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CarMax Reports Fourth Quarter and Fiscal Year 2022 Results

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Posts Substantial Increase in Nationwide Used Vehicle Market Share
Raises Long-Term Targets

RICHMOND, Va., April 12, 2022--(BUSINESS WIRE)--CarMax, Inc. (NYSE:KMX) today reported results for the fourth quarter and fiscal year ended February 28, 2022.

Highlights:

  • CarMax’s share of the nationwide age 0-10 year old used vehicle market increased to a record 4.0% in calendar year 2021, up approximately 13% from 3.5% in calendar year 2020.

  • Net revenues rose 48.8% to $7.7 billion compared with the prior year fourth quarter. For the fiscal year, net revenues increased 68.3% to $31.9 billion.

  • Sold 343,413 units through our combined retail and wholesale channels, up 11.3% versus the prior year quarter. For the fiscal year, sold 1,630,550 combined units, up 38.4% year-over-year.

    • Retail used unit sales declined 5.2% in the fourth quarter to 194,318 vehicles, and comparable store used unit sales declined 6.5%. For the fiscal year, retail used unit sales rose 22.9% to 924,338 vehicles, and comparable store used unit sales grew 21.9%.

    • Wholesale units increased 43.8% to a fourth quarter record of 149,095 vehicles. For the fiscal year, wholesale units rose 65.7% to a record 706,212 vehicles.

  • Bought approximately 324,000 vehicles from consumers, a 69.0% increase versus the prior year quarter. Approximately 162,000 of these vehicles were purchased through our nationwide online instant appraisal offerings. For the fiscal year, bought approximately 1,412,000 vehicles from consumers, a 95.5% increase versus the prior year, including 707,000 units purchased through our nationwide online instant appraisal offerings.

  • Gross profit per retail used unit of $2,195 and gross profit per wholesale unit of $1,191, representing year-over-year increases of $109 and $201 per unit, respectively, versus last year’s quarter. For the fiscal year, gross profit per retail used unit was $2,205 and gross profit per wholesale unit was $1,083, representing year-over-year increases of $92 and $90, respectively.

  • CarMax Auto Finance (CAF) income improved 3.0% year-over-year to $193.8 million in the fourth quarter, while full year CAF income grew 42.4% to $801.5 million.

  • Net earnings was $159.8 million for the fourth quarter and $1.2 billion for the fiscal year. Net earnings per diluted share was $0.98, down 22.8% compared with last year’s fourth quarter. For the fiscal year, net earnings per diluted share rose 54.2% to $6.97.

CEO Commentary:

"We are extremely proud of our accomplishments in fiscal 2022, which we believe position us well for continued long-term growth across our retail and wholesale business, and CarMax Auto Finance," said Bill Nash, president and chief executive officer. "The roll out and rapid adoption of our online instant appraisal offer has solidified our position as the nation’s largest buyer of vehicles from consumers, nearly doubling our fiscal 2022 inventory self sufficiency and propelling our wholesale business to new heights. We continue to expand the availability of our end-to-end, unaided online experience, and we expect to have this capability available to 100% of customers by the end of our first quarter. We also continue to enhance our finance-based shopping experience, further positioning our business for growth. While the fourth quarter was adversely affected by macro factors, our retail market share growth for the year was the highest it’s been during my tenure as CEO and is a reflection of our ability to deliver the most customer-centric experience in the industry."

Fourth Quarter Business Performance Review:

Sales. Combined retail and wholesale used vehicle unit sales were 343,413, an increase of 11.3% from the prior year’s fourth quarter. Online retail sales(1) accounted for 11% of retail unit sales, compared with 5% in the fourth quarter of last year. Revenue from online transactions(2), including retail and wholesale unit sales, was $2.4 billion, or approximately 31% of net revenues, compared with 17% of net revenues in last year’s fourth quarter.

Total retail used vehicle unit sales declined 5.2% to 194,318 and comparable store used unit sales declined 6.5% from the prior year’s fourth quarter. We believe a number of macro factors weighed on our fourth quarter unit sales performance, including declining consumer confidence, the Omicron-fueled surge in COVID cases, vehicle affordability, and the lapping of stimulus benefits paid in the prior year period. Total retail used vehicle revenues increased 32.6% compared with the prior year’s fourth quarter due to an increase in the average retail selling price, which rose approximately $8,300 per unit, or 39.7%, partially offset by the decrease in retail used units sold. The increase in average retail selling price largely reflected higher vehicle acquisition costs resulting from strong wholesale industry valuations.

