CarMax Reports First Quarter Results

CarMax, Inc. (NYSE:KMX), the nation’s largest retailer of used cars, today reported record net income and earnings per share for the first quarter ended May 31, 2019.

Highlights:

• Net sales and operating revenues increased 12.0% to $5.37 billion.
• Used unit sales in comparable stores increased 9.5%.
• Total used unit sales rose 13.0%.
• Total wholesale unit sales increased 6.6%.
• CarMax Auto Finance (CAF) income increased 0.3% to $116.0 million.
• Net earnings increased 11.8% to $266.7 million and net earnings per diluted share increased 19.5% to $1.59.
• Omni-channel experience is on track to be available to the majority of customers by the end of fiscal 2020.

CEO Commentary:

"CarMax had an outstanding first quarter,” said Bill Nash, president and chief executive officer. "I’m proud of our team and its commitment to delivering an exceptional experience to both our retail and wholesale customers, which drove our strong growth in sales, gross profit and earnings.

"In addition, we’re pleased with the continued strong response to our omni-channel roll-out in Atlanta,” stated Nash. "In early June, we successfully launched this capability in most of our Florida markets, along with opening our first customer experience center in Atlanta. We believe that no other company is in a better position to deliver this omni-channel experience efficiently and profitably. This is truly an unmatched experience that we are confident is the future of car buying.”

First Quarter Business Performance Review:

Sales. Total used vehicle unit sales increased 13.0%, including a 9.5% increase in comparable store used unit sales compared with the prior year’s first quarter. The comparable store sales performance reflected strong conversion and solid growth in web traffic. We believe several factors contributed to our comparable store sales growth, including: (i) our solid execution supported by the effect of our initiatives to enhance the customer experience; (ii) a robust lending environment, including increased conversion by our Tier 2 and Tier 3 third-party finance providers; and (iii) a shift in the timing of some customer tax refunds into the first quarter of our fiscal year.

Total wholesale vehicle unit sales increased 6.6% compared with the first quarter of fiscal 2019, largely driven by an increase in our appraisal buy rate and the growth in our store base.

Other sales and revenues increased 6.1% compared with the first quarter of fiscal 2019. Extended protection plan (EPP) net revenues rose 11.2%, reflecting the combined effects of our strong used unit growth, increased product penetration rates and provider cost decreases, partially offset by an increase in cancellation reserves. In addition, last year’s first quarter EPP revenues included $4.0 million of revenue in connection with the new revenue recognition accounting standard adopted in that quarter. Net third-party finance fees declined $1.0 million, reflecting shifts in our sales mix by finance channel.

Gross Profit. Total gross profit increased 12.3% versus last year’s first quarter to $742.4 million. Used vehicle gross profit rose 13.1%, reflecting the 13.0% increase in total used unit sales. Used vehicle gross profit per unit remained stable at $2,215. Wholesale vehicle gross profit increased 9.8% versus the prior year’s quarter, driven by the 6.6% increase in wholesale unit sales and an increase in wholesale vehicle gross profit per unit to $1,043 compared with $1,012 in last year’s first quarter. Other gross profit increased 11.6%, largely reflecting the improvement in EPP revenues.

SG&A. Compared with the first quarter of fiscal 2019, SG&A expenses increased 11.7% to $489.7 million. Factors contributing to the year-over-year change included the 10% increase in our store base since the beginning of last year’s first quarter (representing the addition of 18 stores); higher variable costs associated with our strong sales growth; a $13.9 million increase in stock-based compensation expense; and continued spending to advance our technology platforms and support our core and omni-channel strategic initiatives. SG&A per used unit was $2,183 in the current quarter, down $26 year-over-year. The growth in stock-based compensation expense increased SG&A per used unit by $46.

