CARMAX REPORTS THIRD QUARTER RESULTS
Announces Temporary Suspension of Store Growth
Richmond, Va., December 19, 2008 – CarMax, Inc. (NYSE:KMX) today reported results for the third quarter ended November 30, 2008.
| § | Total sales decreased 23% to $1.46 billion from $1.89 billion in the third quarter of last year. |
| § | Comparable store used unit sales declined 24% for the quarter. |
| § | Total used unit sales decreased 17% in the third quarter. |
| § | The company reported a net loss of $21.9 million, or $0.10 per diluted share, compared with earnings of $29.8 million, or $0.14 per diluted share, in the third quarter of fiscal 2008. |
| · | Results for the third quarter of fiscal 2009 were reduced by $0.12 per share for CarMax Auto Finance (CAF) unfavorable items, including a write down in the fair value of retained subordinated bonds and increases in cumulative net loss assumptions. Earnings for the third quarter of fiscal 2008 were reduced by $0.04 per share primarily for increases in CAF funding costs related to loans originated in previous quarters. |
Third Quarter Business Performance Review
Sales. “During the third quarter, the most significant factor affecting our sales was a sharp decline in customer traffic,” said Tom Folliard, president and chief executive officer. We believe the slower traffic reflected the weakness in the economy and the stress on consumer spending, which caused many households to take a very conservative approach in anticipation of more difficult times. While traffic fell by slightly more than our 24% decline in comparable store used unit sales, solid execution by our store teams allowed us to improve our conversion rate compared with last year’s third quarter. Including the contributions from stores which have been open less than a year, total used unit sales declined 17%.
Our data for the three month period ended October 31 indicates that we modestly gained market share in the late-model used vehicle market. Our used vehicle average selling price decreased 7% compared with the third quarter of fiscal 2008 primarily as a result of the significant industry-wide decline in used car valuations, which reduced our inventory acquisition costs.
Our total wholesale unit sales declined 15% compared with the prior year quarter, reflecting decreases in both appraisal traffic and our appraisal buy rate (defined as the number of appraisal purchases as a percent of vehicles appraised). We wholesale those vehicles that are purchased via the appraisal process that do not
meet our retail standards. Industry wholesale prices for virtually all vehicle classes declined at an unprecedented rate during the third quarter, reflecting the weak demand environment. The vehicle depreciation rate was approximately three times the historical rate for this period. We believe the significant drop in wholesale market values, combined with the overall slowdown in customer traffic, drove the declines in our appraisal traffic and buy rate.
Compared with the third quarter of fiscal 2008, other sales and revenues declined 12%. Extended service plan revenues fell 16%, similar to the decline in total used unit sales. Service department sales increased 6%. Third-party finance fees decreased 58% due to a combination of factors including the reduction in vehicle unit sales, a shift in mix among providers and a change in discount arrangements with certain of the providers that occurred in the second quarter of this year. Collectively, the third-party providers financed a larger percentage of our retail unit sales in the third quarter compared with the prior year, as we chose to route more credit applications to these providers. Doing so allowed us to slow the use of capacity in our warehouse facility, while maximizing credit availability for our customers and optimizing sales.
Gross Profit. Total gross profit decreased by $43.6 million, or 18%, to $199.2 million primarily because of the significant decline in used and wholesale unit sales. However, our gross profit dollars per used unit declined by only $32 per unit to $1,854 compared with $1,886 in last year’s third quarter. We believe our ability to maintain a generally consistent level of gross profit per unit, despite the challenging sales environment and the steep decline in wholesale market prices, was due in large part to the effectiveness of our proprietary inventory management systems and processes. Compared with inventory levels at stores open as of November 30, 2007, we have reduced our used vehicle inventory by more than 18,500 units, representing a reduction of more than $340 million. During this year’s third quarter, we reduced comparable store used vehicle inventories by approximately 8,300 units, or nearly $140 million.
