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CarMax Reports Record Second Quarter Results

Superstore Openings . During the second quarter of fiscal 2014, we opened two stores, including one in Katy, Texas (our fifth store in the Houston market), and one in Fairfield, California (our third store in the Sacramento market.)

Share Repurchase Program . During the second quarter, we repurchased 1.0 million shares of common stock for $48.7 million pursuant to our share repurchase program. As of August 31, 2013, we had $414.8 million remaining available for repurchase under the program.
 

(1)

Although CAF benefits from certain indirect overhead expenditures, we have elected not to allocate indirect costs to CAF in order to avoid making arbitrary allocation decisions.
 
   

Supplemental Financial Information
 

Sales Components
   

Three Months Ended August 31 (1)
Six Months Ended August 31 (1)
(In millions)   2013

 

2012
  Change   2013   2012   Change
Used vehicle sales $ 2,639 .5 $ 2,192 .0   20 .4 % $ 5,341 .3 $ 4,380 .9   21 .9 %
New vehicle sales 60 .0 61 .4 (2 .3) % 112 .4 116 .9 (3 .8) %
Wholesale vehicle sales 474 .9 437 .1 8 .7 % 965 .6 904 .8 6 .7 %
Other sales and revenues:
Extended service plan revenues 65 .0 52 .9 22 .9 % 129 .6 104 .2 24 .5 %
Service department sales 27 .3 26 .8 2 .0 % 54 .7 51 .6 6 .0 %
Third-party finance fees, net     (21 .2)     (12 .1)   (76 .0) %     (47 .0)     (25 .9)     (81 .5) %
Total other sales and revenues     71 .1     67 .6   5 .2 %     137 .3     129 .9     5 .8 %
Total net sales and operating revenues   $ 3,245 .6   $ 2,758 .0   17 .7 %   $ 6,556 .6   $ 5,532 .4     18 .5 %
 

(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 (1)
 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicle units 16 % 5 % 16 % 2 %
Used vehicle dollars 15 % 5 % 17 % 4 %
 

(1)
 

As of August 31, 2013 and August 31, 2012, the number of stores included in the comparable store base were 112 and 105, respectively.
 
       

Total Used Vehicle Sales Changes

 
Three Months Ended Six Months Ended

 
August 31 August 31
    2013   2012   2013   2012
Used vehicle units 21 % 8 % 22 % 6 %
Used vehicle dollars 20 % 9 % 22 % 7 %
 
       

Unit Sales
 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicles 134,854 111,316 272,008 223,607
New vehicles 2,187 2,352 4,136 4,459
Wholesale vehicles 91,243 82,771 179,599 166,312
 
       

Average Selling Prices
 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
Used vehicles $ 19,428 $ 19,494 $ 19,485 $ 19,389
New vehicles $ 27,313 $ 25,982 $ 27,066 $ 26,073
Wholesale vehicles $ 5,044 $ 5,133 $ 5,213 $ 5,292
 
               

Selected Operating Ratios
 
Three Months Ended Six Months Ended
August 31 August 31
(In millions)   2013  

% (1)
  2012   % (1)   2013   % (1)   2012   % (1)
Net sales and operating revenues $ 3,245 .6 100 .0 $ 2,758 .0 100 .0 $ 6,556 .6 100 .0 $ 5,532 .4 100 .0
Gross profit $ 434 .7 13 .4 $ 368 .0 13 .3 $ 882 .8 13 .5 $ 749 .9 13 .6
CarMax Auto Finance income $ 84 .4 2 .6 $ 75 .7 2 .7 $ 171 .4 2 .6 $ 150 .9 2 .7

Selling, general, and administrative expenses
$ 283 .2 8 .7 $ 254 .7 9 .2 $ 573 .4 8 .7 $ 508 .3 9 .2
Interest expense $ 7 .8 0 .2 $ 8 .2 0 .3 $ 15 .6 0 .2 $ 16 .3 0 .3
Earnings before income taxes $ 227 .1 7 .0 $ 181 .1 6 .6 $ 464 .4 7 .1 $ 376 .7 6 .8
Net earnings $ 140 .3 4 .3 $ 111 .6 4 .0 $ 286 .9 4 .4 $ 232 .4 4 .2
 

(1)
 

Calculated as the ratio of the applicable amount to net sales and operating revenues.
 
           

Gross Profit
 
Three Months Ended Six Months Ended
August 31 August 31

(In millions)
  2013     2012     Change   2013     2012     Change
Used vehicle gross profit $ 293 .2 $ 241 .8 21 .2 % $ 597 .1 $ 491 .2 21 .6 %
New vehicle gross profit 1 .2 1 .6 (23 .8) % 2 .3 3 .2 (28 .1) %
Wholesale vehicle gross profit 77 .5 75 .1 3 .3 % 164 .0 157 .0 4 .5 %
Other gross profit     62 .9     49 .5   27 .0 %     119 .5     98 .6   21 .2 %
Total   $ 434 .7   $ 368 .0   18 .1 %   $ 882 .8   $ 749 .9   17 .7 %
 
               

Gross Profit per Unit
 
Three Months Ended Six Months Ended
August 31 August 31
    2013   2012   2013   2012
    $ per unit (1)   % (2)   $ per unit (1)   % (2)   $ per unit (1)   % (2)   $ per unit (1)   % (2)
Used vehicle gross profit $ 2,174 11.1 $ 2,172 11.0 $ 2,195 11.2 $ 2,197 11.2
New vehicle gross profit $ 554 2.0 $ 676 2.6 $ 553 2.0 $ 713 2.7
Wholesale vehicle gross profit $ 849 16.3 $ 907 17.2 $ 913 17.0 $ 944 17.3
Other gross profit $ 459 88.4 $ 436 73.3 $ 433 87.0 $ 432 75.9
Total gross profit $ 3,172 13.4 $ 3,237 13.3 $ 3,197 13.5 $ 3,288 13.6
 

(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.
 
