RICHMOND, Va. -

Along with revealing third-quarter financial performance, CarMax leadership announced plans to open dozens of more stores through 2016.

Having rolled out two stores during the third quarter, CarMax president and chief executive officer Tom Folliard said, “We remain committed to investing in our long-term growth strategy.

“We now plan to open 10 stores in fiscal 2013 and are pleased to announce our plan to open between 10 and 15 stores per year during each of the following three fiscal years,” Folliard continued.

In the quarter that ended Nov. 30, CarMax rolled out dealerships in Providence, R.I., and North Attleborough, Mass.

Third-Quarter Financial Figures

CarMax revealed the major developments from its fiscal third quarter, including:

—Net sales and operating revenues increased 7 percent to $2.26 billion from $2.12 billion in the third quarter of last year.
—Comparable-store used unit sales declined 3 percent in the third quarter, compared with a 16-percent increase in the prior year period.
—Total used unit sales decreased 1 percent.
—Total wholesale unit sales increased 13 percent.
—CarMax Auto Finance income rose 12 percent to $62.6 million. 

“We are pleased to report another quarter of strong profits, despite a difficult sales comparison and the continued sluggish economy,” Folliard declared.

First touching on sales performance, management said: “We believe the 3-percent decline in comparable-store used units resulted from several factors, including our toughest sales comparison in many quarters and the continuation of weak economic conditions and low consumer confidence for much of the third quarter."

“Our average used vehicle selling price remained higher than the prior year, reflecting the continuing effect of the tight supply of late-model used vehicles on our acquisition costs,” they continued.

“However, average retails have begun to moderate from earlier this year due to shifts in mix, as well as recent declines in industry wholesale pricing,” officials went on to say.

CarMax reiterated that its wholesale unit sales increased 13 percent, compared with the third quarter of its previous fiscal year.

“Similar to the last several quarters, our wholesale volumes benefited from a strong increase in appraisal traffic,” officials stated.

The company also pointed out its other sales and revenues declined 8 percent, compared with the prior year’s third quarter, primarily due to a decrease in third-party finance fees. CarMax explained the decrease resulted from the decision made earlier this year by CAF to retain an increased portion of the loans that third-party providers had been temporarily purchasing.

“In addition, it reflects an increase in the percentage of sales financed by our subprime finance providers, who purchase subprime financings from us at a discount,” officials added.

CarMax then went into an explanation of how its gross profit ticked higher year-over-year during the third quarter, up to $303.2 million from $297.9 million. The company said the rise stemmed from higher gross profit on our retail and wholesale vehicle sales, partly offset by reduced other gross profit.

Officials determined used-vehicle gross profit increased 2 percent to $197.5 million from $193.2 million in the prior-year period. They calculated the improvement resulted from a 3-percent increase in gross profit per unit, to $2,171 from $2,103 in the prior year quarter, partly offset by the 1-percent decline in total used unit volumes.

“We have been able to manage to a relatively consistent gross profit per unit over the last three years,” CarMax leaders highlighted.

The company also found its wholesale gross profit increased 18 percent to $66.5 million, compared with $56.5 million in the third quarter of the prior year.

CarMax indicated the climb was driven by the 13-percent increase in wholesale unit sales and an improvement in gross profit per unit to $914 from $878 in the prior-year quarter.

“The strength of our wholesale profit per unit was fueled by the continued strong demand and pricing at our auctions,” officials emphasized.

CarMax also acknowledged other gross profit declined 20 percent to $37.2 million from $46.7 million in the prior-year period.

“The decrease included the effects of the reduction in third-party finance fees and a decrease in service department profits,” officials stressed.

Additional Commentary on CarMax Auto Finance

In other elements of their third-quarter report, officials noted CAF income increased 12 percent to $62.6 million, compared with $55.7 million in last year’s third quarter primarily due to the interest margin, which rose to $88.7 million from $73.8 million.

“The increase in interest margin was driven by increases in both average managed receivables and the spread between the interest charged to consumers and our related funding costs,” the company explained.

Officials highlighted CAF net loans originated increased 34 percent compared with the prior year quarter.

“The increase reflected our previously reported decision to retain an increased portion of the loans that third-party providers had been temporarily purchasing,” they stated.

CAF also mentioned the provision for loan losses increased to $15.1 million from $8.6 million in last year’s third quarter, primarily reflecting the cumulative effect of the origination and retention of loans with greater credit risk.

Update on SG&A

In wrapping up its third-quarter financial performance rundown, CarMax said selling, general and administrative expenses increased 6 percent to $232.3 million from $219.7 million in the prior year’s third quarter.

“We continued to ramp store growth and fund initiatives to support the long-term growth of the company,” officials declared.

CarMax added the SG&A ratio was 10.3 percent, compared with 10.4 percent in the prior-year quarter, pointing out the change was primarily due to the effect of higher average selling prices.