CARMAX REPORTS THIRD QUARTER RESULTS;
-------------------------------------
Third Quarter EPS of 18 Cents
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Richmond, Va., December 17, 2003 - CarMax, Inc. (NYSE: KMX) today reported
results for the fiscal 2004 third quarter and nine months ended November 30,
2003.
THIRD QUARTER EARNINGS:
-----------------------
o Third quarter net earnings increased 29% to $19.1 million, or 18 cents
per share, compared with $14.7 million, or 14 cents per share, earned
in the third quarter of fiscal 2003.
> The company had expected third quarter earnings in the range of 16
cents to 18 cents per share, most likely at the mid-point of the
range.
> Excluding $4.5 million of costs associated with the October 1, 2002,
separation from Circuit City, earnings in the prior year's third
quarter were $19.2 million, or 18 cents per share.
NINE MONTH EARNINGS:
--------------------
o For the nine month period, net earnings increased 24% to $93.9 million,
or 89 cents per share, compared with $75.7 million, or 72 cents per
share, earned in the prior year period.
> Excluding $7.6 million of separation costs, earnings in the prior
year's nine month period were $83.3 million, or 80 cents per share.
FOURTH QUARTER AND FULL YEAR EXPECTATIONS:
------------------------------------------
o The company estimates that fourth quarter earnings per share will be in
the range of 19 cents to 22 cents, bringing full year fiscal 2004
earnings per share expectations to a range of $1.08 to $1.11.
> The company expects fourth quarter comparable store used unit sales
growth to be in the range of 5% to 7%. A fourth quarter expectation
in this range leads to a full year comparable store used unit sales
growth expectation of 6% or 7%.
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CarMax, Inc.
Page 2 of 9
In this release, CarMax provides information including and excluding individual
cost items to provide greater understanding of the company's operating
performance.
Sales Components
(Dollar amounts in millions) Three Months Ended Nine Months Ended
November 30 (2) November 30 (2)
------------------------------ --------------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Used vehicle sales................. $ 797.8 $ 690.3 16 % $2,626.6 $2,212.9 19 %
New vehicle sales.................. 122.7 117.8 4 % 398.7 402.1 (1)%
Wholesale vehicle sales............ 111.4 87.5 27 % 325.1 277.6 17 %
Other sales and revenues(1)........ 39.7 41.2 (3)% 130.4 130.7 0 %
------- ------- ---- -------- -------- -----
Net sales and operating
revenues(1).................... $1,071.5 $ 936.8 14 % $3,480.8 $3,023.3 15%
======== ======== ==== ======== ======== =====
(1) Other sales and revenues include extended warranty revenues, service
department sales, finance fees received from third-party lenders, and appraisal
purchase processing fees. The use of appraisal purchase processing fees was
phased out during the first half of fiscal 2004.
(2) Percent calculations and amounts shown are based on amounts presented on the
consolidated statements of earnings.
Retail Vehicle Sales Change
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Three Months Ended Nine Months Ended
November 30 November 30
------------------------------ -----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Comparable store vehicle sales:
Used vehicle units............. 2% 8 % 6 % 11 %
New vehicle units.............. 2% (16)% (2)% (5)%
Total units................. 2% 5 % 5 % 9 %
Used vehicle dollars........... 4% 8 % 7 % 11 %
New vehicle dollars............ 5% (17)% 0 % (4)%
Total dollars............... 4% 3 % 6 % 9 %
Total vehicle sales:
Used vehicle units............. 13% 17 % 18 % 17 %
New vehicle units.............. 1% (20)% (3)% (10)%
Total units................. 12% 12 % 16 % 14 %
Used vehicle dollars........... 16% 17 % 19 % 18 %
New vehicle dollars............ 4% (21)% (1)% (10)%
Total dollars............... 14% 9 % 16 % 13 %
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CarMax, Inc.
