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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