CarMax, Inc. (NYSE:KMX) today reported record results for the first quarter ended May 31, 2015.

  • Net sales and operating revenues increased 7.1% to $4.01 billion.
  • Used unit sales in comparable stores increased 4.9%.
  • Total used unit sales rose 9.3%.
  • Total wholesale unit sales increased 4.7%.
  • CarMax Auto Finance (CAF) income increased 15.3% to $109.1 million.
  • Net earnings grew 7.3% to $182.0 million. Net earnings per diluted share rose 13.2% to $0.86.

“We had another great quarter, setting all-time records for quarterly sales and earnings,” said Tom Folliard, president and chief executive officer. “Continued strong performances in our used, wholesale and CAF operations, along with the growth of our store base and our ongoing share repurchase program, contributed to our solid results.”

First Quarter Business Performance Review

Sales. Total used vehicle unit sales grew 9.3% and comparable store used unit sales increased 4.9% versus the prior year’s first quarter. Comparable store used unit sales benefited from a combination of factors, including improved conversion and continued growth in customer traffic.

Wholesale vehicle unit sales grew 4.7% versus the first quarter of fiscal 2015. Wholesale unit sales benefited from the growth of our store base, partially offset by a decline in our vehicle buy rate.

Other sales and revenues increased 14.3% year-over-year. Extended protection plan revenues rose 12.5% versus the prior year’s quarter, primarily due to the growth in our retail unit sales. Net third-party finance fees were relatively flat compared with last year’s first quarter, reflecting the net effect of changes in mix among providers and the overall increase in units sold. Vehicles financed by the Tier 3 providers and those included in the CAF loan origination test represented 14.5% of retail unit sales in the current quarter versus 16.1% in the corresponding prior year period.

Gross Profit. Total gross profit increased 8.4% versus the first quarter of fiscal 2015, to $543.8 million. Used vehicle gross profit rose 8.3%, primarily driven by the 9.3% increase in total used unit sales. Used vehicle gross profit per unit was relatively flat at $2,200 compared with $2,220 in the prior year period. Wholesale vehicle gross profit increased 3.3% versus the prior year’s first quarter, driven by the 4.7% increase in wholesale unit sales. Wholesale vehicle gross profit per unit of $1,032 was similar to the $1,046 reported in the first quarter of fiscal 2015. Other gross profit rose 18.7% largely due to the improvement in other sales and revenues.

SG&A. Compared with the first quarter of fiscal 2015, SG&A expenses increased 11.6% to $349.8 million. The increase primarily reflected the 12% growth in our store base since the beginning of last year’s first quarter (representing the addition of 16 stores) and a $7.9 million increase in share-based compensation expense, as well as higher variable selling costs associated with our comparable store used unit sales growth. SG&A per retail unit was $2,098 in the current quarter, up $51 year-over-year, of which $39 related to the increase in share-based compensation expense.

CarMax Auto Finance.(1) Compared with last year’s first quarter, CAF income increased 15.3% to $109.1 million. The improvement was driven by an increase in average managed receivables and continued favorable loss experience, partially offset by a lower total interest margin percentage. Average managed receivables grew 17.2% to $8.66 billion. In recent quarters, we experienced better than anticipated loan charge-offs, which had a favorable effect on both the provision for loan losses and the ending allowance for loan losses. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 6.3% of average managed receivables in the current quarter from 6.7% in last year’s first quarter.

Store Openings. During the first quarter of fiscal 2016, we opened three stores, including two stores in new markets (Minneapolis and Gainesville). We also opened our third store in the Philadelphia market. Subsequent to the end of the quarter, we expanded our presence in the Denver market with two additional stores and we added a second store in the Providence market.

Share Repurchase Program. During the first quarter of fiscal 2016, we repurchased 1.8 million shares of common stock for $119.9 million. As of May 31, 2015, we had $2.25 billion remaining available for repurchase under the program.

