CarMax Reports Record Third Quarter Results

Gross Profit . Total gross profit increased 14% to $345.2 million from $303.2 million in the third quarter of fiscal 2012, primarily reflecting the increased used and wholesale vehicle unit sales, as well as higher other gross profit.

Used vehicle gross profit rose 15% to $227.0 million driven by the 16% increase in used unit sales. Used vehicle gross profit per unit was relatively consistent at $2,146 versus $2,171 in last year’s third quarter.

Wholesale gross profit increased 11% to $73.6 million, driven by the 10% increase in wholesale unit sales. Wholesale vehicle gross profit per unit remained stable at $923 compared with $914 in the prior year quarter.

Other gross profit rose 18% to $43.7 million, as improved ESP and service department profits were partially offset by the lower net third-party finance fees.

CarMax Auto Finance . CAF income increased 16% to $72.5 million compared with $62.6 million in last year’s third quarter. The growth in CAF income was largely attributable to the 15% increase in average managed receivables, which grew to $5.48 billion from $4.77 billion in the prior year period. The increase in average managed receivables reflected the rise in CAF origination volume throughout fiscal 2012 and fiscal 2013 as we transitioned back to our pre-recession origination strategy, higher average amounts financed and the growth in retail unit sales.

The allowance for loan losses was 1.0% of managed receivables as of November 30, 2012, compared with 0.9% as of November 30, 2011. Continued favorable loss experience partially offset the effect of the change in credit mix resulting from the transition in origination strategy.

SG&A . Selling, general and administrative expenses increased 14% to $257.3 million from $225.8 million in the prior year’s third quarter. The increase primarily reflected the combination of the 9% increase in our store base since the beginning of last year’s third quarter (representing the addition of 10 stores) and higher variable selling costs resulting from the 12% increase in comparable store used unit sales. SG&A per retail unit declined to $2,393 versus $2,436 in the prior year’s quarter as the leverage resulting from the comparable store unit sales growth was partially offset by higher costs related to growing our store base.

Superstore Openings . As of November 30, 2012, we had opened eight of the ten used car superstores that we plan to open in fiscal 2013. During the third quarter, we opened three stores, entering the Des Moines and Denver markets, and adding our tenth store in the Los Angeles market.

Share Repurchase Program . During the third quarter of fiscal 2013, we repurchased 1.7 million shares of common stock for $60.2 million pursuant to our share repurchase program. The repurchase activity had no effect on reported third quarter net earnings per share.

Supplemental Financial Information

Sales Components

		Three Months Ended									Nine Months Ended
		November 30 (1)									November 30 (1)
(In millions)		2012			2011			Change			2012			2011			Change
Used vehicle sales		$	2,068.7		$	1,766.7		17.1	%		$	6,449.6		$	5,853.2		10.2	%
New vehicle sales			45.7			46.0		(0.7)	%			162.5			154.7		5.0	%
Wholesale vehicle sales			427.7			390.3		9.6	%			1,332.5			1,325.9		0.5	%
Other sales and revenues:
Extended service plan revenues			48.6			39.8		22.2	%			152.7			131.0		16.6	%
Service department sales			24.8			23.5		5.9	%			76.4			74.6		2.4	%
Third-party finance fees, net			(13.1)			(5.6)		(131.2)	%			(38.9)			(11.8)		(229.8)	%
Total other sales and revenues			60.4			57.6		4.9	%			190.2			193.9		(1.9)	%
Total net sales and operating revenues		$	2,602.4		$	2,260.5		15.1	%		$	8,134.9		$	7,527.8		8.1	%

⁽¹⁾ Percent calculations and amounts shown are based on amounts presented on the attached consolidated statements of earnings and may not sum due to rounding.