CarMax Auto Finance.⁽¹⁾ Compared with last year’s first quarter, CAF income increased 0.3% to $116.0 million, reflecting a 7.9% increase in average managed receivables, largely offset by the effects of a higher loan loss provision. The provision for loan losses increased to $38.2 million from $30.9 million in the prior year quarter, reflecting both the growth in average managed receivables and an increase in the provision as a percentage of managed receivables. While net losses were modestly above expectations, they remained well within our long-term targeted performance range. The allowance for loan losses grew to 1.14% of ending managed receivables as of May 31, 2019, compared with 1.10% as of February 28, 2019, and 1.13% as of May 31, 2018. The total interest margin percentage, which represents the spread between interest and fees charged to consumers and our funding costs, was 5.6% of average managed receivables compared with 5.7% in last year’s first quarter.

Store Openings. During the first quarter of fiscal 2020, we opened three stores -- two in new markets (Waco, Texas and McAllen, Texas) and one in an existing market (Memphis, Tennessee).

Share Repurchase Activity. We repurchased 3.0 million shares of common stock for $204.8 million pursuant to our share repurchase program during the first quarter of fiscal 2020. As of May 31, 2019, we had $1.91 billion remaining available for repurchase under the outstanding authorization.

Accounting for Leases. Effective March 1, 2019, we adopted Accounting Standards Codification ("ASC”) 842, the new accounting standard for leases. Assets and liabilities were increased by approximately $450 million as a result of recording operating leases on our consolidated balance sheet. However, this adoption did not materially change our results of operations.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Planned Store Openings

We currently plan to open the following stores within 12 months from May 31, 2019. During this period, we will be entering four new television markets and expanding our presence in ten existing television markets. Of the 14 stores we plan to open during the 12 months ending May 31, 2020, 5 will be in Metropolitan Statistical Areas having populations of 600,000 or less, which we define as small markets.

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, June 21, 2019. 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 9272539. A live webcast of the call will be available on our investor information home page at investors.carmax.com.

A webcast replay of the call will be available at investors.carmax.com through September 23, 2019. A telephone replay also will be available through June 28, 2019, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 9272539.

Second Quarter Fiscal 2020 Earnings Release Date

We currently plan to release results for the second quarter ending August 31, 2019, on Tuesday, September 24, 2019, before the opening of trading on the New York Stock Exchange. We plan to 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 investors.carmax.com in early September 2019.

About CarMax

CarMax, the nation’s largest retailer of used cars, revolutionized the automotive retail industry by driving integrity, honesty and transparency in every interaction. CarMax continues to innovate and is currently rolling out an omni-channel experience, providing customers the option to complete transactions entirely from home, in store, or in a seamless combination of both. CarMax has more than 200 stores nationwide, and during the latest fiscal year sold nearly 750,000 used cars and 450,000 wholesale vehicles at its in-store auctions. With more than 25,000 associates, CarMax is proud to have been recognized for 15 consecutive years as one of the Fortune 100 Best Companies to Work For^®. For more information, visit www.carmax.com.

Forward-Looking Statements

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, expenses, capital expenditures, debt obligations, tax rates or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as "anticipate,” "believe,” "could,” "estimate,” "expect,” "intend,” "may,” "outlook,” "plan,” "predict,” "should,” "will” and other similar expressions, whether in the negative or affirmative. 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 competitive landscape and/or our failure to successfully adjust to such changes.
• Events that damage our reputation or harm the perception of the quality of our brand.
• Changes in general or regional U.S. economic conditions.
• Our inability to realize the benefits associated with our omni-channel initiatives.
• Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
• Our inability to recruit, develop and retain associates and maintain positive associate relations.
• The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.
• Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.
• Significant changes in prices of new and used vehicles.
• Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loan receivables than anticipated.
• A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
• Changes in consumer credit availability provided by our third-party finance providers.
• Changes in the availability of extended protection plan products from third-party providers.
• Factors related to the regulatory and legislative environment in which we operate.
• Factors related to geographic and sales growth, including the inability to effectively manage our growth.
• The failure of or inability to sufficiently enhance key information systems.
• The effect of various litigation matters.
• Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.
• The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
• The volatility in the market price for our common stock.
• The performance of the third-party vendors we rely on for key components of our business.
• Factors related to seasonal fluctuations in our business.
• The occurrence of severe weather events.
• Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 28, 2019, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission. Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to the Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422 ext. 4391. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

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