CARMAX REPORTS FOURTH QUARTER AND
---------------------------------
FISCAL YEAR 2005 RESULTS;
-------------------------
Releases Fiscal Year 2006 Expectations
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Richmond, Va., March 30, 2005 - CarMax, Inc. (NYSE: KMX) today reported results
for the fourth quarter and fiscal year ended February 28, 2005.
o For the quarter, net earnings increased 32% to $29.7 million, or
28 cents per share, compared with $22.5 million, or 21 cents per
share, reported in the fourth quarter of fiscal 2004.
o For the year, net earnings were $112.9 million, or $1.07 per
share, a 3% decrease compared with $116.5 million, or $1.10 per
share, earned in fiscal 2004.
Sales Components
- ----------------
Three Months Ended Fiscal Years Ended
(In millions) February 28 or 29 (1) February 28 or 29 (1)
- ------------- ---------------------------- -----------------------------
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Used vehicle sales................. $1,098.5 $ 844.0 30.2% $3,997.2 $3,470.6 15.2%
New vehicle sales.................. 103.6 116.7 (11.3)% 492.1 515.4 (4.5)%
Wholesale vehicle sales............ 148.0 115.5 28.2% 589.7 440.6 33.8%
Other sales and revenues (2)....... 46.0 40.7 13.0% 181.3 171.1 5.9%
-------- ------- -------- --------
Net sales and operating
revenues....................... $1,396.1 $1,116.9 25.0% $5,260.3 $4,597.7 14.4%
======== ======== ======== ========
(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 Fiscal Years Ended
February 28 or 29 February 28 or 29
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2005 2004 2005 2004
---- ---- ---- ----
Comparable store vehicle sales:
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Used vehicle units.................. 12 % 5 % 1 % 6 %
New vehicle units................... (2)% 3 % 8 % (1)%
Total units..................... 11 % 5 % 1 % 5 %
Used vehicle dollars................ 14 % 9 % 3 % 7 %
New vehicle dollars................. (2)% 7 % 8 % 1 %
Total dollars................... 13 % 9 % 3 % 6 %
Total vehicle sales:
- --------------------
Used vehicle units.................. 27 % 17 % 13 % 18 %
New vehicle units................... (12)% (5)% (5)% (3)%
Total units..................... 24 % 15 % 11 % 16 %
Used vehicle dollars................ 30 % 21 % 15 % 19 %
New vehicle dollars................. (11)% (1)% (5)% (1)%
Total dollars................... 25 % 18 % 13 % 16 %
Earnings Highlights
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Three Months Ended Fiscal Years Ended
(In millions except per share data) February 28 or 29 February 28 or 29
------------------------------------ ------------------------------------
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Net earnings....................... $29.7 $22.5 31.8% $112.9 $116.5 (3.0)%
Diluted weighted average shares
outstanding.................... 106.1 105.9 0.2% 105.8 105.6 0.1 %
Net earnings per share ............ $0.28 $0.21 33.3% $1.07 $1.10 (2.7)%
Selected Operating Ratios
- -------------------------
Three Months Ended Fiscal Years Ended
(In millions) February 28 or 29 February 28 or 29
------------------------------------ ------------------------------------
2005 % (1) 2004 % (1) 2005 % (1) 2004 % (1)
---- ----- ---- ----- ---- ----- ---- -----
Net sales and operating revenues..... $1,396.1 100.0% $1,116.9 100.0% $5,260.3 100.0% $4,597.7 100.0%
Gross profit......................... $ 174.3 12.5% $ 133.8 12.0% $ 650.2 12.4% $ 570.9 12.4%
CarMax Auto Finance income........... $ 19.7 1.4% $ 18.9 1.7% $ 82.7 1.6% $ 85.0 1.8%
Selling, general, and administrative
expenses.......................... $ 144.0 10.3% $ 117.8 10.5% $ 546.6 10.4% $ 468.4 10.2%
Operating profit (EBIT) (2) ......... $ 49.9 3.6% $ 36.4 3.3% $ 186.9 3.6% $ 189.8 4.1%
Net earnings......................... $ 29.7 2.1% $ 22.5 2.0% $ 112.9 2.1% $ 116.5 2.5%
(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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CarMax, Inc.