Wholesale gross profit per unit increased by $20 to $794 compared with $774 in the third quarter of fiscal 2008. Similar to the first half of the year, we continued to experience a strong dealer-to-car ratio at our auctions, with the normal price competition among bidders contributing to the solid wholesale gross profit per unit. Our wholesale vehicles are predominantly comprised of older, higher mileage units, and we believe the demand for these vehicles remains strong from dealers who specialize in selling to credit-challenged customers. In addition, the frequency of our auctions and our wholesale inventory turns minimize our depreciation risk on these vehicles.
CarMax Auto Finance. CAF reported a pretax loss of $15.4 million compared with income of $16.3 million in last year’s third quarter. In both periods, CAF results were reduced by adjustments related to loans originated in previous fiscal periods. The adjustments in the third quarter of fiscal 2009 totaled $39.8 million, and they included:
| · | A $23.8 million mark-to-market write-down in the carrying value of subordinated bonds that we hold. These bonds, which have a face value of $115 million, were part of three term securitizations completed earlier in calendar 2008. The size of the write-down reflects the current illiquidity in the credit markets, particularly for subordinated asset-backed bonds. This non-cash charge primarily affects the timing of the recognition of CAF earnings. If current conditions continue, this adjustment should result in positive contributions to CAF earnings in future periods. |
| · | $16.0 million related to increases in loss rate assumptions, partially offset by favorability in prepayment speeds. We increased the upper end of our cumulative loss rate assumption range to 3.9% from 3.5%. |
The adjustments in the third quarter of fiscal 2008 totaled $14.8 million, and they primarily resulted from increases in funding costs for loans originated in prior periods.
The CAF gain on loans originated and sold declined to $11.3 million compared with $20.9 million in the prior year quarter. CAF’s loan origination volume was adversely affected by the decreases in our unit sales and average selling price, as well as a decrease in the percentage of sales financed by CAF. Given the inactivity in the public asset-backed securitization market, during the second half of the quarter we elected to slow the use of capacity in our warehouse facility. We accomplished this by allowing our third-party finance providers to increase their share of originations. In addition, the gain percentage (the gain on the sale of loans originated and sold as a percentage of loans originated and sold) decreased to 2.8% from 3.6% in the prior year quarter primarily due to the use of higher loss rates, higher enhancement levels and a higher discount rate assumption in the current year.
SG&A. Selling, general and administrative expenses were 14.9% of total revenues in the third quarter of fiscal 2009 compared with 11.2% in the prior year’s third quarter. The increase in the SG&A ratio was mainly the result of the significant declines in comparable store used unit sales and average selling price. This increase was partially offset by reductions in variable costs. In the current market environment, we continue to reduce variable costs by reducing associate hours and allowing natural attrition to further reduce store staffing. In addition, we have implemented a hiring freeze at the home office and are carefully monitoring expenses at CAF.
SG&A expenses for the current year’s quarter included a number of non-recurring items, which in the aggregate reduced results by approximately $0.01 per share. These items included approximately $7 million of severance costs related to the October service operations workforce reduction and $6 million of costs for the termination of store site acquisitions resulting from our decision to slow our store growth. These costs were partially offset by a $10 million benefit related to our previously announced decision to freeze our pension plans as of December 31, 2008.
Results. “We believe that the decrease in our third quarter results stems mainly from external conditions and that we are taking the necessary and appropriate steps to navigate through this difficult environment,” said Folliard. We have been successful in dramatically reducing inventories to align them with current sales. This, together with the agility of our car-buying process, has largely allowed us to preserve our gross profit per unit. We continue to focus on aligning costs with current sales levels, and we expect to continue to find opportunities to further shrink costs. At the same time, we remain committed to delivering the exceptional customer service that underpins our long-term prospects.
In November 2008, the United States District Court for the Eastern District of Virginia dismissed, without prejudice, the Rangos putative class action lawsuit in response to the plaintiff’s voluntary motion to dismiss. This lawsuit was related to alleged violations of federal securities laws.
Credit Facilities. As of November 30, 2008, we had $248.4 million outstanding under the revolving credit facility. During the third quarter, due to the unprecedented conditions in the credit markets, we felt that it was prudent to maintain a higher-than-normal cash balance. Despite the increase in cash and the decline in our results, during the first nine months of fiscal 2009 we reduced borrowings under this facility by $51.8 million. As of November 30, 2008, based on then-current inventory levels, we had additional borrowing capacity of $225.4 million under the revolving credit facility, which expires in December 2011.