(1) Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Sales Components

     
 
Three Months Ended May 31
(In millions)   2015   2014   Change
Used vehicle sales $ 3,292.7 $ 3,060.3 7.6 %
New vehicle sales 60.0 69.8 (14.0 )%
Wholesale vehicle sales 576.6 545.2 5.8 %
Other sales and revenues:
Extended protection plan revenues 71.7 63.7 12.5 %
Service department sales 30.9 28.3 9.0 %
Third-party finance fees, net     (17.0 )     (17.2 )   1.2 %
Total other sales and revenues     85.6       74.8     14.3 %
Total net sales and operating revenues   $ 4,014.9     $ 3,750.2     7.1 %
 

Unit Sales

           
Three Months Ended May 31
      2015     2014     % Change
Used vehicles 164,510 150,528 9.3 %
New vehicles 2,215 2,597 (14.7 )%
Wholesale vehicles 101,630 97,098 4.7 %
 

Average Selling Prices

           
Three Months Ended May 31
      2015     2014     % Change
Used vehicles $ 19,851 $ 20,173 (1.6 )%
New vehicles $ 26,997 $ 26,761 0.9 %
Wholesale vehicles $ 5,449 $ 5,450 (0.0 )%
 

Vehicle Sales Changes

       
Three Months Ended May 31
      2015     2014
Used vehicle units 9.3 % 9.8 %
Used vehicle revenues 7.6 % 13.3 %
 
Wholesale vehicle units 4.7 % 9.9 %
Wholesale vehicle revenues 5.8 % 11.1 %
 

Comparable Store Used Vehicle Sales Changes(1)

       
Three Months Ended May 31
      2015     2014
Used vehicle units 4.9 % 3.4 %
Used vehicle revenues 3.4 % 6.6 %
 

(1)

  

Stores are added to the comparable store base beginning in their fourteenth full month of operation. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

 

Selected Operating Ratios

               
Three Months Ended May 31
(In millions)     2015     % (1)     2014     % (1)
Net sales and operating revenues $ 4,014.9 100.0 $ 3,750.2 100.0
Gross profit $ 543.8 13.5 $ 501.7 13.4
CarMax Auto Finance income $ 109.1 2.7 $ 94.6 2.5

Selling, general, and administrative expenses

$ 349.8 8.7 $ 313.4 8.4
Interest expense $ 7.1 0.2 $ 7.6 0.2
Earnings before income taxes $ 296.0 7.4 $ 275.0 7.3
Net earnings $ 182.0 4.5 $ 169.7 4.5
 

(1)

  

Calculated as a percentage of net sales and operating revenues.

 

Gross Profit

           
Three Months Ended May 31
(In millions)     2015     2014     Change
Used vehicle gross profit $ 361.9 $ 334.1 8.3 %
New vehicle gross profit 0.8 1.8 (55.4 )%
Wholesale vehicle gross profit 104.9 101.6 3.3 %
Other gross profit       76.2       64.2     18.7 %
Total     $ 543.8     $ 501.7     8.4 %
 

Gross Profit per Unit

               
Three Months Ended May 31
      2015     2014
      $ per unit(1)     %(2)     $ per unit(1)     %(2)
Used vehicle gross profit $ 2,200 11.0 $ 2,220 10.9
New vehicle gross profit $ 371 1.4 $ 709 2.6
Wholesale vehicle gross profit $ 1,032 18.2 $ 1,046 18.6
Other gross profit $ 457 89.1 $ 419 85.8
Total gross profit $ 3,262 13.5 $ 3,277 13.4
 

(1)

  

Calculated as category gross profit divided by each category’s respective units sold, except the other and total categories, which are calculated by dividing their respective gross profit 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)   2015   2014   Change

Compensation and benefits (1)

 $ 201.8 $ 178.9 12.8 %
Store occupancy costs 65.3 58.3 12.0 %
Advertising expense 33.7 30.7 9.8 %
Other overhead costs (2)     49.0     45.5     7.7 %
Total SG&A expenses   $ 349.8   $ 313.4     11.6 %
SG&A per retail unit $ 2,098 $ 2,047 $ 51
 

