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

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Summary:
CarMax posted an 18.8% increase in earnings per share to $0.76 in the first quarter of fiscal 2015. Earnings surpassed the Zacks Consensus Estimate of $0.66. Net sales and operating revenues rose 13.3% to $3.75 billion, also beating the Zacks Consensus Estimate of $3.57 billion. The year-over-year improvement in revenues was mainly due to increased used vehicle sales, new vehicle sales and wholesale 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 high competition in the used-car market and the high cash outflow of the company. As a result, we have maintained our Neutral recommendation.

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 2014, CarMax retailed 526,929 used vehicles, 7,761 new vehicles and 342,576 wholesale vehicles. As of Feb 28, 2014, the company operated 131 used car superstores in 64 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 2014, Used Vehicle generated 82% of revenues, Wholesale Vehicle 14.5%, 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), 1.8%.


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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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