CarMax Reports Flat Profits - Analyst Blog

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CarMax Inc. ( KMX ) posted a flat profit of $82.8 million or 36 cents per share in the third quarter of fiscal 2012 ended November 30, 2011 compared with the same quarter a year ago due to a difficult sales comparison and sluggish economy. With this, the largest retailer of used vehicles in the U.S. missed the Zacks Consensus Estimate by 2 cents per share.

Net sales and operating revenues grew 7% to $2.26 billion from $2.12 billion in the third quarter of fiscal 2011. However, comparable store used unit sales declined 3% in the quarter compared with a 16% increase in the prior year period on the back of weak economic conditions and low consumer confidence.

Wholesale vehicle sales appreciated 22% to $390.3 million, driven by a strong increase in appraisal traffic. Other sales and revenues ebbed 8% to $57.6 million, driven mainly by a decline in third-party finance fees.

Gross profit inched up 2% to $303.2 million from $297.9 million in the third quarter of fiscal 2011. The increase was attributable to higher gross profit on the company's retail and wholesale vehicle sales.

Selling, general and administrative scaled up 6% to $232.3 million from $219.7 million in the prior year in order to support store growth and other long-term growth initiatives of the company.

During the quarter, the company opened a store in North Attleborough, Massachusetts. It plans to open 10 stores in fiscal 2013 and between 10 and 15 stores per year during each of the following three fiscal years.

CarMax Auto Finance ( CAF )

CAF reported a 12% increase in income to $62.6 million from $55.7 million in the last year, primarily driven by higher interest margin. The increase in interest margin was attributable to increases in both average managed receivables and the spread between the interests charged to consumers and related funding costs.

Financial Position

CarMax had cash and cash equivalent of $383.4 million as of November 30, 2011, which was significantly higher than $74.4 million as of November 30, 2010. Long-term debt reduced marginally to $29.3 million as of November 30, 2011 from $30.0 million as of November 30, 2010.

In the first nine months of fiscal 2012, CarMax had a cash outflow of $2.4 million, which was better than the outflow of $22.5 million in the same period of prior year. The improvement in cash flow was mainly attributable to higher income and decreases in inventory and accounts receivables. Meanwhile, capital expenditures increased to $106.0 million from $38.5 million in the first nine months of fiscal 2011.

Our Take

We appreciate CarMax's focus on the used-car market, which helps it to outperform the industry. The automotive retailer is among the strongest operators in its peer group, which includes AutoNation Inc. ( AN ) and Penske Automotive Group ( PAG ).

However, increasing competition poses a threat to the company's earnings. Further, CarMax's utilization of CAF to keep funding retail sales in an unstable credit environment adds to the uncertainty, which could carry an earnings impact.

As a result, the company retains a Zacks #3 Rank (Hold) for the short term (1-3 months) and we maintain our Neutral recommendation on the stock for the long term (6+ months).


 
AUTONATION INC ( AN ): Free Stock Analysis Report
 
CARMAX GP (CC) ( KMX ): Free Stock Analysis Report
 
PENSKE AUTO GRP ( PAG ): 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 , Business , Stocks

Referenced Stocks: AN , CAF , KMX , PAG

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