CARMAX REPORTS THIRD QUARTER RESULTS
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Richmond, Va., December 17, 2004 - CarMax, Inc. (NYSE: KMX) today reported
results for the fiscal 2005 third quarter and nine month period ended
November 30, 2004.
|X| Total sales increased 13% to $1.22 billion from $1.07 billion in the
third quarter of last year.
|X| Third quarter comparable store used unit sales rose 2%.
|X| Third quarter net earnings were $18.0 million, or 17 cents per share,
compared with $19.1 million, or 18 cents per share, earned in the third
quarter of fiscal 2004.
|X| For the fourth quarter ending February 28, 2005, CarMax expects
comparable store used unit sales growth in the range of 2% to 7%
and earnings per share in the range of 19 cents to 23 cents.
Sales Components
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Three Months Ended Nine Months Ended
(In millions) November 30 (1) November 30 (1)
----------------------------------- -----------------------------------
2004 2003 Change 2004 2003 Change
---- ---- ------ ---- ---- ------
Used vehicle sales.................... $ 926.0 $ 797.8 16.1% $2,898.8 $2,626.6 10.4%
New vehicle sales..................... 114.2 122.7 (6.9)% 388.5 398.7 (2.6)%
Wholesale vehicle sales............... 132.7 111.4 19.1% 441.7 325.1 35.9%
Other sales and revenues (2).......... 42.8 39.7 7.7% 135.3 130.4 3.7%
-------- -------- ---- -------- -------- ----
Net sales and operating
revenues.......................... $1,215.7 $1,071.5 13.5% $3,864.2 $3,480.8 11.0%
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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 service plan 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 Nine Months Ended
November 30 November 30
---------------------------------- -----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Comparable store vehicle sales:
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Used vehicle units............. 2 % 2 % (3)% 6 %
New vehicle units.............. 11 % 2 % 12 % (2)%
Total units................. 2 % 2 % (2)% 5 %
Used vehicle dollars........... 3 % 4 % (1)% 7 %
New vehicle dollars............ 9 % 5 % 11 % 0 %
Total dollars............... 4 % 4 % 0 % 6 %
Total vehicle sales:
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Used vehicle units............. 15 % 13 % 8 % 18 %
New vehicle units.............. (6)% 1 % (3)% (3)%
Total units................. 13 % 12 % 7 % 16 %
Used vehicle dollars........... 16 % 16 % 10 % 19 %
New vehicle dollars............ (7)% 4 % (3)% (1)%
Total dollars............... 13 % 14 % 9 % 16 %
Earnings Highlights
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Three Months Ended Nine Months Ended
(In millions except per share data) November 30 November 30
----------------------------------- -----------------------------------
2004 2003 Change 2004 2003 Change
---- ---- ------ ---- ---- ------
Net earnings.......................... $18.0 $19.1 (5.3)% $83.2 $93.9 (11.4)%
Diluted weighted average shares
outstanding........................ 105.7 106.0 (0.2)% 105.7 105.5 0.1 %
Diluted net earnings per share........ $0.17 $0.18 (5.6)% $0.79 $0.89 (11.2)%
Selected Operating Ratios
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(In millions) Three Months Ended November 30 Nine Months Ended November 30
----------------------------------- ------------------------------------
2004 % (1) 2003 % (1) 2004 % (1) 2003 % (1)
---- ----- ---- ----- ---- ----- ---- -----
Net sales and operating revenues...... $ 1,215.7 100.0% $1,071.5 100.0% $3,864.2 100.0% $3,480.8 100.0%
Gross profit.......................... $ 145.4 12.0% $ 126.2 11.8% $ 475.9 12.3% $ 437.1 12.6%
CarMax Auto Finance income............ $ 20.4 1.7% $ 17.6 1.6% $ 63.0 1.6% $ 66.1 1.9%
Selling, general and administrative
expenses........................... $ 137.2 11.3% $ 114.3 10.7% $ 402.6 10.4% $ 350.5 10.1%
Operating profit (EBIT) (2)........... $ 29.4 2.4% $ 30.8 2.9% $ 137.0 3.5% $ 153.4 4.4%
Net earnings.......................... $ 18.0 1.5% $ 19.1 1.8% $ 83.2 2.2% $ 93.9 2.7%
(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 November 30 Nine Months Ended November 30
------------------------------------ ------------------------------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
%(1) $/unit(2) %(1) $/unit(2) %(1) $/unit(2) %(1) $/unit(2)
---- --------- ---- -------- ---- -------- ---- --------
Used vehicle gross profit margin......... 11.2% $1,765 10.9% $1,693 11.6% $1,826 11.3% $1,754
New vehicle gross profit margin.......... 3.7% $ 886 3.8% $ 925 3.7% $ 866 3.9% $ 914
Total retail vehicle gross profit margin. 10.4% $1,700 10.0% $1,624 10.6% $1,748 10.3% $1,679
Wholesale vehicle gross profit margin.... 11.8% $ 440 9.9% $ 338 11.4% $ 428 9.8% $ 335
Other gross profit margin................ 50.5% $ 339 59.3% $ 418 56.1% $ 379 70.8% $ 496
Total gross profit margin................ 12.0% $2,284 11.8% $2,237 12.3% $2,379 12.6% $2,346
(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.
