) posted earnings per share of 62 cents in the second quarter of
fiscal 2014 ended Aug 31, 2013, increasing 29.2% from 48 cents a
year ago. Reported earnings also exceeded the Zacks Consensus
Estimate by 5 cents. Net earnings increased 25.7% to $140.3
million from $111.6 million a year ago.
Net sales and operating revenues in the quarter rose 17.7% to
$3.2 billion, topping the Zacks Consensus Estimate of $3.1
billion. The year-over-year improvement in revenues was mainly
due to increases in used vehicle sales, wholesale vehicle sales
and higher revenues from extended service plan.
Used vehicle revenues appreciated 20.4% to $2.6 billion in the
quarter, driven by higher unit sales. Unit sales of used vehicles
increased 21.2% to 134,854 vehicles, while their average selling
price decreases marginally to $19,428 from $19,494. Comparable
store used vehicle unit sales rose 16% in the quarter. The
improvement was attributable to better execution in stores,
favorable consumer credit environment and improved footfall in
However, new vehicle revenues dipped 2.3% to $60 million due to
lower unit sales. Unit sales of new vehicles decreased 7% to
2,187 vehicles while average selling price increased 5.1% to
Wholesale vehicle revenues grew 8.7% to $474.9 million. Unit
sales increased 10.2% to 91,243 vehicles due to improvement in
store base and a stronger appraisal buy rate. Average selling
price of wholesale vehicles decreased 1.7% year over year to
$5,044. Other sales and revenues increased 5.2% to $71.1 million,
driven by a 22.9% rise in revenues from extended service plan.
Gross profit increased 18.1% to $434.7 million from $368 million
in the year-ago quarter. The improvement was driven by higher
gross profit earned from the used vehicle business.
CarMax Auto Finance (CAF)
CAF reported an 11.5% increase in income to $84.4 million from
$75.7 million in last year's quarter. The improvement was
primarily driven by a 24% increase in average managed receivables
to $6.52 billion, partly offset by a decline in total interest
During the second quarter of fiscal 2014, CarMax opened 2 stores,
one in Katy, Texas, and the other one in Fairfield, Calif., The
Texas store is the fifth store of the company in Houston market,
while the California store is the third store in the Sacramento
market. The company intends to open 10-15 superstores in each of
the next two fiscal years.
Share Repurchase Program
During the second quarter of fiscal 2014, CarMax spent $48.7
million to repurchase 1 million shares under its existing share
repurchase program. As of Aug 31, 2013, the company had remaining
authorization of $414.8 million under the program.
CarMax had cash and cash equivalents of $750 million as of Aug
31, 2013, up from $458.6 million as of Aug 31, 2012. Total debt
(including financing and capital lease obligations, and
non-recourse notes payable) rose to $7.1 billion as of Aug 31,
2013 from $5.4 billion as of Aug 31, 2012.
In the first half of fiscal 2014, CarMax had a cash outflow of
$263.6 million compared with $285.9 million in the prior year.
Capital expenditures decreased to $136 million from $103.9
million in the same period in fiscal 2012. CarMax estimates
capital expenditure in fiscal 2014 to be around $300 million.
We appreciate CarMax's focus on the used-car market, which helps
it to outperform the industry. However, increasing competition
poses a threat to the company's earnings. The company currently
retains a Zacks Rank #2 (Buy).
Stocks from the broader industry that warrants a look include
Modine Manufacturing Company
American Axle & Manufacturing Holdings Inc.
Fuel Systems Solutions, Inc.
). All of them carry a Zacks Rank #1 (Strong Buy).
AMER AXLE & MFG (AXL): Free Stock Analysis
FUEL SYSTEM SOL (FSYS): Free Stock Analysis
CARMAX GP (CC) (KMX): Free Stock Analysis
MODINE MANUFACT (MOD): Free Stock Analysis
To read this article on Zacks.com click here.