| CarMax, Inc. (NYSE: KMX) today reported results for the second quarter ended August 31, 2024. |
| Second Quarter Highlights: |
- Retail used unit sales increased by 5.1% and comparable store used unit sales increased by 4.3% from the prior year’s second quarter; wholesale units decreased by 0.3%.
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- Gross profit per retail used unit of $2,269 and gross profit per wholesale unit of $975, both in line with last year. Extended Protection Plan (EPP) margin growth of $69 per retail unit to $575 and service margin growth of $84 per retail unit from the prior year’s second quarter.
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- Bought 300,000 vehicles from consumers and dealers, up 2.9% versus last year’s second quarter.
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- 269,000 vehicles were purchased from consumers, down 1.2% from last year’s second quarter.
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- 31,000 vehicles were purchased through dealers, up 61.4% from last year’s second quarter.
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- SG&A of $610.6 million increased 4.2% from last year’s second quarter, partially driven by year-over-year dynamics related to the bonus accrual. Ongoing cost management efforts supported strong leverage in SG&A as a per cent of gross profit.
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- CarMax Auto Finance (CAF) income of $115.6 million, a decline of 14.4% from last year’s second quarter as an increase in the provision for loan losses outweighed growth in CAF’s average managed receivables and a stable net interest margin percentage.
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- Increased estimate of lifetime losses on existing loans by $52.2 million, which we believe was largely related to the recent industry-wide worsening of auto loan losses.
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- Executed our inaugural higher prime and non-prime public asset-backed securitization deals, enabling the funding foundation for CAF’s full-spectrum lending platform.
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- Net earnings per diluted share of $0.85 versus $0.75 a year ago, up 13.3%.
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- Repurchased $106.1 million in shares of common stock in the second quarter of fiscal year 2025.
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| CEO Commentary: |
| “We are pleased with the continued improvement of the business in the second quarter, which reflects the positive impact of our durable actions to further differentiate the value and experience we offer associates and customers, continued year-over-year price declines, and improved stability in vehicle valuations,” said Bill Nash, president and chief executive officer. “We grew retail used unit sales, delivered strong margins, continued to manage SG&A, and drove double-digit earnings growth while managing through industry-wide auto loan loss pressure. Our diversified business model is well-positioned to drive future increases in sales and profitability as we further leverage our omnichannel capabilities.” |
| Second Quarter Business Performance Review: |
| Sales. Combined retail and wholesale used vehicle unit sales were 352,478, an increase of 2.9% from the prior year’s second quarter. |
| Total retail used vehicle unit sales increased 5.1% to 211,020 compared to the prior year’s second quarter. Comparable store used unit sales increased 4.3% from the prior year’s second quarter. Total retail used vehicle revenues increased 1.5% compared with the prior year’s second quarter, driven by the increase in retail used units sold, partially offset by the decrease in average retail selling price, which declined approximately $1,250 per unit or 4.6%. |
| Total wholesale vehicle unit sales decreased 0.3% to 141,458 versus the prior year’s second quarter. Total wholesale revenues decreased 12.7% compared with the prior year’s second quarter primarily due to a decrease in the average wholesale selling price of approximately $1,150 per unit or 12.9%. |
| We bought 300,000 vehicles from consumers and dealers, up 2.9% compared to last year’s second quarter. Of these vehicles, 269,000 were bought from consumers and 31,000 were bought through dealers, a decrease of 1.2% and an increase of 61.4%, respectively, from last year’s second quarter. |
| Other sales and revenues increased by 13.2% compared with the second quarter of fiscal 2024, representing an increase of $21.3 million, primarily reflecting an increase in EPP revenues resulting from stronger margins. |
| Online retail sales (1) accounted for 15% of retail unit sales, compared to 14% in the second quarter of last year. Revenue from online transactions (2), including retail and wholesale unit sales, was $2.0 billion, or approximately 29% of net revenues, down from 31% in last year’s second quarter primarily due to the decline in the average wholesale selling price. |
| Gross Profit. |
| Total gross profit was $760.5 million, up 9.1% versus last year’s second quarter. Retail used vehicle gross profit increased 5.9% and retail gross profit per used unit was $2,269, in line with last year’s second quarter. |
| Wholesale vehicle gross profit increased 0.9% versus the prior year’s second quarter. Gross profit per unit was $975, consistent with last year’s second quarter. |
| Other gross profit increased 33.1% primarily reflecting an increase in EPP revenues primarily resulting from stronger margins and a year-over-year improvement in service gross profit driven by the efficiency and cost coverage measures that we have implemented as well as by the positive retail unit growth. |
| SG&A. Compared with the second quarter of fiscal 2024, SG&A expenses increased 4.2% or $24.9 million to $610.6 million. Contributing factors included an increase in compensation and benefits largely reflecting a reduction in the bonus accrual in last year’s second quarter and an increase in occupancy costs this quarter driven by the timing of store maintenance spending as well as inflationary pressures on utilities. SG&A as a cent of gross profit decreased to 80.3% in the second quarter compared to 84.1% in the prior year’s second quarter, supported by continued strong cost management efforts in the stores and customer experience centres. |
| CarMax Auto Finance. (3) CAF income decreased 14.4% to $115.6 million driven by an increase in the provision for loan losses that outweighed growth in CAF’s average managed receivables and a stable net interest margin percentage. This quarter’s provision for loan losses increased to $112.6 million compared to $89.8 million in the prior year’s second quarter. The provision for loan losses in the second quarter of fiscal 2025 included an increase of $52.2 million in our estimate of lifetime losses on existing loans, which was nearly an 11% increase in our loss expectations. We believe the increase is largely related to the industry-wide worsening in loss experience. The remaining $60.4 million reflected our estimate of lifetime losses on current quarter originations. |
| As of August 31, 2024, the allowance for loan losses of $500.8 million was 2.82% of ending managed receivables, consistent with 2.79% as of May 31, 2024. The allowance for loan losses was down from 3.08% a year ago, due to the effect of the previously disclosed tightening of CAF’s underwriting standards. |
| CAF’s total interest margin percentage, which represents the spread between interest and fees charged to consumers and our funding costs, was 6.1% of average managed receivables, consistent with the prior year’s second quarter and this year’s first quarter. After the effect of 3-day payoffs, CAF financed 42.0% of units sold in the current quarter, down slightly from 42.8% in the prior year’s second quarter. CAF’s weighted average contract rate was 11.5% in the quarter, up from 11.1% in the second quarter last year. |
| Share Repurchase Activity. During the second quarter of fiscal year 2025, we repurchased 1.4 million shares of common stock for $106.1 million. As of August 31, 2024, we had $2.15 billion remaining available for repurchase under the outstanding authorization. |
| Location Openings. During the second quarter of fiscal 2025, we opened two new store locations in El Paso, Texas and Gainesville, Georgia. In the fiscal year 2025, we plan to open a total of five new store locations, one stand-alone reconditioning centre, and one stand-alone auction facility. |
| (1) |
An online retail unit sale is defined as a sale where the customer completes all four of these major transactional activities remotely: reserving the vehicle; financing the vehicle, if needed; trading in or opting out of a trade-in; and creating a remote sales order. |
| (2) |
Revenue from online transactions is defined as revenue from retail sales that qualify for an online retail sale, as well as any EPP and third-party finance contribution, wholesale sales where the winning bid was an online bid, and all revenue earned by Edmunds. |
| (3) |
Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions. |
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| For the full document click the link below: |
| https://media.carmax.com/press-releases/news-release/2024/CarMax-Reports-Second-Quarter-Fiscal-Year-2025-Results/default.aspx |
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