           

SG&A Expenses
 
Three Months Ended Six Months Ended
August 31 August 31
(In millions)   2013     2012     Change   2013     2012     Change
Compensation and benefits (1) $ 160 .9 $ 139 .7 15 .2 % $ 333 .0 $ 283 .1 17 .6 %
Store occupancy costs 54 .5 50 .9 7 .1 % 107 .0 98 .7 8 .4 %
Advertising expense 26 .5 28 .5 (7 .2) % 53 .6 54 .2 (1 .1) %

Other overhead costs (2)
    41 .3     35 .6   16 .3 %     79 .8     72 .3   10 .5 %
Total SG&A expenses   $ 283 .2   $ 254 .7   11 .2 %   $ 573 .4   $ 508 .3   12 .8 %
 
 

(1)

Excludes compensation and benefits related to reconditioning and vehicle repair service, which is included in cost of sales.

(2)

Includes IT expenses, insurance, non-CAF bad debt, travel, preopening and relocation costs, charitable contributions and other administrative expenses.
 
               

Components of CAF Income and Other CAF Information
 
Three Months Ended August 31 Six Months Ended August 31
(In millions)   2013   % (1)   2012   % (1)   2013   % (1)   2012   % (1)
Interest margin:
Interest and fee income $ 137 .2 8 .4 $ 123 .5 9 .4 $ 270 .7 8 .5 $ 243 .8 9 .4
Interest expense     (22 .6)     (1 .4)     (23 .9)     (1 .8)       (45 .4)     (1 .4)     (49 .0)     (1 .9)
Total interest margin 114 .6 7 .0 99 .6 7 .6 225 .3 7 .1 194 .8 7 .5
Provision for loan losses     (18 .0)     (1 .1)     (12 .9)     (1 .0)       (29 .3)     (0 .9)     (22 .1)     (0 .9)

Total interest margin after provision for loan losses
96 .6 5 .9 86 .7 6 .6 196 .0 6 .2 172 .7 6 .7
Other income (loss) 0 .1 (0 .2) 0 .1 (0 .2)
Total direct expenses     (12 .3)     (0 .7)     (10 .8)     (0 .8)       (24 .7)     (0 .8)     (21 .6)     (0 .8)
CarMax Auto Finance income   $ 84 .4     5 .2   $ 75 .7     5 .8     $ 171 .4     5 .4   $ 150 .9     5 .8
 
Total average managed receivables $ 6,516 .3 $ 5,245 .4 $ 6,334 .4 $ 5,160 .3
Net loans originated $ 1,088 .0 $ 822 .4 $ 2,208 .2 $ 1,609 .2
Net CAF penetration rate 41 .4 % 37 .3 % 41 .4 % 36 .9 %
Weighted average contract rate 6 .8 % 8 .1 % 6 .9 % 8 .5 %
 
Ending allowance for loan losses $ 65 .9 $ 49 .5 $ 65 .9 $ 49 .5
 
Warehouse facility information:
Ending funded receivables $ 947 .0 $ 1,066 .0 $ 947 .0 $ 1,066 .0
Ending unused capacity $ 753 .0 $ 534 .0 $ 753 .0 $ 534 .0
 

(1)
 

Annualized percent of total average managed receivables.
 
           

Earnings Highlights
 
Three Months Ended Six Months Ended
August 31 August 31
(In millions except per share data)   2013   2012   Change   2013   2012   Change
Net earnings $ 140.3 $ 111.6 25.7 % $ 286.9 $ 232.4 23.5 %
Diluted weighted average shares outstanding 227.6 231.7 (1.8 ) % 228.1 231.7 (1.6 ) %
Net earnings per diluted share $ 0.62 $ 0.48 29.2 % $ 1.26 $ 1.00 26.0 %
 
     

Planned Superstore Openings
 

We currently plan to open the following superstores within 12 months from August 31, 2013:
 
Location   Television Market   Market Status   Planned Opening Date
Jackson, Tennessee Jackson New Q3 Fiscal 2014
Brandywine, Maryland Washington/Baltimore Existing Q3 Fiscal 2014
St. Louis, Missouri St. Louis New Q3 Fiscal 2014
St. Peters, Missouri St. Louis New Q4 Fiscal 2014
Newark, Delaware Philadelphia New Q4 Fiscal 2014
King of Prussia, Pennsylvania Philadelphia New Q4 Fiscal 2014
Frederick, Maryland Washington/Baltimore Existing Q4 Fiscal 2014
Elk Grove, California Sacramento Existing Q4 Fiscal 2014
Rochester, New York Rochester New Q1 Fiscal 2015
Dothan, Alabama Dothan New Q1 Fiscal 2015
Mechanicsburg, Pennsylvania Mechanicsburg Existing Q1 Fiscal 2015
Spokane, Washington Spokane New Q1 Fiscal 2015
Madison, Wisconsin Madison New Q2 Fiscal 2015
Fort Worth, Texas Dallas Existing Q2 Fiscal 2015
Reno, Nevada Reno New Q2 Fiscal 2015
Lynchburg, Virginia Roanoke/Lynchburg New Q2 Fiscal 2015
Milwaukie, Oregon Portland New Q2 Fiscal 2015
 

Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period. We currently estimate capital expenditures will total approximately $300 million in fiscal 2014. We expect to open between 10 and 15 superstores in each of the following 2 fiscal years.

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