Total wholesale vehicle unit sales increased 43.8% to 149,095 compared with the prior year’s fourth quarter. Wholesale sales benefited from the large increase in appraisal volume associated with our online appraisal offerings and a continued strong buy rate. Total wholesale revenues increased 160.2% compared with the prior year’s fourth quarter due to the average wholesale selling price rising by nearly $5,300 per unit, or 85.2%, together with the increase in wholesale units sold.

Other sales and revenues rose 15.2% compared with the fourth quarter of fiscal 2021, representing an increase of $23.9 million. The increase was largely driven by the consolidation of Edmunds earlier this fiscal year, as well as improvements in extended protection plan (EPP) revenues and net third-party finance income. EPP revenues included a $10.6 million year-over-year net benefit from the recognition of profit sharing revenues and adjustments to our cancellation reserves, which more than offset the effect of the decline in retail unit volume. Third-party finance income benefited from lower Tier 3 originations. The increase in other sales and revenues was partially offset by the divestiture of our remaining new car franchise earlier in fiscal 2022.

Gross Profit. Total gross profit increased to $711.0 million, up 10.9% versus last year’s fourth quarter. Retail used vehicle gross profit declined 0.2%, reflecting the combined effects of the decline in retail unit sales and an improvement in the related gross profit per unit, which rose $109 to $2,195.

Wholesale vehicle gross profit increased 73.0% versus the prior year’s quarter, reflecting both the growth in unit volume and an increase in the related gross profit per unit, which rose $201 to $1,191.

Other gross profit declined 3.8% largely reflecting a reduction in service department margins, partially offset by the consolidation of Edmunds and the improvements in EPP revenues and net third-party finance income. Service margins declined primarily due to the deleverage resulting from the decline in retail unit sales together with the adverse effects on technician staffing and reconditioning efficiency from the fourth quarter COVID surge.

SG&A. Compared with the fourth quarter of fiscal 2021, SG&A expenses increased 22.5% to $620.9 million. Contributing factors included continued spending on our technology platforms and strategic initiatives to support long-term consumer demand, the consolidation of Edmunds, and previously announced increases in advertising expense. In addition, we experienced increases in growth costs related to appraisal buys, new stores, and customer experience centers, as well as an increase in the annual bonus-related compensation. Partially offsetting these items was a reduction in share-based compensation, which largely reflected changes in the company’s share price.

SG&A as a percent of gross profit was 87.3%, versus 79.0% in the prior year’s fourth quarter. For the fiscal year, SG&A as a percent of gross profit was 70.7% versus 71.6% in the prior year.

CarMax Auto Finance.(3) CAF income increased 3.0% to $193.8 million. Improvements in CAF’s net interest margin and the growth in average managed receivables more than offset the substantial increase in the provision for loan losses, which was a more normalized $54.4 million in the current year’s fourth quarter versus $4.6 million in the prior year’s fourth quarter. In the prior year’s quarter, the provision for loan losses benefited from the continued reduction in the reserve that was established at the start of the COVID pandemic.

As of February 28, 2022, the allowance for loan losses was 2.77% of ending managed receivables, up from 2.75% as of November 30, 2021. The increase in the allowance percentage primarily reflected the effect of the previously disclosed expansion of Tier 2 and Tier 3 originations within CAF’s portfolio.

CAF’s total interest margin percentage, which represents the spread between interest and fees charged to consumers and our funding costs, improved to 7.3% of average managed receivables from 6.4% in the prior year’s fourth quarter, primarily due to lower funding costs. After the effect of 3-day payoffs, CAF financed 41.0% of units sold in the current quarter, compared with 43.5% in the prior year’s fourth quarter, largely reflecting an increase in the mix of customers utilizing outside financing.

Share Repurchase Activity. During the fourth quarter of fiscal 2022, we repurchased 0.9 million shares of common stock for $101.7 million pursuant to our share repurchase program. As of February 28, 2022, we had $774.5 million remaining available for repurchase under the outstanding authorization. Subsequent to the end of the fiscal year, the Board of Directors increased the share repurchase authorization by $2.0 billion.

