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

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Summary:
CarMax posted a 14.6% increase in earnings per share to $0.47 in the third quarter of fiscal 2014, missing the Zacks Consensus Estimate by $0.01. Net sales and operating revenues rose 13% to $2.9 billion, missing the Zacks Consensus Estimate of $3.1 billion. The year-over-year improvement in revenues was mainly due to increases in used-vehicle sales and new vehicle sales. In the long run, CarMax's focus on the used-vehicle market and its aggressive store expansion strategy should help it outperform peers. However, we are concerned about the pressure on used-vehicle margins, high competition in the used-car market and high cash outflow of the company. As a result, we have maintained our Neutral recommendation on CarMax.

Overview:

Headquartered in Richmond, Va., CarMax Inc. (KMX) operates as a specialty retailer of used vehicles, such as, cars and light trucks as well as new vehicles. The range of vehicles includes both domestic and imported 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., California CarMax Auto Superstores California LLC, California 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. The company sells vehicles, purchased through the in-store appraisal process, that do not meet its retail standard through on-site wholesale auctions.

In the first 9 months of fiscal 2014, CarMax retailed 394,073 used vehicles, 5,954 new vehicles and 262,342 wholesale vehicles. As of Nov 30, 2013, the company operated 126 used car superstores in 63 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 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 9 months of fiscal 2014, Used Vehicle generated 81.5% of revenues, Wholesale Vehicle 14.8%, New Vehicle 1.7% and Other Sales and Revenues (such as commission on the sale of extended service plans (ESP), service department sales and third-party finance fees), 2%.


CarMax Inc. (KMX): Read the Full Research Report

CARMAX GP (CC) (KMX): Free Stock Analysis Report

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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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