Virginia (State or other jurisdiction of incorporation) | 1-31420 (Commission File Number) | 54-1821055 (I.R.S. Employer Identification No.) | |
12800 Tuckahoe Creek Parkway Richmond, Virginia (Address of principal executive offices) | 23238 (Zip Code) |
Item 2.02. | Results of Operations and Financial Condition. |
The registrant issued a press release on June 22, 2018, announcing its first quarter results. The press release is being furnished as Exhibit 99.1 hereto and is incorporated by reference into this Item 2.02. | |
Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
In connection with the previously announced succession plan, on June 22, 2018, CarMax, Inc. (the “Company”) announced that William C. Wood, Jr., the Company’s executive vice president and chief operating officer, will retire effective July 31, 2018. | |
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits | The following exhibit is being furnished pursuant to Item 2.02 above. |
Press release, dated June 22, 2018, issued by CarMax, Inc., entitled “CarMax Reports First Quarter Results.” |
CARMAX, INC. | ||
(Registrant) | ||
Dated: June 22, 2018 | By:/s/ Thomas W. Reedy | |
Thomas W. Reedy | ||
Executive Vice President and | ||
Chief Financial Officer |
▪ | Net sales and operating revenues increased 5.5% to $4.79 billion. |
▪ | Used unit sales in comparable stores declined 2.3%. |
▪ | Total used unit sales rose 1.6%. |
▪ | Total wholesale unit sales increased 9.6%. |
▪ | CarMax Auto Finance (CAF) income increased 5.7% to $115.6 million. |
▪ | Net earnings increased 12.7% to $238.7 million and net earnings per diluted share increased 17.7% to $1.33. |
* | The increase in net earnings was due to a decrease in the effective tax rate to 25.3% from 37.4% in the first quarter of fiscal 2018, primarily reflecting the effect of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). |
(1) | Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions. |
Three Months Ended May 31 | ||||||||||
(In millions) | 2018 | 2017 | Change | |||||||
Used vehicle sales | $ | 4,021.0 | $ | 3,843.4 | 4.6 | % | ||||
Wholesale vehicle sales | 617.7 | 553.4 | 11.6 | % | ||||||
Other sales and revenues: | ||||||||||
Extended protection plan revenues | 100.1 | 91.9 | 8.9 | % | ||||||
Third-party finance fees, net | (14.5 | ) | (11.4 | ) | (26.6 | )% | ||||
Other | 68.3 | 65.1 | 4.9 | % | ||||||
Total other sales and revenues | 153.9 | 145.6 | 5.7 | % | ||||||
Total net sales and operating revenues | $ | 4,792.6 | $ | 4,542.3 | 5.5 | % |
Three Months Ended May 31 | ||||||
2018 | 2017 | Change | ||||
Used vehicles | 198,398 | 195,273 | 1.6 | % | ||
Wholesale vehicles | 113,335 | 103,443 | 9.6 | % |
Three Months Ended May 31 | ||||||||||
2018 | 2017 | Change | ||||||||
Used vehicles | $ | 20,067 | $ | 19,478 | 3.0 | % | ||||
Wholesale vehicles | $ | 5,205 | $ | 5,113 | 1.8 | % |
Three Months Ended May 31 | ||||
2018 | 2017 | |||
Used vehicle units | 1.6 | % | 14.1 | % |
Used vehicle revenues | 4.6 | % | 12.1 | % |
Wholesale vehicle units | 9.6 | % | — | % |
Wholesale vehicle revenues | 11.6 | % | (2.5 | )% |
Three Months Ended May 31 | ||||
2018 | 2017 | |||
Used vehicle units | (2.3 | )% | 8.2 | % |
Used vehicle revenues | 0.6 | % | 6.1 | % |
(1) | Stores are added to the comparable store base beginning in their fourteenth full month of operation. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods. |
Three Months Ended May 31 | |||||
