CARMAX REPORTS FOURTH QUARTER AND
---------------------------------
FISCAL YEAR 2003 SALES AND EARNINGS
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Releases Fiscal Year 2004 Expectations
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Richmond, Va., March 31, 2003 - CarMax, Inc. (NYSE: KMX) today
reported results for the fourth quarter and fiscal year ended February
28, 2003.
o For the quarter, net earnings were $19.1 million, or 18 cents per
share, compared with $18.4 million, or 18 cents per share, earned
in the fourth quarter of fiscal 2002.
o For the year, net earnings were $94.8 million, or 91 cents per
share, including $7.8 million, or 7 cents per share, of
non-tax-deductible costs associated with the October 1, 2002,
separation from Circuit City Stores, Inc.
>> Excluding the separation costs, fiscal year 2003 earnings
were $102.6 million, or 98 cents per share.
>> Fiscal year 2002 net earnings were $90.8 million, or 87
cents per share, including $0.4 million of separation
costs. Excluding the separation costs, fiscal year 2002
earnings were $91.2 million, or 88 cents per share.
SALES
Total net sales and operating revenues for the fourth quarter rose 11 percent to
$946.6 million from $855.1 million in the fourth quarter last year. For fiscal
2003, total net sales and operating revenues rose 12 percent to $3.97 billion
from $3.53 billion in fiscal 2002.
Sales Components
Three Months Ended Fiscal Year Ended
(Dollar amounts in millions) February 28 February 28
- ---------------------------- ----------- -----------
2003 2002 % Change 2003 2002 % Change
---- ---- -------- ---- ---- --------
Used vehicle sales................. $699.2 $629.4 11% $2,912.1 $2,497.2 17 %
New vehicle sales. 117.8 114.5 3% 519.8 559.9 (7)%
Wholesale vehicle sales............ 89.0 74.3 20% 366.6 325.6 13 %
Other sales and revenues(1)........ 40.7 36.9 10% 171.4 151.1 13 %
------ ------ -------- --------
Net sales and operating
revenues(1).................... $946.6(2) $855.1 11% $3,969.9 $3,533.8 12 %
--------- ------ -------- --------
(1) CarMax now classifies finance fees received from third-party lenders in
other sales and revenues. Other sales and revenues also include extended
warranty revenues, service department sales and appraisal processing fees
collected from consumers for the purchase of their vehicles. Previously,
third-party finance fees were recorded as a reduction to selling, general and
administrative expenses. As a result of this change, other sales and revenues
have been reclassified for the three month and fiscal year periods ended
February 28, 2002, and for the fiscal year period ended February 28, 2003.
Third-party finance fees were $3.7 million in the fourth quarter of fiscal 2003
compared with $3.8 million in the same period last year. For the fiscal year
ended February 28, 2003, third-party finance fees were $16.2 million compared
with $15.7 million in the prior fiscal year.
(2) The sum of the individual sales and revenue lines do not equal net sales and
operating revenues due to rounding.
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CarMax, Inc.
Page 2 of 9
Comparable Store Retail Vehicle Sales Change
- --------------------------------------------
Three Months Ended Fiscal Year Ended
February 28 February 28
----------- -----------
2003 2002 2003 2002
---- ---- ---- ----
Vehicle units:
Used vehicles............... 0 % 23% 8 % 24%
New vehicles................ 3 % 11% (3)% 21%
Total............................ 0 % 22% 6 % 23%
Vehicle dollars:
Used vehicles............... (1)% 25% 8 % 30%
New vehicles................ 3 % 12% (3)% 24%
Total............................ 0 % 23% 6 % 28%
EARNINGS
(Amounts in millions except per Three Months Ended Fiscal Year Ended
share data) February 28 February 28
----------- -----------
2003 2002 % Change 2003 2002 % Change
---- ---- -------- ---- ---- --------
Net earnings....................... $19.1 $18.4 4% $94.8 $90.8 4%
Separation costs................... 0.2 0.4 NM(2) 7.8 0.4 NM(2)
Earnings excluding separation
costs........................... $19.3 $18.8 3% $102.6 $91.2 12%
Diluted weighted average shares
outstanding..................... 104.5 104.5 -- 104.6 104.0 1%
Net earnings per share............. $0.18 $0.18(1) -- $0.91 $0.87(1) 5%
Earnings per share cost of
separation costs................ 0.00 0.00 -- 0.07 0.00 NM(2)
Earnings per share excluding
separation costs................ $0.18 $0.18 -- $0.98 $0.88(3) 11%
(1) All per share amounts are presented on a fully diluted basis. CarMax was a
wholly owned subsidiary of Circuit City Stores, Inc. during part of the periods
presented. Historical earnings per share as previously reported for the CarMax
Group included the entire dilutive effect of options and restricted stock
applied only to the CarMax Group shares then outstanding. The current CarMax,
Inc. consolidated financial statements present earnings per share to reflect the
capital structure effective with the separation of CarMax from Circuit City
Stores, Inc. Consequently, the options and restricted stock dilutive effect is
spread over the larger number of CarMax, Inc. shares outstanding. For the fourth
quarter ended February 28, 2002, previously reported earnings per CarMax Group
share were 17 cents. For the fiscal year ended February 28, 2002, previously
reported earnings per CarMax Group share were 82 cents.