As of November 30, 2008, $907 million of auto loan receivables were securitized through the warehouse facility and unused warehouse capacity totaled $493 million.
We remain in compliance with the financial covenants contained in our warehouse and revolving credit facilities, and we continue to carefully monitor our performance relative to these covenants. Further, in anticipation of continued limited activity in the public asset-backed securitization market, we are currently evaluating a variety of alternatives to preserve the sales associated with the CAF origination channel.
Sale-Leasebacks. During the third quarter of fiscal 2009, we entered into sale-leaseback agreements having a total sales price of $31.3 million for our two superstores in the Austin, Texas, market. We received total proceeds of $25.4 million during the third quarter, and we provided short-term financing for the remaining $5.9 million, which we expect to receive in fiscal 2010.
Superstore Openings. During the third quarter, we expanded our presence in the Charlotte market with a non-production superstore in Hickory, North Carolina. Through the first nine months of fiscal 2009, we opened ten superstores, including four production superstores and six non-production superstores.
Supplemental Financial Information
Sales Components
(In millions) | | Three Months Ended November 30 (1) | | | Nine Months Ended November 30 (1) | |
| | | 2008 | | | 2007 | | | Change | | | 2008 | | | 2007 | | | Change | |
| Used vehicle sales | | $ | 1,168.8 | | | $ | 1,514.3 | | | | (22.8 | )% | | $ | 4,462.0 | | | $ | 4,909.8 | | | | (9.1 | )% |
| New vehicle sales | | | 57.5 | | | | 77.0 | | | | (25.3 | )% | | | 217.4 | | | | 294.4 | | | | (26.2 | )% |
| Wholesale vehicle sales | | | 177.0 | | | | 234.7 | | | | (24.6 | )% | | | 642.6 | | | | 761.2 | | | | (15.6 | )% |
| Other sales and revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Extended service plan revenues | | | 25.2 | | | | 30.1 | | | | (16.3 | )% | | | 93.5 | | | | 97.2 | | | | (3.9 | )% |
Service department sales | | | 24.7 | | | | 23.2 | | | | 6.3 | % | | | 75.7 | | | | 72.6 | | | | 4.3 | % |
Third-party finance fees, net | | | 2.5 | | | | 5.9 | | | | (58.3 | )% | | | 12.3 | | | | 19.7 | | | | (37.4 | )% |
| Total other sales and revenues | | | 52.4 | | | | 59.3 | | | | (11.6 | )% | | | 181.5 | | | | 189.6 | | | | (4.2 | )% |
| Net sales and operating revenues | | $ | 1,455.6 | | | $ | 1,885.3 | | | | (22.8 | )% | | $ | 5,503.4 | | | $ | 6,155.0 | | | | (10.6 | )% |
| (1) | Percent calculations and amounts shown are based on amounts presented on the attached consolidated statements of operations and may not sum due to rounding. |
Retail Vehicle Sales Changes
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Comparable store vehicle sales: | | | | | | | | | | | | |
Used vehicle units | | | (24 | )% | | | 0 | % | | | (13 | )% | | | 3 | % |
New vehicle units | | | (26 | )% | | | (20 | )% | | | (21 | )% | | | (12 | )% |
Total units | | | (25 | )% | | | (1 | )% | | | (13 | )% | | | 2 | % |
| | | | | | | | | | | | | | | | | |
Used vehicle dollars | | | (30 | )% | | | 0 | % | | | (18 | )% | | | 4 | % |
New vehicle dollars | | | (25 | )% | | | (21 | )% | | | (22 | )% | | | (12 | )% |
Total dollars | | | (30 | )% | | | (1 | )% | | | (18 | )% | | | 3 | % |
| | | | | | | | | | | | | | | | | |
| Total vehicle sales: | | | | | | | | | | | | | | | | |