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Gross Profit Margin
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Three Months Ended Fiscal Years Ended
February 28 or 29 February 28 or 29
------------------------------------- ------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
% (1) $ / unit (2) % (1) $ / unit (2) % (1) $ / unit (2) % (1) $ / unit (2)
----- ------------ ----- ------------ ----- ------------ ----- ------------
Used vehicle gross profit margin.......... 11.4% $1,794 11.0% $1,705 11.5% $1,817 11.3% $1,742
New vehicle gross profit margin........... 3.4% $ 832 3.0% $ 724 3.6% $ 860 3.7% $ 872
Total retail vehicle gross profit margin.. 10.7% $1,739 10.0% $1,625 10.6% $1,745 10.3% $1,666
Wholesale vehicle gross profit margin..... 14.7% $ 579 11.9% $ 432 12.2% $ 464 10.4% $ 359
Other gross profit margin................. 52.8% $ 329 57.7% $ 395 55.3% $ 366 67.7% $ 472
Total gross profit margin................. 12.5% $2,363 12.0% $2,253 12.4% $2,375 12.4% $2,323
(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 and Earnings. "We were very encouraged by the way our business rebounded
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in the fourth quarter," said Austin Ligon, president and chief executive
officer. "The strong fourth quarter sales growth was reflected in our fourth
quarter earnings, with earnings up 32% on a 25% increase in revenues, even
though store bonus payouts were higher than planned. Our superstores just kept
beating their bonus targets, even as we continued to raise the targets in
response to the improving sales trends. The rebound in sales and earnings growth
also reinforced our belief that the softness we experienced in the first half of
the fiscal year was due to external market factors, not to store execution
issues. When traffic levels increased in the latter half of the year, so did our
sales. Based on our confidence in our business model, we continued our planned
store growth, opening nine superstores during the year, an 18% increase to our
superstore base. Both our established and our newer stores in all our regions
have shown renewed sales strength."
Margins. "Our used vehicle gross profit dollars per unit were within our range
- -------
of expectations for the quarter," Ligon said. "For the year, we were able to
reach our gross profit dollar targets for used vehicles despite disappointing
first-half sales. In the fourth quarter, wholesale margins increased
significantly, as is typical in the fourth quarter. Fourth quarter margins in
other sales and revenues declined reflecting primarily the approximately 5%
incremental increase in sales financed by DRIVE, our new subprime finance
provider." DRIVE purchases subprime retail installment contracts at a discount.
This discount is reflected in the CarMax income statement as an offset to the
fees received from third-party providers of prime and nonprime auto financing.
CarMax Auto Finance. "CAF income was up modestly in the fourth quarter, as the
- -------------------
benefit of the growth in our originations and managed receivables more than
offset the decrease in the gain spread," said Ligon. "The gain spread, which
represents the difference between average interest rates charged customers and
our cost of funds, declined to 3.7% in this year's fourth quarter from 4.5% in
last year's fourth quarter. For the year, CAF income was 3% below last year's
level, reflecting the decline in the gain spread to 3.8% in fiscal 2005 from
4.7% in fiscal 2004. Throughout fiscal 2005, CAF income comparisons were
challenged by an environment where our funding costs rose more rapidly than
consumer finance rates."
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CarMax, Inc.
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SG&A. "Our strong sales generated modest expense leverage in the quarter, with
- ----
the SG&A ratio declining to 10.3% compared with 10.5% in last year's fourth
quarter," said Ligon. "We generated positive leverage despite both the
higher-than-expected store unit bonuses and the growing proportion of our store
base that is comprised of stores not yet at base maturity. For the year, the
expense ratio was 10.4% this year versus 10.2% last year."
Accounting for Leases
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In February, the Securities and Exchange Commission issued a letter to the
American Institute of Certified Public Accountants addressing certain accounting
issues and their application to generally accepted accounting principles
relating to operating leases. The company has reviewed its accounting practices
relative to leases and recorded cumulative adjustments amounting to $1.5
million, or 1 cent per share, as expenses in its consolidated statement of
earnings in the fourth quarter of fiscal 2005. The company's consolidated
balance sheets include reclassifications related to these non-cash adjustments.
The cumulative impact of these adjustments is immaterial to the company's
financial statements for fiscal 2005 and all prior periods presented.
Fiscal 2006 Expectations
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Fiscal 2006 Comparable Store Used Unit Growth. "Assuming continuing healthy
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sales performance, we currently anticipate comp store used unit growth for
fiscal 2006 in the range of 5 to 9%," said Ligon. "Comp growth should be
stronger in the first half of the year simply because of the easier first half
comparisons with last year. We are mindful that some of the factors that may
have played a role in the weakness experienced last spring and summer are at
play in the marketplace today: gas prices are rising once again; interest rates
continue to increase; wholesale prices are again rising in the spring more than
historical norms would indicate; and domestic auto manufacturers are struggling,
which makes their incentive behavior difficult to anticipate. We are hopeful
that these factors will not cause undue disruption in our market environment."