Page 3 of 9
Earnings Highlights
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(Dollar amounts in millions except Three Months Ended Nine Months Ended
per share data) November 30 November 30
------------------------------------ ------------------------------------
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
Net earnings....................... $19.1 $14.7 29% $93.9 $75.7 24%
Separation costs................... 0.0 4.5 NM(2) 0.0 7.6 NM(2)
Net earnings excluding
separation costs................ $19.1 $19.2 (1)% $93.9 $83.3 13%
Diluted weighted average shares
outstanding..................... 106.0 104.5 1% 105.5 104.6 1%
Net earnings per share (1)......... $0.18 $0.14 29% $0.89 $0.72 24%
Separation costs per share......... 0.00 0.04 NM(2) 0.00 0.08 NM(2)
Net earnings per share excluding
separation costs (1)............ $0.18 $0.18 0% $0.89 $0.80 11%
(1) All per share amounts are presented on a fully diluted basis.
(2) Not meaningful.
Selected Operating Ratios
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(Dollar amounts in millions) Three Months Ended November 30 Nine Months Ended November 30
----------------------------------- -----------------------------------
2003 % (1) 2002 % (1) 2003 % (1) 2002 % (1)
---- ----- ---- ----- ---- ----- ---- -----
Net sales and operating revenues....... $1,071.5 100.0% $936.8 100.0% $3,480.8 100.0% $3,023.3 100.0%
Gross profit........................... $ 126.2 11.8% $106.9 11.4% $ 437.1 12.6% $ 357.9 11.8%
CarMax Auto Finance income............. $ 17.6 1.6% $ 19.2 2.1% $ 66.1 1.9% $ 61.2 2.0%
Selling, general, and administrative
expenses............................ $ 114.3 10.7% $101.8 10.9% $ 350.5 10.1% $ 292.8 9.7%
Separation costs....................... $ 0.0 0.0% $ 4.5 0.5% $ 0.0 0.0% $ 7.6 0.3%
Selling, general, and administrative
expenses excluding separation costs. $ 114.3 10.7% $ 97.3 10.4% $ 350.5 10.1% $ 285.2 9.4%
Operating profit (EBIT) (2) ........... $ 30.8 2.9% $ 24.4 2.6% $ 153.4 4.4% $ 126.2 4.2%
Operating profit (EBIT) excluding
separation costs (2)................ $ 30.8 2.9% $ 28.9 3.1% $ 153.4 4.4% $ 133.8 4.4%
Net earnings........................... $ 19.1 1.8% $ 147 1.6% $ 93.9 2.7% $ 75.7 2.5%
Net earnings excluding separation costs $ 19.1 1.8% $ 19.2 2.0% $ 93.9 2.7% $ 83.3 2.8%
(1) Each percentage represents a ratio of the applicable amount to net sales and
operating revenues.
(2) Operating profit equals earnings before interest and income taxes.
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CarMax, Inc.
Page 4 of 9
Gross Profit Margin
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Three Months Ended November 30 Nine Months Ended November 30
------------------------------------- ------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
% (1) $ / unit(2) %(1) $ / unit(2) % (1) $ / unit(2) %(1) $ / unit(2)
Used vehicle gross profit margin....... 10.9% $1,693 10.6% $1,610 11.3% $1,754 10.8% $1,663
New vehicle gross profit margin........ 3.8% $ 925 4.4% $1,027 3.9% $ 914 4.2% $ 973
Total retail vehicle gross profit margin 10.0% $1,624 9.7% $1,551 10.3% $1,679 9.8% $1,589
Wholesale vehicle gross profit margin.. 9.9% $ 338 3.6% $ 123 9.8% $ 335 4.9% $ 171
Other gross profit margin.............. 59.3% NM(3) 62.5% NM(3) 70.8% NM(3) 68.0% NM(3)
Total gross profit margin.............. 11.8% NM(3) 11.4% NM(3) 12.6% NM(3) 11.8% NM(3)
(1) Gross profit margin percentages are calculated as a percentage of the respective sales and revenues category.