(2) Not meaningful.
(3) EPS effect of $0.4 million in separation costs adds one cent to year-end EPS
excluding separation costs due to rounding.
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CarMax, Inc.
Page 3 of 9
BUSINESS PERFORMANCE REVIEW
Selected Operating Ratios
- -------------------------
Three Months Ended February 28 Fiscal Year Ended February 28
-------------------------------- ------------------------------------
(Dollar amounts in millions) 2003 % 2002 % 2003 % 2002 %
-------------------------------- ------------------------------------
Net sales and operating revenues............ $946.6 100.0% $855.1 100.0% $3,969.9 100.0% $3,533.8 100.0%
Gross profit................................ $110.3 11.7% $104.0 12.2% $468.2 11.8% $419.4 11.9%
CarMax Auto Finance income.................. $21.2 2.2% $14.2 1.7% $82.4 2.1% $ 66.5 1.9%
Selling, general and administrative
expenses............................. $99.6 10.5% $88.3 10.3% $ 392.4 9.9% $334.5 9.5%
Separation costs............................ $ 0.2 0.0% $ 0.4 0.0% $ 7.8 0.2% $ 0.4 0.0%
Selling, general and administrative
expenses excluding separation costs.. $99.4 10.5% $87.9 10.3% $384.6 9.7% $334.1 9.5%
Operating profit (EBIT)* ................... $32.0 3.4% $29.9 3.5% $158.2 4.0% $151.4 4.3%
Operating profit (EBIT)* excluding
separation costs..................... $32.2 3.4% $30.3 3.5% $166.0 4.2% $151.8 4.3%
Net earnings................................ $19.1 2.0% $18.4 2.2% $ 94.8 2.4% $ 90.8 2.6%
Net earnings excluding separation costs..... $19.3 2.0% $18.8 2.2% $102.6 2.6% $ 91.2 2.6%
*Operating profit equals earnings before interest and taxes.
Gross Margins by Category
- -------------------------
Three Months Ended Fiscal Year Ended
February 28 February 28
----------- -----------
2003 2002 2003 2002
---- ---- ---- ----
Used vehicle sales......................... 10.7% 10.8% 10.8% 10.9%
New vehicle sales.......................... 3.4% 3.8% 4.0% 4.5%
Wholesale sales............................ 7.4% 9.5% 5.5% 5.6%
Other sales and revenues................... 61.8% 65.8% 66.5% 68.3%
"We are very pleased that we delivered annual earnings within the range that we
had forecast at the beginning of the year," said Austin Ligon, president and
chief executive officer. "We are especially pleased to have met earnings
expectations in the fourth quarter when sales were interrupted by unusually
harsh winter weather in many of our markets." On April 2, 2002, CarMax had
forecast fiscal 2003 earnings per share in the range of 95 cents to $1.00 per
share, excluding the costs of separation from Circuit City, which were forecast
to be approximately 8 cents per share. Earnings information excluding separation
costs is presented to provide the investor additional data with which to
evaluate operating performance. With the December 18, 2002, third quarter
earnings release, fourth quarter earnings per share were forecast in the range
of 18 cents to 20 cents per share, which the company moderated to 17 cents to 18
cents per share with the release of fourth quarter comparable store sales on
March 6, 2003.