Fiscal 2006 Earnings Per Share. "We currently expect fiscal 2006 earnings per
- ------------------------------
share in the range of $1.20 to $1.30," Ligon said. "We expect CAF income to
increase only slightly from the fiscal 2005 level, as projected continuing
interest rate increases will likely cause our cost of funds to once again rise
more rapidly than consumer rates. Consequently, we expect CAF's gain spread for
fiscal 2006 to be slightly below the normalized range of 3.5 to 4.5%. Our
earnings expectations also reflect the rollout of marketwide advertising in Los
Angeles for the first time as we open our fifth L.A. store. Finally, we expect
between $2 million and $3 million in incremental costs related to separating our
data center operation from Circuit City - the last cost expected to be added as
a result of our separation from Circuit City. As a consequence of these higher
costs, we would expect to see modest SG&A leverage if we are at the upper end of
our expected comp unit growth range. We currently expect our tax rate in fiscal
2006 to be approximately 38.4%."
First Quarter Fiscal 2006 Comparable Store Used Unit Growth. "We now expect comp
- -----------------------------------------------------------
store used unit growth in the first quarter to be in the range of 9 to 12%,"
said Ligon. "Our sales trends thus far in the quarter have been healthy." In the
first quarter of fiscal 2005, CarMax reported comparable store used unit
performance of -3%.
First Quarter Fiscal 2006 Earnings Per Share. "The cost pressures cited in our
- --------------------------------------------
expectations for full year earnings - especially the grand opening advertising
in L.A. - will put pressure on our first quarter, so we expect first quarter EPS
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in the range of 35 to 38 cents," Ligon said. "In addition, we expect CAF's gain
spread in the first quarter to be roughly 3.25%, compared with 3.8% in the first
quarter of fiscal 2005." CarMax reported earnings per share of 33 cents in the
first quarter of fiscal 2005.
Accounting for Stock-Based Compensation
- ---------------------------------------
CarMax plans to adopt SFAS 123R, "Share-Based Payment," which modifies SFAS 123,
"Accounting for Stock-Based Compensation," in the third quarter of fiscal 2006,
ending November 30, 2005. This revised accounting standard requires that all
stock-based compensation, including grants of employee stock options, be
accounted for using a fair-value-based method and recorded as a charge to
earnings. The company is still in the process of determining the effect of
adopting SFAS 123R, and therefore earnings estimates provided for fiscal 2006 do
not include any potential impact from the adoption of this new standard.
Planned First Quarter Fiscal 2006 Earnings Release Date
- -------------------------------------------------------
As previously announced, beginning with the first quarter of fiscal 2006, ending
May 31, 2005, the company plans to issue one financial release per quarter
covering sales and earnings performance and will cease issuing a separate sales
release. The company currently plans to release first quarter results on Monday,
June 20, 2005, before the opening of the New York Stock Exchange, and plans to
host a conference call at 8:00 a.m. on that date.
Conference Call Information
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CarMax will host a conference call for investors at 9:00 a.m. Eastern time
today, March 30, 2005. Domestic investors may access the call at 1-888-298-3261
(conference I.D.: 3420488). International investors should dial 1-706-679-7457
(conference I.D.: 3420488). 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 March 30, 2005, and will run through midnight, April 7, 2005.
Domestic investors may access the recording at 1-800-642-1687
(conference I.D.: 3420488) and international investors at 1-706-645-9291
(conference I.D.: 3420488). 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 and one of the Fortune 2005 "100 Best Companies to
Work For," is the nation's leading specialty retailer of used cars.
Headquartered in Richmond, Va., CarMax currently operates 59 used car
superstores in 27 markets. CarMax also operates seven new car franchises, all of
which are integrated or co-located with its used car superstores. During the
twelve month period ended February 28, 2005, the company retailed 253,168 used
cars, which is 92 percent of the total 273,804 vehicles the company retailed
during that period. For more information, access the CarMax website at
www.carmax.com.
