CARMAX REPORTS SECOND QUARTER RESULTS
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Richmond, Va., September 20, 2004 - CarMax, Inc. (NYSE: KMX) today reported
results for the fiscal 2005 second quarter and six month period ended
August 31, 2004.
o Total sales increased 7% to $1.32 billion from $1.24 billion in
the second quarter of last year.
o Second quarter net earnings were $29.9 million, or 28 cents per
share, compared with $39.6 million, or 37 cents per share, earned
in the second quarter of fiscal 2004.
o For the third quarter of fiscal 2005 ending November 30, 2004,
CarMax expects comparable store used unit sales performance in the
range of -8% to -2%, and earnings per share in the range of 12
cents to 17 cents.
Sales Components
- ----------------
Three Months Ended Six Months Ended
(In millions) August 31 (1) August 31 (1)
----------------------------------- -----------------------------------
2004 2003 Change 2004 2003 Change
---- ---- ------ ---- ---- ------
Used vehicle sales.................... $ 987.4 $ 938.7 5.2 % $1,972.7 $1,828.9 7.9 %
New vehicle sales..................... 137.5 139.6 (1.5)% 274.3 276.0 (0.6)%
Wholesale vehicle sales............... 152.1 113.0 34.6 % 309.0 213.7 44.6 %
Other sales and revenues (2).......... 46.5 45.1 3.1 % 92.5 90.7 2.0 %
------- ------- ------- -------
Net sales and operating
revenues.......................... $1,323.5 $1,236.5 7.0 % $2,648.5 $2,409.3 9.9 %
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(1) Percent calculations and amounts shown are based on amounts presented on
the attached consolidated statements of earnings and may not sum due to
rounding.
(2) Other sales and revenues include extended warranty revenues, service
department sales, third-party finance fees, and appraisal purchase
processing fees. The use of appraisal purchase processing fees was phased
out during the second quarter of fiscal 2004.
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CarMax, Inc.
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Retail Vehicle Sales Changes
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Three Months Ended Six Months Ended
August 31 August 31
---------------------------------- -----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Comparable store vehicle sales:
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Used vehicle units............. (7)% 6 % (5)% 8 %
New vehicle units.............. 13 % (9)% 12 % (4)%
Total units................. (5)% 4 % (3)% 7 %
Used vehicle dollars........... (6)% 7 % (3)% 8 %
New vehicle dollars............ 13 % (8)% 12 % (3)%
Total dollars............... (4)% 5 % (1)% 6 %
Total vehicle sales:
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Used vehicle units............. 4 % 18 % 6 % 20 %
New vehicle units.............. (1)% (10)% (1)% (4)%
Total units................. 3 % 15 % 5 % 18 %
Used vehicle dollars........... 5 % 20 % 8 % 20 %
New vehicle dollars............ (1)% (8)% (1)% (3)%
Total dollars............... 4 % 15 % 7 % 16 %
Earnings Highlights
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Three Months Ended Six Months Ended
(In millions except per share data) August 31 August 31
----------------------------------- -----------------------------------
2004 2003 Change 2004 2003 Change
---- ---- ------ ---- ---- ------
Net earnings....................... $29.9 $39.6 (24.6)% $65.2 $74.9 (12.9)%
Diluted weighted average shares
outstanding..................... 105.5 105.9 (0.3)% 105.6 105.3 0.3%
Diluted net earnings per share..... $0.28 $0.37 (24.3)% $0.62 $0.71 (12.7)%
Selected Operating Ratios
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(In millions) Three Months Ended August 31 Six Months Ended August 31
----------------------------------- -----------------------------------
2004 % (1) 2003 % (1) 2004 % (1) 2003 % (1)
---- ----- ---- ----- ---- ----- ---- -----
Net sales and operating revenues....... $1,323.5 100.0% $1,236.5 100.0% $2,648.5 100.0% $2,409.3 100.0%
Gross profit........................... $ 163.2 12.3% $ 163.1 13.2% $ 330.4 12.5% $ 310.9 12.9%
CarMax Auto Finance income............. $ 20.7 1.6% $ 22.7 1.8% $ 42.6 1.6% $ 48.4 2.0%
Selling, general and administrative
expenses............................ $ 134.7 10.2% $ 120.7 9.8% $ 265.4 10.0% $ 236.3 9.8%
Operating profit (EBIT) (2)............ $ 49.2 3.7% $ 64.6 5.2% $ 107.6 4.1% $ 122.6 5.1%
Net earnings........................... $ 29.9 2.3% $ 39.6 3.2% $ 65.2 2.5% $ 74.9 3.1%
(1) Calculated as the 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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Gross Profit Margin
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Three Months Ended August 31 Six Months Ended August 31
------------------------------------ ------------------------------------