(1)

  

Excludes compensation and benefits related to reconditioning and vehicle repair service, which are 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)     2015   % (1)     2014     %(1)
Interest margin:
Interest and fee income $ 164.9 7.6 $ 147.0 8.0
Interest expense       (28.1 )     (1.3 )       (23.1 )       (1.2 )
Total interest margin 136.8 6.3 123.9 6.7
Provision for loan losses       (13.6 )     (0.6 )       (15.8 )       (0.9 )

Total interest margin after provision for loan losses

123.2 5.7 108.1 5.8
Total direct expenses       (14.1 )     (0.7 )       (13.5 )       (0.7 )
CarMax Auto Finance income     $ 109.1       5.0       $ 94.6         5.1  
 
Total average managed receivables $ 8,664.6 $ 7,390.1
Net loans originated $ 1,364.7 $ 1,236.3
Net CAF penetration rate 42.2

%

 

41.3

%

 

Weighted average contract rate 7.4

%

 

7.2

%

 

 
Ending allowance for loan losses $ 83.7 $ 75.4
 
Warehouse facility information:
Ending funded receivables $ 1,089.0 $ 964.0
Ending unused capacity $ 1,211.0 $ 836.0
 

(1)

  

Annualized percentage of total average managed receivables.

 

Earnings Highlights

           
Three Months Ended May 31
(In millions except per share data)     2015     2014     Change
Net earnings $ 182.0 $ 169.7 7.3 %
Diluted weighted average shares outstanding 211.7 223.6 (5.4 )%
Net earnings per diluted share $ 0.86 $ 0.76 13.2 %
 

Planned Store Openings

We currently plan to open the following stores within 12 months from May 31, 2015:

                 
 
Location       Television Market       Market Status       Planned Opening Date
Cranston, Rhode Island (1) Providence Existing Q2 Fiscal 2016
Parker, Colorado (1) Denver Existing Q2 Fiscal 2016
Loveland, Colorado (1) Denver Existing Q2 Fiscal 2016
Tallahassee, Florida Tallahassee New Q2 Fiscal 2016
Richmond, Texas Houston Existing Q3 Fiscal 2016
Gaithersburg, Maryland (2) Washington/Baltimore Existing Q3 Fiscal 2016
Maplewood, Minnesota Minneapolis/St Paul Existing Q3 Fiscal 2016
Norwood, Massachusetts Boston New Q4 Fiscal 2016
Danvers, Massachusetts Boston Existing Q4 Fiscal 2016
Bloomington, Illinois Peoria/Bloomington New Q4 Fiscal 2016
Buford, Georgia Atlanta Existing Q4 Fiscal 2016
O'Fallon, Illinois St. Louis Existing Q4 Fiscal 2016
Pleasanton, California San Francisco New Q1 Fiscal 2017
Santa Rosa, California San Francisco Existing Q1 Fiscal 2017
Springfield, Illinois Springfield New Q1 Fiscal 2017
 

(1)

  

Store opened in June 2015

(2)

Represents a store relocation being made in connection with the expiration of the lease on our Rockville, Maryland store.

 

Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period. We currently estimate total capital expenditures will be approximately $360 million in fiscal 2016. We plan to open 14 stores and relocate one store whose lease is expiring in fiscal 2016 and between 13 and 16 stores in each of the following two fiscal years.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, June 19, 2015. 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 84423648. A live webcast of the call will be available on our investor information home page at investors.carmax.com.

A webcast replay of the call will be available at investors.carmax.com through September 21, 2015. A telephone replay also will be available through June 26, 2015, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 84423648.

Second Quarter Fiscal 2016 Earnings Release Date

We currently plan to release results for the second quarter ending August 31, 2015, on Tuesday, September 22, 2015, before the opening of trading on the New York Stock Exchange. We plan to host a conference call for investors at 9:00 a.m. ET on that date. Information on this conference call will be available on our investor information home page at investors.carmax.com in September 2015.