Comparable Store Used Vehicle Sales Changes

		Three Months Ended						Nine Months Ended
		November 30						November 30
		2012			2011			2012			2011
Used vehicle units		12	%		(3)	%		5	%		0	%
Used vehicle dollars		13	%		3	%		6	%		7	%

Total Used Vehicle Sales Changes

		Three Months Ended						Nine Months Ended
		November 30						November 30
		2012			2011			2012			2011
Used vehicle units		16	%		(1)	%		9	%		2	%
Used vehicle dollars		17	%		5	%		10	%		8	%

Unit Sales

		Three Months Ended				Nine Months Ended
		November 30				November 30
		2012		2011		2012		2011
Used vehicles		105,815		90,975		329,422		302,311
New vehicles		1,705		1,719		6,164		5,952
Wholesale vehicles		79,747		72,805		246,059		242,752

Average Selling Prices

		Three Months Ended						Nine Months Ended
		November 30						November 30
		2012			2011			2012			2011
Used vehicles		$	19,344		$	19,221		$	19,375		$	19,170
New vehicles		$	26,681		$	26,611		$	26,241		$	25,863
Wholesale vehicles		$	5,214		$	5,215		$	5,267		$	5,316

Selected Operating Ratios

		Three Months Ended										Nine Months Ended
		November 30										November 30
(In millions)		2012			% (1)		2011 (2)			% (1)		2012			% (1)		2011 (2)			% (1)
Net sales and operating revenues		$	2,602.4		100.0		$	2,260.5		100.0		$	8,134.9		100.0		$	7,527.8		100.0
Gross profit		$	345.2		13.3		$	303.2		13.4		$	1,095.1		13.5		$	1,040.6		13.8
CarMax Auto Finance income		$	72.5		2.8		$	62.6		2.8		$	223.3		2.7		$	196.1		2.6
Selling, general, and administrative
expenses		$	257.3		9.9		$	225.8		10.0		$	765.6		9.4		$	697.3		9.3
Interest expense		$	8.1		0.3		$	8.4		0.4		$	24.4		0.3		$	25.4		0.3
Earnings before income taxes		$	152.5		5.9		$	131.6		5.8		$	529.2		6.5		$	514.2		6.8
Net earnings		$	94.7		3.6		$	82.1		3.6		$	327.1		4.0		$	318.8		4.2

(1)		Calculated as the ratio of the applicable amount to net sales and operating revenues.
(2)		As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012, fiscal 2012 reflects the revisions to correct our accounting for sale-leaseback transactions.

Gross Profit

		Three Months Ended									Nine Months Ended
		November 30									November 30
(In millions)		2012			2011			Change			2012			2011			Change
Used vehicle gross profit		$	227.0		$	197.5		15.0	%		$	718.2		$	662.7		8.4	%
New vehicle gross profit			0.9			2.0		(55.9)	%			4.1			5.1		(21.1)	%
Wholesale vehicle gross profit			73.6			66.5		10.6	%			230.5			231.6		(0.4)	%
Other gross profit			43.7			37.2		17.5	%			142.3			141.2		0.8	%
Total		$	345.2		$	303.2		13.9	%		$	1,095.1		$	1,040.6		5.2	%

Gross Profit per Unit

		Three Months Ended										Nine Months Ended
		November 30										November 30
		2012					2011					2012					2011
		$ per unit (1)			% (2)		$ per unit (1)			% (2)		$ per unit (1)			% (2)		$ per unit (1)			% (2)
Used vehicle gross profit		$	2,146		11.0		$	2,171		11.2		$	2,180		11.1		$	2,192		11.3
New vehicle gross profit		$	518		1.9		$	1,164		4.4		$	659		2.5		$	865		3.3
Wholesale vehicle gross profit		$	923		17.2		$	914		17.0		$	937		17.3		$	954		17.5
Other gross profit		$	407		72.4		$	401		64.6		$	424		74.8		$	458		72.8
Total gross profit		$	3,211		13.3		$	3,271		13.4		$	3,263		13.5		$	3,376		13.8

(1)		Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total retail units sold.
(2)		Calculated as a percentage of its respective sales or revenue.

