Business Context and Reporting Period
Company: CARMAX, INC.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended February 29, 2004
Business Overview: CarMax is the nation's largest specialty retailer of used cars and light trucks. The company operates a "no-haggle" pricing model, separating vehicle purchases from trade-ins, financing, and warranty sales. As of March 31, 2004, the company operated 53 retail stores (52 used car superstores and 3 co-located new car franchises). Used vehicles represented 91% of total vehicle units sold in fiscal 2004.
Key Financial Metrics
Note: Specific revenue, profit, cash flow, and margin figures are incorporated by reference to the 2004 Annual Report to Shareholders and are not explicitly detailed in the provided text.
- Revenue/Profit/Cash Flow: The filing text does not provide specific numerical values for revenue, net income, operating cash flow, or gross margins. These figures are located in the Consolidated Financial Statements incorporated by reference.
- Debt and Liquidity: The company has an Amended and Restated Credit Agreement with various financial institutions. Specific debt balances and liquidity ratios are not provided in the text.
- Allowance for Doubtful Accounts:
- Balance at beginning of year (Feb 28, 2003): $2,090,000
- Charged to income: $2,803,000
- Charge-offs less recoveries: $(2,744,000)
- Balance at end of year (Feb 29, 2004): $2,149,000
- Market Capitalization: As of August 31, 2003, the aggregate market value of common stock held by non-affiliates was approximately $3.99 billion.
- Outstanding Shares: 103,836,814 shares as of March 31, 2004.
Material Changes and Operational Highlights
- Store Expansion: Geographic growth resumed at the end of fiscal 2002. Through the end of fiscal 2004, an additional 16 used car superstores were opened. As of March 31, 2004, the company operated 53 retail stores.
- Store Formats: The company operates Mega, Standard, and Satellite superstores. Current growth plans focus on Standard and Satellite formats. As of March 31, 2004, 48 of 53 stores were leased, while 5 were owned.
- Business Mix Shift: The company has divested nine new car franchises over the past three fiscal years to focus on used vehicles. In fiscal 2004, used vehicles accounted for 91% of total units sold.
- Workforce: As of March 31, 2004, CarMax employed 7,269 hourly and salaried associates and 2,453 commission-based sales associates.
Guidance, Outlook, and Risks
Guidance and Outlook
- Expansion Plan: CarMax plans to open superstores at an annual rate of approximately 15% to 20% of its used car superstore base over the next three fiscal years.
- Fiscal 2005 Targets: Plans to open 10 used car superstores in fiscal 2005 (5 standard, 5 satellite).
- Market Strategy: Focus on entering mid-sized markets (TV-viewing population of 1 million to 2.5 million) and adding satellite superstores in underserved trade areas of existing multi-store markets.
Risks and Contingencies
- Seasonality: Business is seasonal, with strongest traffic in spring/summer and lowest sales/margins in the fall quarter due to new model-year introductions and used car depreciation.
- Competition: Highly competitive market against ~21,700 franchised new car dealers, independent dealers, and rental companies.
- Legal Proceedings: The company is involved in various legal proceedings but believes the ultimate resolution will not have a material adverse effect.
- Environmental: Subject to regulations regarding hazardous substances (oil, gasoline, solvents). Management believes compliance will not have a material adverse effect.
- Forward-Looking Statements: Actual results may differ materially from anticipated results due to risks and uncertainties.
Investor Verification Checklist
- Verify specific revenue, net income, and cash flow figures in the Consolidated Financial Statements (incorporated by reference from the 2004 Annual Report to Shareholders).
- Review the "Selected Financial Data" section (page 16 of the Annual Report) for historical trend analysis.
- Confirm the status of the 10 planned store openings for fiscal 2005 and the capital expenditure requirements associated with them.
- Assess the impact of the 91% used vehicle sales mix on gross margins compared to the divested new car franchises.
- Review the details of the Credit Agreement and any covenants that may restrict future operations or dividends.