CarMax Inc. (KMX) showed a net income of $48.8 million or 26 cents per share (excluding special items) in the fourth quarter of its fiscal year 2010 ended February 28, 2010 compared to $38.5 million or 17 cents per share (excluding special items) in the same quarter a year ago. With this, the automotive retailer has inched past the Zacks Consensus Estimate of 25 cents per share.
CarMax’s results were driven by improved customer traffic and sales execution along with successful reduction of reconditioning costs by $200 per used car. These are also reflected in the improvement of comparable store sales by 12% for the quarter.
Net sales and operating revenues increased 25% to $1.83 billion in the quarter. Used vehicle sales grew 24.5% to $1.5 billion, while new vehicle sales dipped 17.9% to $36.6 million.
Wholesale vehicle sales surged 52.6% to $209.5 million driven by significant increases in both its appraisal traffic and appraisal buy rate of used vehicles. The improvement in buy rate was attributable to higher year-over-year pricing environment and the resulting increases in appraisal offers.
Other sales and revenues declined 3.6% to $57.9 million, as a 26% increase in extended service plan revenues was more than offset by a reduction in third-party finance fees.
CAF income increased to $58.9 million from $28 million in last year’s quarter. Excluding the adjustments, CAF income increased to $32.3 million from $29 million in the prior-year quarter.
Annual Results
CarMax reported a net income of $255 million or $1.19 per share (before special items) in fiscal year 2010 compared to $141 million or 50 cents per share (before special items) in the previous fiscal year.
Net sales and operating revenues increased 7% to $7.47 billion with a marginal 1% rise in comparable store used unit sales. Used vehicle sales advanced 8.8% to $6.2 billion, while new vehicle sales fell 28.8% to $186.5 million. Wholesale vehicle sales went up 8.3% to $844.9 million. Other sales and revenues increased slightly by 2.1% to $246.6 million.
CAF income rose significantly to $175.2 million from $15.3 million in last year. Excluding the adjustments, CAF income increased to $148.5 million from $97.1 million in the prior-year quarter.
Credit Facilities
As of February 28, 2010, CarMax had net debt of $132.3 million, consisting of $122.5 million outstanding under the revolving credit facility and $28.1 million of capitalized leases, net of $18.3 million of cash and cash equivalents. At that date, based on then-current inventory levels, the company had additional borrowing capacity of $505.4 million under the revolving credit facility, which expires in December 2011.
Financial Position
CarMax had cash and cash equivalents of $18.3 million as of February 28, 2010. Long-term debt amounted to $150 million as of that date. The long-term debt to capitalization ratio remained stable at 7% compared to previous quarter ended November 30, 2009.
In fiscal year 2010, CarMax had a net cash flow from operating activities of $45.8 million, a significant decline from $265 million in the prior year despite an improvement in profit.
Meanwhile, capital expenditures scaled down significantly to $22.4 million from $185.7 million a year ago. However, CarMax expects capex to increase to $90 million in fiscal 2011 due to real estate acquisitions and construction costs associated with the resumption of store growth as well as upgrades related to the company’s information technology and equipments.
Estimate Revisions Trend
Over the last 7 days, out of the 8 analysts covering the stock, only one analyst has revised the estimate downward for the first quarter of fiscal year 2011, and none have revised upward. Meanwhile, over the last 30 days, one has revised it upward and another analyst downward.
On the other hand, over the last 7 days, out of the 13 analysts covering the stock, 3 analysts have revised the estimate upward for fiscal 2010 while none of the analysts have revised it downward. Over the last 30 days, out of the 13 analysts covering the stock, 4 analysts have revised the estimate upward, while none has revised it downward.
Due to the greater number of upward revisions of the estimate for fiscal 2010, we are maintaining our long-term recommendation as “Outperform” (Zacks #2 Rank).
With respect to earnings surprise, the stock has performed well over the trailing four quarters. The average earnings surprise was a positive 118.96%. This implies that CarMax outdid the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Currently, the Zacks Consensus Estimates for the first quarter of fiscal year 2011 and for the full fiscal year 2011 are 30 cents per share and $1.18 per share, respectively. The upside potential of these estimates, essentially a proxy for future earnings surprises, currently stands at positive 3.33% and positive 6.78%, respectively.
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