Components of CAF Income and Other CAF Information

		Three Months Ended November 30												Nine Months Ended November 30
(In millions)		2012				% (1)		2011				% (1)		2012			% (1)		2011			% (1)
Interest margin:
Interest and fee income		$	125.1			9.1		$	114.3			9.6		$	368.9		9.3		$	334.0		9.7
Interest expense			(23.3)			(1.7)			(25.6)			(2.2)			(72.4)		(1.8)			(80.3)		(2.3)
Total interest margin			101.8			7.4			88.7			7.4			296.5		7.5			253.7		7.4
Provision for loan losses			(18.1)			(1.3)			(15.1)			(1.3)			(40.2)		(1.0)			(24.9)		(0.7)
Total interest margin after
provision for loan losses			83.7			6.1			73.6			6.2			256.3		6.5			228.8		6.7
Other income			0.2			―			0.3			―			―		―			1.4		―
Total direct expenses			(11.4)			(0.8)			(11.3)			(0.9)			(33.0)		(0.8)			(34.1)		(1.0)
CarMax Auto Finance income		$	72.5			5.3		$	62.6			5.3		$	223.3		5.7		$	196.1		5.7
Total average managed
receivables		$	5,477.4					$	4,770.9					$	5,266.0				$	4,585.1
Net loans originated		$	856.2					$	664.0					$	2,465.4				$	2,125.2
Net CAF penetration rate			41.2	%					38.1	%					38.3	%				36.7	%
Weighted average contract rate			7.7	%					8.7	%					8.2	%				8.8	%
Ending allowance for loan losses		$	54.3					$	41.4					$	54.3				$	41.4
Warehouse facility information:
Ending funded receivables		$	876.0					$	876.0					$	876.0				$	876.0
Ending unused capacity		$	724.0					$	724.0					$	724.0				$	724.0

(1) Annualized percent of total average managed receivables.

SG&A Expenses

		Three Months Ended						Nine Months Ended
		November 30						November 30
(In millions)		2012			2011 (1)			2012			2011 (1)
Compensation and benefits (2)		$	144.0		$	124.0		$	427.1		$	384.2
Store occupancy costs			51.1			48.5			149.8			142.4
Advertising expense			22.5			22.4			76.7			75.4
Other overhead costs (3)			39.7			30.9			112.0			95.3
Total SG&A expenses		$	257.3		$	225.8		$	765.6		$	697.3

(1)		As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012, fiscal 2012 reflects the revisions to correct our accounting for sale-leaseback transactions.
(2)		Excludes compensation and benefits related to reconditioning and vehicle repair service, which is included in cost of sales.
(3)		Includes IT expenses, insurance, bad debt, travel, preopening and relocation costs, charitable contributions and other administrative expenses.

Earnings Highlights

		Three Months Ended									Nine Months Ended
		November 30									November 30
(In millions except per share data)		2012			2011 (1)			Change			2012			2011 (1)			Change
Net earnings		$	94.7		$	82.1		15.3	%		$	327.1		$	318.8		2.6	%
Diluted weighted average shares outstanding			232.7			230.6		0.9	%			232.0			230.5		0.7	%
Net earnings per diluted share		$	0.41		$	0.36		13.9	%		$	1.41		$	1.38		2.2	%

⁽¹⁾ As disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012, fiscal 2012 reflects the revisions to correct our accounting for sale-leaseback transactions.

Planned Store Openings

We currently plan to open the following superstores within 12 months from November 30, 2012:

Location		Television Market		Market Status		Planned Opening Date
Denver (Littleton), Colorado (1)		Denver		Existing		Q4 fiscal 2013
Jacksonville, Florida		Jacksonville		Existing		Q4 fiscal 2013
Harrisonburg, Virginia		Harrisonburg		New		Q1 Fiscal 2014
Columbus, Georgia		Columbus		New		Q1 Fiscal 2014
Savannah, Georgia		Savannah		New		Q1 Fiscal 2014
Houston, Texas		Houston		Existing		Q2 Fiscal 2014
Sacramento, California		Sacramento		Existing		Q2 Fiscal 2014
Frederick, Maryland		Washington/Baltimore		Existing		Q2 Fiscal 2014
Jackson, Tennessee		Jackson		New		Q3 Fiscal 2014
Waldorf, Maryland		Washington/Baltimore		Existing		Q3 Fiscal 2014
St. Louis (St. Peters), Missouri		St. Louis		New		Q3 Fiscal 2014
St. Louis (Lindbergh), Missouri		St. Louis		New		Q3 Fiscal 2014

⁽¹⁾ Store opened in December 2012.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, December 20, 2012. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 89964196. A live webcast of the call will be available on our investor information home page at investor.carmax.com and at www.streetevents.com.

A webcast replay of the call will be available at investor.carmax.com beginning at approximately 1:00 p.m. ET on December 20, 2012, through April 9, 2013. A telephone replay also will be available through December 31, 2012, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 89964196.

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