CarMax, Inc. — Form 10-Q Summary
Business context and period. This quarter ended May 31, 2021, the first quarter of CarMax’s fiscal 2022 (the filing’s comparable period is the first quarter of fiscal 2021, ended May 31, 2020). CarMax operates used-vehicle sales and related businesses, and CarMax Auto Finance (CAF). The prior-year quarter was significantly affected by COVID-19 restrictions and related cost reductions, so year-over-year comparisons are unusually large.
Financial performance
| Metric | Quarter ended May 31, 2021 | Comparable prior year | Change / context |
|---|---|---|---|
| Net sales and operating revenues | $7.698 billion | $3.229 billion | Up 138.4% |
| Gross profit | $924.5 million | $354.2 million | Up 161.0%; gross margin 12.0%, versus 11.0% |
| CAF income | $241.7 million | $51.0 million | Up 374.4% |
| SG&A | $554.1 million | $324.9 million | Up 70.5%; 59.9% of gross profit, versus 91.7% |
| Earnings before income taxes | $567.3 million | $4.2 million | Prior-year result was exceptionally low |
| Net earnings / diluted EPS | $436.8 million / $2.63 | $5.0 million / $0.03 | Reported growth is amplified by the low prior-year base |
| Net cash from operating activities | Used $111.9 million | Provided $1.250 billion | Materially affected by growth in CAF receivables and working capital |
- Vehicle sales and margins: Retail used-vehicle units rose 100.6% to 270,799; comparable-store unit sales rose 99.1% year over year and 16.0% on a two-year basis, excluding stores opened in fiscal 2020 or later. Average retail selling price increased 10.7% to $22,533. Used-vehicle gross profit per unit was $2,205, up 13.8%. Wholesale units rose 186.6% to 181,389; wholesale gross profit per unit was $1,025, up 4.8%. Management attributed higher prices partly to market appreciation.
- CAF and credit: CAF financed 43.7% of retail used-vehicle unit sales after three-day payoffs. Interest margin rose to 6.9% from 5.9%, reflecting lower funding costs and higher interest and fees. CAF recorded a $24.4 million benefit from the loan-loss provision, compared with $122.0 million of expense a year earlier. Allowance for loan losses was $379.5 million, or 2.62% of managed receivables, versus 3.32% a year earlier. Annualized net credit losses were 0.21%, versus 1.33%; management cautioned that future losses remain uncertain.
- Cash, liquidity and debt: Cash and cash equivalents were $378.0 million at May 31, versus $132.3 million at February 28; total cash, cash equivalents and restricted cash were $1.072 billion. Total debt was $15.693 billion, including $14.361 billion of non-recourse notes primarily backed by CAF receivables. CarMax reported $1.45 billion of fully available capacity under its revolving credit facility and $1.07 billion of unused warehouse capacity. It was in compliance with financial covenants and funding-vehicle performance triggers.
- Cash flow and investment: Operating cash use compared with prior-year cash generation largely reflects the $644.9 million increase in auto loans receivable, versus a $433.0 million decrease in the prior-year quarter; related funding changes are presented separately in financing cash flows. Investing cash use was $63.1 million, including $59.1 million of capital expenditures. Financing provided $475.1 million, including $596.7 million of net non-recourse note issuances; share repurchases used $133.8 million.
Material changes, outlook and risks
- The prior-year quarter included a $40.3 million Takata-airbag settlement benefit, equivalent to $0.18 of diluted EPS, recorded in SG&A. The current quarter’s other income included a $25.6 million unrealized gain on an equity investment. The current-quarter tax rate was 23.0%; the prior-year rate was negative because of very low pretax earnings and favorable tax items.
- Management cited robust vehicle demand, market appreciation and inventory constraints; saleable inventory remained below target during the quarter. Higher acquisition costs contributed to higher selling prices. Marketing spend was expected to remain elevated in fiscal 2022, with per-unit expenses similar to the second half of fiscal 2021.
- Management expected used-vehicle gross profit per unit to remain above $2,000. It said SG&A leverage would depend on gross-profit growth and that fiscal 2022 investment could put performance toward the higher end of its stated two-year range. The company planned ten store openings in fiscal 2022 and estimated approximately $350 million of capital expenditures, about one-third for technology.
- Online retail sales were 8% of retail unit sales; approximately 40% of customers were eligible to complete an online sale independently. Management expected most customers to have that ability by mid-fiscal 2022. Long-term targets include more than 5% national share of 0–10-year-old vehicle sales by the end of calendar 2025, two million used vehicles sold annually by fiscal 2026 across used and wholesale channels, and approximately $33 billion in fiscal 2026 revenue.
- CarMax completed its Edmunds acquisition on June 1, 2021, after quarter-end, at an implied enterprise value of $404 million, including its initial investment. Consideration included cash and CarMax shares; management expected an immaterial fiscal 2022 EPS impact.
- Key risks include continued COVID-19 effects, used-vehicle price and supply changes, CAF credit losses, funding availability and cost, consumer financing access, execution of digital and strategic initiatives, cybersecurity, and litigation. Management reported no material change in risk factors and no material change in market-risk disclosures.
Important facts for investors to verify
- Whether exceptional demand, vehicle-price appreciation and constrained inventory persist, and how they affect unit volumes, acquisition costs and per-unit gross profit.
- Whether CAF’s unusually low current credit losses and reduced allowance remain appropriate as economic conditions and borrower performance evolve.
- How operating cash flow and CAF loan growth develop, distinguishing operating cash movements from the related non-recourse financing flows.
- Whether elevated marketing and technology investment support durable sales growth and SG&A leverage, and whether the stated fiscal 2022 capital-spending and store-opening plans are maintained.
- Edmunds’ integration, actual financial contribution and acquisition-related cash and share impacts; and any changes in debt, liquidity or repurchases.
- The filing does not provide a specific near-term revenue or EPS forecast; investors should distinguish management’s stated operating expectations and long-term targets from formal quarterly guidance.