RICHMOND, Va., 2017-Sep-27 — /EPR Retail News/ — CarMax, Inc. (NYSE:KMX) today reported results for the second quarter ended August 31, 2017. Year-over-year highlights include:
- Net sales and operating revenues increased 9.7% to $4.39 billion.
- Used unit sales in comparable stores increased 5.3%.
- Total used unit sales rose 11.1%.
- Total wholesale unit sales increased 0.4%.
- CarMax Auto Finance (CAF) income increased 12.5% to $107.9 million.
- Net earnings increased 11.7% to $181.4 million and net earnings per diluted share rose 16.7% to $0.98.
Second Quarter Business Performance Review
Sales. Total used vehicle unit sales grew 11.1% and comparable store used unit sales rose 5.3% versus the prior year’s second quarter. The comparable store sales performance reflected continued solid improvement in conversion resulting from strong execution by our store teams and our digital initiatives. In connection with Hurricane Harvey, our six stores in Houston, Texas, were closed most of the last week of this year’s second quarter, which had a modest adverse effect on comparable store used unit sales.
Wholesale vehicle unit sales increased 0.4% compared with the second quarter of fiscal 2017, as contributions from the growth in our store base and an increase in our appraisal buy rate were offset by a reduction in appraisal traffic.
Other sales and revenues increased 6.4% compared with the second quarter of fiscal 2017, primarily reflecting improvements in extended protection plan (EPP) revenues, partially offset by a decline in net third-party finance fees. EPP revenues increased 13.9%, largely due to the growth in our used unit sales. The $3.3 million reduction in third-party finance fees reflected shifts in our sales mix by finance channel.
Gross Profit. Total gross profit increased 10.8% versus last year’s second quarter, to $604.0 million. Used vehicle gross profit rose 12.0%, driven by the 11.1% increase in total used unit sales. Used vehicle gross profit per unit was consistent at $2,178versus $2,160 in the prior year period. Wholesale vehicle gross profit increased 9.6% versus the prior year’s quarter, primarily due to an increase in wholesale vehicle gross profit per unit to $950 from $870. We believe this year’s second quarter wholesale gross profit per unit benefited from a favorable depreciation environment, relative to historical trends. Other gross profit increased 6.9%, primarily reflecting the changes in other sales and revenues.
SG&A. Compared with the second quarter of fiscal 2017, SG&A expenses increased 10.6% to $405.1 million. Several factors contributed to the increase, including: (i) the 12% increase in our store base since the beginning of last year’s second quarter (representing the addition of 19 stores), (ii) higher variable costs associated with our comparable store unit growth, and (iii) a $15.8 million year-over-year increase in the accrual for the company’s incentive pay. These increases were partially offset by an $11.4 million decline in share-based compensation expense. The prior year’s second quarter share-based compensation expense included $10.9 million related to the modification of equity awards for our retired chief executive officer. SG&A per used unit was $2,178 in the current quarter, down $9 year-over-year. The decline in share-based compensation expense reduced SG&A per unit by $78.
CarMax Auto Finance.(1) Compared with last year’s second quarter, CAF income increased 12.5% to $107.9 million. Average managed receivables grew 10.6% to$11.11 billion. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, was 5.8% of average managed receivables compared with 5.9% in last year’s second quarter. The provision for loan losses declined 7.8% to $32.9 million, compared with $35.7 million in the prior year quarter. The prior year’s provision was affected by unfavorable loss experience, while in the current year’s quarter, losses were generally consistent with expectations. The allowance for loan losses as a percentage of ending managed receivables was 1.15% as of August 31, 2017, compared with 1.18% reported as of May 31, 2017, and up from the 1.08% reported as of August 31, 2016, reflecting higher loss experience over the course of the last year.
Interest Expense. Interest expense rose to $16.8 million in the second quarter of fiscal 2018 from $13.9 million in the prior year’s second quarter. The increase reflected the combination of increases in finance and capital lease obligations and outstanding debt in fiscal 2018, as well as a reduction in capitalized interest.
Store Openings. During the second quarter of fiscal 2018, we opened three stores. We entered one new television market (Salisbury, Maryland) and we added two stores in existing television markets (San Francisco, California, and Hartford, Connecticut).
Share Repurchase Activity. During the second quarter of fiscal 2018, we repurchased 2.5 million shares of common stock for $156.5 million pursuant to our share repurchase program. As of August 31, 2017, we had $1.25 billion remaining available for repurchase under the program.
||Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.
Conference Call Information
We will host a conference call for investors at 9:00 a.m. ET today, September 22, 2017. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 73770788. A live webcast of the call will be available on our investor information home page at investors.carmax.com.
A webcast replay of the call will be available at investors.carmax.com through December 20, 2017. A telephone replay also will be available through September 29, 2017, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 73770788.
Third Quarter Fiscal 2018 Earnings Release Date
We currently plan to release results for the third quarter ending November 30, 2017, on Thursday, December 21, 2017, before the opening of trading on the New York Stock Exchange. We plan to host a conference call for investors at 9:00 a.m. ET on that date. Information on this conference call will be available on our investor information home page at investors.carmax.com in early December 2017.
CarMax is the nation’s largest retailer of used cars, currently operating 180 stores in 39 states nationwide. CarMax revolutionized the auto industry by delivering the honest, transparent and high-integrity car buying experience customers want and deserve. For more than 20 years, CarMax has made car buying more ethical, fair and stress-free by offering a no-haggle, no-hassle experience and an incredible selection of vehicles. CarMax makes selling your car easy too, by offering no-obligation appraisals good for seven days. At CarMax, we’ll buy your car even if you don’t buy ours®. CarMax has more than 24,000 associates nationwide and for 13 consecutive years has been named as one of the Fortune 100 Best Companies to Work For®. During the twelve months ended February 28, 2017, the company retailed 671,294 used vehicles and sold 391,686 wholesale vehicles at its in-store auctions. For more information, access the CarMax website at www.carmax.com.
We caution readers that the statements contained in this release about our future business plans, operations, opportunities or prospects, including without limitation any statements or factors regarding expected sales, margins, expenses, capital expenditures, debt obligations or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative. 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. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:
- Changes in the competitive landscape and/or our failure to successfully adjust to such changes.
- Events that damage our reputation or harm the perception of the quality of our brand.
- Changes in general or regional U.S. economic conditions.
- Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
- Our inability to recruit, develop and retain associates and maintain positive associate relations.
- The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.
- Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.
- Significant changes in prices of new and used vehicles.
- Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loan receivables than anticipated.
- A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
- Changes in consumer credit availability provided by our third-party finance providers.
- Changes in the availability of extended protection plan products from third-party providers.
- Factors related to the regulatory and legislative environment in which we operate.
- Factors related to geographic and sales growth, including the inability to effectively manage our growth.
- The failure of or inability to sufficiently enhance key information systems.
- The effect of various litigation matters.
- Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.
- The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
- The performance of the third-party vendors we rely on for key components of our business.
- Factors related to seasonal fluctuations in our business.
- The occurrence of severe weather events.
- Factors related to the geographic concentration of our stores.
For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2017, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to the Investor Relations Department by email to email@example.com or by calling 1-804-747-0422 ext. 4391. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
Source: CarMax, Inc.