RICHMOND, Va. -

Both retail and wholesale gains as well as strengthening performance of its finance division all combined to push CarMax’s fiscal year net earnings higher by 10 percent, according to the company’s financial report released late last week.

CarMax’s fiscal year 2012 net earnings came in at $413.8 million or $1.79 per diluted share, up 10 percent from year-earlier figure of $377.5 million or $1.65 per diluted share.

For just the fourth quarter, the company’s net earnings increased 7 percent to $95.0 million or 41 cents per diluted share, compared with $88.8 million or 39 cents per diluted share in the prior-year quarter.

The company shared several other financial metrics for the fourth quarter and fiscal year that ended Feb. 29:

—Net sales and operating revenues increased 10 percent to $2.48 billion from $2.25 billion in the fourth quarter of last year. For the fiscal year, net sales and operating revenues increased 11 percent to $10.00 billion from $8.98 billion in fiscal year 2011.

—Comparable store used unit sales increased 4 percent in the fourth quarter and 1 percent in the fiscal year.

—Total used unit sales rose 6 percent in the fourth quarter and 3 percent in the fiscal year.

—Total wholesale unit sales increased 13 percent in the fourth quarter and 20 percent in the fiscal year.

—CarMax Auto Finance income rose 22 percent to $66.1 million in the fourth quarter. For the fiscal year, CAF income rose 19 percent to $262.2 million.

 “We are pleased to report strong fourth quarter and full year results,” stated CarMax president and chief executive officer Tom Folliard.

“We hit some major milestones this year, including total revenues of $10 billion and annual used retail vehicle sales in excess of 400,000 units, and we look forward to continued growth as we expand our store base in the coming years,” Folliard continued.

CarMax mentioned its two newest store openings. The company rolled out a rooftop in Chattanooga, Tenn., during the fourth quarter of fiscal 2012. And last month, CarMax ventured into Pennsylvania for the first time, unveiling a lot in Lancaster, Pa.

The company is looking to add nine more stores during its 2013 fiscal year. The locations include:

—Bakersfield, Calif.
—Nashville, Tenn.
—Fort Myers, Fla.
—Naples, Fla.
—Oxnard, Calif.
—Des Moines, Iowa
—Denver (two stores)
—Jacksonville, Fla.

Deeper Look at Fourth-Quarter Performance

CarMax elaborated about its fourth-quarter figures, beginning with sales.

The company indicated comparable store used unit sales grew 4 percent compared with a 12-percent increase in last year’s fourth quarter. 

Officials noted that used unit sales benefited from strong subprime-financed sales, as well as an extra day in the current year quarter due to leap year.

“For the fiscal year, our data indicates that we increased our share of the late-model ( zero to six-year old) used vehicle market by approximately 3 percent,” CarMax executives calculated.

“We remain confident that the strength of our consumer offer and the skill of our associates, combined with our resumption of store growth, will continue to drive future share gains,” they projected.

Turning over to the wholesale side, CarMax determined its unit sales increased 13 percent compared with the fourth quarter of fiscal 2011.

“Similar to the last several quarters, our wholesale volumes benefited from a strong increase in appraisal traffic and a solid buy percentage,” officials shared.

“We believe appraisal traffic is benefiting from the increase in industry new-car sales,” they added.

CarMax acknowledged other sales and revenues declined 12 percent compared with the prior year’s fourth quarter. The company said the decrease was primarily due to a reduction in third-party finance fees, which resulted from a mix change among third-party finance providers. 

Executives mentioned subprime providers, who they said generally purchase subprime financings at a discount, originated 15 percent of used-vehicle sales in the current year’s quarter compared with 9 percent in the prior year’s fourth quarter. 

“At the same time, as CAF has continued to retain an increased portion of the loans that had been purchased by third-party providers, the fees received from these third parties have declined,” CarMax explained.

Moving over to a discussion about gross profit, CarMax tabulated that its total gross profit increased 5 percent to $338.2 million, up from $320.7 million in the fourth quarter of fiscal 2011. The company said the upturn reflected a higher gross profit contribution from retail and wholesale vehicles, partly offset by a reduction in other gross profit.

Executives also revealed that used-vehicle gross profit jumped 8 percent to $225.8 million, a rise from $209.5 million in the prior-year period. They suggested the improvement resulted from the combination of the 6-percent increase in used units and a 2-percent uptick in gross profit per unit, to $2,135 from $2,096 in the prior-year quarter.

“Last year, we reported that our efforts to eliminate waste from our used-vehicle reconditioning processes in recent years had allowed us to achieve a cumulative, sustainable reduction in average reconditioning costs of approximately $250 per vehicle,” CarMax officials pointed out.

“Adjusting for an increase in the average age of vehicles reconditioned and sold, we continued to realize $250 per unit in savings in fiscal 2012,” they highlighted.

Meanwhile, CarMax mentioned a wholesale gross profit rise of 13 percent to $70.2 million compared with $62.4 million in the fourth quarter of the prior year. The company found the improvement was driven by the 13-percent increase in wholesale unit sales.

CarMax noted wholesale gross profit per unit of $950 was similar to the $956 in the prior year quarter. 

“The strength of our wholesale gross profit per unit continued to be fueled by the strong demand and pricing at our auctions,” officials stressed.

The company also acknowledged other gross profit declined 14 percent to $40.8 million from $47.6 million in the prior-year period. CarMax conceded the decrease was similar to the decline in other sales and revenues and was primarily due to the change in third-party finance fees.

Details on CarMax Auto Finance

Sliding over to its finance department, officials computed that CAF income increased 22 percent to $66.1 million compared with $54.1 million in last year’s fourth quarter, primarily due to an increase in interest margin, which rose to $88.9 million from $74.6 million. 

“The growth 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,” CarMax executives explained.

CarMax determined CAF net loans originated increased 36 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 purchasing,” officials reiterated.

“As of January 2012, CAF had transitioned back to retaining all of these loans,” they continued. “The provision for loan losses was 0.9 percent of average receivables in both the current year and prior year quarter, as favorable loss experience in fiscal 2012 largely offset the cumulative effect of the origination and retention of loans with greater credit risk.”

Other Company Activity

In highlighting other segments of its fourth quarter balance sheet, CarMax determined selling, general and administrative expenses increased 7 percent to $243.5 million from $226.9 million in the prior year’s fourth quarter.

“The increase in SG&A expenses reflected the expansion of our store base, increases in sales commissions and other variable costs, and higher growth-related costs, partly offset by lower advertising expense,” officials explained.

“Growth-related costs include store pre-opening expenses, relocation expenses and costs of maintaining management bench strength to support future growth,” they added.

CarMax indicated SG&A per used unit ticked up slightly to $2,302 versus $2,270 in the prior year’s quarter. 

The company added its SG&A ratio improved to 9.8 percent compared with 10.1 percent in the prior-year quarter, reflecting the leverage associated with the increases in used and wholesale vehicle sales and average selling prices.