2004 2003 2004 2003
---------------- ---------------- ----------------- ---------------
% (1) $ / unit (2) % (1) $ / unit (2) % (1) $ / unit (2) % (1) $ / unit (2)
----- ------------ ----- ------------ ----- ------------ ----- ------------
Used vehicle gross profit margin......... 11.7% $1,846 11.9% $1,860 11.7% $1,855 11.5% $1,781
New vehicle gross profit margin.......... 3.7% $ 890 4.0% $ 959 3.6% $ 859 3.9% $ 909
Total retail vehicle gross profit margin. 10.7% $1,766 10.9% $1,780 10.7% $1,770 10.5% $1,702
Wholesale vehicle gross profit margin.... 11.0% $ 406 10.0% $ 334 11.3% $ 423 9.8% $ 333
Other gross profit margin................ 56.3% $ 385 76.0% $ 520 58.7% $ 398 75.9% $ 530
Total gross profit margin................ 12.3% $2,395 13.2% $2,472 12.5% $2,423 12.9% $2,393
(1) Calculated as a percentage of its respective sales or revenue.
(2) Calculated as category gross profit dollars divided by the respective units sold, except the other and the total
categories, which are divided by total retail units sold.
Second Quarter Business Performance Review
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Sales. "Our used car business continued to experience widespread sales
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volatility and softness throughout the quarter," said Austin Ligon, president
and chief executive officer. "We believe these effects are occurring broadly
across the late model used car market. We also believe current economic factors,
such as higher gas prices, have contributed to the market environment. Newer
model used cars also appear to be affected by the unusually intense and volatile
incentive competition among new car manufacturers - particularly the domestic
manufacturers. The sales softness in the second quarter was exacerbated by the
severe weather experienced in Florida and the southeastern United States in
August. Despite the sales softness, our best information indicates that we are
maintaining or gaining used car market share.
"We posted strong new car comp sales increases, reflecting the strength of the
principal brands we represent - DaimlerChrysler, Nissan, and Toyota," Ligon
continued. "Total new car sales declined modestly, as the comp sales increases
were more than offset by the impact of having disposed of four new car
franchises since last year's first quarter." In accordance with our plan to
divest non-strategic new car franchises, during the second quarter CarMax
returned the rights to its Laurel Mitsubishi franchise to the manufacturer.
"Wholesale sales continued to benefit from the steps we've taken to improve our
`buy rate,' or the ratio of appraisal purchases completed to appraisal offers
made, and from higher wholesale prices," said Ligon. "Similar to the first
quarter, enhanced systems support and a new, more consistent appraisal delivery
process contributed to a year-over-year increase in our buy rate.
"Other sales and revenues increased approximately 3%, as growth in our service
revenue was partially offset by a decrease in third-party finance fees," Ligon
said. "In August, we rolled out Drive Financial Services, a new third-party
finance provider focused on subprime customers. As is customary in the subprime
finance industry, Drive purchases the loan contracts at a discount.
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This discount is reflected in our income statement as an offset to the fees
received from third-party providers lending to prime and nonprime customers."
Margins. "Used car gross profit dollars per unit declined modestly compared with
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the second quarter of last year, reflecting the impact of the slower overall
used car sales pace," said Ligon. "We adjust vehicle prices based on our
proprietary inventory pricing model in order to maintain high inventory turns.
However, during the first two months of the quarter, we maintained inventories
at lower than original plan but higher than current sales rates. We did this in
order to be able to take advantage of an upturn in sales during the peak sales
months of the summer, if that were to occur. This reduced our turns and
pressured gross margin. However, in August we reduced our inventory levels, as
is our practice. We target having our lowest inventory position of the year
during the week following Labor Day, in order to minimize the inherent inventory
risk associated with the new car model year changeover in the fall. Despite the
soft used car sales trends, we were successful in reducing inventories to target
levels at August 31."
The lower margin on other sales and revenues resulted primarily from lower
service margin and the inclusion of the Drive discount in third-party finance
fee revenue.
