CARMAX REPORTS RECORD SECOND QUARTER RESULTS
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Releases Third Quarter Expectations
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Richmond, Va. September 21, 2005 - CarMax, Inc. (NYSE:KMX) today reported
results for the second quarter ended August 31, 2005.
|X| Total sales increased 23% to $1.63 billion from $1.32 billion in the second
quarter of last year.
|X| Comparable store used unit sales rose 10% for the quarter.
|X| Total used unit sales grew 21% for the quarter.
|X| Net earnings increased 39% to $41.4 million, or 39 cents per share,
compared with $29.9 million, or 28 cents per share, earned in the
second quarter of fiscal 2005.
|X| For the third quarter of fiscal 2006 ending November 30, 2005, CarMax
expects comparable store used unit sales growth in the range of 2% to
8%, and earnings per share in the range of 19 cents to 25 cents.
Sales Components
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Three Months Ended Six Months Ended
(In millions) August 31 (1) August 31 (1)
--------------------------------------- -----------------------------------
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Used vehicle sales................... $1,236.5 $ 987.4 25.2% $2,440.3 $1,972.7 23.7%
New vehicle sales.................... 151.9 137.5 10.5% 286.0 274.3 4.3%
Wholesale vehicle sales.............. 190.8 152.1 25.4% 380.3 309.0 23.1%
Other sales and revenues (2)......... 54.6 46.5 17.5% 105.6 92.5 14.2%
-------- -------- -------- --------
Net sales and operating revenues..... $1,633.9 $1,323.5 23.4% $3,212.2 $2,648.5 21.3%
======== ======== ======== ========
(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, and third-party finance fees.
-more-
CarMax, Inc.
Page 2 of 9
Retail Vehicle Sales Changes
- ----------------------------
Three Months Ended Six Months Ended
August 31 August 31
---------------------------------- ----------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Comparable store vehicle sales:
Used vehicle units............... 10% (7)% 8% (5)%
New vehicle units................ 10% 13 % 5% 12 %
Total units...................... 10% (5)% 8% (3)%
Used vehicle dollars............. 14% (6)% 12% (3)%
New vehicle dollars.............. 10% 13 % 6% 12 %
Total dollars.................... 14% (4)% 11% (1)%
Total vehicle sales:
Used vehicle units............... 21% 4 % 20% 6 %
New vehicle units................ 10% (1)% 3% (1)%
Total units...................... 20% 3 % 19% 5 %
Used vehicle dollars............. 25% 5 % 24% 8 %
New vehicle dollars.............. 10% (1)% 4% (1)%
Total dollars.................... 23% 4 % 21% 7 %
Retail Vehicle Sales Mix
- ------------------------
Three Months Ended Six Months Ended
August 31 August 31
---------------------------------- ----------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Vehicle units:
Used vehicles...................... 92% 92% 93% 91%
New vehicles....................... 8 8 7 9
----------------- ---------------- ---------------- -----------------
Total.............................. 100% 100% 100% 100%
----------------- ---------------- ---------------- -----------------
Vehicle dollars:
Used vehicles...................... 89% 88% 89% 88%
New vehicles....................... 11 12 11 12
----------------- ---------------- ---------------- -----------------
Total.............................. 100% 100% 100% 100%
----------------- ---------------- ---------------- -----------------
Retail Unit Sales
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Three Months Ended Six Months Ended
August 31 August 31
---------------------------------- ----------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Used vehicles........................... 75,616 62,396 149,759 124,749
New vehicles............................ 6,320 5,756 11,924 11,600
----------------- ---------------- ---------------- -----------------
Total................................... 81,936 68,152 161,683 136,349
----------------- ---------------- ---------------- -----------------
CarMax, Inc.