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CarMax, Inc.
Page 4 of 9
"For the year, earnings growth resulted from healthy used unit comp growth of 8
percent, coupled with excellent performance from all our new stores and
continuing strong performance at CarMax Auto Finance," said Ligon. "We benefited
from continuing strong sales execution at our stores open for more than a year,
where comp store used unit growth continues to illustrate the power of the
CarMax consumer offer and, consequently, our ability to take market share.
"Our new stores delivered results significantly above our expectations. We
believe our strategy of opening new stores with experienced store, operations,
merchandising and sales management is proving to be effective, delivering solid
execution quickly," Ligon said. "As expected, fiscal 2003 earnings growth was
moderated by incremental SG&A expenses related to the diseconomies of scale that
result from our being an independent company and to our growth plan.
"As we indicated with our sales release, the severe winter weather impact in the
fourth quarter was partially offset by the strong performance at our new
stores," said Ligon. "We were able to meet our targets for average gross margin
dollars per used car despite the shortfall in sales. New car margins dropped
from last year as a result of increased competitive pressures brought about by
the slower overall new car sales environment versus a year ago. Wholesale
margins were in line with expectations, but below the exceptional performance
last year resulting from the post 9/11 demand and the overall sales environment.
Our other sales and revenue margins were down due to reduced service revenue
that resulted from the severe winter weather and the completion of the rollout
of our new electronic repair order, or ERO, system. Implementation and training
for ERO temporarily interrupted technician productivity.
"Also helping to offset our fourth quarter used unit comp shortfall, our cost of
funds at CarMax Auto Finance reached an all-time low resulting in increased
spreads and profit," Ligon said. "CAF's portfolio of managed receivables
continued to perform in line with our expectations. It now appears certain pools
may exceed the high end of our previously published loss assumption of 2.1
percent by 20 to 30 basis points reflecting the impact of the decline in
wholesale values and the weakened economy. At the same time, some pools of
receivables are experiencing lower than expected prepayment rates. We have
adjusted both our loss and prepayment assumptions accordingly. These offsetting
adjustments had no material impact on earnings or the fair value of the retained
interests. We are pleased with the portfolio's strength despite the weakness in
the economy."
FISCAL 2004 EXPECTATIONS
o Fiscal 2004 comparable store used unit growth: 5% to 9%
o Fiscal 2004 earnings per share: $1.00 to $1.10
o First quarter 2004 comparable store used unit growth: 7% to 9%
o First quarter 2004 earnings per share: 29 cents to 31 cents
"How the nation's economy and, specifically, our used car business will be
affected by the war is unknown," Ligon said. "This early into the conflict, we
have not detected a change in our sales rates, and we currently believe that in
fiscal 2004 we will deliver used unit comp growth in the range of 5 percent to 9
percent. This forecast includes a continuation of the reduced approval rates
from our non-prime loan providers that we experienced in last year's fourth
quarter.
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CarMax, Inc.
Page 5 of 9
"As anticipated, the expense leverage that we normally would expect from used
unit comp growth will be more than offset in fiscal 2004 by the full-year effect
of incremental expenses associated with being a stand-alone company," said
Ligon. "We estimate the full-year effect to be approximately $20-$22 million. We
experienced roughly $9 million of these expenses in fiscal 2003, most of which
occurred between the October 1, 2002, separation and our fiscal year-end.
Approximately half of the incremental expenses relate to employee medical
benefits and workers compensation, including benefits administration. Other
larger incremental expenses relate to insurances, such as directors and officers
liability; necessary incremental staff, such as legal and treasury; and expenses
related to independent company activity, such as the NYSE listing, SEC filings
and the cost of a board of directors.
"Our forecast also projects a lowering of the yield spread at CarMax Auto
Finance as we go through the year," Ligon said. "CAF's gain income as a percent
of loans sold is projected to decrease to approximately 4.6 percent in fiscal
2004 compared to 5.8 percent in fiscal 2003 and 6.0 percent in fiscal 2002. For
the first quarter, however, we expect CAF's gains to be roughly flat to the 5.5
percent experienced in the first quarter last year. Even if a strengthening of
the economy doesn't cause our cost of funds to rise, we would anticipate some
compression in spreads as the market lowers rates offered to consumers.