CarMax Auto Finance. "As expected, CAF income was lower than last year," said
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Ligon. "The CAF gain as a percent of loans sold was 3.9% in this year's second
quarter, which is in line with our expectations for a normalized gain spread,
compared with 4.8% in last year's second quarter. The decline in the gain spread
reflects the change in the underlying interest rate environment, with funding
costs having risen faster than consumer rates. For the balance of the year, we
expect that CAF gain spreads will be at the lower end of the 3.5% to 4.5%
normalized range."
SG&A Ratio. "Our second quarter SG&A ratio increased to 10.2% in this year's
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second quarter compared with a 9.8% ratio in last year's second quarter," said
Ligon. "The higher ratio resulted from the deleveraging associated with negative
used unit comps."
Third Quarter Expectations
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o Comparable store used unit performance: A range of -8% to -2%.
o Earnings per share: A range of 12 cents to 17 cents.
"The third quarter, which coincides with the new car model year changeover
period, is typically both our lowest volume period seasonally and our most
difficult quarter to predict," said Ligon. "The continuing sales volatility and
weakness combined with the normally challenging model year changeover period
makes forecasting especially difficult. This year's hurricane season isn't
helping. While we are encouraged by our sales in the beginning of September -
excluding the weather-affected Southeast markets - our estimates for the quarter
assume that market conditions remain volatile."
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Conference Call Information
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CarMax will host a conference call for investors at 9:00 a.m. Eastern time
today, September 20, 2004. Domestic investors may access the call at
1-888-298-3261 (conference I.D.: 9952834). International investors should dial
1-706-679-7457 (conference I.D.: 9952834). A live Webcast 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 1:00 p.m.
Eastern time on September 20 and will run through midnight, September 27, 2004.
Domestic investors may access the recording at 1-800-642-1687 (conference I.D.:
9952834) and international investors at 1-706-645-9291 (conference I.D.:
9952834). A replay of the call also will be available on the company's investor
information home page or at www.streetevents.com.
About CarMax
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CarMax, a Fortune 500 company, is the nation's leading specialty retailer of
used cars. Headquartered in Richmond, Va., CarMax currently operates 55 used car
superstores in 26 markets. CarMax also operates 11 new car franchises, all of
which are integrated or co-located with its used car superstores. During the
twelve month period ended August 31, 2004, the company sold 230,653 used cars,
which is 91 percent of the total 252,169 vehicles the company sold during that
period. For more information, access the CarMax Web site at www.carmax.com.
Forward-Looking Statements
- --------------------------
The company cautions readers that the statements in this release about the
company's 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 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 more
details on factors that could affect expectations, see the company's Annual
Report on Form 10-K for the fiscal year ended February 29, 2004, and its
quarterly or current reports as filed with or furnished to the Securities and
Exchange Commission.
Contacts
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Investors and Financial Media:
Dandy Barrett, 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
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CarMax, Inc.
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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 Six Months Ended
August 31 August 31
---------------------------------------- -----------------------------------------
2004 %(1) 2003 %(1) 2004 %(1) 2003 %(1)
--------- ------- --------- ------- --------- ------- --------- -------
Sales and operating revenues:
Used vehicle sales $ 987,359 74.6 $ 938,726 75.9 $1,972,734 74.5 $1,828,868 75.9
New vehicle sales 137,516 10.4 139,600 11.3 274,281 10.4 275,999 11.5
Wholesale vehicle sales 152,118 11.5 112,995 9.1 308,989 11.7 213,728 8.9
Other sales and revenues 46,514 3.5 45,136 3.7 92,493 3.5 90,697 3.8
---------- ----- --------- ----- ---------- ----- --------- ----
Net sales and operating revenues 1,323,507 100.0 1,236,457 100.0 2,648,497 100.0 2,409,292 100.0
Cost of sales 1,160,307 87.7 1,073,352 86.8 2,318,067 87.5 2,098,416 87.1
---------- ----- --------- ----- ---------- ----- --------- -----
Gross profit 163,200 12.3 163,105 13.2 330,430 12.5 310,876 12.9
CarMax Auto Finance income 20,744 1.6 22,677 1.8 42,560 1.6 48,425 2.0
Selling, general and
administrative expenses 134,726 10.2 120,714 9.8 265,414 10.0 236,267 9.8
Loss on franchise dispositions, net 11 -- 460 -- 11 -- 460 --
Interest expense 324 -- 383 -- 817 -- 1,137 --
Interest income 66 -- 182 -- 119 -- 304 --
---------- ------ --------- ------ ---------- ----- --------- -----
Earnings before income taxes 48,949 3.7 64,407 5.2 106,867 4.0 121,741 5.1
Provision for income taxes 19,090 1.4 24,797 2.0 41,678 1.6 46,870 1.9
---------- ----- --------- ----- ---------- ----- --------- ----
Net earnings $ 29,859 2.3 $ 39,610 3.2 $ 65,189 2.5 $ 74,871 3.1
========== ===== ========= ===== ========== ===== ========= ====
Weighted average common shares:
Basic 104,002 103,484 103,933 103,320
========== ========= ========== =========
Diluted 105,512 105,864 105,643 105,313
========== ========= ========== =========
Net earnings per share:
Basic $ 0.29 $ 0.38 $ 0.63 $ 0.72
========== ========= ========== =========
Diluted $ 0.28 $ 0.37 $ 0.62 $ 0.71
========== ========= ========== =========
(1) Percents are calculated as a percentage of net sales and operating revenues and may not equal totals due to rounding.