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Average Retail Selling Prices
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Three Months Ended Six Months Ended
August 31 August 31
---------------------------------- -----------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Used vehicles........................... $16,204 $15,693 $16,161 $15,678
New vehicles............................ $23,878 $23,706 $23,824 $23,463
Weighted average........................ $16,796 $16,370 $16,726 $16,340
Earnings Highlights
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Three Months Ended Six Months Ended
(In millions except per share data) August 31 August 31
------------------------------------ -----------------------------------
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Net earnings.......................... $41.4 $29.9 38.7% $81.2 $65.2 24.6%
Diluted weighted average shares
outstanding....................... 106.2 105.5 0.7% 106.2 105.6 0.5%
Net earnings per share (1)............ $0.39 $0.28 39.3% $0.76 $0.62 22.6%
(1) All per share amounts are presented on a fully diluted basis.
Selected Operating Ratios
- -------------------------
Three Months Ended Six Months Ended
(In millions) August 31 August 31
-------------------------------------- ------------------------------------
2005 % (1) 2004 % (1) 2005 % (1) 2004 % (1)
---- ----- ---- ----- ---- ----- ---- -----
Net sales and operating revenues....... $1,633.9 100.0% $1,323.5 100.0% $3,212.2 100.0% $2,648.5 100.0%
Gross profit........................... $ 208.6 12.8% $ 163.2 12.3% $ 406.3 12.6% $ 330.4 12.5%
CarMax Auto Finance income............. $ 23.8 1.5% $ 20.7 1.6% $ 50.9 1.6% $ 42.6 1.6%
Selling, general, and administrative
expenses............................ $ 165.3 10.1% $ 134.7 10.2% $ 324.5 10.1% $ 265.4 10.0%
Operating profit (EBIT) (2) ........... $ 67.1 4.1% $ 49.2 3.7% $ 132.7 4.1% $ 107.6 4.1%
Net earnings........................... $ 41.4 2.5% $ 29.9 2.3% $ 81.2 2.5% $ 65.2 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.
Gross Profit
- ------------
Three Months Ended Six Months Ended
August 31 August 31
--------------------------------------- ------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
$/unit (1) % (2) $/unit (1) % (2) $/unit (1) % (2) $/unit (1) % (2)
---------- ----- ---------- ----- ---------- ----- ---------- -----
Used vehicle gross profit.............. $1,856 11.3% $1,846 11.7% $1,829 11.2% $1,855 11.7%
New vehicle gross profit............... $1,122 4.7% $ 890 3.7% $ 973 4.1% $ 859 3.6%
Wholesale vehicle gross profit......... $ 578 14.4% $ 406 11.0% $ 604 14.6% $ 423 11.3%
Other gross profit..................... $ 411 61.7% $ 385 56.3% $ 404 61.8% $ 398 58.7%
Total gross profit..................... $2,546 12.8% $2,395 12.3% $2,513 12.6% $2,423 12.5%
(1) Calculated as category gross profit divided by its respective units sold, except the other and total categories,
which are divided by total retail units sold.
(2) Calculated as a percentage of its respective sales or revenue.
CarMax, Inc.
Page 4 of 9
Business Performance Review
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Sales. "We are very pleased with our second quarter results," said Austin Ligon,
- ------
president and chief executive officer, "especially considering the constantly
changing environment in the auto retailing marketplace. Continuing excellent
execution by our store teams took advantage of a strong increase in store
traffic, which we believe was helped in part by the new car employee pricing
programs.
"We believe we benefit from pricing transparency in the marketplace, and the
employee pricing programs made new car pricing more transparent," said Ligon.
"Our no-haggle consumer offer makes price-comparing easy, giving us a unique
advantage as consumers cross-shop.
"We also saw a solid increase in appraisal traffic," Ligon said. "We increased
our radio advertising during the summer, focusing almost exclusively on our `we
buy cars' message. Even as prices on SUVs fell dramatically, we stayed active in
the market, making a fair offer to purchase any consumer's vehicle. In addition,
dealers lost some of their negotiating ability on trade-ins as prices of new
cars were more transparent.
"Our subprime finance provider, DRIVE, contributed approximately 1 percentage
point of our 10% used unit comp growth," Ligon said. "Following several months
of testing, we rolled out DRIVE systemwide in August 2004. Having now
anniversaried this rollout, we do not expect DRIVE to provide material
incremental used unit comp growth in future quarters.