Business Performance Review
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Sales. "We are pleased that our used unit sales growth was much stronger in the
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third quarter than in the first half of the year," said Austin Ligon, president
and chief executive officer. "Used car sales trends in the quarter, though not
robust, were better than we experienced in the late spring and summer. Total new
car sales declined as we continued our program to reduce the number of new car
franchises we own to a select core. New car comp unit sales were particularly
healthy.
"The wholesale sales growth reflects an increase in the number of appraisals
made and a continuing strong buy rate," said Ligon. The buy rate is the ratio of
vehicle purchases completed to the appraisal offers made. "Our appraisal
purchases continue to provide more than 50% of the used vehicles we retail. We
dispose of the cars that don't meet our standards at our own in-store wholesale
auctions.
"The growth in other sales and revenue reflects increases in extended service
plan sales, service, and third-party nonprime finance fees," said Ligon. "The
increases were offset in part by the cost of providing subprime financing."
CarMax began making available a subprime finance provider throughout its store
base in August 2004. As is customary in the subprime finance industry, the
subprime provider purchases the loan contracts at a discount. This discount is
reflected in the CarMax income statement as an offset to the fees received from
third-party providers lending to prime and nonprime customers.
Margins. "Gross profit per unit for both used and wholesale vehicle sales was up
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this quarter compared with last year as a result of continuing refinements to
our appraisal cost recovery (ACR) methodology," Ligon said. The company recovers
expenses associated with its appraisal,
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buying, and wholesaling operations by factoring the costs into the purchase
offers made on customers' cars. "The lower margin on other revenue resulted from
higher service operations costs and from the subprime financing discount that
partially offsets third-party finance fee revenue."
CarMax Auto Finance. "CAF income growth reflects our total sales growth, as well
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as an approximately 1 cent EPS benefit from the adjustment in the valuation of
our retained interests in securitized receivables," said Ligon. "Including the
valuation adjustment, the CAF gain as a percent of loans sold was 4.1%, compared
with 3.8% in last year's third quarter. As we expected, excluding the valuation
adjustment, the CAF gain spread would have been 3.6%, at the low end of the 3.5
to 4.5% range we consider to be normal. We have been able to raise our rates
modestly as our cost of funds has increased."
SG&A Ratio. "Our third quarter SG&A ratio was 11.3% compared with 10.7% in last
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year's third quarter," Ligon said. "The increase primarily reflects the higher
SG&A at our newer stores, which make up a growing proportion of our store base.
None of the stores we have opened since we reinitiated growth has yet reached
base maturity, which we project to be after 48 months.
"The higher SG&A ratio also reflects store unit bonuses that were higher than
originally expected," said Ligon. "At the beginning of the quarter, we set bonus
targets in line with our original expectations for the quarter. Because we saw
stronger sales, bonuses were higher. "
Fourth Quarter Expectations
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|X| Comparable store used unit growth: A range of 2% to 7%.
|X| Earnings per share: A range of 19 cents to 23 cents.
"Sales trends have continued to improve since September. Consequently, assuming
we don't experience abnormal winter weather events, for the fourth quarter we
expect used unit comp growth in the range of 2 to 7% and earnings per share in
the range of 19 to 23 cents," said Ligon. "These expectations take into account
the adverse calendar shifts in the fourth quarter. We lose a Saturday because
Christmas Day falls on Saturday this year, and we lose one selling day because
fiscal 2004 included 29 days in February."
Future Financial News Releases
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Beginning with the first quarter of fiscal 2006, ending May 31, 2005, we plan to
issue one financial release per quarter covering sales and earnings performance,
and we will cease issuing a separate sales release. For the fourth quarter and
year-end of the current fiscal year, CarMax plans to issue a sales release on
March 4, 2005, and an earnings release on March 30, 2005. CarMax plans to
announce its fiscal 2006 earnings release schedule on March 30, 2005.
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CarMax, Inc.
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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, December 17, 2004. Domestic investors may access the call at
1-888-298-3261 (conference I.D.: 2632626). International investors should dial
1-706-679-7457 (conference I.D.: 2632626). 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 December 17 and will run through midnight, December 24, 2004.