About CarMax

CarMax, a member of the Fortune 500 and the S&P 500, and one of the Fortune “100 Best Companies to Work For,” for 11 consecutive years, is the nation’s largest retailer of used vehicles. Headquartered in Richmond, Va., CarMax currently operates 150 used car stores in 75 markets. The CarMax consumer offer features low, no-haggle prices, a broad selection of CarMax Quality Certified used vehicles and superior customer service. During the fiscal year ended February 28, 2015, we retailed 582,282 used vehicles and sold 376,186 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. You can identify these forward-looking statements by use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative. 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 competitive landscape and/or our failure to successfully adjust to such changes.
  • Events that damage our reputation or harm the perception of the quality of our brand.
  • Changes in general or regional U.S. economic conditions.
  • Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
  • Changes in consumer credit availability provided by our third-party financing providers.
  • Changes in the availability of extended protection plan products from third-party providers.
  • Our inability to recruit, develop and retain associates and maintain positive associate relations.
  • The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.
  • Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer or associate information.
  • Significant changes in prices of new and used vehicles.
  • A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
  • Factors related to the regulatory and legislative environment in which we operate.
  • Factors related to geographic growth, including the inability to acquire or lease suitable real estate at favorable terms or to effectively manage our growth.
  • The failure of key information systems.
  • The effect of various litigation matters.
  • Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.
  • The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
  • Factors related to seasonal fluctuations in our business.
  • The occurrence of severe weather events.
  • Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2015, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to the Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422 ext. 4391. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

               

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

 

 
 
Three Months Ended May 31
(In thousands except per share data)     2015     %(1)     2014     %(1)
SALES AND OPERATING REVENUES:
Used vehicle sales $ 3,292,658 82.0 $ 3,060,341 81.6
New vehicle sales 60,048 1.5 69,789 1.9
Wholesale vehicle sales 576,625 14.4 545,245 14.5
Other sales and revenues       85,557     2.1       74,821     2.0
NET SALES AND OPERATING REVENUES 4,014,888 100.0 3,750,196 100.0
Cost of sales       3,471,094     86.5       3,248,465     86.6
GROSS PROFIT 543,794 13.5 501,731 13.4
CARMAX AUTO FINANCE INCOME 109,108 2.7 94,615 2.5
Selling, general and administrative expenses 349,779 8.7 313,446 8.4
Interest expense 7,103 0.2 7,601 0.2
Other expense       41     ―       277     ―
Earnings before income taxes 295,979 7.4 275,022 7.3
Income tax provision       114,005     2.8       105,369     2.8
NET EARNINGS     $ 181,974     4.5     $ 169,653     4.5
WEIGHTED AVERAGE COMMON SHARES:
Basic 208,698 220,268
Diluted 211,652 223,632
NET EARNINGS PER SHARE:
Basic $ 0.87 $ 0.77
Diluted $ 0.86 $ 0.76
 

(1)

  

Calculated as a percentage of net sales and operating revenues and sums may not equal totals due to rounding.

 
           
 

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 
 
 
(Unaudited) (Unaudited)
May 31 February 28 May 31
(In thousands except share data)     2015     2015     2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 351,698 $ 27,606 $ 532,191
Restricted cash from collections on auto loan receivables 328,054 294,122 290,653
Accounts receivable, net 103,663 137,690 97,810
Inventory 1,844,077 2,086,874 1,681,800
Deferred income taxes 9,245 8,100 8,080
Other current assets       29,088         44,646         26,202  
TOTAL CURRENT ASSETS 2,665,825 2,599,038 2,636,736
Auto loan receivables, net 8,812,883 8,435,504 7,547,665
Property and equipment, net 1,896,348 1,862,538 1,696,940
Deferred income taxes 156,726 167,638 150,905
Other assets       138,895         133,483         116,714  
TOTAL ASSETS     $ 13,670,677       $ 13,198,201       $ 12,148,960  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 446,453 $ 454,810 $ 433,115
Accrued expenses and other current liabilities 184,277 250,307 159,298
Accrued income taxes 59,089 1,554 94,816
Short-term debt 781 785 1,242
Current portion of long-term debt ― 10,000 ―
Current portion of finance and capital lease obligations 21,623 21,554 19,715
Current portion of non-recourse notes payable       287,350         258,163         253,972  
TOTAL CURRENT LIABILITIES 999,573 997,173 962,158
Long-term debt, excluding current portion 300,000 300,000 ―
Finance and capital lease obligations, excluding current portion 301,480 306,284 315,762
Non-recourse notes payable, excluding current portion 8,574,773 8,212,466 7,373,003
Other liabilities       220,185         225,493         168,665  
TOTAL LIABILITIES       10,396,011         10,041,416         8,819,588  
 
