CarMax Reports Second Quarter Results.RICHMOND, Va. -- CarMax, Inc. (NYSE NYSE See: New York Stock Exchange :KMX KMX Kyocera Mexico KMX Knowledge Management Experts ) today reported results for the second quarter ended August 31, 2008. [TABLE OMITTED] Second Quarter Business Performance Review Sales. "The slowdown in the economy and reductions in consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. power resulting from higher gasoline and food costs continued to create a difficult environment for our business," said Tom Folliard, president and chief executive officer. Our comparable store used unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. declined 17%, which was similar to the decline in customer traffic in our stores. Despite the current business environment, the solid execution by our store teams resulted in a conversion rate that was only marginally below the rate in the prior year's second quarter. Our used vehicle average selling price The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. declined 6% primarily as a result of the industry-wide decrease in used car prices, which reduced our inventory acquisition costs. Our data, which is available through July, indicates that our market share in the late-model used vehicle market declined slightly. Wholesale unit sales declined 9%, reflecting a decrease in both appraisal traffic and our appraisal buy rate (defined as the number of appraisal purchases as a percent of vehicles appraised). Similar to our experience in the first quarter of this fiscal year, we believe the significant year-over-year decline in wholesale market values for SUVs, trucks and other less fuel-efficient vehicles contributed to the declines in both our appraisal traffic and buy rate. Other sales and revenues decreased 6%. Third-party finance fees, which are a component of other sales and revenues, declined 51% due to the reduction in sales and a shift in mix among, and discount arrangements with, our third-party finance providers. The mix shift was largely the result of a tightening in credit availability from some of our third-party nonprime finance providers combined with a decline in the credit profile of our average customer. Gross Profit. Total gross profit declined by $32.3 million to $255.9 million primarily because of the decrease in used unit sales. In addition, the gross profit per used unit declined by $112 to $1,870 compared with $1,982 in last year's second quarter. As in the first quarter, the reduction in appraisal traffic and the appraisal buy rate led to our sourcing a larger percentage of our used vehicles at auction, which had an adverse effect on our gross profit per used unit. Compared with the first quarter of this year, however, our gross profit per used vehicle increased by $128 to $1,870 from $1,742. We were able to achieve this sequential improvement, despite the double-digit decline in comparable store used unit sales. We believe this improvement was primarily the result of our success in rapidly reducing our vehicle inventories, which brought them back in line with current sales rates and minimized required pricing markdowns. Compared with inventory levels at stores open as of May 31, 2008, during the second quarter we reduced our used vehicle inventory by more than 13,300 units, representing a reduction in excess of $200 million. Wholesale gross profit per unit was $897 in the second quarter, representing an increase of more than $100 compared with both the second quarter of last year and the first quarter of the current year. We continued to experience strong dealer attendance at our auctions, with the normal price competition among bidders contributing to the strong wholesale gross profit performance. With an average selling price of roughly $4,000, the majority of our wholesale units are older, higher mileage vehicles. We believe the current demand for these types of vehicles is particularly strong from dealers who specialize in selling to credit-challenged customers. CarMax Auto Finance. CAF CAF - constant applicative form reported a pretax loss pretax loss A loss reported before tax benefits are considered. of $7.1 million compared with income of $33.4 million in last year's second quarter. CAF results for the second quarter of fiscal 2009 were reduced by $28.2 million for adjustments primarily related to loans originated in prior fiscal years. These adjustments included the following: [TABLE OMITTED] The adjustments related to reducing the fair value of the retained subordinated bonds Subordinated bonds Securities that fall after others in priority of claims on the entity in the case of financial distress. and increasing the discount rate are non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. that primarily affect the timing of the recognition of CAF income. If current conditions continue, these adjustments should result in positive contributions to CAF earnings in future periods. The gain recognized on loans originated and sold in the second quarter of fiscal 2009 was also adversely affected by the disruption in the credit markets and worsening economic conditions. The gain percentage, which represents the gain on the sale of loans originated and sold as a percentage of loans originated and sold, decreased to 1.8% from 4.0% in the second quarter of fiscal 2008. This decrease resulted from the combination of higher current funding costs that we have been unable to offset through higher consumer rates; the increase in the discount rate assumption