Used vehicle units | | | (17 | )% | | | 9 | % | | | (4 | )% | | | 11 | % |
New vehicle units | | | (26 | )% | | | (29 | )% | | | (25 | )% | | | (16 | )% |
Total units | | | (17 | )% | | | 7 | % | | | (5 | )% | | | 10 | % |
| | | | | | | | | | | | | | | | | |
Used vehicle dollars | | | (23 | )% | | | 10 | % | | | (9 | )% | | | 12 | % |
New vehicle dollars | | | (25 | )% | | | (30 | )% | | | (26 | )% | | | (16 | )% |
Total dollars | | | (23 | )% | | | 7 | % | | | (10 | )% | | | 10 | % |
Retail Vehicle Sales Mix
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Vehicle units: | | | | | | | | | | | | |
Used vehicles | | | 97 | % | | | 96 | % | | | 97 | % | | | 96 | % |
New vehicles | | | 3 | | | | 4 | | | | 3 | | | | 4 | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | |
| Vehicle dollars: | | | | | | | | | | | | | | | | |
Used vehicles | | | 95 | % | | | 95 | % | | | 95 | % | | | 94 | % |
New vehicles | | | 5 | | | | 5 | | | | 5 | | | | 6 | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Unit Sales
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Used vehicles | | | 71,426 | | | | 85,973 | | | | 267,837 | | | | 278,841 | |
| New vehicles | | | 2,397 | | | | 3,224 | | | | 9,212 | | | | 12,309 | |
| Wholesale vehicles | | | 45,139 | | | | 52,960 | | | | 156,592 | | | | 171,150 | |
Average Selling Prices
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Used vehicles | | $ | 16,146 | | | $ | 17,433 | | | $ | 16,472 | | | $ | 17,434 | |
| New vehicles | | $ | 23,845 | | | $ | 23,751 | | | $ | 23,456 | | | $ | 23,778 | |
| Wholesale vehicles | | $ | 3,805 | | | $ | 4,322 | | | $ | 3,987 | | | $ | 4,337 | |
Selected Operating Ratios
(In millions) | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | | % | (1) | | 2007 | | | | % | (1) | | 2008 | | | | % | (1) | | 2007 | | | | % | (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net sales and operating revenues | | $ | 1,455.6 | | | | 100.0 | % | | $ | 1,885.3 | | | | 100.0 | % | | $ | 5,503.4 | | | | 100.0 | % | | $ | 6,155.0 | | | | 100.0 | % |
| Gross profit | | $ | 199.2 | | | | 13.7 | % | | $ | 242.9 | | | | 12.9 | % | | $ | 737.9 | | | | 13.4 | % | | $ | 815.3 | | | | 13.2 | % |
| CarMax Auto Finance (loss) income | | $ | (15.4 | ) | | | (1.1 | )% | | $ | 16.3 | | | | 0.9 | % | | $ | (12.7 | ) | | | (0.2 | )% | | $ | 86.8 | | | | 1.4 | % |
| Selling, general, and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | $ | 217.5 | | | | 14.9 | % | | $ | 210.5 | | | | 11.2 | % | | $ | 685.6 | | | | 12.5 | % | | $ | 638.5 | | | | 10.4 | % |
Operating (loss) profit (EBIT) (2) | | $ | (33.6 | ) | | | (2.3 | )% | | $ | 48.7 | | | | 2.6 | % | | $ | 39.6 | | | | 0.7 | % | | $ | 264.3 | | | | 4.3 | % |
| Net (loss) earnings | | $ | (21.9 | ) | | | (1.5 | )% | | $ | 29.8 | | | | 1.6 | % | | $ | 21.7 | | | | 0.4 | % | | $ | 160.2 | | | | 2.6 | % |
| (1) | Calculated as the ratio of the applicable amount to net sales and operating revenues. |
| (2) | Operating (loss) profit equals earnings before interest and income taxes. |
Gross Profit
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | $/unit (1) | | | | % | (2) | | $/unit (1) | | | | % | (2) | | $/unit (1) | | | | % | (2) | | $/unit (1) | | | | % | (2) |
| Used vehicle gross profit | | $ | 1,854 | | | | 11.3 | % | | $ | 1,886 | | | | 10.7 | % | | $ | 1,815 | | | | 10.9 | % | | $ | 1,936 | | | | 11.0 | % |