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:

Common stock, $0.50 par value; 350,000,000 shares authorized; 208,682,123 and 208,869,688 shares issued and outstanding as of May 31, 2015 and February 28, 2015, respectively

104,341 104,435 109,242
Capital in excess of par value 1,170,030 1,123,520 1,036,197
Accumulated other comprehensive loss (66,458 ) (65,391 ) (45,776 )
Retained earnings       2,066,753         1,994,221         2,229,709  
TOTAL SHAREHOLDERS’ EQUITY       3,274,666         3,156,785         3,329,372  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY     $ 13,670,677       $ 13,198,201       $ 12,148,960  
 
       

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
 
 
Three Months Ended May 31
(In thousands)     2015     2014
OPERATING ACTIVITIES:
Net earnings $ 181,974 $ 169,653

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Depreciation and amortization 32,066 27,343
Share-based compensation expense 23,409 15,388
Provision for loan losses 13,598 15,847
Provision for cancellation reserves 20,330 21,118
Deferred income tax provision 10,475 771
Loss on disposition of assets and other 77 424
Net decrease (increase) in:
Accounts receivable, net 34,027 (17,887 )
Inventory 242,797 (40,376 )
Other current assets 14,423 664
Auto loan receivables, net (390,977 ) (415,664 )
Other assets 57 3,467
Net (decrease) increase in:

Accounts payable, accrued expenses and other current liabilities and accrued income taxes

(31,043 ) 40,424
Other liabilities       (33,659 )       (30,252 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES       117,554         (209,080 )
INVESTING ACTIVITIES:
Capital expenditures (59,437 ) (53,709 )
Proceeds from sales of assets 1,419 ―
Increase in restricted cash from collections on auto loan receivables (33,932 ) (31,354 )
Increase in restricted cash in reserve accounts (2,972 ) (3,259 )
Release of restricted cash from reserve accounts 1,633 4
Sales (purchases) of money market securities, net 82 (3,035 )
Purchases of trading securities (3,942 ) (2,798 )
Sales of trading securities       72         32  
NET CASH USED IN INVESTING ACTIVITIES       (97,077 )       (94,119 )
FINANCING ACTIVITIES:
(Decrease) increase in short-term debt, net (4 ) 660
Proceeds from revolving line of credit and long-term debt 20,000 ―
Payments on revolving line of credit and long-term debt (30,000 ) ―
Payments on finance and capital lease obligations (4,652 ) (4,204 )
Issuances of non-recourse notes payable 3,047,805 1,897,000
Payments on non-recourse notes payable (2,656,311 ) (1,518,469 )
Repurchase and retirement of common stock (117,628 ) (171,924 )
Equity issuances, net 17,725 120
Excess tax benefits from share-based payment arrangements       26,680         4,306  
NET CASH PROVIDED BY FINANCING ACTIVITIES       303,615         207,489  
Increase (decrease) in cash and cash equivalents 324,092 (95,710 )
Cash and cash equivalents at beginning of year       27,606         627,901  
CASH AND CASH EQUIVALENTS AT END OF PERIOD     $ 351,698       $ 532,191