CarMax Inc. (KMX - Analyst Report) posted earnings per share of 76 cents in the first quarter of fiscal 2015, ended May 31, 2014, increasing 18.8% from 64 cents a year ago. Earnings surpassed the Zacks Consensus Estimate of 66 cents.
Net sales and operating revenues in the quarter rose 13.3% to $3.75 billion, also outdoing the Zacks Consensus Estimate of $3.57 billion. The year-over-year improvement in revenues was mainly due to increase in used vehicle sales, new vehicle sales and wholesale vehicle sales.
Used vehicle revenues appreciated 13.3% to $3.06 billion in the quarter, driven by higher unit sales. Unit sales of used vehicles increased 9.8% to 150,528 vehicles and their average selling price increased 3.2% to $20,173. Comparable-store used vehicle unit sales rose 3.4% in the quarter. The improvement was attributable to improved footfall in stores.
New vehicle revenues improved 33.1% to $69.8 million due to higher unit sales. Unit sales of new vehicles increased 33.2% to 2,597 vehicles, while average selling price decreased 0.1% to $26,761.
Wholesale vehicle revenues rose 11.1% to $545.2 million. Unit sales increased 9.9% to 97,098 vehicles. Average selling price of wholesale vehicles climbed 1.2% year over year to $5,450.
Other sales and revenues rose 13% to $74.8 million due to improvement in net third-party finance fees, driven by reduction in the percentage of sales financed by third-party sub prime providers. The increase was, however, partially offset by decline in extended protection plan revenues including extended service plan (ESP) and guaranteed asset protection revenues. Slash in revenues from this business was due to increase in the cancellation reserves for the underlying products and decline in the ESP penetration rate.
Gross profit increased 12% to $501.7 million from $448.1 million in the year-ago quarter.
CarMax Auto Finance (CAF)
CAF reported an 8.7% increase in income to $94.6 million from $87 million in last year’s quarter. The improvement was primarily driven by an increase in average managed receivables, partly offset by a lower total interest margin rate.
During the first quarter of fiscal 2015, CarMax opened four stores. Three stores were opened in new markets - Rochester, NY; Dothan, AL; and Spokane, WA. The fourth store was opened in the existing market of Harrisburg/Lancaster, PA. Subsequent to the end of the quarter, the company opened its first store in the Madison, WI market. The company intends to open 13 used car superstores in fiscal 2015 and 10–15 superstores in each of the next two fiscal years.
Share Repurchase Program
During the first quarter of fiscal 2015, CarMax spent $174.1 million to repurchase 3.8 million shares under its existing share repurchase program. As of May 31, 2014, the company had remaining authorization of $1.11 billion under its repurchase program.
CarMax had cash and cash equivalents of $532.2 million as of May 31, 2014, down from $725.3 million as of May 31, 2013. Total debt (including financing and capital lease obligations, and non-recourse notes payable) rose to $7.96 billion as of May 31, 2014 from $6.72 billion as of May 31, 2013.
In the first 3 months of fiscal 2015, CarMax had a cash outflow of $209.1 million from operations compared with $77.6 million in the prior year. Capital expenditures increased to $53.7 million from $42.1 million in the first 3 months of fiscal 2014. The company estimates capital expenditure in fiscal 2015 to be around $325 million.
In May, AutoZone Inc. (AZO - Analyst Report), another prominent player in the automotive replacement parts and accessories industry along with CarMax, reported a 16.4% rise in earnings per share to $8.46 for the third quarter of fiscal 2014 (ended May 10, 2014). Earnings were in line with the Zacks Consensus Estimate.
CarMax currently retains a Zacks Rank #3 (Hold). Stocks from the same industry that warrant a look include Pep Boys - Manny, Moe & Jack (PBY - Analyst Report) and U.S. Auto Parts Network, Inc. (PRTS - Snapshot Report). Both these companies carry a Zacks Rank #2 (Buy).