"With an estimated 38.5 percent tax rate reflecting expansion into states with
higher tax rates, we now expect fiscal 2004 earnings per share in the range of
$1.00 to $1.10," said Ligon. "For the first quarter, we believe we will see used
unit comp growth in the range of 7 percent to 9 percent and earnings per share
in the range of 29 cents to 31 cents."
NEW STORE OPENINGS
As anticipated, CarMax opened a standard used car superstore on March 12,
entering the Las Vegas market. The Las Vegas store was originally planned for
late in the fourth quarter of fiscal 2003. CarMax will complete its planned
entry into the Las Vegas market in the fiscal third quarter with the opening of
a satellite store. As previously announced, CarMax plans to enter the Kansas
City market in April with a standard used car superstore and to add 6 or 7 more
superstores during the remainder of fiscal 2004, including the Las Vegas
satellite superstore.
CONFERENCE CALL INFORMATION
A conference call for investors will be held today, March 31, 2003, beginning at
10:00 a.m. Eastern. Domestic investors may access the call at 1-888-810-3139 and
international investors at 1-630-395-0357. The pass code for the call is
"CarMax." A live Web cast of the call will be available on the company's
investor information home page at http://investor.carmax.com or at
www.streetevents.com. A replay of the call will be available beginning at
approximately 2:00 p.m. Eastern on March 31 and will run through 5:00 p.m.
Eastern on April 7, 2003. Domestic investors may access the recording at
1-888-568-0159 and international investors at 1-402-530-7823. No pass code is
required. A replay of the call also will be available on the CarMax investor
information home page or at www.streetevents.com.
SUPPLEMENTAL INFORMATION TO BE POSTED ON WEB SITE
Excel spreadsheets that provide quarterly earnings statements for fiscal years
2001, 2002 and 2003 will be posted today on the CarMax investor Web site home
page, http://investor.carmax.com, under the "Current Information" section. This
quarterly information includes earnings statements consistent with the company's
current presentation: separate line items for used vehicle sales, new vehicle
sales, wholesale vehicle sales (previously recorded as reductions to cost of
sales) and other sales and revenue; a separate line item for CarMax Auto Finance
income; and the inclusion of third-party finance fees in other sales and
revenue. These earnings statements also reflect the capital structure effective
with the separation of CarMax from Circuit City.
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CarMax, Inc.
Page 6 of 9
ABOUT CARMAX
CarMax is the nation's leading specialty retailer of used cars. With
headquarters in Richmond, Va., CarMax operates 41 used car superstores in 19
markets. CarMax also operates 17 new car franchises, 15 of which are integrated
or co-located with its used car superstores. During the fiscal year ended
February 28, 2003, the company sold 190,100 used vehicles, which is 89 percent
of the total 212,500 vehicles the company sold during the year. For more
information, access the CarMax Web site at www.carmax.com.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from
management's projections, forecasts, estimates and expectations. These risk
factors are set forth in detail in the CarMax, Inc. SEC filings.
Contact: Dandy Barrett, Director of Investor Relations, (804) 935-4591
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CarMax, Inc.