(2) Dollars per unit are calculated as gross profit margin dollars divided by the respective unit sales.
(3) Not meaningful.
Business Performance Review
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Sales. "We are pleased that both our comp store used unit sales growth and our
- ------
earnings per share for the quarter came in at the high end of our revised
expectations," said Austin Ligon, president and chief executive officer. "As we
previously reported, in the second half of the quarter we experienced a pickup
in our comp store used car sales rate. We continue to believe there were two
main factors that contributed to the pickup. First, we reduced our margin
targets on selected cars at mid-quarter to improve our price position. Second,
we saw wholesale prices decline at a faster pace in October and November,
consistent with our expectations."
Margins. "Net earnings benefited from our sales growth and from an increase in
- --------
our total gross profit margin," Ligon said. "The gross profit margin increase
primarily reflects better recovery of the costs of our buying operation and
higher-than-expected wholesale margins."
The change to a new appraisal cost recovery (ACR) method has had the effect of
increasing reported used and wholesale margins and decreasing the reported other
sales and revenues margin. Previously, the company had charged an appraisal
processing fee to customers from whom it bought vehicles to cover the expense of
the appraisal, buying, and wholesaling operations. The company now recovers
these expenses by factoring the costs into the purchase offers made.
"The new ACR method also is allowing us to increase our margins in used and
wholesale vehicles with the goal of fully recovering all costs of our buying
operation, including the expense of land on which we hold vehicles waiting for
wholesale," said Ligon. "Absent the effect of the ACR change, our gross profit
dollars per used vehicle would have declined as a result of the price reductions
we took on selected used cars this quarter to improve our price position.
"The wholesale margin also benefited from the flatter-than-normal pricing early
in the quarter, said Ligon. "During the first half of the quarter we received
higher prices at our in-store wholesale auctions than we had expected."
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CarMax, Inc.
Page 5 of 9
SG&A. "Last year's third quarter SG&A ratio of 10.9% reflected 50 basis points
- -----
of one-time separation costs. This year's SG&A ratio of 10.7% reflects added
costs of being a stand-alone company and the added expenses for our growth
plan," Ligon said. "Growth plan expenses relate to a higher number of newly
opened stores this year compared with last year, as well as the continued
building of management bench strength to support future store growth." The
company estimates that incremental costs related to being a stand-alone company
were approximately $1.5 million more in the third quarter this year than in the
same quarter last year. October 1 was the first anniversary of the company
becoming a stand-alone company and was the anniversary of the major
step-function increase in expenses related to operating independently.
CAF. Third quarter CarMax Auto Finance income was $17.6 million, down 8%
- ----
compared with $19.2 million last year, reflecting the effect of rising funding
costs, which more than offset the benefit of the growth in the loan portfolio.
CAF gain income as a percent of loans sold was 3.8% in the current quarter
versus 5.4% in the corresponding period last year. "With third quarter funding
costs rising faster than consumer rates, we experienced a compression in spreads
generally in line with our projections," said Ligon. "We expect the CAF spread
to be near the mid-point of our normalized 3.5 to 4.5% range in the fourth
quarter." During the third quarter, the company adjusted the upper end of the
cumulative default range assumption used in valuing its retained interests from
2.4% to 2.5%. This adjustment had no material impact on the company's earnings
and related only to the performance of the 2001-1 and 2001-2 pools of
receivables.
Fourth Quarter and Full Year Expectations
- -----------------------------------------
"With the improvement in our used car sales rate, we now believe fourth quarter
comp store used unit growth will be in the range of 5 to 7%, bringing the year's
used unit comp growth to 6 or 7%," Ligon said. "Earnings per share for the
fourth quarter should be in the range of 19 cents to 22 cents, bringing the
expected earnings for the year to a range of $1.08 to $1.11 per share. In
addition, pending sales of new car franchises, if they occur in the fourth
quarter, could add a penny to fourth quarter earnings."
