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CarMax Inc. (KMX - Analyst Report) posted a 3.8% decline in profits to $120.7 million or 52 cents per share in the first quarter of fiscal 2013 ended on May 31, 2012 compared to $125.5 million or 54 cents per share in the corresponding quarter last year. However, profits were in line with the Zacks Consensus Estimate during the quarter.

The company’s net sales and operating revenues for the quarter came in at $2.77 billion, up 4% compared with $2.68 billion in the year-ago quarter. However, it missed the Zacks Consensus Estimate of $3.60 billion.

Revenues from used vehicle sales escalated 5.7% to $2.2 billion in the reported quarter. The boost in used vehicles revenues was attributable to improvement in unit sales and appreciation in used vehicle average selling price. Unit sales were up by 3.5% to 112,291 units and average selling price swelled 2% to $19,285.

The company’s revenues from new vehicle sales were down 10.4% to $55.5 million in the reported quarter, driven by a decline in sales volume offsetting the favorable impact of price rise. Unit sales decreased 13.5% to 2,107 vehicles in the reported quarter while average selling price escalated 3.5% to $26,174.

Revenues from wholesale vehicle went down 2.1% to $467.8 million in the reported quarter, primarily driven by a decline in unit sales. Unit sales decreased to 83,541 units from 85,062 units a year ago, resulting from one auction date loss in the reported quarter. Average selling price was $5,449 during the quarter.

Other sales and revenues slipped 8.7% to $62.3 million due to a mix shift among finance providers. It benefited by an 11% increase in extended service plan (ESP) revenues arising from the penetration and growth of the company in retail vehicle sales.

Total gross profit was $381.9 million in the quarter compared to $383.1 million in the corresponding quarter of last year. The marginal decline in profit was attributable to a decline in wholesale and other gross profit, which offset gross profit from used vehicles. Total gross profit per retail unit was $3,338, down 3.3% compared to $ 3,453 in the first quarter of fiscal 2012.

Selling, general and administrative expenses (SG&A) increased 5% to $253.6 million. The increase was attributable to expansion of the company’s store base by five stores and boost in growth-related costs, including pre-opening and relocation expenses. SG&A per used unit increased 2% to $2,217 in the quarter.

CarMax Auto Finance (CAF) income improved 8% to $75.2 million from $69.7 million in the first quarter of the prior year. The growth in CAF income closely resembled the increase in average managed receivables, excluding the loss favorability in both quarters. Average managed receivables rose 16% to $5.08 billion in the quarter from $4.39 billion in the prior year quarter due to higher origination volume throughout fiscal 2012 and in the first quarter of fiscal 2013.

Superstore Opening

CarMax plans to open 10 superstores in fiscal 2013. In the first quarter of fiscal 2013, the company has opened two used car superstores; one in Lancaster, Pennsylvania and the other located in Bakersfield, California. Recently, it has opened superstores in Nashville, Tennessee, and Fort Myers, Florida.

Financial Position

CarMax had cash and cash equivalents of $456.4 million as of May 31, 2012, up significantly from $156.0 million as of May 31, 2011. Total debt (including financing and capital lease obligations, and non-recourse notes) rose to $5.0 billion as of May 31, 2012 from $4.36 billion as of May 31, 2011.

In the first quarter of fiscal 2013, CarMax had a cash outflow from operating activities of $115.5 million compared with a cash inflow of $24.9 million in the prior year. Capital expenditure amounted to $47.6 million in the reported quarter compared to $31.0 million in the year-ago quarter.

Our Take

CarMax is one of the largest retailers of used vehicles. The company pioneered the used car superstore concept with the inauguration of its first store in 1993. It operated around 112 used car superstores in 56 markets as of May 31, 2012. The company’s superstores offer customers a great deal of satisfaction with no hassles or haggling on prices. They offer a wide range of choice of high quality vehicles and a customer-friendly sales process.

The automotive retailer is among the strongest operators in its peer group, which includes AutoNation Inc. (AN - Analyst Report) and Penske Automotive Group (PAG - Analyst Report). However, CarMax retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating due to the sluggish used-car market.

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