Domestic investors may access the recording at 1-800-642-1687 (conference I.D.:
2632626) and international investors at 1-706-645-9291 (conference I.D.:
2632626). 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 58 used car
superstores in 27 markets. CarMax also operates nine new car franchises, all of
which are integrated or co-located with its used car superstores. During the
twelve month period ended November 30, 2004, the company sold 238,200 used cars,
which is 92% of the total 259,402 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 Nine Months Ended
November 30 November 30
--------------------------------------- ----------------------------------------
2004 %(1) 2003 %(1) 2004 %(1) 2003 %(1)
--------- ------ --------- ------- ---------- ------ --------- ------
Sales and operating revenues:
Used vehicle sales $ 926,023 76.2 $ 797,752 74.4 $2,898,757 75.0 $2,626,620 75.5
New vehicle sales 114,199 9.4 122,681 11.4 388,480 10.1 398,680 11.5
Wholesale vehicle sales 132,669 10.9 111,352 10.4 441,658 11.4 325,080 9.3
Other sales and revenues 42,820 3.5 39,749 3.7 135,313 3.5 130,446 3.7
---------- ----- --------- ----- ---------- ----- --------- ----
Net sales and operating
revenues 1,215,711 100.0 1,071,534 100.0 3,864,208 100.0 3,480,826 100.0
Cost of sales 1,070,265 88.0 945,292 88.2 3,388,332 87.7 3,043,708 87.4
---------- ----- --------- ----- --------- ----- --------- ----
Gross profit 145,446 12.0 126,242 11.8 475,876 12.3 437,118 12.6
CarMax Auto Finance income 20,439 1.7 17,649 1.6 62,999 1.6 66,074 1.9
Selling, general and
administrative expenses 137,170 11.3 114,282 10.7 402,584 10.4 350,549 10.1
Gain on franchise dispositions,
net 692 0.1 1,207 0.1 681 -- 746 --
Interest expense -- -- -- -- 817 -- 1,137 --
Interest income 175 -- 164 -- 294 -- 468 --
---------- ----- --------- ----- ---------- ------ --------- -----
Earnings before income taxes 29,582 2.4 30,980 2.9 136,449 3.5 152,720 4.4
Provision for income taxes 11,537 0.9 11,927 1.1 53,215 1.4 58,797 1.7
---------- ----- --------- ----- ---------- ----- --------- ----
Net earnings $ 18,045 1.5 $ 19,053 1.8 $ 83,234 2.2 $ 93,923 2.7
========== ===== ========= ----- ========== ===== ========= ====
Weighted average common shares:
Basic 104,070 103,647 103,978 103,428
========== ========= ========== =========
Diluted 105,735 105,955 105,673 105,526
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Net earnings per share:
Basic $ 0.17 $ 0.18 $ 0.80 $ 0.91
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Diluted $ 0.17 $ 0.18 $ 0.79 $ 0.89
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(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.
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CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(Amounts in thousands)
November 30 February 29
2004 2003 2004
--------- -------- ----------
ASSETS (unaudited)
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Current assets:
Cash and cash equivalents $ 25,762 $ 54,962 $ 61,643
Accounts receivable, net 63,694 60,853 72,358
Automobile loan receivables held for sale 3,540 18,997 18,781
Retained interests in securitized receivables 131,621 135,004 145,988
Inventory 503,682 449,744 466,061
Prepaid expenses and other current assets 9,248 10,328 8,650
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Total current assets 737,547 729,888 773,481
Property and equipment, net 368,203 239,553 244,064
Deferred income taxes 667 3,505 185
Other assets 18,642 20,360 19,287
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TOTAL ASSETS $ 1,125,059 $ 993,306 $ 1,037,017
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 133,015 $ 127,899 $ 145,517
Accrued expenses and other current liabilities 53,388 49,984 55,674
Accrued income taxes 4,481 9,355 4,050
Deferred income taxes 31,030 28,677 32,711
Short-term debt 6,331 6,267 4,446
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Total current liabilities 228,245 222,182 242,398
Long-term debt, excluding current installments 111,940 100,000 100,000
Deferred revenue and other liabilities 15,638 13,319 13,866
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TOTAL LIABILITIES 355,823 335,501 356,264
SHAREHOLDERS' EQUITY 769,236 657,805 680,753
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,125,059 $ 993,306 $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)
Nine Months Ended
November 30
2004 2003
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Operating Activities:
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Net earnings $ 83,234 $ 93,923
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 13,334 12,253
Amortization of restricted stock awards 79 94
Gain on disposition of assets (810) (588)
Provision for deferred income taxes (2,163) (8,652)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 8,664 (4,404)
Decrease (increase) in automobile loan receivables held for sale 15,241 (15,418)
Decrease in retained interests in securitized receivables 14,367 12
(Increase) decrease in inventory (37,621) 16,706
(Increase) decrease in prepaid expenses and other
current assets (598) 2,308
(Increase) decrease in other assets (394) 1,999
(Decrease) increase in accounts payable, accrued expenses and
other current liabilities, and accrued income taxes (11,500) 30,390
Increase in deferred revenue and other liabilities 1,772 2,415
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Net cash provided by operating activities 83,605 131,038
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Investing Activities:
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Purchases of property and equipment (176,341) (137,201)
Proceeds from sales of assets 52,657 72,496
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Net cash used in investing activities (123,684) (64,705)
Financing Activities:
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Increase (decrease) in short-term debt, net 1,885 (49,784)
Equity issuances, net 2,313 3,798
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Net cash provided by (used in) financing activities 4,198 (45,986)
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(Decrease) increase in cash and cash equivalents (35,881) 20,347
Cash and cash equivalents at beginning of year 61,643 34,615
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Cash and cash equivalents at end of period $ 25,762 $ 54,962
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