CarMax Inc.(KMX) posted a profit of $89.5 million or 39 cents per share in the fourth quarter of fiscal 2011 ended February 28, 2011, barely exceeding the Zacks Consensus Estimate by a penny. The profit increased 83% from $48.8 million or 26 cents per share (excluding favorable adjustments primarily related to loans originated due to CarMax Auto Finance) in the prior-year quarter.
CarMax’s results were positively driven by a rebound in customer traffic and sales execution along with a favorable year-over-year comparison. This is also reflected in the improvement of comparable store sales by 12% for the quarter. Net sales and operating revenues in the quarter grew 23% to $2.25 billion, marginally higher than the Zacks Consensus Estimate of $2.20 billion.
Used vehicle revenues appreciated 18% to $1.80 billion, mainly driven by higher unit sales. Unit sales increased 12,045 vehicles to 99,969 vehicles while average selling price increased by $630 to $17,862.
However, new vehicle revenues escalated 34% to $48.9 million. Unit sales rose 418 vehicles to 1,953 vehicles while average selling price increased by $1,230 to $24,911.
Wholesale vehicle revenues surged 60% to $335.2 million, primarily driven by higher unit sales. Unit sales increased 18,889 vehicles to 65,229 vehicles while average selling price increased by $613 to $5,004.
Other sales and revenues increased by 18.5% to $68.6 million, driven mainly by a rise in extended service plan (ESP) revenues.The 19% increase in ESP revenues to $47.3 million reflected both the growth in used unit sales and better penetration of ESP.
Total gross profit rose 21% to $320.7 million from $265.2 million in the fourth quarter of fiscal 2010, primarily reflecting increases in used and wholesale unit sales. Total gross profit per retail unit went up $181 to $3,146 per unit in the quarter from $2,965 per unit in the corresponding quarter a year ago.
Selling, general and administrative expenses (SG&A) increased 15% to $233.5 million from $202.2 million in the prior year’s quarter. The increase in SG&A primarily reflected increases in sales commissions and other variable costs associated with the growth in unit sales, higher advertising expense and costs associated with store growth.
Annual Results
For full fiscal 2011, CarMax reported a profit of $380.9 million or $1.67 per share compared with $255.1 million or $1.19 per share (excluding favorable adjustments primarily related to loans originated due to CarMax Auto Finance) in fiscal 2010. Net sales and operating revenues escalated 20% to $8.98 billion in the fiscal year.
These compared with the Zacks Consensus Estimate of a profit of $1.66 per share and revenues of $8.92 billion.
CarMax Auto Finance (CAF)
CAF reported a decline in income to $54.1 million from $58.9 million in the fourth quarter of fiscal 2010. The lower income was attributable to adjustments of $26.6 million related to loans originated in the fourth quarter of fiscal 2010. For full fiscal year, CAF income was $220.0 million versus $175.2 million in the fiscal 2010.
Financial Position
CarMax had cash and cash equivalent of $41.1 million as of February 28, 2011, which was significantly higher than $18.3 million in the corresponding period a year ago. Long-term debt reduced significantly to $29.1 million as of the above date from $149.7 million as of February 28, 2010. This implies a long-term debt to capitalization ratio of 1.25% compared with 7.2% a year ago.
In fiscal 2011, CarMax had a cash outflow of $17.2 million compared with an inflow of $50.3 million in the same period of prior year. The decline in cash flow was mainly attributable to increases in inventory and auto loans receivables. Meanwhile, capital expenditures increased to $76.6 million from $22.4 million in fiscal 2010.
Our Take
We appreciate CarMax’s focus on the used-car market, which helps it to outperform the industry. The automotive retailer is among the strongest operators in its peer group, which includes AutoNation Inc. (AN) and Penske Automotive Group (PAG).
In the first quarter of fiscal 2011, CarMax resumed its strategy to open new used-car superstores, driven by improved economic and sales environment in the U.S.Under the strategy, the company plans to open used car superstores at an annual rate of 15%–20% of its used car superstore base every year. The company plans to open five stores in 2012; and five to ten stores in 2013.
However, the tendency of manufacturers and dealers to lure customers into trading old cars for new ones through incentives puts pressure on the company’s used vehicle margins. This, along with poor performance of CAF, has led the company to retain Zacks #3 Rank on its stock, which translated to a short-term (1–3 months) recommendation of “Hold”. We also reiterate our “Neutral” recommendation on the stock for long-term (more than 6 months).
AUTONATION INC (AN): Free Stock Analysis Report
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