| New vehicle gross profit | | $ | 684 | | | | 2.9 | % | | $ | 1,043 | | | | 4.4 | % | | $ | 832 | | | | 3.5 | % | | $ | 1,040 | | | | 4.3 | % |
| Wholesale vehicle gross profit | | $ | 794 | | | | 20.2 | % | | $ | 774 | | | | 17.5 | % | | $ | 827 | | | | 20.2 | % | | $ | 790 | | | | 17.8 | % |
| Other gross profit | | $ | 397 | | | | 56.0 | % | | $ | 408 | | | | 61.4 | % | | $ | 414 | | | | 63.2 | % | | $ | 438 | | | | 67.2 | % |
| Total gross profit | | $ | 2,699 | | | | 13.7 | % | | $ | 2,723 | | | | 12.9 | % | | $ | 2,663 | | | | 13.4 | % | | $ | 2,800 | | | | 13.2 | % |
| (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. |
CAF Income
| (In millions) | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Gain on sales of loans originated and sold | | $ | 11.3 | | | $ | 20.9 | | | $ | 32.5 | | | $ | 57.8 | |
| Other (losses) gains | | | (39.8 | ) | | | (14.8 | ) | | | (82.6 | ) | | | 1.0 | |
Total (loss) gain | | | (28.5 | ) | | | 6.1 | | | | (50.1 | ) | | | 58.8 | |
| Servicing fee and interest income | | | 23.0 | | | | 18.7 | | | | 65.9 | | | | 52.4 | |
| Direct CAF expenses | | | 9.9 | | | | 8.4 | | | | 28.4 | | | | 24.4 | |
| CarMax Auto Finance (loss) income | | $ | (15.4 | ) | | $ | 16.3 | | | $ | (12.7 | ) | | $ | 86.8 | |
| | | | | | | | | | | | | | | | | |
| Loans originated and sold | | $ | 407.0 | | | $ | 575.6 | | | $ | 1,560.4 | | | $ | 1,840.5 | |
| Gain on sales of loans originated and sold as a percentage of loans originated and sold | | | 2.8 | % | | | 3.6 | % | | | 2.1 | % | | | 3.1 | % |
Earnings Highlights
(In millions except per share data) | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | | | Change | | | 2008 | | | 2007 | | | Change | |
| Net (loss) earnings | | $ | (21.9 | ) | | $ | 29.8 | | | | (173.3 | )% | | $ | 21.7 | | | $ | 160.2 | | | | (86.5 | )% |
| Diluted weighted average shares outstanding | | | 217.7 | | | | 220.6 | | | | (1.3 | )% | | | 220.7 | | | | 220.4 | | | | 0.1 | % |
| Net (loss) earnings per share | | $ | (0.10 | ) | | $ | 0.14 | | | | (171.4 | )% | | $ | 0.10 | | | $ | 0.73 | | | | (86.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2009 Expectations
“As a result of the unprecedented declines in traffic and sales and the continuing volatility in the asset-backed credit markets, we do not believe we can make a meaningful projection of fiscal 2009 earnings,” said Folliard.
Suspending Future Store Openings
In August 2008, we announced that we would temporarily slow our store growth as a result of the weak economic and sales environment. In the intervening months, conditions have further deteriorated, and as a consequence, we have now decided to temporarily suspend our store growth. We plan to open one non-production store, which is currently under construction in the Washington, D.C., market, in either late fiscal 2009 or early fiscal 2010. We have three other stores that are currently under construction in Augusta, Georgia; Cincinnati, Ohio; and Dayton, Ohio. These stores will be completed but they will not be opened until market conditions improve. The suspension of store growth will both reduce our capital needs and aid profitability in the near term.
Conference Call Information
We will host a conference call for investors at 9:00 a.m. ET today, December 19, 2008. 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 26914250. A live webcast of the call will be available on our investor information home page at investor.carmax.com and at www.streetevents.com.
