CarMax Inc. (KMX) posted earnings per share of 64 cents in the second quarter of fiscal 2015, ended Aug 31, 2014, highlighting an increase of 3.2% from 62 cents a year ago. However, earnings missed the Zacks Consensus Estimate of 67 cents.
Net sales and operating revenues in the quarter rose 10.9% year over year to $3.60 billion, exceeding the Zacks Consensus Estimate of $3.55 billion. The year-over-year improvement was mainly driven by increased used vehicle, new vehicle and wholesale vehicle sales.
Used vehicle revenues appreciated 10.6% to $2.9 billion in the quarter, driven by higher unit sales. Unit sales of used vehicles increased 6.3% to 143,325 vehicles and their average selling price increased 4.1% to $20,215. Comparable-store used vehicle unit sales rose 0.2% in the quarter. The improvement can be attributed to improved footfall in stores. However, one less Saturday in the quarter in comparison to the last-year quarter has adversely affected comparable-store used unit sales by approximately 1%.
New vehicle revenues improved 16.6% to $69.9 million on higher unit sales. Unit sales of new vehicles increased 18% to 2,581 vehicles, while average selling price decreased 1.2% to $26,991.
Wholesale vehicle revenues rose 11.7% to $530.3 million. Unit sales increased 7.4% to 97,989 vehicles. Average selling price of wholesale vehicles climbed 4.1% year over year to $5,249.
Other sales and revenues rose 10.8% to $78.8 million on improved net third-party finance fees, driven by a reduction in the percentage of sales financed by third-party sub prime providers. The increase was, however, partially offset by decline in extended protection plan (EPP) revenues including extended service plan (ESP) and guaranteed asset protection revenues. The deterioration of EPP revenues was led by higher cancellation reserves rates and a decline in the EPP penetration rate, partially offset by an expanded store base.
Gross profit increased 6.6% to $463.3 million or 12.9% of sales from $434.7 million or 13.4% of sales in the year-ago quarter.
CarMax Auto Finance (CAF)
CAF reported a 9.7% increase in income to $92.6 million from $84.4 million in the year-earlier quarter. The improvement was primarily driven by an increase in average managed receivables, partly marred by a lower total interest margin rate.
Store Openings
During the second quarter of fiscal 2015, CarMax opened four stores. Three stores were opened in new markets – Madison, WI, Lynchburg, VA and Portland, OR, while the fourth store was inaugurated in the existing market of Dallas, TX. The company intends to open 13 used car superstores in fiscal 2015 and 10–15 superstores in each of the next two fiscal years.
Share Repurchase Program
During the second quarter of fiscal 2015, CarMax spent $201 million to repurchase 4 million shares under its existing share repurchase program. As of Aug 31, 2014, the company had $907 million of authorization remaining under its repurchase program.
Financial Position
CarMax had cash and cash equivalents of $354.6 million as of Aug 31, 2014, down from $750.0 million as of Aug 31, 2013. Total debt (including financing and capital lease obligations, and non-recourse notes payable) rose to $8.2 billion as of Aug 31, 2014 from $7.1 billion as of Aug 31, 2013.
In the first six months of fiscal 2015, CarMax had a cash outflow of $436.6 million from operations compared with $263.6 million in the prior-year period. Meanwhile, capital expenditures increased to $135.3 million from $136.0 million in the first six months of fiscal 2014. The company estimates capital expenditure at around $325 million for fiscal 2015.
Recently, AutoZone Inc. (AZO), another prominent player in the automotive replacement parts and accessories industry along with CarMax, reported a 15.6% rise in earnings per share (adjusted for 1 extra week last year) to $11.28 in the fourth quarter of fiscal 2014 (ended Aug 30, 2014). Earnings surpassed the Zacks Consensus Estimate of $11.23.
CarMax currently retains a Zacks Rank #3 (Hold). Better-ranked stocks worth considering include Advance Auto Parts Inc. (AAP) and O'Reilly Automotive Inc. (ORLY). Both these stocks have a Zacks Rank #2 (Buy).
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