This summary is based on the third quarter fiscal 2007 earnings call conducted by CarMax Inc (KMX) on December 19, 2007.
President and Chief Executive Officer: Tom Folliard
Executive Vice President and Chief Financial Officer: Keith Browning
Assistant Vice President of Investor Relations: Katharine Kenny
Key Investors Issues
- The earnings per share fell to 14 cents from 21 cents in prior year.
- Revenue rose 7% over the previous year to $1.89 billion.
- During the third quarter, CarMax opened five superstores.
- The firm has lowered its EPS expectations for the full year to a range of 87 cents to 93 cents from the previous range of 92 cents to 98 cents.
Third Quarter Fiscal 2007 Financial Highlights
The net earnings decreased 34% to $29.8 million or 14 cents per share, compared with $45.4 million or 21 cents per share earned in the third quarter of last year.
A weaker than expected third quarter net earnings were primarily the result of higher funding costs for CarMax Auto Finance in its short-term warehouse facility, due to the well publicized and unprecedented disruption in the asset-backed securities market. Notwithstanding these higher current funding costs, the firm continues to believe that having its own finance operation provides it with strategic advantages and increased profitability over the long term.
Total sales increased 7% to $1.89 billion, compared with $1.77 billion in the third quarter of fiscal 2007.
The
used unit comparable store sales were flat compared with a 13% increase during the prior year''s third quarter. Total used unit sales grew 9% versus an 18% increase in the third quarter of fiscal 2007. The contribution from new stores, not yet included in comp base, increased this quarter because new stores represented a slightly higher percentage of the firm’s total store base.
Wholesale sales increased by 4% in the quarter, slower than the used retail sales growth, reflecting the challenging comparison with the prior year, when wholesale sales climbed 30%. The firm’s wholesale sales represent customer vehicle trade-ins and appraisal purchases that do not meet its retail standards.
New vehicle sales declined by 30%, reflecting the combination of the soft new car sales environment and the sale of the Orlando Chrysler Jeep Dodge franchise in the second quarter. Other sales and revenues increased 9%, similar to the used vehicle sales growth.
The current economic conditions clearly affected the firm’s performance in the quarter. The flat comparable store used unit sales reflected the combination of the near-term decline in consumer confidence and a slowing sales pace for the automotive retail industry, as well as the challenging comparison with the 13% increase in last year''s third quarter.
The company continued to experience healthy consumer traffic, which it believe benefited from the favorable response to the improvements to carmax.com made over the last several quarters. However, compared with the prior year period, the company’s sales conversion rate declined as consumers appeared to be more hesitant in committing to big-ticket purchases. Sales were supported by the continued consistent availability of credit from CAF and its third-party finance providers.
The total gross profit per unit declined slightly to $2,723 compared with $2,736 in last year''s third quarter.
The retail used vehicle gross profit per unit was $1,886, only $12 lower than the prior year. The year-over-year $32 increase in wholesale profit per unit reflected the continued benefit of the superior car-buying process, as well as continued strong dealer attendance at its auctions.
Compared with the second quarter of this year, the total gross profit per unit declined by $146, with decreases in all vehicle categories. The firm expects gross profits to decrease sequentially from the second quarter to the third quarter, reflecting the normal seasonal slowdown in traffic, the higher vehicle depreciation that typically occurs during the model-year changeover period and resulting lower margin targets.
The SG&A ratio increased to 11.2% in this year''s third quarter compared with 10.6% in the corresponding quarter of last year.
The increase in rate largely resulted from flat comparable store used unit sales and the firm’s commitment to its ongoing growth plans, as well as its decision to continue spending on its strategic, operational and Internet initiatives during the quarter.
During the third quarter, CarMax opened five superstores.
This includes one production superstore in Charlotte, N.C., and four non- production superstores in Atlanta, Ga.; Newport News, Va.; Los Angeles, Calif.; and San Diego, Calif. Through the first nine months of fiscal 2008, the firm opened nine superstores, including two production superstores and seven non-production superstores.