A webcast replay of the call will be available at investor.carmax.com beginning at approximately 1:00 p.m. ET on December 19, 2008 through April 1, 2009. A telephone replay also will be available through December 31, 2008, and may be accessed by dialing 1-800-642-1687 (international callers dial 1-706-645-9291). The conference I.D. for both domestic and international callers is 26914250.
Fourth Quarter Fiscal 2009 Earnings Release Date
We currently plan to release fourth quarter sales and earnings on Thursday, April 2, 2009, before the opening of the New York Stock Exchange. We will 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 investor.carmax.com in March 2009.
About CarMax
CarMax, a Fortune 500 company, and one of the Fortune 2008 “100 Best Companies to Work For,” is the nation’s largest retailer of used cars. Headquartered in Richmond, Va., we currently operate 99 used car superstores in 46 markets. The CarMax consumer offer is structured around four customer benefits: low, no-haggle prices; a broad selection; high quality vehicles; and customer-friendly service. During the twelve months ended February 29, 2008, we retailed 377,244 used cars and sold 222,406 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. 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 general U.S. or regional U.S. economy. |
| · | Changes in the availability or cost of capital and working capital financing, including the availability or cost of long-term financing to support our geographic growth and the availability or cost of financing auto loan receivables. |
| · | Changes in consumer credit availability related to our third-party financing providers. |
| · | Changes in the competitive landscape within our industry. |
| · | Significant changes in retail prices for used and new vehicles. |
| · | A reduction in the availability of or access to sources of inventory. |
| · | Factors related to the regulatory environment in which we operate. |
| · | The loss of key employees from our store, regional or corporate management teams. |
| · | The failure of key information systems. |
| · | The effect of new accounting requirements or changes to U.S. generally accepted accounting principles. |
| · | Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer information. |
| · | The effect of various litigation matters. |
| · | Our inability to acquire or lease suitable real estate at favorable terms. |
| · | The occurrence of severe weather events. |
| · | Factors related to the seasonal fluctuations in our business. |
| · | Factors related to the geographic concentration of our superstores. |
| · | The occurrence of certain other material events. |
For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 29, 2008, and our quarterly or current reports as filed with or furnished to the Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investor.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. 4489. We disclaim any intent or obligation to update our forward-looking statements.
Contacts:
Investors and Financial Media:
Katharine Kenny, Assistant Vice President, Investor Relations, (804) 935-4591
Celeste Gunter, Manager, Investor Relations, (804) 935-4597
General Media:
Lisa Van Riper, Assistant Vice President, Public Affairs, (804) 935-4594
Trina Lee, Director, Public Relations, (804) 747-0422, ext. 4197
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands except per share data)
| | | Three Months Ended November 30 | | | Nine Months Ended November 30 | |
| | | 2008 | | | | % | (1) | | 2007 | | | | % | (1) | | 2008 | | | | % | (1) | | 2007 | | | | % | (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales and operating revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Used vehicle sales | | $ | 1,168,804 | | | | 80.3 | | | $ | 1,514,302 | | | | 80.3 | | | $ | 4,461,969 | | | | 81.1 | | | $ | 4,909,835 | | | | 79.8 | |
| New vehicle sales | | | 57,508 | | | | 4.0 | | | | 76,999 | | | | 4.1 | | | | 217,396 | | | | 4.0 | | | | 294,393 | | | | 4.8 | |
| Wholesale vehicle sales | | | 176,956 | | | | 12.2 | | | | 234,739 | | | | 12.5 | | | | 642,552 | | | | 11.7 | | | | 761,173 | | | | 12.4 | |
| Other sales and revenues | | | 52,364 | | | | 3.6 | | | | 59,260 | | | | 3.1 | | | | 181,532 | | | | 3.3 | | | | 189,563 | | | | 3.1 | |
| Net sales and operating revenues | | | 1,455,632 | | | | 100.0 | | | | 1,885,300 | | | | 100.0 | | | | 5,503,449 | | | | 100.0 | | | | 6,154,964 | | | | 100.0 | |