Store Openings. During the fourth quarter of fiscal 2022, we opened four new retail locations. For the full fiscal year, we opened ten new locations, and we had a total of 230 used car stores as of February 28, 2022.

Fiscal 2023 Capital Spending Plan

We currently plan to open ten stores in fiscal 2023, including our expected entry into the New York metro market. We estimate capital expenditures will increase to approximately $500 million in fiscal 2023 from $308.5 million in fiscal 2022. The increase in planned capital spending in fiscal 2023 largely reflects spending to support our future long-term growth, including investments in auction, sales, and production facilities, and technology.

Long-Term Targets

In May 2021, we introduced 5-year financial targets, including: (i) selling 2 million vehicles through our combined retail and wholesale channels by fiscal 2026; (ii) generating $33 billion in revenue by fiscal 2026; and (iii) growing our nationwide share of the age 0-10 used vehicle market to more than 5% by the end of calendar 2025. Although we do not anticipate updating these targets annually, given our strong performance in fiscal 2022, we believe it is appropriate to provide the following update at this time:

  • Sell between 2 million and 2.4 million vehicles through our combined retail and wholesale channels by fiscal 2026.

  • Generate between $33 billion and $45 billion in revenue by fiscal 2026.

  • Re-affirm the growth of our nationwide share of the age 0-10 used vehicle market to more than 5% by the end of calendar 2025.

(1)

An online retail unit sale is defined as a sale where the customer completes all four of these major transactional activities

remotely: reserving the vehicle; financing the vehicle, if needed; trading-in or opting out of a trade in; and creating a remote

sales order.

(2)

Revenue from online transactions is defined as revenue from retail sales that qualify for an online retail sale, as well as any EPP and third-party finance contribution, wholesale sales where the winning bid was an online bid, and all revenue earned by Edmunds.

(3)

Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.

Supplemental Financial Information

Amounts and percentage calculations may not total due to rounding.

Sales Components

Three Months Ended February 28

Years Ended February 28

(In millions)

2022

2021

Change

2022

2021

Change

Used vehicle sales

$

5,739.8

$

4,328.4

32.6

%

$

24,437.1

$

15,713.6

55.5

%

Wholesale vehicle sales

1,765.6

678.5

160.2

%

6,763.8

2,668.8

153.4

%

Other sales and revenues:

Extended protection plan revenues

124.6

118.3

5.3

%

478.4

412.8

15.9

%

Third-party finance income/(fees), net

1.8

(2.9

)

162.9

%

1.5

(39.6

)

103.9

%

Advertising & subscription revenues (1)

33.9

100.0

%

101.8

100.0

%

Other

21.0

42.0

(50.0

) %

117.8

194.6

(39.5

) %

Total other sales and revenues

181.3

157.4

15.2

%

699.5

567.8

23.2

%

Total net sales and operating revenues

$

7,686.7

$

5,164.3

48.8

%

$

31,900.4

$

18,950.1

68.3

%

(1) Excludes intersegment revenues that have been eliminated in consolidation.

Unit Sales

Three Months Ended February 28

Years Ended February 28

2022

2021

Change

2022

2021

Change

Used vehicles

194,318

204,928

(5.2

) %

924,338

751,862

22.9

%

Wholesale vehicles

149,095

103,676

43.8

%

706,212

426,268

65.7

%

Average Selling Prices

Three Months Ended February 28

Years Ended February 28

2022

2021

Change

2022

2021

Change

Used vehicles

$

29,312

$

20,980

39.7

%

$

26,207

$

20,690

26.7

%

Wholesale vehicles

$

11,495

$

6,207

85.2

%

$

9,238

$

5,957

55.1

%

Vehicle Sales Changes

Three Months Ended February 28

Years Ended February 28

2022

2021

2022

2021

Used vehicle units

(5.2

) %

(0.9

) %

22.9

%

(9.7

) %

Used vehicle revenues

32.6

%

1.8

%

55.5

%

(8.5

) %

Wholesale vehicle units

43.8

%

(1.2

) %

65.7

%

(8.6

) %

Wholesale vehicle revenues

160.2

%

23.7

%

153.4

%

6.7

%

Comparable Store Used Vehicle Sales Changes (1)