Conference Call Information
- ---------------------------
CarMax will host a conference call for investors at 9:00 a.m. Eastern today,
December 17, 2003. Domestic investors may access the call at 1-888-298-3261
(conference I.D.: 4314399). International investors should dial 1-706-679-7457
(conference I.D.: 4314399). 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
December 17, 2003, and will run through midnight, December 24, 2003. Domestic
investors may access the recording at 1-800-642-1687 (conference I.D.: 4314399)
and international investors at 1-706-645-9291 (conference I.D.: 4314399). A
replay of the call also will be available on the company's investor information
home page or at www.streetevents.com.
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CarMax, Inc.
Page 6 of 9
About CarMax
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CarMax is the nation's leading specialty retailer of used cars. Headquartered in
Richmond, Va., CarMax currently operates 46 used car superstores in 22 markets.
CarMax also operates 14 new car franchises, 12 of which are integrated or
co-located with its used car superstores. During the twelve month period ended
November 30, 2003, the company sold 216,230 used cars, which is 91 percent of
the total 238,118 vehicles the company sold during that period. For more
information, access the CarMax Web site at www.carmax.com.
Forward-Looking Statements
- --------------------------
Statements in this release about the company's future business plans, prospects,
and financial performance are forward-looking statements that are made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are based on 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. For
additional information on important factors that could affect expectations, see
the company's Annual Report on Form 10-K for the fiscal year ended February 28,
2003, and its quarterly and current reports on file with the Securities and
Exchange Commission.
Contacts: Dandy Barrett, Director of Investor Relations, (804) 935-4591
Celeste Gunter, Manager, Investor Relations, (804) 935-4597
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CarMax, Inc.
Page 7 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
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(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30 November 30
---------------------------------------- -----------------------------------------
2003 %(1) 2002 %(1) 2003 %(1) 2002 %(1)
--------- ------- --------- ------- --------- ------- --------- -------
Sales and operating revenues:
Used vehicle sales $ 797,752 74.4 $ 690,318 73.7 $2,626,620 75.5 $2,212,925 73.2
New vehicle sales 122,681 11.4 117,849 12.6 398,680 11.5 402,053 13.3
Wholesale vehicle sales 111,352 10.4 87,493 9.3 325,080 9.3 277,617 9.2
Other sales and revenues 39,749 3.7 41,159 4.4 130,446 3.7 130,709 4.3
---------- ----- --------- ----- ---------- ----- --------- ----
Net sales and operating
revenues 1,071,534 100.0 936,819 100.0 3,480,826 100.0 3,023,304 100.0
Cost of sales 945,292 88.2 829,879 88.6 3,043,708 87.4 2,665,410 88.2
---------- ----- --------- ----- ---------- ----- --------- ----
Gross profit 126,242 11.8 106,940 11.4 437,118 12.6 357,894 11.8
CarMax Auto Finance income 17,649 1.6 19,220 2.1 66,074 1.9 61,168 2.0
Selling, general, and
administrative expenses 114,282 10.7 101,810 10.9 350,549 10.1 292,844 9.7
Gain on franchise dispositions 1,207 0.1 - - 746 - - -
Interest expense - - 299 - 1,137 - 1,714 0.1
Interest income 164 - 274 - 468 - 568 -
---------- ----- --------- ----- ---------- ----- --------- ----
Earnings before income taxes 30,980 2.9 24,325 2.6 152,720 4.4 125,072 4.1
Provision for income taxes 11,927 1.1 9,608 1.0 58,797 1.7 49,403 1.6
---------- ----- --------- ----- ---------- ----- --------- ----
Net earnings $ 19,053 1.8 $ 14,717 1.6 $ 93,923 2.7 $ 75,669 2.5
========== ===== ========= ===== ========== ===== ========= ====
Weighted average common shares:
Basic 103,647 103,047 103,428 102,973
