RICHMOND, Va. -

CarMax established a myriad of financial performance records during its 2011 fiscal year as the company reported net sales and operating revenues, comparable-store used unit sales and total used unit sales all climbed by double digits.

Executives shared Thursday that their fourth-quarter net sales and operating revenues increased 23 percent to $2.25 billion from $1.83 billion in the fourth quarter of last year. For the fiscal year, CarMax determined its net sales and operating revenues jumped 20 percent to $8.98 billion from $7.47 billion in fiscal 2010.

Elsewhere, the company indicated its comparable-store used unit sales increased 12 percent for the fourth quarter and 10 percent for the fiscal year.
A look at total used unit sales showed CarMax enjoyed 14-percent gain in the fourth quarter and an 11-percent rise in the fiscal year.

For the fourth quarter, CarMax said its net earnings increased 19 percent to $89.5 million or 39 cents per diluted share. In the same quarter of the previous fiscal year, these figures were $75.4 million or 33 cents per diluted share.

Executives pointed out net earnings for the prior year’s fourth quarter were increased by 7 cents per share for CarMax Auto Finance favorable adjustments primarily related to loans originated in previous periods.

Looking at net earnings for the entire fiscal year, CarMax computed the amount came in at $380.9 million or $1.67 per share — which represented a 35-percent spike from the 2010 fiscal year when the company’s net earnings were $281.7 million or $1.26 per diluted share.

Just like in the fourth quarter, executives noted net earnings for the prior year were increased by 7 cents per share for CAF favorable adjustments related to loans originated in previous years.

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

“Comparable-store used unit sales increased 12 percent in the fourth quarter despite facing the toughest comparison of the year,” continued Folliard, who added the increase in comparable-store sales primarily reflected a continued rebound in customer traffic as the company’s sales execution also remained strong.

Closer Look at Sales & Gross Profit Gains

As CarMax continued with its financial statement, the company shared that its fourth-quarter wholesale unit sales increased 41 percent compared with the fourth quarter of fiscal 2010. CarMax thinks the improvement primarily reflected a substantial increase in appraisal traffic.

“We believe that our appraisal traffic benefited from the recent improvement in new-car industry sales,” company officials surmised. “Wholesale sales also benefited from our higher appraisal buy rate. We have achieved a year-over-year improvement in our appraisal buy rate for eight consecutive quarters.”

Moving along, CarMax mentioned other sales and revenues increased 19 percent compared with the prior year’s fourth quarter, fueled by increases in both extended service plan revenues and net third-party finance fees.

The company noted ESP revenues included a benefit of 1 cent per share related to a slow down in the rate of ESP cancellations.

“While the percent of sales financed by our subprime finance providers was generally consistent with last year’s fourth quarter, the overall percent of sales financed by third parties increased,” company officials explained.

“This change in third-party originations and the resulting increase in net finance fees reflected, in part, the effect of current arrangements with these providers to purchase a portion of the loans that previously would have been originated by CAF,” they added.

As a result of its sales gains, CarMax revealed its fourth-quarter total gross profit increased 21 percent to $320.7 million from $265.2 million in the fourth quarter of fiscal 2010. The company thinks the jump primarily reflected the increases in used and wholesale unit sales, as well as an improvement in total gross profit dollars per retail unit.

Executives also mentioned total gross profit per retail unit increased $181 to $3,146 per unit in the fourth quarter, up from $2,965 per unit in the corresponding prior-year quarter.

Also, CarMax determined used-vehicle gross profit per unit increased to $2,096 in the fourth quarter from $2,067 in the prior year quarter.

“As of the end of fiscal 2011, we estimate our efforts to eliminate waste from our reconditioning processes in recent years have allowed us to achieve a sustainable reduction in average reconditioning costs of approximately $250 per vehicle, on a cumulative basis,” company officials noted.

As far as wholesale gross profit per unit, CarMax found this amount increased to $956 in the fourth quarter, compared with $936 in the fourth quarter of last year.

“The continued strength of our wholesale gross profits reflected the strong demand for older, higher mileage vehicles, which are the mainstay of our auctions, as well as the continued strong dealer attendance and resulting high dealer-to-car ratios at our auctions,” CarMax executives mentioned.

More Details about CarMax Auto Finance

Effective March 1, 2010, CarMax reiterated that it adopted new accounting standards that affected the timing of the recognition of CAF income. Beginning in fiscal 2011, the company indicated CAF income no longer includes a gain on the sale of loans through securitization transactions, but instead primarily reflects the interest and fee income generated by the auto loan receivables less interest expense, direct CAF expenses and a provision for estimated loan losses.

Therefore, executives discovered CAF’s fourth quarter income came in at $54.1 million compared with $58.9 million in last year’s fourth quarter. In the prior year period, they pointed out CAF income was increased by adjustments totaling $26.6 million related to loans originated in previous fiscal periods.

CarMax Updates SG&A and Income Tax Notice

The company discovered its fourth-quarter selling, general and administrative expenses increased 15 percent to $233.5 million from $202.2 million in the prior year’s fourth quarter. CarMax figured the increase in SG&A primarily reflected increases in sales commissions and other variable costs associated with the growth in unit sales, and higher advertising expense, as well as costs associated with resumption of store growth.

The company computed its SG&A ratio improved to 10.4 percent in the fourth quarter compared with 11.0 percent in the prior’s year quarter. CarMax thinks the improvement reflects leverage associated with the increases in both unit sales and average selling prices.

And in regard to income taxes, CarMax determined its fourth-quarter income tax provision included a benefit of 1 cent per share related to the favorable adjustments relating to prior years’ tax reserves.

CEO Assessment & Store Growth Plans

Before delving into what the company might do in its 2012 fiscal year, CarMax’s Folliard shared his overall view of where the operation now stands.

“We are extremely pleased to deliver record profits this year, supported by the solid rebound in sales and traffic and the returns on our continuing efforts to develop associates, drive execution and discover efficiencies,” Folliard declared.

“For the fiscal year, our data indicates that we increased our share of the late-model used vehicle market by approximately 7 percent,” he continued. “We believe that our ability to consistently grow market share, regardless of the economic backdrop, is a testament to the strength of our consumer offer, the skill of our associates and the preference for our brand.”

The company indicated that it plans to open five more rooftops during the 2012 fiscal year. Those locations are to be in Baton Rouge, La., Lexington, Ky., Escondido, Calif., North Attleborough, Mass., and Chattanooga, Tenn.

Of those five markets, CarMax said it already has a presence in just one (San Diego). The Baton Rouge and Lexington stores are scheduled to open in the first quarter with the Escondido showroom coming in the second quarter, the North Attleborough location coming in the third quarter and the Chattanooga rooftop closing out the expansion plan in the fourth quarter.

“Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period,” CarMax conceded.

To add to its dealership network, the company estimated its capital expenditures will total approximately $225 million in fiscal 2012.

“Compared with the $76.6 million of capital spending in fiscal 2011, the increase in planned fiscal 2012 expenditures primarily reflects real estate acquisitions and construction costs associated with store growth,” company officials calculated.

“We incurred no material construction costs in fiscal 2011 related to the three stores opened in the current year,” they went on to say. “These stores were built in fiscal 2009, but we chose not to open them until economic conditions improved. We expect fiscal 2012 capital spending will include some costs for stores planned to be opened in the first half of fiscal 2013. We currently expect to open between eight and 10 stores in fiscal 2013.”