"We believe the new car pricing programs helped stimulate the robust increase in
our appraisal traffic," Ligon said. "Consumers continue to learn that they can
come to CarMax for a free appraisal of their cars. Doing so gives them an easy
way to realize fair value for their cars if they choose to sell to us and a
powerful negotiating tool if they choose to trade in at a new car dealer. The
increase in appraisal traffic was the primary driver of the 25% increase in
wholesale sales.
"Other sales and revenues benefited from increases in extended service plan
revenues and service department sales," said Ligon. "Their growth was partially
offset by a decline in third-party finance fees, resulting primarily from the
DRIVE discount. Our prime and nonprime finance partners pay us an origination
fee, while DRIVE purchases loan contracts at a discount."
Margins. "Used vehicle gross profit per unit rose slightly compared with last
- --------
year's second quarter," Ligon said, "despite the expected pricing pressure on
SUVs and trucks resulting from higher gas prices and despite a supplemental
markdown in retail SUV valuation at the end of the quarter. While wholesale
auction prices for SUVs and trucks plummeted, auction prices for other vehicles
were above historical norms. We were able to hold margins because we are quickly
adjusting our appraisal offers to be in sync with broader market trade-in offers
and because we turn our inventory rapidly. We finished the quarter with our
inventory on target going into the lower volume, model year changeover period.
"New car margins rose nicely," said Ligon. "We actually were able to increase
new car prices modestly because our pricing had been below the employee pricing
programs. In wholesale, we continued to benefit from our sharp attention to
appraisal offer adjustments during the summer's very dynamic market environment.
CarMax, Inc.
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The other sales and revenues margin grew as a result of growth in our service
margin, reflecting the greater overhead expense absorption that higher volumes
provide."
CarMax Auto Finance. CarMax Auto Finance income increased 15% compared with the
- --------------------
same quarter last year. CAF income benefited from the growth in total sales and
a modest increase in penetration. The increase in originations and managed
receivables more than offset the expected decline in gain spread. The gain on
loans sold as a percent of loans sold was 3.3% in the second quarter, slightly
below the normalized range of 3.5% to 4.5%. Similar to the past several
quarters, increases in CAF's cost of funds outpaced increases in consumer rates.
The gain spread was 3.8% in last year's second quarter.
SG&A. Selling, general, and administrative expenses as a percent of total sales
- -----
declined modestly to 10.1% in this year's second quarter from 10.2% in last
year's second quarter. "The overhead cost leverage provided by our strong sales
growth was largely offset by a combination of factors," said Ligon. "This year's
rollout of marketwide television advertising in Los Angeles and last year's
lower-than-normal store and corporate bonuses both adversely affected the SG&A
ratio comparison. In addition, we continue to see a larger percentage of our
store base made up of stores not yet at basic maturity, which we define as four
years. In this year's second quarter, 46% of our stores were newer stores,
compared with 38% in last year's second quarter."
Earnings. "We finished the quarter with earnings at 39 cents per share, 2 cents
- ---------
higher than our revised guidance," Ligon said. "We benefited from strong margin
performance in used, new, and wholesale vehicles. We also benefited from lower
than expected health care costs."
Third Quarter Fiscal 2006 Expectations
- --------------------------------------
"For the third quarter, we currently expect used unit comp growth in the range
of 2 to 8% and earnings per share in the range of 19 to 25 cents," Ligon said.
"We have again put a wide range on our quarterly expectations because market
conditions continue to be uncertain and we are going into the ever-challenging
model year changeover period. We continue to see SUV and light truck price
declines. As these declines cause supplemental markdowns, we anticipate
additional margin pressure. We expect the CAF gain on loans sold to be
approximately 3.5%, the low end of our normalized range.
"Thus far in September, we've experienced a slight benefit from replacement
purchases resulting from Hurricane Katrina," said Ligon. "However, we have no
way of knowing if and to what extent our sales might continue to benefit.
