.8935.7(3.3)%
Other sales and revenues:
Extended service plan revenues52.944.917.7%104.291.314.1%
Service department sales26.826.02.9%51.651.20.8%
Third-party finance fees, net(12.1) (2.9) (322.4)%(25.9) (6.2) (320.2)%
Total other sales and revenues67.6  68.1  (0.8)%129.9  136.3  (4.7)%
Net sales and operating revenues$2,758.0  $2,587.8  6.6%$5,532.4  $5,267.2  5.0%
 

(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.

Used Vehicle Sales Changes

  
Three Months EndedSix Months Ended
August 31August 31

2012

 

2011

2012

 

2011

Comparable store vehicle sales:
Used vehicle units5%(2)%2%2%
Used vehicle revenues5%

5%

4%8%
 
Total vehicle sales:
Used vehicle units8%(1)%6%3%
Used vehicle revenues

9%

7%

7%10%
 

Unit Sales

  
Three Months EndedSix Months Ended
August 31August 31

2012

 

2011

2012

 

2011

Used vehicles111,316102,825223,607211,336
New vehicles2,3521,7984,4594,233
Wholesale vehicles82,77184,885166,312169,947
 

Average Selling Prices

  
Three Months EndedSix Months Ended
August 31August 31

2012

 

2011

2012

 

2011

Used vehicles$19,494$19,408$19,389$19,148
New vehicles$25,982$25,927$26,073$25,559
Wholesale vehicles$5,133$5,249$5,292$5,359
 

Selected Operating Ratios

  

(In millions)

Three Months EndedSix Months Ended
August 31August 31

2012

 

%(1)

 

2011

 

%(1)

2012

 

%(1)

 

2011

 

%(1)

 
Net sales and operating revenues$2,758.0100.0%$2,587.8100.0%$5,532.4100.0%$5,267.2100.0%
Gross profit$368.013.3%$354.313.7%$749.913.6%$737.414.0%
CarMax Auto Finance income$75.72.7%$63.82.5%$150.92.7%$133.52.5%

Selling, general, and administrative expenses

$254.79.2%$229.98.9%$508.39.2%$471.59.0%
Interest expense$8.20.3%$8.50.3%$16.30.3%$17.00.3%
Earnings before income taxes$181.16.6%$179.97.0%$376.76.8%$382.57.3%
Net earnings$111.64.0%$111.24.3%$232.44.2%$236.74.5%
 

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

Gross Profit

  

(In millions)

Three Months EndedSix Months Ended
August 31August 31

2012

 

2011

 

Change

2012

 

2011

 

Change

Used vehicle gross profit$241.8$224.08.0%$491.2$465.25.6%
New vehicle gross profit1.61.7(6.7)%3.23.11.1%
Wholesale vehicle gross profit75.178.8(4.8)%157.0165.0(4.9)%
Other gross profit 49.5  49.8 (0.5)% 98.6  104.0 (5.2)%
Total gross profit$368.0 $354.3 3.9%$749.9 $737.4 1.7%
 

Gross Profit per Unit

  
Three Months EndedSix Months Ended
August 31August 31

2012

 

2011

2012

 

2011

$

/unit (1)

 

%(2)

$

/unit (1)

 

%(2)

 $

/unit (1)

 %(2) $

/unit(1)

 %(2) 
Used vehicle gross profit$2,17211.0%$2,17811.1%$2,19711.2%$2,20111.4%
New vehicle gross profit$6762.6%$9483.6%$7132.7%$ Read Full Story

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