CarMax Reports Record First Quarter Results

CarMax Reports Record First Quarter Results

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

  • Net sales and operating revenues increased 19% to $3.31 billion.

  • Used unit sales in comparable stores increased 17%.

  • Total used unit sales rose 22%.

  • Total wholesale unit sales increased 6%.

  • CarMax Auto Finance (CAF) income increased 16% to $87.0 million.

  • Net earnings grew 21% to $146.7 million. Net earnings per diluted share rose 23% to $0.64.

"We are very pleased to report our strongest increase in comparable store used unit sales in several years," said Tom Folliard, president and chief executive officer. "Strong retail sales growth, together with continued contributions from CAF and wholesale drove all-time record quarterly revenues and earnings."


First Quarter Business Performance Review

Sales . Total used vehicle unit sales grew 22% and comparable store used units grew 17% versus the prior year's first quarter. The comparable store used unit growth was again driven by improved conversion, which we believe reflected continued improvements in execution in our stores and an attractive consumer credit environment.

Wholesale vehicle unit sales grew 6% compared with last year's quarter. Wholesale unit sales benefited from the growth in our store base and a stronger appraisal buy rate.

Other sales and revenues increased 6% compared with the prior year's first quarter. Extended service plan (ESP) revenues increased 26%, reflecting the 22% increase in used unit sales and an increase in ESP penetration. Net third-party finance fees declined $11.9 million as the third-party subprime providers (those who purchase financings at a discount) originated 21% of used vehicle unit sales in the current quarter versus 16% in the prior year's first quarter. We believe that more attractive offers by our third-party providers and a delay in the 2013 tax refund season contributed to the increase in subprime financings.

Gross Profit . Total gross profit increased 17% to $448.1 million. Used vehicle gross profit rose 22% to $303.9 million, driven by the 22% increase in used unit sales, while wholesale vehicle gross profit increased 6% to $86.5 million on the 6% increase in wholesale unit sales. Used and wholesale vehicle gross profit per unit were consistent with last year's first quarter. Other gross profit increased 15% to $56.6 million, as the increase in ESP profits was partially offset by the reduction in net third-party finance fees.

SG&A . Selling, general and administrative expenses increased 14% to $290.2 million. The increase reflected the 12% increase in our store base since the beginning of last year's first quarter (representing the addition of 13 stores) and higher variable selling costs resulting from the 17% increase in comparable store used unit sales. SG&A per retail unit declined $131 to $2,086 versus $2,217 in the prior year's quarter, as our comparable store used unit growth generated meaningful overhead leverage.

CarMax Auto Finance .(1) CAF income increased 16% to $87.0 million primarily as a result of the 21% increase in average managed receivables, which grew to $6.15 billion. The increase in managed receivables reflected 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 total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 7.2% of average managed receivables in the current quarter from 7.5% in last year's first quarter. The average contract rate on new loan originations has declined in recent quarters as we provided more competitive offers in select customer segments.

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

Superstore Openings . During the first quarter of fiscal 2014, we opened three stores, entering the Harrisonburg, Virginia, market and the Savannah and Columbus markets in Georgia. Subsequent to the end of the quarter, we opened our fifth store in the Houston, Texas, market.

Share Repurchase Program . During the first quarter of fiscal 2014, we repurchased 2.9 million shares of common stock for $124.6 million pursuant to our share repurchase program. As of May 31, 2013, we had $463.5 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 May 31(1)

(In millions)

2013

2012

Change

Used vehicle sales

$

2,701.8

$

2,188.9

23.4

%

New vehicle sales

52.4

55.5

(5.5)

%

Wholesale vehicle sales

490.7

467.8

4.9

%

Other sales and revenues:

Extended service plan revenues

64.6

51.3

26.0

%

Service department sales

27.4

24.8

10.3

%

Third-party finance fees, net

(25.8)

(13.8)

(86.4)

%

Total other sales and revenues

66.2

62.3

6.4

%

Total net sales and operating revenues

$

3,311.1

$

2,774.4

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.