Consequently, our current expectations do not include any future benefit from
possible replacement purchases." The company plans to release third quarter
sales and earnings results on Wednesday, December 21, 2005, before the opening
of the New York Stock Exchange.
Store Openings
- --------------
CarMax opened one superstore during the second quarter, bringing to five the
number of superstores opened in the first half of the fiscal year. The company
entered the Salt Lake City market with a standard superstore, which opened on
August 31, the last day of the quarter. CarMax's plans call for opening four
CarMax, Inc.
Page 6 of 9
additional superstores during the second half of the year, including two
satellite superstores that have opened in September, one in Miami and one in
Nashville.
Conference Call Information
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CarMax will host a conference call for investors at 9:00 a.m. Eastern time
today, September 21, 2005. Domestic investors may access the call at
1-888-298-3261 (conference I.D.: 7882552). International investors should dial
1-706-679-7457 (conference I.D.: 7882552). 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 21, 2005, and will run through midnight, September 28,
2005. Domestic investors may access the recording at 1-800-642-1687 (conference
I.D.: 7882552) and international investors at 1-706-645-9291 (conference I.D.:
7882552). A replay of the call also will be available on the company's investor
information home page or at www.streetevents.com.
About CarMax
- ------------
CarMax, a Fortune 500 company, and one of the Fortune 2005 "100 Best Companies
to Work For," is the nation's largest retailer of used cars. Headquartered in
Richmond, Va., CarMax currently operates 65 used car superstores in 29 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
August 31, 2005, the company sold 278,178 used cars, which is 93 percent of the
total 299,138 vehicles the company retailed during that period. For more
information, access the CarMax website at www.carmax.com.
Forward-Looking Statements
- --------------------------
The company cautions readers that the statements contained 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 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 28, 2005, 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
CarMax, Inc.
Page 7 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
-----------------------------------------------
(In thousands except per share data)
Three Months Ended Six Months Ended
August 31 August 31
---------------------------------------- -----------------------------------------
2005 %(1) 2004 %(1) 2005 %(1) 2004 %(1)
--------- ------- --------- ------- --------- ------- --------- -------
Sales and operating revenues:
Used vehicle sales $1,236,514 75.7 $ 987,359 74.6 $2,440,319 76.0 $1,972,734 74.5
New vehicle sales 151,922 9.3 137,516 10.4 286,015 8.9 274,281 10.4
Wholesale vehicle sales 190,783 11.7 152,118 11.5 380,275 11.8 308,989 11.7
Other sales and revenues 54,634 3.3 46,514 3.5 105,604 3.3 92,493 3.5
---------- ----- --------- ----- ---------- ----- --------- ----
Net sales and operating revenues 1,633,853 100.0 1,323,507 100.0 3,212,213 100.0 2,648,497 100.0
Cost of sales 1,425,269 87.2 1,160,307 87.7 2,805,870 87.4 2,318,067 87.5
---------- ----- --------- ----- --------- ----- --------- ----
Gross profit 208,584 12.8 163,200 12.3 406,343 12.6 330,430 12.5
CarMax Auto Finance income 23,824 1.5 20,744 1.6 50,895 1.6 42,560 1.6
Selling, general, and
administrative expenses 165,274 10.1 134,726 10.2 324,509 10.1 265,414 10.0
Loss on franchise dispositions, net -- -- 11 -- -- -- 11 --
Interest expense 375 -- 324 -- 1,569 -- 817 --
Interest income 191 -- 66 -- 326 -- 119 --
---------- ------ --------- ------ ---------- ------ --------- ----
Earnings before income taxes 66,950 4.1 48,949 3.7 131,486 4.1 106,867 4.0
Provision for income taxes 25,528 1.6 19,090 1.4 50,246 1.6 41,678 1.6
---------- ----- --------- ----- ---------- ----- --------- ----
Net earnings $ 41,422 2.5 $ 29,859 2.3 $ 81,240 2.5 $ 65,189 2.5
========== ===== ========= ===== ========== ===== ========= ====
Weighted average common shares:
Basic 104,528 104,002 104,457 103,933
========== ========= ========== =========
Diluted 106,217 105,512 106,201 105,643
========== ========= ========== =========
Net earnings per share:
Basic $ 0.40 $ 0.29 $ 0.78 $ 0.63
========== ========= ========== =========
Diluted $ 0.39 $ 0.28 $ 0.76 $ 0.62
========== ========= ========== =========
(1) Percents are calculated as a percentage of net sales and operating revenues and may not equal totals due to rounding.