2018 | 2017 | ||||
CAF (2) | 48.3 | % | 47.3 | % | |
Tier 2 (3) | 17.0 | % | 19.0 | % | |
Tier 3 (4) | 10.9 | % | 10.0 | % | |
Other (5) | 23.8 | % | 23.7 | % | |
Total | 100.0 | % | 100.0 | % |
(1) | Calculated as used vehicle units financed for respective channel as a percentage of total used units sold. |
(2) | Includes CAF's Tier 3 loan originations, which represent less than 1% of total used units sold. |
(3) | Third-party finance providers who generally pay us a fee or to whom no fee is paid. |
(4) | Third-party finance providers to whom we pay a fee. |
(5) | Represents customers arranging their own financing and customers that do not require financing. |
Three Months Ended May 31 | |||||||||
(In millions) | 2018 | % (1) | 2017 | % (1) | |||||
Net sales and operating revenues | $ | 4,792.6 | 100.0 | $ | 4,542.3 | 100.0 | |||
Gross profit | $ | 661.3 | 13.8 | $ | 648.9 | 14.3 | |||
CarMax Auto Finance income | $ | 115.6 | 2.4 | $ | 109.4 | 2.4 | |||
Selling, general, and administrative expenses | $ | 438.2 | 9.1 | $ | 403.5 | 8.9 | |||
Interest expense | $ | 18.1 | 0.4 | $ | 16.8 | 0.4 | |||
Earnings before income taxes | $ | 319.7 | 6.7 | $ | 338.1 | 7.4 | |||
Net earnings | $ | 238.7 | 5.0 | $ | 211.7 | 4.7 |
(1) | Calculated as a percentage of net sales and operating revenues. |
Three Months Ended May 31 | ||||||||||
(In millions) | 2018 | 2017 | Change | |||||||
Used vehicle gross profit | $ | 439.4 | $ | 431.9 | 1.7 | % | ||||
Wholesale vehicle gross profit | 114.7 | 104.7 | 9.6 | % | ||||||
Other gross profit | 107.2 | 112.3 | (4.6 | )% | ||||||
Total | $ | 661.3 | $ | 648.9 | 1.9 | % |
Three Months Ended May 31 | ||||||||
2018 | 2017 | |||||||
$ per unit(1) | %(2) | $ per unit(1) | %(2) | |||||
Used vehicle gross profit | $ | 2,215 | 10.9 | $ | 2,212 | 11.2 | ||
Wholesale vehicle gross profit | $ | 1,012 | 18.6 | $ | 1,012 | 18.9 | ||
Other gross profit | $ | 540 | 69.7 | $ | 575 | 77.2 | ||
Total gross profit | $ | 3,333 | 13.8 | $ | 3,323 | 14.3 |
(1) | Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total used units sold. |
(2) | Calculated as a percentage of its respective sales or revenue. |
Three Months Ended May 31 | |||||||||||
(In millions) | 2018 | 2017 | Change | ||||||||
Compensation and benefits (1) | $ | 241.5 | $ | 222.5 | 8.5 | % | |||||
Store occupancy costs | 87.8 | 79.7 | 10.1 | % | |||||||
Advertising expense | 38.5 | 38.2 | 0.9 | % | |||||||
Other overhead costs (2) | 70.4 | 63.1 | 11.6 | % | |||||||
Total SG&A expenses | $ | 438.2 | $ | 403.5 | 8.6 | % | |||||
SG&A per used unit | $ | 2,209 | $ | 2,066 | $ | 143 |
(1) | Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales. |
(2) | Includes IT expenses, preopening and relocation costs, insurance, non-CAF bad debt, travel, charitable contributions and other administrative expenses. |
Three Months Ended May 31 | ||||||||||
(In millions) | 2018 | % (1) | 2017 | % (1) | ||||||
Interest margin: | ||||||||||
Interest and fee income | $ | 232.3 | 7.9 | $ | 206.7 | 7.6 | ||||
Interest expense | (63.8 | ) | (2.2 | ) | (49.0 | ) | (1.8 | ) | ||
Total interest margin | 168.5 | 5.7 | 157.7 | 5.8 | ||||||
Provision for loan losses | (30.9 | ) | (1.0 | ) | (28.6 | ) | (1.1 | ) | ||
Total interest margin after | ||||||||||
provision for loan losses | 137.6 | 4.7 | 129.1 | 4.8 | ||||||
Total direct expenses | (22.0 | ) | (0.7 | ) | (19.7 | ) | (0.7 | ) | ||
CarMax Auto Finance income | $ | 115.6 | 3.9 | $ | 109.4 | 4.0 | ||||