Comparable Store Used Vehicle Sales Changes

Three Months Ended May 31

2013

2012

Used vehicle units

17

%

0

%

Used vehicle dollars

18

%

2

%

Total Used Vehicle Sales Changes

Three Months Ended May 31

2013

2012

Used vehicle units

22

%

3

%

Used vehicle dollars

23

%

6

%

Unit Sales

Three Months Ended May 31

2013

2012

Used vehicles

137,154

112,291

New vehicles

1,949

2,107

Wholesale vehicles

88,356

83,541

Average Selling Prices

Three Months Ended May 31

2013

2012

Used vehicles

$

19,540

$

19,285

New vehicles

$

26,788

$

26,174

Wholesale vehicles

$

5,388

$

5,449

Selected Operating Ratios

Three Months Ended May 31

(In millions)

2013

%(1)

2012

%(1)

Net sales and operating revenues

$

3,311.1

100.0

$

2,774.4

100.0

Gross profit

$

448.1

13.5

$

381.9

13.8

CarMax Auto Finance income

$

87.0

2.6

$

75.2

2.7

Selling, general, and administrative

expenses

$

290.2

8.8

$

253.6

9.1

Interest expense

$

7.9

0.2

$

8.1

0.3

Earnings before income taxes

$

237.3

7.2

$

195.6

7.1

Net earnings

$

146.7

4.4

$

120.7

4.4

(1)

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

Gross Profit

Three Months Ended May 31

(In millions)

2013

2012

Change

Used vehicle gross profit

$

303.9

$

249.4

21.9

%

New vehicle gross profit

1.1

1.6

(32.5)

%

Wholesale vehicle gross profit

86.5

81.9

5.6

%

Other gross profit

56.6

49.1

15.4

%

Total

$

448.1

$

381.9

17.3

%

Gross Profit per Unit

Three Months Ended May 31

2013

2012

$ per unit(1)

%(2)

$ per unit(1)

%(2)

Used vehicle gross profit

$

2,216

11.2

$

2,221

11.4

New vehicle gross profit

$

551

2.0

$

755

2.9

Wholesale vehicle gross profit

$

979

17.6

$

980

17.5

Other gross profit

$

407

85.5

$

429

78.8

Total gross profit

$

3,221

13.5

$

3,338

13.8

(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.

SG&A Expenses

Three Months Ended May 31

(In millions)

2013

2012

Change

Compensation and benefits(1)

$

172.1

$

143.4

20.0

%

Store occupancy costs

52.5

47.8

9.7

%

Advertising expense

27.1

25.7

5.6

%

Other overhead costs(2)

38.5

36.7

5.0

%

Total SG&A expenses

$

290.2

$

253.6

14.4

%

(1)

Excludes compensation and benefits related to reconditioning and vehicle repair service, which is included in cost of sales.

(2)

Includes IT expenses, insurance, non-CAF bad debt, travel, preopening and relocation costs, charitable contributions and other administrative expenses.

Components of CAF Income and Other CAF Information

Three Months Ended May 31

(In millions)

2013

%(1)

2012

%(1)

Interest margin:

Interest and fee income

$

133.5

8.7

$

120.3

9.5

Interest expense

(22.8

)

(1.5

)

(25.1

)

(2.0

)

Total interest margin

110.7

7.2

95.2

7.5

Provision for loan losses

(11.3

)

(0.7

)

(9.2

)

(0.7

)

Total interest margin after provision for loan losses

99.4

6.5

86.0

6.8

Total direct expenses

(12.4

)

(0.8

)

(10.8

)

(0.9

)

CarMax Auto Finance income

$

87.0

5.7

$

75.2

5.9

Total average managed receivables

$

6,152.5

$

5,075.2

Net loans originated

$

1,120.2

$

786.8

Net CAF penetration rate

41.5

%

36.4

%

Weighted average contract rate

7.0

%

8.9

%

Ending allowance for loan losses

$