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CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
---------------------------
(Amounts in thousands)
August 31 February 29
2004 2003 2004
---------- --------- ----------
ASSETS (unaudited)
- ------
Current assets:
Cash and cash equivalents $ 56,607 $ 45,328 $ 61,643
Accounts receivable, net 69,795 71,008 72,358
Automobile loan receivables held for sale 3,164 20,402 18,781
Retained interests in securitized receivables 139,525 148,042 145,988
Inventory 492,011 409,477 466,061
Prepaid expenses and other current assets 5,473 11,167 8,650
----------- --------- -----------
Total current assets 766,575 705,424 773,481
Property and equipment, net 310,268 236,606 244,064
Deferred income taxes 1,635 3,208 185
Other assets 19,216 20,398 19,287
----------- --------- -----------
TOTAL ASSETS $ 1,097,694 $ 965,636 $ 1,037,017
=========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 131,495 $ 115,366 $ 145,517
Accrued expenses and other current liabilities 59,691 59,331 55,674
Accrued income taxes 2,676 8,736 4,050
Deferred income taxes 33,556 28,912 32,711
Short-term debt 4,644 3,353 4,446
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Total current liabilities 232,062 215,698 242,398
Long-term debt, excluding current installments 100,000 100,000 100,000
Deferred revenue and other liabilities 15,179 12,921 13,866
---------- --------- ----------
TOTAL LIABILITIES 347,241 328,619 356,264
SHAREHOLDERS' EQUITY 750,453 637,017 680,753
---------- --------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,097,694 $ 965,636 $1,037,017
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CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(Amounts in thousands)
Six Months Ended
August 31
2004 2003
--------- ---------
Operating Activities:
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Net earnings $ 65,189 $ 74,871
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 8,844 8,373
Amortization of restricted stock awards 51 65
(Gain) loss on disposition of assets (83) 475
Provision for deferred income taxes (605) (8,120)
Changes in operating assets and liabilities:
Decrease (increase) decrease in accounts receivable, net 2,563 (14,559)
Decrease (increase) in automobile loan
receivables held for sale 15,617 (16,823)
Decrease (increase) in retained interests in
securitized receivables 6,463 (13,026)
(Increase) decrease in inventory (25,950) 56,973
Decrease in prepaid expenses and other current assets 3,177 1,469
Decrease in other assets 71 772
(Decrease) increase in accounts payable, accrued expenses
and other current liabilities, and accrued income taxes (8,926) 25,480
Increase in deferred revenue and other liabilities 1,313 2,017
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Net cash provided by operating activities 67,724 117,967
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Investing Activities:
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Purchases of property and equipment (118,624) (82,662)
Proceeds from sales of property and equipment 43,659 24,910
---------- ----------
Net cash used in investing activities (74,965) (57,752)
---------- ----------
Financing Activities:
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Increase (decrease) in short-term debt, net 198 (52,698)
Equity issuances, net 2,007 3,196
---------- ----------
Net cash provided by (used in) financing activities 2,205 (49,502)
---------- ----------
(Decrease) increase in cash and cash equivalents (5,036) 10,713
Cash and cash equivalents at beginning of year 61,643 34,615
---------- ----------
Cash and cash equivalents at end of period $ 56,607 $ 45,328
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