========== ========= ========== =========
Diluted 105,955 104,516 105,526 104,602
========== ========= ========== =========
Net earnings per share:
Basic $ 0.18 $ 0.14 $ 0.91 $ 0.73
========== ========= ========== =========
Diluted $ 0.18 $ 0.14 $ 0.89 $ 0.72
========== ========= ========== =========
(1) Each percentage represents a ratio of the applicable amount to net sales and
operating revenues. Percentages 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)
November 30 February 28
2003 2002 2003
---------- --------- ----------
ASSETS (unaudited)
- ------
Current assets:
Cash and cash equivalents $ 54,962 $ 31,654 $ 34,615
Accounts receivable, net 60,853 59,559 56,449
Automobile loan receivables held for sale 18,997 15,860 3,579
Retained interests in securitized receivables 135,004 140,530 135,016
Inventory 449,744 401,596 466,450
Prepaid expenses and other current assets 10,328 7,497 12,636
---------- --------- ----------
Total current assets 729,888 656,696 708,745
Property and equipment, net 239,553 142,840 187,158
Deferred income taxes 3,505 - -
Other assets 20,360 21,850 21,714
---------- --------- ----------
TOTAL ASSETS $ 993,306 $ 821,386 $ 917,617
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 127,899 $ 108,003 $ 117,587
Accrued expenses and other current liabilities 49,984 30,211 44,682
Accrued income taxes 9,355 709 -
Deferred income taxes 28,677 22,927 29,783
Short-term debt 6,267 4,485 56,051
Current installments of long-term debt - 826 -
---------- --------- ----------
Total current liabilities 222,182 167,161 248,103
Long-term debt, excluding current installments 100,000 100,000 100,000
Deferred revenue and other liabilities 13,319 10,800 10,904
Deferred income taxes - 3,244 4,041
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TOTAL LIABILITIES 335,501 281,205 363,048
STOCKHOLDERS' EQUITY 657,805 540,181 554,569
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 993,306 $ 821,386 $ 917,617
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CarMax, Inc.
Page 9 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(Amounts in thousands)
Nine Months Ended
November 30
2003 2002
--------- ---------
Operating Activities:
- ---------------------
Net earnings $ 93,923 $ 75,669
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 12,253 11,950
Amortization of restricted stock awards 94 45
(Gain) loss on disposition of assets (588) 118
Provision for deferred income taxes (8,652) 1,227
Changes in operating assets and liabilities:
Increase in accounts receivable, net (4,404) (9,118)
Increase in automobile loan receivables held for sale (15,418) (13,716)
Decrease (increase) in retained interests in securitized
receivables 12 (19,847)
Decrease (increase) in inventory 16,706 (2,512)
Decrease (increase) in prepaid expenses and other
current assets 2,308 (5,432)
Decrease (increase) in other assets 1,999 (847)
Increase in accounts payable, accrued expenses and
other current liabilities, and accrued income taxes 30,390 32,820
Increase in deferred revenue and other liabilities 2,415 2,384
---------- ----------
Net cash provided by operating activities 131,038 72,741
---------- ----------
Investing Activities:
- ---------------------
Purchases of property and equipment (137,201) (71,318)
Proceeds from sales of property and equipment 72,496 37,926
---------- ----------
Net cash used in investing activities (64,705) (33,392)
---------- ----------
Financing Activities:
- ---------------------
Decrease in short-term debt, net (49,784) (5,355)
Issuance of long-term debt - 100,000
Payments on long-term debt - (77,782)
Equity issuances, net 3,798 556
Dividends paid - (28,400)
---------- ---------
Net cash used in financing activities (45,986) (10,981)
---------- ---------
Increase in cash and cash equivalents 20,347 28,368
Cash and cash equivalents at beginning of period 34,615 3,286
---------- ----------
Cash and cash equivalents at end of period $ 54,962 $ 31,654
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