Continues to burn cash and pile on debt. Yet, shows lower interest expense, now apparently borrowing at less than 2%. Highly vulnerable to increase in interest rates. At a 4% rate, profits largely wiped out. Also, shows low and constant depreciation even with high and increasing capex. Something fishy here.
I doubt it for numerous reasons. Anytime you have a low margin business and you are increasing sales 20% per year you are going to have to borrow loads of money. KMX is not like INTC, CSCO etc where the net gross margin is 50% on their sales. Their profit increased $150 million but sales over $400 million and they are building new stores. Also keep in mind if you are increasing sales that fast that means they have to keep buying more and more cars all the time. You sell ten and make $20,000 profit but then they have to go buy 12 cars at $180K total hoping to make $24k on those transactions that could take 2-4 months to finalize. The only way I see they would not be cash poor is if sales were flat they could start banking some of the profit rather than pouring it back into more cars and more stores.
My company has been in business 37 years and we have made a profit every single year yet we still have to borrow money all the time to get us through our 120 day billing cycle. I am a KMX customer and stock holder although I will admit I have not done as much due diligence on their business model as I should have. Do they finance any cars for their customers? I am sure they do but am not sure if the resell the loan to a third party of if they actually own the note for the duration. If they do that would be a huge reason for burning cash as they probably have to book the profit on the car at sales time,