| Cost of sales | | | 1,256,396 | | | | 86.3 | | | | 1,642,417 | | | | 87.1 | | | | 4,765,586 | | | | 86.6 | | | | 5,339,666 | | | | 86.8 | |
| Gross profit | | | 199,236 | | | | 13.7 | | | | 242,883 | | | | 12.9 | | | | 737,863 | | | | 13.4 | | | | 815,298 | | | | 13.2 | |
| CarMax Auto Finance (loss) income | | | (15,360 | ) | | | (1.1 | ) | | | 16,347 | | | | 0.9 | | | | (12,682 | ) | | | (0.2 | ) | | | 86,827 | | | | 1.4 | |
| Selling, general and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | 217,482 | | | | 14.9 | | | | 210,508 | | | | 11.2 | | | | 685,614 | | | | 12.5 | | | | 638,518 | | | | 10.4 | |
| Gain on franchise disposition | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | | | | 740 | | | | -- | |
| Interest expense | | | 1,525 | | | | 0.1 | | | | 44 | | | | -- | | | | 5,060 | | | | 0.1 | | | | 3,010 | | | | -- | |
| Interest income | | | 735 | | | | 0.1 | | | | 285 | | | | -- | | | | 1,353 | | | | -- | | | | 908 | | | | -- | |
| (Loss) earnings before income taxes | | | (34,396 | ) | | | (2.4 | ) | | | 48,963 | | | | 2.6 | | | | 35,860 | | | | 0.7 | | | | 262,245 | | | | 4.3 | |
| Income tax (benefit) expense | | | (12,522 | ) | | | (0.9 | ) | | | 19,117 | | | | 1.0 | | | | 14,170 | | | | 0.3 | | | | 102,049 | | | | 1.7 | |
| Net (loss) earnings | | $ | (21,874 | ) | | | (1.5 | ) | | $ | 29,846 | | | | 1.6 | | | $ | 21,690 | | | | 0.4 | | | $ | 160,196 | | | | 2.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average common shares: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 217,712 | | | | | | | | 216,301 | | | | | | | | 217,468 | | | | | | | | 215,826 | | | | | |
| Diluted | | | 217,712 | | | | | | | | 220,558 | | | | | | | | 220,692 | | | | | | | | 220,421 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.10 | ) | | | | | | $ | 0.14 | | | | | | | $ | 0.10 | | | | | | | $ | 0.74 | | | | | |
| Diluted | | $ | (0.10 | ) | | | | | | $ | 0.14 | | | | | | | $ | 0.10 | | | | | | | $ | 0.73 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Percents are calculated as a percentage of net sales and operating revenues and may not equal totals due to rounding. | |
CarMax, Inc.
Page 10 of 11
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
| | | November 30 2008 | | | November 30 2007 | | | February 29 2008 | |
| ASSETS | | | | | | | | | |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | | $ | 138,144 | | | $ | 8,380 | | | $ | 12,965 | |
| Accounts receivable, net | | | 45,816 | | | | 52,769 | | | | 73,228 | |
| Auto loan receivables held for sale | | | 20,910 | | | | 4,700 | | | | 4,984 | |
| Retained interest in securitized receivables | | | 314,995 | | | | 233,662 | | | | 270,761 | |
| Inventory | | | 601,506 | | | | 892,228 | | | | 975,777 | |
| Prepaid expenses and other current assets | | | 8,885 | | | | 20,498 | | | | 19,210 | |
| | | | | | | | | | | | | |
| Total current assets | | | 1,130,256 | | | | 1,212,237 | | | | 1,356,925 | |
| | | | | | | | | | | | | |
| Property and equipment, net | | | 948,106 | | | | 804,545 | | | | 862,497 | |
| Deferred income taxes | | | 89,315 | | | | 45,607 | | | | 67,066 | |
| Other assets | | | 50,505 | | | | 47,003 | | | | 46,673 | |
| | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 2,218,182 | | | $ | 2,109,392 | | | $ | 2,333,161 | |
| | | | | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | |
| Accounts payable | | $ | 177,144 | | | $ | 265,933 | | | $ | 306,013 | |
| Accrued expenses and other current liabilities | | | 70,783 | | | | 69,113 | | | | 58,054 | |
| Accrued income taxes | | | 17,672 | | | | 232 | | | | 7,569 | |
| Deferred income taxes | | | 14,926 | | | | 16,132 | | | | 17,710 | |
| Short-term debt | | | 12,073 | | | | 3,137 | | | | 21,017 | |
| Current portion of long-term debt | | | 86,895 | | | | 155,541 | | | | 79,661 | |
| | | | | | | | | | | | | |
| Total current liabilities | | | 379,493 | | | | 510,088 | | | | 490,024 | |
| | | | | | | | | | | | | |
| Long-term debt, excluding current portion | | | 176,683 | | | | 27,280 | | | | 227,153 | |
| Deferred revenue and other liabilities | | | 98,303 | | | | 117,695 | | | | 127,058 | |
| | | | | | | | | | | | | |
| TOTAL LIABILITIES | | | 654,479 | | | | 655,063 | | | | 844,235 | |
| | | | | | | | | | | | | |
| SHAREHOLDERS’ EQUITY | | | 1,563,703 | | | | 1,454,329 | | | | 1,488,926 | |
| | | | | | | | | | | | | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 2,218,182 | | | $ | 2,109,392 | | | $ | 2,333,161 | |
| | | | | | | | | | | | | |
CarMax, Inc.
