CarMax reported results for the fourth quarter and fiscal year ended February 28, 2005.
For the quarter, net earnings increased 32% to $29.7 million, or 28 cents per share, compared with $22.5 million, or 21 cents per share, reported in the fourth quarter of fiscal 2004.
For the year, net earnings were $112.9 million, or $1.07 per share, a 3% decrease compared with $116.5 million, or $1.10 per share, earned in fiscal 2004.
Sales and Earnings. “We were very encouraged by the way our business rebounded in the fourth quarter,” said Austin Ligon, president and chief executive officer. “The strong fourth quarter sales growth was reflected in our fourth quarter earnings, with earnings up 32% on a 25% increase in revenues, even though store bonus payouts were higher than planned. Our superstores just kept beating their bonus targets, even as we continued to raise the targets in response to the improving sales trends. The rebound in sales and earnings growth also reinforced our belief that the softness we experienced in the first half of the fiscal year was due to external market factors, not to store execution issues. When traffic levels increased in the latter half of the year, so did our sales. Based on our confidence in our business model, we continued our planned store growth, opening nine superstores during the year, an 18% increase to our superstore base. Both our established and our newer stores in all our regions have shown renewed sales strength.”
Margins. “Our used vehicle gross profit dollars per unit were within our range of expectations for the quarter,” Ligon said. “For the year, we were able to reach our gross profit dollar targets for used vehicles despite disappointing first-half sales. In the fourth quarter, wholesale margins increased significantly, as is typical in the fourth quarter. Fourth quarter margins in other sales and revenues declined reflecting primarily the approximately 5% incremental increase in sales financed by DRIVE, our new subprime finance provider.” DRIVE purchases subprime retail installment contracts at a discount. This discount is reflected in the CarMax income statement as an offset to the fees received from third-party providers of prime and nonprime auto financing.
CarMax Auto Finance. “CAF income was up modestly in the fourth quarter, as the benefit of the growth in our originations and managed receivables more than offset the decrease in the gain spread,” said Ligon. “The gain spread, which represents the difference between average interest rates charged customers and our cost of funds, declined to 3.7% in this year’s fourth quarter from 4.5% in last year’s fourth quarter. For the year, CAF income was 3% below last year’s level, reflecting the decline in the gain spread to 3.8% in fiscal 2005 from 4.7% in fiscal 2004. Throughout fiscal 2005, CAF income comparisons were challenged by an environment where our funding costs rose more rapidly than consumer finance rates.”
SG&A. “Our strong sales generated modest expense leverage in the quarter, with the SG&A ratio declining to 10.3% compared with 10.5% in last year’s fourth quarter,” said Ligon. “We generated positive leverage despite both the higher-than-expected store unit bonuses and the growing proportion of our store base that is comprised of stores not yet at base maturity. For the year, the expense ratio was 10.4% this year versus 10.2% last year.”
murdok | Breaking eBusiness News
Your source for investigative ebusiness reporting and breaking news.
