CarMax says quarterly gross profit rises 4%
Company launches $1 billion stock buyback, shares fall 4.2%
(Reuters) -- CarMax Inc., the largest used-car seller in the United States, reported a 4 percent gain in gross profits during the final quarter of its fiscal year, but an accounting correction and tepid sales to subprime customers caused net income to drop slightly from a year ago.
The company posted gross profits of $384 million during the quarter ending Feb. 28, up from $369 million during the same quarter last year.
“We had another great year, achieving several new milestones,” CEO Tom Folliard said in a statement today. “Our comparable store used unit sales growth of 12 percent was our strongest since fiscal 2002, and for the first time, we retailed more than 500,000 vehicles in a single year."
CaxMax said net income fell to $99.2 million, or 44 cents per share, in the quarter, from $107.2 million, or 46 cents per share, a year earlier. Its per-share profit included 8 cents per share related to an accounting correction. Revenue rose 9 percent to $3.08 billion in the quarter.
Shares of the company, which also increased its share buyback program by $1 billion, fell 4.2 percent for the day to close at $45.56. Analysts posted bearish reactions to the quarterly results.
"The expansion of our share repurchase program reflects our confidence in the business and our ability to deliver on our growth plans, as well as an ongoing commitment to shareholder value," Folliard said.
CarMax, which gets about a fifth of its business from customers with weak credit profiles, said sales financed by third-party subprime providers remained flat at 17 percent of used vehicle sales in the fourth quarter. The first three quarters saw increases of 5 percent, 3 percent and 3 percent, driven by a revival in lending to subprime borrowers last year.
The increase in lending, which had dried up in the aftermath of the credit crisis in 2008, drove auto sales and much of car dealerships' profit in 2013.
"We are unlikely to see significant further improvements in credit availability and that really showed up in their results today," Wedbush Securities analyst Seth Basham said.
CarMax had indicated in December that it would start lending to subprime borrowers -- those with weak credit profiles -- to reduce its reliance on third-party car-loan providers that were beginning to tighten their lending norms.
The company said it had originated $9.1 million of the planned $70 million it had set aside to offer financing to customers with weak credit profiles.
CarMax's shares have fallen about 10 percent since its December announcement, with investors wary of the company's decision to take on increased risk by lending to subprime borrowers.
"We believe that the credit-fueled growth that the company has experienced over the last few quarters has now slowed," RBC Capital Markets analyst Scot Ciccarelli said in a note to clients.
Used-unit comparable growth, which is determined by traffic at its stores and buying conversion levels, rose 7 percent in the fourth quarter ended Feb. 28, down from an increase of 10 percent in the third quarter.
CarMax, which also sells new cars, said used car sales rose 12 percent to 132,856 in the fourth quarter. New car sales also rose 7 percent to 1,807 units.Contact Automotive News