Page 11 of 11
CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
| | | Nine Months Ended November 30 | |
| | | 2008 | | | 2007 | |
| | | | | | | |
Operating Activities: | | | | | | |
| Net earnings | | $ | 21,690 | | | $ | 160,196 | |
| Adjustments to reconcile net earnings to net cash provided | | | | | | | | |
by operating activities: | | | | | | | | |
Depreciation and amortization | | | 41,379 | | | | 34,168 | |
Share-based compensation expense | | | 27,038 | | | | 25,856 | |
Loss on disposition of assets | | | 8,263 | | | | 35 | |
Deferred income tax benefit | | | (34,604 | ) | | | (3,332 | ) |
Net decrease (increase) in: | | | | | | | | |
Accounts receivable, net | | | 27,412 | | | | 18,644 | |
Auto loan receivables held for sale, net | | | (15,926 | ) | | | 1,462 | |
Retained interest in securitized receivables | | | (44,234 | ) | | | (31,360 | ) |
Inventory | | | 374,271 | | | | (56,112 | ) |
Prepaid expenses and other current assets | | | 10,317 | | | | (5,430 | ) |
Other assets | | | 177 | | | | 1,030 | |
Net (decrease) increase in: | | | | | | | | |
Accounts payable, accrued expenses and other current | | | | | | | | |
liabilities and accrued income taxes | | | (104,495 | ) | | | (11,881 | ) |
Deferred revenue and other liabilities | | | (4,660 | ) | | | 25,641 | |
| Net cash provided by operating activities | | | 306,628 | | | | 158,917 | |
| | | | | | | | | |
Investing Activities: | | | | | | | | |
| Capital expenditures | | | (163,964 | ) | | | (192,440 | ) |
| Proceeds from sales of assets | | | 28,355 | | | | 1,457 | |
| (Purchases) sales of money market securities | | | (4,009 | ) | | | 5,000 | |
| Purchases of investments available-for-sale | | | -- | | | | (10,000 | ) |
| Net cash used in investing activities | | | (139,618 | ) | | | (195,983 | ) |
| | | | | | | | | |
Financing Activities: | | | | | | | | |
| Decrease in short-term debt, net �� | | | (8,944 | ) | | | (153 | ) |
| Issuances of long-term debt | | | 487,800 | | | | 692,200 | |
| Payments on long-term debt | | | (531,036 | ) | | | (685,011 | ) |
| Equity issuances, net | | | 9,962 | | | | 13,157 | |
| Excess tax benefits from share-based payment arrangements | | | 387 | | | | 5,798 | |
| Net cash (used in) provided by financing activities | | | (41,831 | ) | | | 25,991 | |
| | | | | | | | | |
| Increase (decrease) in cash and cash equivalents | | | 125,179 | | | | (11,075 | ) |
| Cash and cash equivalents at beginning of year | | | 12,965 | | | | 19,455 | |
| Cash and cash equivalents at end of period | | $ | 138,144 | | | $ | 8,380 | |
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