CarMax Reports First Quarter Results | Financial Buzz

CarMax Reports First Quarter Results

CarMax, Inc. (NYSE:KMX) today reported results for the first quarter
ended May 31, 2018. Year-over-year highlights include:

First Quarter Business Performance Review

Sales. Total used vehicle unit sales
increased 1.6%, while comparable store used unit sales fell 2.3% versus
the prior year’s first quarter. The comparable store sales performance
primarily reflected lower store traffic, partially offset by improved
conversion, as well as a tough comparison as we lapped our strongest
prior year performance. “While our comparable store unit sales
performance improved significantly from the February 2018 quarter, we
believe macro pricing factors still had some effect on our first quarter
sales,” said Bill Nash, president and chief executive officer.

Total wholesale vehicle unit sales increased 9.6% compared with the
first quarter of fiscal 2018, largely driven by an increase in our
appraisal buy rate and the growth in our store base.

Other sales and revenues increased 5.7% compared with the first quarter
of fiscal 2018. Extended protection plan (EPP) revenues rose 8.9%,
reflecting both cost decreases from plan providers and a $4.0 million
benefit associated with the accelerated recognition of revenue related
to extended service plans. The accelerated recognition resulted from our
adoption of the new revenue recognition accounting standard in the first
quarter of fiscal 2019. We experienced a $3.1 million reduction in
third-party finance fees, reflecting shifts in our sales mix by finance
channel, including a decline in our Tier 2 and an increase in our Tier 3
sales.

Gross Profit. Total gross profit
increased 1.9% versus last year’s first quarter, to $661.3 million. Used
vehicle gross profit rose 1.7%, reflecting the 1.6% increase in total
used unit sales. Used vehicle gross profit per unit remained stable at
$2,215 compared with $2,212 in the prior year period. Wholesale vehicle
gross profit increased 9.6% versus the prior year’s quarter, driven by
the 9.6% increase in wholesale unit sales. Wholesale vehicle gross
profit per unit was also stable at $1,012 in both periods. Other gross
profit declined 4.6%, reflecting decreases in service profits and net
third-party finance fees, partially offset by the increase in EPP
revenues. Service profits were affected by the reduced leverage of
service department costs resulting from the decrease in comparable store
used unit sales.

SG&A. Compared with the first
quarter of fiscal 2018, SG&A expenses increased 8.6% to $438.2 million.
Factors contributing to the increase included the 10% increase in our
store base since the beginning of last year’s first quarter
(representing the addition of 18 stores), and an $8.9 million increase
in stock-based compensation expense. We also continued to update our
technology platforms and support our core strategic initiatives as part
of our focus on improving the customer experience. SG&A per used unit
was $2,209 in the current quarter, up $143 year-over-year, largely
reflecting the deleverage associated with the decline in comparable
store used unit sales. The increase in stock-based compensation expense
increased SG&A per unit by $43.

CarMax Auto Finance.(1)
Compared with last year’s first quarter, CAF income increased 5.7% to
$115.6 million. The increase reflected the combined effects of an 8.7%
increase in average managed receivables and a slightly lower total
interest margin percentage. The total interest margin percentage, which
reflects the spread between interest and fees charged to consumers and
our funding costs, was 5.7% of average managed receivables compared with
5.8% in last year’s first quarter. The provision for loan losses was
$30.9 million, or 1.05% of average managed receivables, compared with
$28.6 million, or 1.06%, in the prior year quarter. The allowance for
loan losses as a percentage of ending managed receivables remained
relatively stable at 1.13% as of May 31, 2018, compared with 1.18% as of
May 31, 2017, and 1.11% as of February 28, 2018.

Interest Expense. Interest expense
rose to $18.1 million from $16.8 million in the prior year’s first
quarter, primarily reflecting higher interest rates in fiscal 2019.

Income Taxes. As anticipated, the
effective tax rate fell to 25.3% in the first quarter of fiscal 2019
from 37.4% in the prior year’s first quarter, primarily due to the
reduction in the federal statutory tax rate following the enactment of
the 2017 Tax Act.

Store Openings. During the first
quarter of fiscal 2019, we opened three stores. We added two stores in
existing television markets (Dallas, Texas, and Miami, Florida), and we
entered the Greenville, North Carolina television market. Subsequent to
the end of the quarter, we opened a store in Santa Fe, New Mexico,
representing our second store in the Albuquerque television market.