Total average managed receivables | $ | 11,775.4 | $ | 10,829.5 | ||||||
Net loans originated | $ | 1,665.5 | $ | 1,546.1 | ||||||
Net penetration rate | 42.9 | % | 41.9 | % | ||||||
Weighted average contract rate | 8.4 | % | 7.8 | % | ||||||
Ending allowance for loan losses | $ | 134.3 | $ | 129.8 | ||||||
Warehouse facility information: | ||||||||||
Ending funded receivables | $ | 2,028.0 | $ | 2,022.0 | ||||||
Ending unused capacity | $ | 1,112.0 | $ | 778.0 | ||||||
(1) | Percentage of total average managed receivables (quarterly amounts are annualized). |
Three Months Ended May 31 | ||||||||||
(In millions except per share data) | 2018 | 2017 | Change | |||||||
Net earnings | $ | 238.7 | $ | 211.7 | 12.7 | % | ||||
Diluted weighted average shares outstanding | 179.4 | 186.9 | (4.0 | )% | ||||||
Net earnings per diluted share | $ | 1.33 | $ | 1.13 | 17.7 | % |
Location | Television Market | Metropolitan Statistical Area | Planned Opening Date |
Santa Fe, New Mexico (1) | Albuquerque/Santa Fe | Santa Fe | Q2 Fiscal 2019 |
Warner Robins, Georgia | Macon (2) | Warner Robins | Q2 Fiscal 2019 |
Norman, Oklahoma | Oklahoma City | Oklahoma City | Q2 Fiscal 2019 |
Wilmington, North Carolina | Wilmington (2) | Wilmington | Q3 Fiscal 2019 |
Lafayette, Louisiana | Lafayette (2) | Lafayette | Q3 Fiscal 2019 |
Corpus Christi, Texas | Corpus Christi (2) | Corpus Christi | Q3 Fiscal 2019 |
Shreveport, Louisiana | Shreveport (2) | Shreveport | Q3 Fiscal 2019 |
Amherst, New York | Buffalo (2) | Buffalo | Q4 Fiscal 2019 |
Melbourne, Florida | Orlando/Daytona Beach | Palm Bay/Melbourne | Q4 Fiscal 2019 |
Montgomery, Alabama | Montgomery/Selma (2) | Montgomery | Q4 Fiscal 2019 |
Vancouver, Washington | Portland | Portland/Vancouver | Q4 Fiscal 2019 |
Kenner, Louisiana | New Orleans (2) | New Orleans | Q4 Fiscal 2019 |
Memphis, Tennessee | Memphis | Memphis | Q1 Fiscal 2020 |
Killeen, Texas | Waco/Temple (2) | Killeen/Temple | Q1 Fiscal 2020 |
Pharr, Texas | Harlingen/Brownsville/McAllen (2) | McAllen/Edinburg/Mission | Q1 Fiscal 2020 |
(1) | Store opened in June 2018. |
(2) | Represents new television market as of planned store opening date. |
• | Changes in the competitive landscape and/or our failure to successfully adjust to such changes. |
• | Events that damage our reputation or harm the perception of the quality of our brand. |
• | Changes in general or regional U.S. economic conditions. |
• | Changes in tax law, including the effect of the 2017 Tax Act. |
• | Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market. |
• | Our inability to recruit, develop and retain associates and maintain positive associate relations. |
• | The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs. |
• | Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information. |
• | Significant changes in prices of new and used vehicles. |
• | Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loan receivables than anticipated. |
• | A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory. |
• | Changes in consumer credit availability provided by our third-party finance providers. |
• | Changes in the availability of extended protection plan products from third-party providers. |
• | Factors related to the regulatory and legislative environment in which we operate. |
• | Factors related to geographic and sales growth, including the inability to effectively manage our growth. |