Page 7 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF EARNINGS
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(Amounts in thousands except per share data)
Three Months Ended Years Ended
February 28 February 28
----------- -----------
2003 %(1) 2002 %(1) 2003 %(1) 2002 %(1)
---- ---- ---- ---- ---- ---- ---- ----
Sales and operating revenues:
Used vehicle sales $699,157 73.9 $629,392 73.6 $2,912,082 73.4 $2,497,150 70.7
New vehicle sales 117,782 12.4 114,526 13.4 519,835 13.1 559,943 15.8
Wholesale vehicle sales 88,972 9.4 74,282 8.7 366,589 9.2 325,552 9.2
Other sales and revenues 40,729 4.3 36,942 4.3 171,438 4.3 151,114 4.3
------ --- ------ --- --------- --- --------- ---
Net sales and operating revenues 946,640 100.0 855,142 100.0 3,969,944 100.0 3,533,759 100.0
Cost of sales 836,295 88.3 751,161 87.8 3,501,705 88.2 3,114,366 88.1
------- ---- ------- ---- --------- ---- --------- ----
Gross profit 110,345 11.7 103,981 12.2 468,239 11.8 419,393 11.9
CarMax Auto Finance income 21,231 2.2 14,206 1.7 82,399 2.1 66,473 1.9
Selling, general and administrative 99,573 10.5 88,258 10.3 392,417 9.9 334,464 9.5
expenses
Interest expense 547 0.1 257 - 2,261 0.1 4,958 0.1
Interest income 169 - - - 737 - 12 -
------ ---- ------ ---- ------- ---- ------- ----
Earnings before income taxes 31,625 3.3 29,672 3.5 156,697 3.9 146,456 4.1
Provision for income taxes 12,492 1.3 11,276 1.3 61,895 1.6 55,654 1.6
------- --- ------- --- -------- --- -------- ---
Net earnings $19,133 2.0 $18,396 2.2 94,802 2.4 90,802 2.6
======= === ======= === ======== === ======== ===
Weighted average common shares:
Basic 103,044 102,520 102,983 102,039
======= ======= ======= =======
Diluted 104,506 104,511 104,570 104,022
======= ======= ======= =======
Net earnings per share:
Basic $0.19 $0.18 $0.92 $0.89
===== ===== ===== =====
Diluted $0.18 $0.18 $0.91 $0.87
===== ===== ===== =====
(1) Percents of net sales and operating revenues may not total due to rounding.
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CarMax, Inc.
Page 8 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(Amounts in thousands)
Feb. 28, 2003 Feb. 28, 2002
------------- -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $34,615 $3,286
Accounts receivable, net 56,449 50,441
Automobile loan receivables held for sale 3,579 2,144
Retained interests in securitized receivables 135,016 120,683
Inventory 466,450 399,084
Prepaid expenses and other current assets 12,636 2,065
-------- --------
Total current assets 708,745 577,703
Property and equipment, net 187,158 120,976
Other assets 21,714 21,543
-------- --------
TOTAL ASSETS $917,617 $720,222
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $117,587 $87,160
Accrued expenses and other current liabilities 44,682 25,775
Deferred income taxes 29,783 22,009
Short-term debt 56,051 9,840
Current installments of long-term debt - 78,608
-------- --------
Total current liabilities 248,103 223,392
Long-term debt, excluding current installments 100,000 -
Deferred revenue and other liabilities 10,904 8,416
Deferred income taxes 4,041 2,935
-------- --------
TOTAL LIABILITIES 363,048 234,743
STOCKHOLDERS' EQUITY 554,569 485,479
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $917,617 $720,222
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CarMax, Inc.
Page 9 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Amounts in thousands)
Years Ended
February 28
2003 2002
---- ----
Operating Activities:
- ---------------------
Net earnings $94,802 $90,802
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 14,873 16,340
Amortization of restricted stock awards 77 100
Loss on disposition of property and equipment 30 -
Provision for deferred income taxes 8,880 3,162
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (6,008) 7,232
(Increase) decrease in automobile loan receivables
held for sale (1,435) 704
Increase in retained interests in securitized
receivables (14,333) (46,542)
Increase in inventory (67,366) (51,947)
(Increase) decrease in prepaid expenses and
other current assets (10,571) 241
(Increase) decrease in other assets (845) 1,639
Increase in accounts payable, accrued expenses
and other current liabilities 51,375 19,330
Increase in deferred revenue and other liabilities 2,488 1,580
-------- --------
Net cash provided by operating activities 71,967 42,641
-------- --------
Investing Activities:
- ---------------------
Purchases of property and equipment (122,032) (41,417)
Proceeds from sales of property and equipment 41,621 98,965
-------- --------
Net cash (used in) provided by investing activities (80,411) 57,548
-------- --------
Financing Activities:
- ---------------------
Increase in short-term debt, net 46,211 8,853
Issuance of long-term debt 100,000 -
Payments on long-term debt (78,608) (112,600)
Equity issuances, net 570 (1,958)
Dividends paid (28,400) -
-------- --------
Net cash provided by (used in) financing activities 39,773 (105,705)
-------- --------
Increase (decrease) in cash and cash equivalents 31,329 (5,516)
Cash and cash equivalents at beginning of year 3,286 8,802
-------- --------
Cash and cash equivalents at end of year $34,615 $3,286
======== ========
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