to 19% from 12% utilized in the second quarter of last year; the use of a higher loss rate assumption for current quarter originations compared with the assumption used in the prior year's quarter; and an increase in the credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing requirements in the warehouse facility. In addition, CAF's origination volume was negatively affected by the slowdown in unit sales, the decrease in average retail prices and a small decline in the percentage of sales financed by CAF. SG&A. Selling, general and administrative expenses were 12.2% of total revenues in the second quarter of fiscal 2009 compared with 10.1% in the prior year's second quarter. This increase in the SG&A ratio was the result of the significant declines in comparable store used unit sales and average selling price, and this increase was partially offset by our success in reducing costs. In the current market environment, we are focusing on reducing variable costs in an effort to control expenses. In our stores, thus far we have adjusted associate scheduling resulting in reduced hours worked, and we have allowed the natural attrition in the workforce to reduce variable store staffing. In addition, we have implemented a hiring freeze Noun 1. hiring freeze - a freeze on hiring freeze - fixing (of prices or wages etc) at a particular level; "a freeze on hiring" at the home office and are carefully monitoring expenses at CAF. Earnings and Earnings Per Share. "We believe that the reduction in our second quarter earnings stems mainly from the effect of external conditions and that we are taking the necessary and appropriate steps to navigate through this difficult environment," said Folliard. We have been successful in dramatically reducing inventories to align them with current sales, which in turn has allowed us to achieve an increase in our gross profit per unit compared with the first quarter. Our wholesale business performed strongly throughout this challenging period. We continue to focus on aligning overhead costs overhead costs see fixed costs. with current sales levels, and we expect to continue to find opportunities to further shrink costs. At the same time, we remain committed to delivering the exceptional customer service that underpins our long-term prospects. Credit Facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities . During the second quarter, we increased the aggregate limit under our revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility by $200 million to a total of $700 million. We also increased the capacity of our warehouse facility used to securitize Securitize The practice of a company selling accounts receivables or other debts owed to it. The third party that buys the debt assumes ownership of it and the responsibility for collecting the debts, and keeps the repayments when made. CAF auto loan receivables by $400 million to a total of $1.4 billion. We believe these increases will provide us with added resources and greater flexibility to operate in the current environment. As of August 31, 2008, we had $210.3 million outstanding under the revolving credit facility. During the first half of fiscal 2009, we were able to reduce borrowings under this facility by $89.9 million, despite our lower earnings. In large part, this reflected our success in reducing inventories, which declined $239.6 million in the first half of fiscal 2009, even as we opened nine superstores. As of August 31, 2008, $600 million of auto loan receivables were securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. through the warehouse facility and unused warehouse capacity totaled $800 million. Superstore Openings. During the second quarter, we opened three used car superstores, entering the Colorado Springs, Colorado The City of Colorado Springs is the second most populous city (after Denver) in the state of Colorado and the 48th most populous city in the United States.[4] The city is the county seat of El Paso County. , and the Tulsa, Oklahoma Tulsa is the second-largest city in the state of Oklahoma and 45th-largest in the United States. With an estimated population of 382,872 in 2006,[1] it is the principal municipality of the Tulsa Metropolitan Statistical Area, a region of 897,752 residents projected to , markets with production superstores, and expanding our presence in the Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. market with a non-production superstore in Costa Mesa, California Costa Mesa is a suburban middle class city in Orange County, California, United States. The population was 108,724 at the 2000 census. Since its incorporation in 1953, the city has grown from a semi-rural farming community of 16,840 to a suburban city with an economy based on . Supplemental Financial Information Sales Components [TABLE OMITTED] (1) Percent calculations and amounts shown are based on amounts presented on the attached consolidated statements of earnings and may not sum due to rounding. Retail Vehicle Sales Changes [TABLE OMITTED] Retail Vehicle Sales Mix sales mix See product mix. [TABLE OMITTED] Unit Sales [TABLE OMITTED] Average Selling Prices [TABLE OMITTED] Selected Operating Ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: [TABLE OMITTED] (1) Calculated as the ratio of the applicable amount to net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight and operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. . (2) Operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. equals earnings before