CarMax Reports Record Third Quarter Results

CarMax, Inc. reported record results for the third quarter ended November 30, 2013.

• Net sales and operating revenues increased 13% to $2.94 billion.
• Used unit sales in comparable stores increased 10%.
• Total used unit sales rose 15%.
• Total wholesale unit sales increased 4%.
• CarMax Auto Finance (CAF) income increased 16% to $83.9 million.
• Net earnings grew 12% to $106.5 million. Net earnings per diluted share rose 15% to $0.47.s

“We are pleased with our continued growth in sales and earnings,” said Tom Folliard, president and chief executive officer. “The earnings growth was driven by double digit increases in total used units and CAF income.”

Sales.

Total used vehicle unit sales grew 15% and comparable store used units grew 10% versus the prior year’s third 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 4% compared with last year’s quarter, reflecting the growth in our store base.

Other sales and revenues declined 5% year-over-year. Extended service plan (ESP) revenues were similar to the prior year, as the increase driven by the growth in our retail vehicle sales was offset by an increase in our allowance for ESP returns of $0.02 per diluted share. The rise in the allowance reflected increases in ESP cancellations prior to the end of their contract term. Net third-party finance fees declined by $4.6 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 third quarter. Over the last two years, the volume of this financing has increased, as our third-party subprime providers have been making more attractive offers. Late in the quarter, however, we began to see tightening of the credit terms offered by our subprime providers.

Gross Profit.

Total gross profit increased 11% to $381.7 million. Used vehicle gross profit rose 16%, driven by the increase in total used unit sales, while used vehicle gross profit per unit remained comparable with the prior year period at $2,149. Wholesale vehicle gross profit was similar to the prior year’s quarter, as the 4% increase in wholesale unit sales was offset by a decrease in wholesale vehicle gross profit per unit, which declined $36 to $887. Other gross profit rose 2%, reflecting flat ESP revenues and the decrease in net third-party finance fees, as well as higher service department profits.

CarMax Auto Finance.(1) CAF income increased 16% to $83.9 million as a result of the 24% increase in average managed receivables, partly offset by a lower total interest margin. Average managed receivables grew to $6.81 billion, reflecting the rise in CAF loan originations in recent years. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 6.8% of average managed receivables in the current quarter from 7.4% in last year’s third quarter.

In the fourth quarter of fiscal 2014, CAF plans to launch a test originating loans for customers who typically would be financed by our subprime providers. Given the relevance of subprime to our business and the overall market, we believe it is prudent to gain further insight into underwriting and servicing accounts within this credit profile. Over the next 12 months, we plan to originate approximately $70 million of loans in this test. The test will be funded separately from our current portfolio and not included in our current public securitization program.

Superstore Openings.

During the third quarter of fiscal 2014, we opened three stores, including one in Jackson, Tennessee; one in Brandywine, Maryland (our eighth store in the Baltimore/Washington, D.C. market); and one in the St. Louis, Missouri market. Subsequent to the end of the quarter, we opened our second store in St. Louis and we entered the Philadelphia, Pennsylvania market with two stores.

Share Repurchase Program.

During the third quarter, the company repurchased 0.3 million shares of common stock for $14.8 million pursuant to our share repurchase program. As of November 30, 2013, Carmax had $400.0 million remaining available for repurchase under the program.

Tags: Auto Sales, Carmax

Category: General Update, Vehicles