Forward-Looking Statements
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The company cautions readers that the statements contained herein regarding the
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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 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. 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
Trina Lee, Public Relations Manager, (804) 747-0422, ext. 4197
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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 or 29 February 28 or 29
---------------------------------------- -----------------------------------------
2005 %(1) 2004 %(1) 2005 %(1) 2004 %(1)
--------- ------- --------- ------- --------- ------- --------- -------
Sales and operating revenues:
Used vehicle sales $1,098,461 78.7 $ 843,995 75.6 $3,997,218 76.0 $3,470,615 75.5
New vehicle sales 103,573 7.4 116,703 10.4 492,054 9.4 515,383 11.2
Wholesale vehicle sales 148,046 10.6 115,491 10.3 589,704 11.2 440,571 9.6
Other sales and revenues 45,974 3.3 40,676 3.6 181,286 3.4 171,122 3.7
---------- ----- --------- ----- ---------- ----- --------- ----
Net sales and operating revenues 1,396,054 100.0 1,116,865 100.0 5,260,262 100.0 4,597,691 100.0
Cost of sales 1,221,734 87.5 983,095 88.0 4,610,066 87.6 4,026,803 87.6
---------- ----- --------- ----- --------- ----- --------- ----
Gross profit 174,320 12.5 133,770 12.0 650,196 12.4 570,888 12.4
CarMax Auto Finance income 19,657 1.4 18,889 1.7 82,656 1.6 84,963 1.8
Selling, general, and
administrative expenses 143,992 10.3 117,825 10.5 546,577 10.4 468,374 10.2
Gain (loss) on franchise
dispositions, net (48) -- 1,580 0.1 633 -- 2,327 0.1
Interest expense 1,990 0.1 -- -- 2,806 0.1 1,137 --
Interest income 127 -- 215 -- 421 -- 683 --
---------- ----- -------- ----- --------- ----- --------- ----
Earnings before income taxes 48,074 3.4 36,629 3.3 184,523 3.5 189,350 4.1
Provision for income taxes 18,380 1.3 14,103 1.3 71,595 1.4 72,900 1.6
---------- ----- --------- ----- ---------- ----- --------- ----
Net earnings $ 29,694 2.1 $ 22,526 2.0 $ 112,928 2.1 $ 116,450 2.5
========== ===== ========= ===== ========== ===== ========= ====
Weighted average common shares:
Basic 104,212 103,730 104,036 103,503
========== ========= ========== =========
Diluted 106,101 105,935 105,779 105,628
========== ========= ========== =========
Net earnings per share:
Basic $ 0.28 $ 0.22 $ 1.09 $ 1.13
========== ========= ========== =========
Diluted $ 0.28 $ 0.21 $ 1.07 $ 1.10
========== ========= ========== =========
(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
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(Amounts in thousands)
At February 28 or 29
2005 2004
----------- ----------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 29,099 $ 61,643
Accounts receivable, net 76,167 72,358
Automobile loan receivables held for sale 22,152 18,781
Retained interests in securitized receivables 147,963 145,988
Inventory 576,567 466,061
Prepaid expenses and other current assets 13,008 8,650
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Total current assets 864,956 773,481
Property and equipment, net 406,301 251,459
Deferred income taxes - 185
Other assets 21,756 22,762
----------- ------------
TOTAL ASSETS $ 1,293,013 $ 1,047,887
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 170,646 $ 145,517
Accrued expenses and other current liabilities 65,664 55,674
Accrued income taxes 1,179 4,050
Deferred income taxes 26,315 32,711
Short-term debt 65,197 4,446
Current installments of long-term debt 330 -
----------- ------------
Total current liabilities 329,331 242,398
Long-term debt, excluding current installments 128,419 100,000
Deferred revenue and other liabilities 29,260 24,736
Deferred income taxes 5,027 -
----------- ------------
TOTAL LIABILITIES 492,037 367,134
SHAREHOLDERS' EQUITY 800,976 680,753
----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,293,013 $ 1,047,887
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CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Amounts in thousands)
Years Ended
February 28 or 29
2005 2004
---------- ----------
Operating Activities:
- ---------------------
Net earnings $ 112,928 $ 116,450
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 20,145 16,181
Amortization of restricted stock awards 108 122
Gain on disposition of assets (1,486) (1,462)
Provision for deferred income taxes (1,184) (1,298)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (3,809) (15,909)
Increase in automobile loan receivables held for sale (3,371) (15,202)
Increase in retained interests in securitized receivables (1,975) (10,972)
(Increase) decrease in inventory (110,506) 389
(Increase) decrease in prepaid expenses and other
current assets (4,358) 3,986
Decrease in other assets 42 4,647
Increase in accounts payable, accrued expenses and
other current liabilities, and accrued income taxes 35,876 48,570
Increase in deferred revenue and other liabilities 2,326 2,962
---------- ----------
Net cash provided by operating activities 44,736 148,464
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Investing Activities:
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Purchases of property and equipment (230,080) (181,338)
Proceeds from sales of assets 88,999 107,493
---------- ----------
Net cash used in investing activities (141,081) (73,845)
---------- ----------
Financing Activities:
- ---------------------
Increase (decrease) in short-term debt, net 60,751 (51,605)
Payments on long-term debt (509) -
Equity issuances, net 3,559 4,014
---------- ----------
Net cash provided by (used in) financing activities 63,801 (47,591)
---------- ----------
(Decrease) increase in cash and cash equivalents (32,544) 27,028
Cash and cash equivalents at beginning of year 61,643 34,615
---------- ----------
Cash and cash equivalents at end of year $ 29,099 $ 61,643
========== ==========
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