interest and income taxes. Gross Profit [TABLE OMITTED] (1) Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total retail units sold. (2) Calculated as a percentage of its respective sales or revenue. CAF Income [TABLE OMITTED] Earnings Highlights [TABLE OMITTED] Fiscal 2009 Expectations "As a result of the unprecedented near-term declines in traffic and sales and the current volatility in the asset-backed credit markets, we are not yet able to make a meaningful projection of fiscal 2009 earnings," said Folliard. Effective January 1, 2009, we will introduce significant enhancements to our 401(k) plan, including both an increased company matching component and a company-funded contribution made regardless of associate participation, and, at the same time, we will freeze our pension plan. We believe our revised retirement program will be easier to understand and give associates more control over their retirement savings while also allowing us to control escalating and unpredictable pension expenses. Future Store Opening Plan As previously announced, we have decided to temporarily slow our store growth. We believe slowing growth will both aid profitability and reduce our capital needs in the near term. During the balance of fiscal 2009, we plan to open one additional used car superstore, and in fiscal 2010, we plan to open between five and ten superstores. Details of store openings planned during the twelve months ending August 31, 2009, are as follows: [TABLE OMITTED] 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, September 22, 2008. 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 26913797. A live webcast of the call will be available on our investor information home page at investor.carmax.com and at www.streetevents.com. A webcast replay of the call will be available at investor.carmax.com beginning at approximately 1:00 p.m. ET on September 22, 2008 through October 22, 2008. A telephone replay also will be available through September 30, 2008, and may be accessed by dialing 1-800-642-1687 (international callers dial 1-706-645-9291). The conference I.D. for both domestic and international callers is 26913797. Third Quarter Fiscal 2009 Earnings Release Date We currently plan to release third quarter sales and earnings on Friday, December 19, 2008, before the opening of the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. . We will 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 investor.carmax.com in early December. About CarMax CarMax, a Fortune 500 company, and one of the Fortune 2008 "100 Best Companies to Work For," is the nation's largest retailer of used cars. Headquartered in Richmond, Va., we currently operate 98 used car superstores in 46 markets. The CarMax consumer offer is structured around four customer benefits: low, no-haggle prices; a broad selection; high quality vehicles; and customer-friendly service. During the twelve months ended February 29, 2008, we retailed 377,244 used cars and sold 222,406 wholesale vehicles at our in-store auctions. For more information, access the CarMax website at www.carmax.com. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 or earnings, are forward-looking statements made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. 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 general U.S. or regional U.S. economy. * Changes in the availability or cost of capital and working capital financing, including the availability or cost of long-term financing Long-term financing Liabilities repayable in more than one year plus equity. to support our geographic growth and the availability or cost of financing auto loan receivables. * Changes in the competitive landscape within our industry. * Significant changes in retail prices for used and new vehicles. * A reduction in the availability of or access to sources of inventory. * Factors related to the regulatory environment in which we operate. * The loss of key employees from our store, regional or corporate management teams. * The failure of key information systems. * The effect of new accounting requirements or changes to U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . * Security breaches or other events that result in the misappropriation misappropriation n. the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate, or by any , loss or other unauthorized disclosure of confidential customer information. * The effect of various litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. matters. * Our inability to acquire or lease suitable real estate at favorable terms. * The occurrence of severe weather events. * Factors related to the seasonal fluctuations in our business. * Factors related to the geographic concentration of our superstores. * The occurrence of certain other material events. For more details on factors that could affect expectations, see our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended February 29, 2008, and our quarterly or current reports as filed with or furnished to the Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investor.carmax.com. Requests for information may also be made to the Investor Relations Investor relations The process by which the corporation communicates with its investors. Department by email to investor_relations@carmax.com or by calling 1-804-747-0422 ext. 4489. We disclaim any intent or obligation to update our forward-looking statements. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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