• | The failure of or inability to sufficiently enhance key information systems. |
• | The effect of various litigation matters. |
• | Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls. |
• | The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles. |
• | The performance of the third-party vendors we rely on for key components of our business. |
• | Factors related to seasonal fluctuations in our business. |
• | The occurrence of severe weather events. |
• | Factors related to the geographic concentration of our stores. |
Three Months Ended May 31 | |||||||||
(In thousands except per share data) | 2018 | % (1) | 2017 | % (1) | |||||
SALES AND OPERATING REVENUES: | |||||||||
Used vehicle sales | $ | 4,021,047 | 83.9 | $ | 3,843,373 | 84.6 | |||
Wholesale vehicle sales | 617,651 | 12.9 | 553,390 | 12.2 | |||||
Other sales and revenues | 153,894 | 3.2 | 145,571 | 3.2 | |||||
NET SALES AND OPERATING REVENUES | 4,792,592 | 100.0 | 4,542,334 | 100.0 | |||||
COST OF SALES: | |||||||||
Used vehicle cost of sales | 3,581,609 | 74.7 | 3,411,446 | 75.1 | |||||
Wholesale vehicle cost of sales | 502,945 | 10.5 | 448,718 | 9.9 | |||||
Other cost of sales | 46,698 | 1.0 | 33,232 | 0.7 | |||||
TOTAL COST OF SALES | 4,131,252 | 86.2 | 3,893,396 | 85.7 | |||||
GROSS PROFIT | 661,340 | 13.8 | 648,938 | 14.3 | |||||
CARMAX AUTO FINANCE INCOME | 115,593 | 2.4 | 109,363 | 2.4 | |||||
Selling, general and administrative expenses | 438,234 | 9.1 | 403,503 | 8.9 | |||||
Interest expense | 18,052 | 0.4 | 16,838 | 0.4 | |||||
Other expense (income) | 963 | — | (93 | ) | — | ||||
Earnings before income taxes | 319,684 | 6.7 | 338,053 | 7.4 | |||||
Income tax provision | 81,028 | 1.7 | 126,351 | 2.8 | |||||
NET EARNINGS | $ | 238,656 | 5.0 | $ | 211,702 | 4.7 | |||
WEIGHTED AVERAGE COMMON SHARES: | |||||||||
Basic | 178,139 | 185,200 | |||||||
Diluted | 179,421 | 186,859 | |||||||
NET EARNINGS PER SHARE: | |||||||||
Basic | $ | 1.34 | $ | 1.14 | |||||
Diluted | $ | 1.33 | $ | 1.13 |
As of | ||||||||||||
May 31 | February 28 | May 31 | ||||||||||
(In thousands except share data) | 2018 | 2018 | 2017 | |||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 76,348 | $ | 44,525 | $ | 60,080 | ||||||
Restricted cash from collections on auto loan receivables | 431,407 | 399,442 | 385,692 | |||||||||
Accounts receivable, net | 101,351 | 133,321 | 104,745 | |||||||||
Inventory | 2,260,029 | 2,390,694 | 2,148,247 | |||||||||
Other current assets | 88,359 | 93,462 | 35,780 | |||||||||
TOTAL CURRENT ASSETS | 2,957,494 | 3,061,444 | 2,734,544 | |||||||||
Auto loan receivables, net | 11,842,749 | 11,535,704 | 10,892,844 | |||||||||
Property and equipment, net | 2,714,495 | 2,667,061 | 2,557,506 | |||||||||
Deferred income taxes | 55,494 | 63,256 | 145,265 | |||||||||
Other assets | 185,935 | 158,807 | 145,530 | |||||||||
TOTAL ASSETS | $ | 17,756,167 | $ | 17,486,272 | $ | 16,475,689 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable | $ | 586,337 | $ | 529,733 | $ | 510,574 | ||||||
Accrued expenses and other current liabilities | 252,633 | 278,771 | 203,211 | |||||||||
Accrued income taxes | 55,991 | — | 103,588 | |||||||||
Short-term debt | 365 | 127 | 693 | |||||||||
Current portion of finance and capital lease obligations | 10,550 | 9,994 | 9,772 | |||||||||
Current portion of non-recourse notes payable | 382,326 | 355,433 | 338,832 | |||||||||
TOTAL CURRENT LIABILITIES | 1,288,202 | 1,174,058 | 1,166,670 | |||||||||
