CarMax Inc. (KMX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are upgrading our recommendation on CarMax to Outperform from Neutral based on the company's aggressive store expansion and share repurchase strategy which will help it outperform peers. CarMax posted earnings per share of $0.60 in the third quarter of fiscal 2015, surpassing the Zacks Consensus Estimate of $0.54. The company recorded better results in the reported quarter due to strong performance in used, wholesale and CarMax Auto Finance operations, together with the increase in its store base and the ongoing share repurchase program. Net sales and operating revenues rose 15.8% to $3.41 billion, exceeding the Zacks Consensus Estimate of $3.26 billion.


Overview:

Headquartered in Richmond, VA, CarMax Inc. (KMX) operates as a specialty retailer of used vehicles as well as new vehicles. The range of vehicles includes both cars as well as light trucks. It is the largest retailer of used vehicles in the U.S.

CarMax is a holding company, which conducts its operations through wholly owned subsidiaries CarMax Auto Superstores Inc., Virginia CarMax Auto Superstores West Coast Inc., Virginia CarMax Auto Superstores California LLC, Virginia CarMax Auto Superstores Services Inc., Virginia CarMax Business Services LLC, Delaware and Glen Allen Insurance Ltd., Bermuda.

CarMax acquires its used-vehicle inventory directly from consumers through its in-store appraisal process as well as from other sources including local and regional auctions, wholesalers, franchised and independent dealers and fleet owners, such as leasing and rental companies. The company conducts the in-store appraisal process through its car-buying centers (about five) intended to increase appraisal traffic and generate incremental vehicle purchases by individual consumers, but not sale of vehicles. Out of the vehicles purchased through the in-store appraisal process, those which do not meet the company's retail standard are sold through on-site wholesale auctions.

In the first nine months of fiscal 2015, CarMax sold 433,011 used vehicles, 7,187 new vehicles and 286,075 wholesale vehicles. As of Dec 19, 2014, the company operated 143 used-car superstores across 72 markets. Most of the company's store locations are in the southeastern U.S. Chicago, Los Angeles, Houston, Dallas and Washington D.C. are some of the cities where the company has a strong presence.

CarMax conducts its used-vehicle operations in three basic retail formats: mega, standard and satellite stores. Mega superstores are approximately 70,000 95,000 square feet, standard superstores span 40,000 60,000 square feet and satellite superstores are spread across approximately 10,000 20,000 square feet.

CarMax also provides customers with a full range of related services including financing of vehicle purchases and sale of extended warranties, accessories and vehicle repair services through CarMax Auto Finance (CAF).

In the first nine months of fiscal 2015, Used Vehicle generated 81.6% of revenues, Wholesale Vehicle contributed to 14.5%, New Vehicle generated 1.8% and Other Sales and Revenues (such as commission on the sales of extended service plans (ESP), service department sales and third-party finance fees) generated 2.1%.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Stocks

Referenced Stocks: CAF , ESP , KMX

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