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RICHMOND, Va. — Though facing a challenging environment during its fiscal fourth quarter, CarMax saw its earnings and unit sales rise on a year-over-year basis for the third consecutive quarter, the company announced Thursday.

Specifically, reporting on the fourth quarter ending Feb. 28, CarMax said its net income for the period was $75.4 million, up from $37.5 in the year-ago period.

Officials noted that results for the most recent period were positively impacted by $0.07 per share for CarMax Auto Finance favorable adjustments. These mostly were related to loans originating in previous quarters.

Net sales and operating revenue were $1.83 billion, a 25-percent upswing compared to the prior-year period.

Total vehicle unit sales climbed 13 percent year-over-year, with used units sales up 13 percent and new sales down 18 percent.

Comparable-store unit sales were up 11 percent, as used unit sales increased 12 percent and new sales fell 18 percent.

As far as full-year results, net income was $281.7 million in fiscal 2010, up significantly from $59.2 million in net income for fiscal 2009.

The 2010 results were positively impacted by $0.07 per share for CAF favorable adjustments, and the 2009 results were pushed downward by $0.23 per share for CAF unfavorable adjustments. Changes in both fiscal years had to do primarily with loans originated in previous fiscal years.

"We are pleased to report strong fourth-quarter and fiscal-year results, especially given the difficult market conditions we faced," shared Tom Folliard, president and chief executive officer.


Looking at some areas of CarMax's business in more detail, officials said the company's wholesale revenue totaled $209.5 million during the fourth quarter, up 52.6 percent year-over-year.

CarMax saw a 24-percent increase in wholesale unit sales, which officials attributed to heavier appraisal traffic and a stronger appraisal buy rate.

"We believe the improvement in our buy rate was largely attributable to the higher year-over-year wholesale pricing environment and the resulting increases in our appraisal offers," CarMax noted.

CarMax Auto Finance

Moving along, the company said CAF income during the fourth quarter was $58.9 million, up substantially from $28 million a year ago.

Officials noted that the income in the most recent period saw a $26.6 million boost from favorable adjustments primarily related to loans originating in prior periods.

CarMax provided a list of what this $26.6 million was comprised of:

—$10.8 million benefit related to more favorable funding costs for the $470 million of auto loan receivables that were refinanced in a term securitization during the fourth quarter. Most of these loans were originated in earlier quarters of the current fiscal year.

—$10.2 million of net favorable valuation adjustments. Included in this is a decrease in the discount rate assumption and other net adjustments on select pools of loans.

—$5.6 million of favorable mark-to-market adjustments which stem from improvements in credit market conditions and favorable valuation adjustments to certain derivatives. The majority of the adjustment had to do with the retained subordinated bonds, which had a fair value of $248.8 million as of Feb. 28.

During both the fourth quarter of both 2010 and 2009, there was a gain of $15.8 million on loans originated and sold.

CAF reported $444.9 million in loans originated and sold during the most recent period, up 20 percent from the prior year.

This reflected the gains CarMax made in retail vehicle revenue, as officials explained that the percentage of CarMax's sales that were financed by CAF was "similar" in both quarters.

"However, the effect of the increase in loan originations was fully offset by a decrease in the gain percentage, which fell to 3.6 percent in the current year quarter versus 4.3 percent in the fourth quarter of last year," officials pointed out.

"The decline in the gain percentage was primarily due to the combination of more competitive consumer rates and modestly higher funding costs in our warehouse facility compared with last year's fourth quarter," they added.

Wrapping it up, Folliard noted: "We are proud of the efforts of our associates and the resilience of the CarMax business model, which were key factors in our ability to report strong earnings growth, despite what remains a challenging sales environment.

"Although part of the improvement reflects the easy comparison with last year's fourth quarter, we are particularly proud of the breadth of factors contributing to our higher earnings, including growth in customer traffic, improvements in sales execution, strong gross profit contributions from retail and wholesale operations, a substantial increase in CAF income and only modest growth in SG&A," he concluded.