CarMax, Inc.
Page 8 of 9
CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(In thousands)
August 31 February 28
2005 2004 2005
--------- --------- ---------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 53,800 $ 56,607 $ 29,099
Accounts receivable, net 62,037 69,795 76,167
Automobile loan receivables held for sale 2,360 3,164 22,152
Retained interest in securitized receivables 157,784 139,525 147,963
Inventory 585,248 492,011 576,567
Prepaid expenses and other current assets 8,418 5,473 13,008
---------- ---------- ----------
Total current assets 869,647 766,575 864,956
Property and equipment, net 434,835 310,316 406,301
Deferred income taxes - 1,635 -
Other assets 26,787 27,088 21,756
---------- ---------- ----------
TOTAL ASSETS $1,331,269 $1,105,614 $1,293,013
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 148,341 $ 131,495 $ 170,646
Accrued expenses and other current liabilities 83,929 59,691 65,664
Accrued income taxes 12,333 2,676 1,179
Deferred income taxes 23,552 33,556 26,315
Short-term debt - 4,644 65,197
Current portion of long-term debt 106,152 - 330
---------- ---------- ----------
Total current liabilities 374,307 232,062 329,331
Long-term debt, excluding current portion 35,279 100,000 128,419
Deferred revenue and other liabilities 28,776 23,099 29,260
Deferred income taxes 4,112 - 5,027
---------- ---------- ----------
TOTAL LIABILITIES 442,474 355,161 492,037
SHAREHOLDERS' EQUITY 888,795 750,453 800,976
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,331,269 $1,105,614 $1,293,013
========== ========== ==========
CarMax, Inc.
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CARMAX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
(In thousands)
Six Months Ended
August 31
2005 2004
--------- ---------
Operating Activities:
- ---------------------
Net earnings $ 81,240 $ 65,189
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 12,194 8,844
Amortization of restricted stock awards 44 51
Gain on disposition of assets (829) (83)
Provision for deferred income taxes (3,678) (605)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 14,130 2,563
Decrease in automobile loan receivables held for sale 19,792 15,617
(Increase) decrease in retained interest in securitized
receivables (9,821) 6,463
Increase in inventory (8,681) (25,950)
Decrease in prepaid expenses and other
current assets 4,590 3,177
(Increase) decrease in other assets (737) 71
Increase (decrease) in accounts payable, accrued expenses and
other current liabilities, and accrued income taxes 10,385 (8,926)
Increase in deferred revenue and other liabilities 254 1,313
---------- ----------
Net cash provided by operating activities 118,883 67,724
---------- ----------
Investing Activities:
- ---------------------
Purchases of property and equipment (115,240) (118,624)
Proceeds from sales of assets 78,173 43,659
---------- ----------
Net cash used in investing activities (37,067) (74,965)
----------- ----------
Financing Activities:
- ---------------------
(Decrease) increase in short-term debt, net (65,197) 198
Issuance of long-term debt 105,229 -
Payments on long-term debt (100,411) -
Equity issuances, net 3,264 2,007
---------- ----------
Net cash (used in) provided by financing activities (57,115) 2,205
----------- ----------
Increase (decrease) in cash and cash equivalents 24,701 (5,036)
Cash and cash equivalents at beginning of year 29,099 61,643
---------- ----------
Cash and cash equivalents at end of period $ 53,800 $ 56,607
========== ==========
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