DNZOY Denso Corp Ltd (PK)

CarMax Inc. (KMX) posted a profit of $107.2 million or 46 cents per share in the fourth quarter of fiscal 2013 ended Feb 28, 2013, barely exceeding the Zacks Consensus Estimate by a penny. Profits increased 12.8% from $95.0 million or 12.2% from 41 cents per share in the prior-year quarter. Following the earnings announcement, shares reached a new 52-week high of $43.42, above its previous 52-week high of $42.45 on Apr 3.

For fiscal 2013, CarMax’s profits grew 5% to $434.3 million from $413.8 million in the prior year or 4.5% to $1.87 per share from $1.79 in fiscal 2012. Earnings per share in the year also exceeded the Zacks Consensus Estimate by a penny.

Net sales and operating revenues in the quarter rose 14% to $2.83 billion, topping the Zacks Consensus Estimate of $2.70 billion. For the fiscal year, net sales and operating revenues escalated 10% to $10.96 billion.

Used vehicle revenues appreciated 16.4% to $2.30 billion in the quarter, driven by both higher unit sales and average selling prices. Unit sales increased 11.9% to 118,306 vehicles while average selling price increased 4.3% to $19,287.

Comparable store used vehicle unit sales rose 6% in the quarter compared with 4% a year ago due to compelling credit offers from CAF, higher inventory selection and strong in-store execution.

However, new vehicle revenues dipped marginally by 1.5% to $45.2 million due to lower unit sales. Unit sales decreased 2.1% to 1,691 vehicles while average selling price increased marginally by 0.7% to $26,591.

Wholesale vehicle revenues grew 7.9% to $427.1 million, primarily driven by both higher unit sales and increased average selling prices. Unit sales increased 6.5% to 78,720 vehicles while average selling price increased by 1.2% to $5,271. Other sales and revenues slipped 3.7% to $58.4 million, driven by a 43.3% fall in revenues from third-party finance fees (net).

CarMax Auto Finance (CAF)

CAF reported a 15.0% increase in income to $76.0 million from $66.1 million in last year’s quarter, primarily driven by a 17% increase in average managed receivables to $5.74 billion. For fiscal 2013, CAF income rose 14.1% to $299.3 million from $262.2 million in fiscal 2012.

Store Openings

During the fourth quarter of fiscal 2013, CarMax opened two stores, penetrating the Denver, Colorado, and Jacksonville, Florida, markets. In fiscal 2013, the company  opened ten stores, bringing its used car superstore count to 118 as of Feb 28, 2013.

Subsequent to the end of the year, CarMax opened a small format store in Harrisonburg, Virginia. The company intends to open between 10 and 15 superstores in each of the following two fiscal years.

Share Repurchase Program

During the fourth quarter of fiscal 2013, CarMax repurchased 4.0 million shares of its common stock for $151.7 million under its existing share repurchase program. In fiscal 2013, the company has repurchased 5.8 million shares for $211.9 million.

Financial Position

CarMax had cash and cash equivalent of $449.4 million as of Feb 28, 2013, modestly up from $442.7 million as of Feb 29, 2012. Total debt (including financing and capital lease obligations, and non-recourse notes) rose to $6.21 billion as of Feb 28, 2012 from $5.05 billion as of Feb 29, 2012.

In fiscal 2013, CarMax had a broader cash outflow of $778.4 million compared with $62.2 million in the prior year. The increase in cash outflow was mainly attributable to higher inventory and declines in accounts receivable and auto loans receivables. Meanwhile, capital expenditures increased to $235.7 million from $172.6 million in fiscal 2012. CarMax has estimated capital expenditures of $300 million for fiscal 2014.

Our Take

We appreciate CarMax’s focus on the used-car market, which helps it to outperform the industry. However, increasing competition poses a threat to the company’s earnings. The company currently retains a Zacks Rank #3 (Hold).

While we remain on the sidelines about CarMax, stocks from the same industry that warrant a look include Visteon Corp. (VC), Gentherm Incorporated (THRM) and Denso Corp. (DNZOY). All of them carry a Zacks Rank #1 (Strong Buy).
 

 
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