Long-term debt, excluding current portion | 798,083 | 995,479 | 797,666 | |||||||||
Finance and capital lease obligations, excluding current portion | 497,416 | 490,369 | 484,394 | |||||||||
Non-recourse notes payable, excluding current portion | 11,565,653 | 11,266,964 | 10,643,810 | |||||||||
Other liabilities | 223,052 | 242,553 | 231,021 | |||||||||
TOTAL LIABILITIES | 14,372,406 | 14,169,423 | 13,323,561 | |||||||||
Commitments and contingent liabilities | ||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||
Common stock, $0.50 par value; 350,000,000 shares authorized; 176,719,782 and 179,747,894 shares issued and outstanding as of May 31, 2018 and February 28, 2018, respectively | 88,360 | 89,874 | 91,936 | |||||||||
Capital in excess of par value | 1,234,612 | 1,234,047 | 1,184,661 | |||||||||
Accumulated other comprehensive loss | (55,045 | ) | (54,312 | ) | (58,229 | ) | ||||||
Retained earnings | 2,115,834 | 2,047,240 | 1,933,760 | |||||||||
TOTAL SHAREHOLDERS’ EQUITY | 3,383,761 | 3,316,849 | 3,152,128 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 17,756,167 | $ | 17,486,272 | $ | 16,475,689 |
Three Months Ended May 31 | |||||||
(In thousands) | 2018 | 2017 (1) | |||||
OPERATING ACTIVITIES: | |||||||
Net earnings | $ | 238,656 | $ | 211,702 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 45,343 | 43,894 | |||||
Share-based compensation expense | 28,998 | 18,726 | |||||
Provision for loan losses | 30,872 | 28,579 | |||||
Provision for cancellation reserves | 20,089 | 17,113 | |||||
Deferred income tax provision | 3,602 | 6,782 | |||||
Other | 1,468 | 621 | |||||
Net decrease (increase) in: | |||||||
Accounts receivable, net | 31,970 | 47,643 | |||||
Inventory | 130,665 | 112,316 | |||||
Other current assets | 6,806 | 5,451 | |||||
Auto loan receivables, net | (337,917 | ) | (325,347 | ) | |||
Other assets | (3,078 | ) | 809 | ||||
Net increase (decrease) in: | |||||||
Accounts payable, accrued expenses and other | |||||||
current liabilities and accrued income taxes | 81,729 | 52,673 | |||||
Other liabilities | (48,354 | ) | (29,469 | ) | |||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 230,849 | 191,493 | |||||
INVESTING ACTIVITIES: | |||||||
Capital expenditures | (79,720 | ) | (79,416 | ) | |||
Proceeds from disposal of property and equipment | 320 | — | |||||
Purchases of investments | (5,094 | ) | (1,055 | ) | |||
Sales of investments | 77 | 238 | |||||
NET CASH USED IN INVESTING ACTIVITIES | (84,417 | ) | (80,233 | ) | |||
FINANCING ACTIVITIES: | |||||||
Increase in short-term debt, net | 238 | 631 | |||||
Proceeds from issuances of long-term debt | 817,600 | 762,000 | |||||
Payments on long-term debt | (1,015,100 | ) | (917,000 | ) | |||
Cash paid for debt issuance costs | (3,647 | ) | (2,920 | ) | |||
Payments on finance and capital lease obligations | (2,398 | ) | (2,268 | ) | |||
Issuances of non-recourse notes payable | 2,668,502 | 2,410,000 | |||||
Payments on non-recourse notes payable | (2,343,291 | ) | (2,149,135 | ) | |||
Repurchase and retirement of common stock | (211,050 | ) | (187,385 | ) | |||
Equity issuances | 9,052 | 6,608 | |||||
NET CASH USED IN FINANCING ACTIVITIES | (80,094 | ) | (79,469 | ) | |||
Increase in cash, cash equivalents, and restricted cash | 66,338 | 31,791 | |||||
Cash, cash equivalents, and restricted cash at beginning of year | 554,898 | 523,865 | |||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 621,236 | $ | 555,656 |