Share Repurchase Activity. During
the first quarter of fiscal 2019, we repurchased 3.3 million shares of
common stock for $207.4 million pursuant to our share repurchase
program. As of May 31, 2018, we had $809.5 million remaining available
for repurchase under the current authorization.

(1)

Although CAF benefits from certain indirect overhead
expenditures, we have not allocated indirect costs to CAF to avoid
making subjective allocation decisions.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Sales Components

Unit Sales

Average Selling Prices

Vehicle Sales Changes

Three Months EndedMay 31

(2.5

)%

Comparable Store Used Vehicle Sales Changes
(1)

Three Months EndedMay 31

(2.3

)%

(1)

Stores are added to the comparable store base beginning in
their fourteenth full month of operation. Comparable store
calculations include results for a set of stores that were
included in our comparable store base in both the current and
corresponding prior year periods.

Used Vehicle Financing Penetration by Channel
(Before the Impact of 3-day Payoffs) (1)

Three Months EndedMay 31

(1)

Calculated as used vehicle units financed for respective
channel as a percentage of total used units sold.

(2)

Includes CAF’s Tier 3 loan originations, which represent less
than 1% of total used units sold.

(3)

Third-party finance providers who generally pay us a fee or to
whom no fee is paid.

(4)

Third-party finance providers to whom we pay a fee.

(5)

Represents customers arranging their own financing and
customers that do not require financing.

Selected Operating Ratios

(1)

Calculated as a percentage of net sales and operating revenues.

Gross Profit

Gross Profit per Unit

(1)

Calculated as category gross profit divided by its respective
units sold, except the other and total categories, which are
divided by total used units sold.

(2)

Calculated as a percentage of its respective sales or revenue.

SG&A Expenses

(1)

Excludes compensation and benefits related to reconditioning
and vehicle repair service, which are included in cost of sales.

(2)

Includes IT expenses, preopening and relocation costs,
insurance, non-CAF bad debt, travel, charitable contributions and
other administrative expenses.

Components of CAF Income and Other CAF
Information

Total interest margin after provision for loan losses

(1)

Percentage of total average managed receivables (quarterly
amounts are annualized).

Earnings Highlights

Planned Store Openings

We currently plan to open the following stores within 12 months from
May 31, 2018. During this period, we will be entering ten new television
markets and expanding our presence in five existing television markets.
Of the 15 stores we plan to open during the 12 months ending May 31,
2019, 9 will be in Metropolitan Statistical Areas having populations of
600,000 or less, which we define as small markets.

Metropolitan StatisticalArea

PlannedOpening Date

(1)

Store opened in June 2018.

(2)

Represents new television market as of planned store opening
date.

Normal construction, permitting or other scheduling delays could shift
the opening dates of any of these stores into a later period.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today,
June 22, 2018. 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 75172648. 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 September 25, 2018. A telephone replay also will be available
through June 29, 2018, 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 75172648.

Second Quarter Fiscal 2019 Earnings Release Date

We currently plan to release results for the second quarter ending
August 31, 2018, on Wednesday, September 26, 2018, 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 September 2018.

About CarMax

CarMax is the nation’s largest retailer of used cars, currently
operating 192 stores in 41 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 25,000
associates nationwide and for 14 consecutive years has
been named as one of the Fortune 100 Best Companies to
Work For®. During the twelve months ended February 28, 2018,
the company retailed 721,512 used vehicles and sold 408,509 wholesale
vehicles at its in-store auctions. For more information, access the
CarMax website at www.carmax.com.

Forward-Looking Statements

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, tax rates 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:

For more details on factors that could affect expectations, see our
Annual Report on Form 10-K for the fiscal year ended February 28, 2018,
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 investor_relations@carmax.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.

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(1)

Percents are calculated as a percentage of net sales and
operating revenues and may not total due to rounding.

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

As of

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Accounts payable, accrued expenses and other current liabilities
and accrued income taxes

(1)

In connection with our adoption of Financial Accounting
Standards Board (“FASB”) ASU 2016-18 during the first quarter of
fiscal 2019, restricted cash is now included with cash and cash
equivalents in the reconciliation of beginning of year and end of
period total amounts above. Prior period amounts have been
reclassified to conform to the current period’s presentation.

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