Three Months Ended February 28

Years Ended February 28

2022

2021

2022

2021

Used vehicle units

(6.5

) %

(2.3

) %

21.9

%

(11.7

) %

Used vehicle revenues

30.5

%

0.6

%

54.3

%

(10.5

) %

(1) Stores are added to the comparable store base beginning in their fourteenth full month of operation. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

Used Vehicle Financing Penetration by Channel (Before the Impact of 3-day Payoffs) (1)

Three Months Ended February 28

Years Ended February 28

2022

2021

2022

2021

CAF (2)

44.1

%

47.0

%

46.1

%

45.5

%

Tier 2 (3)

23.7

%

21.0

%

22.5

%

22.3

%

Tier 3 (4)

6.7

%

9.5

%

7.8

%

10.9

%

Other (5)

25.5

%

22.5

%

23.6

%

21.3

%

Total

100.0

%

100.0

%

100.0

%

100.0

%

(1) Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.

(2) Includes CAF's Tier 2 and Tier 3 loan originations, which represent approximately 1% of total used units sold.

(3) Third-party finance providers who generally pay us a fee or to whom no fee is paid.

(4) Third-party finance providers to whom we pay a fee.

(5) Represents customers arranging their own financing and customers that do not require financing.

Selected Operating Ratios

Three Months Ended February 28

Years Ended February 28

(In millions)

2022

% (1)

2021

% (1)

2022

% (1)

2021

% (1)

Net sales and operating revenues

$

7,686.7

100.0

$

5,164.3

100.0

$

31,900.4

100.0

$

18,950.1

100.0

Gross profit

$

711.0

9.2

$

641.4

12.4

$

3,287.5

10.3

$

2,379.1

12.6

CarMax Auto Finance income

$

193.8

2.5

$

188.2

3.6

$

801.5

2.5

$

562.8

3.0

Selling, general, and administrative expenses

$

620.9

8.1

$

506.8

9.8

$

2,325.2

7.3

$

1,704.4

9.0

Interest expense

$

26.8

0.3

$

20.3

0.4

$

94.1

0.3

$

86.2

0.5

Earnings before income taxes

$

201.2

2.6

$

262.2

5.1

$

1,492.3

4.7

$

965.3

5.1

Net earnings

$

159.8

2.1

$

209.9

4.1

$

1,151.3

3.6

$

746.9

3.9

(1) Calculated as a percentage of net sales and operating revenues.

Gross Profit (1)

Three Months Ended February 28

Years Ended February 28

(In millions)

2022

2021

Change

2022

2021

Change

Used vehicle gross profit

$

426.6

$

427.6

(0.2

) %

$

2,038.4

$

1,588.9

28.3

%

Wholesale vehicle gross profit

177.5

102.6

73.0

%

764.5

423.3

80.6

%

Other gross profit

106.9

111.2

(3.8

) %

484.6

366.9

32.1

%

Total

$

711.0

$

641.4

10.9

%

$

3,287.5

$

2,379.1

38.2

%

(1) Amounts are net of intercompany eliminations.

Gross Profit per Unit (1)

Three Months Ended February 28

Years Ended February 28

2022

2021

2022

2021

$ per unit(2)

%(3)

$ per unit(2)

%(3)

$ per unit(2)

%(3)

$ per unit(2)

%(3)

Used vehicle gross profit per unit

$

2,195

7.4

$

2,086

9.9

$

2,205

8.3

$

2,113

10.1

Wholesale vehicle gross profit per unit

$

1,191

10.1

$

990

15.1

$

1,083

11.3

$

993

15.9

Other gross profit per unit

$

550

59.0

$

543

70.6

$

524

69.3

$

488

64.6

(1) Amounts are net of intercompany eliminations. Those eliminations had the effect of increasing used vehicle gross profit per unit and
wholesale vehicle gross profit per unit and decreasing other gross profit per unit by immaterial amounts.

(2) Calculated as category gross profit divided by its respective units sold, except the other category, which is divided by total used units sold.

(3) Calculated as a percentage of its respective sales or revenue.

SG&A Expenses (1) (2)

Three Months Ended February 28

Years Ended February 28

(In millions)

2022

2021

Change

2022

2021

Change

Compensation and benefits:

Compensation and benefits, excluding share-based compensation expense

$

332.6

$

248.4

33.9

%

$

1,224.4

$

909.8

34.6

%

Share-based compensation expense

1.5

43.1

(96.5

) %

102.0

111.7

(8.8

) %

Total compensation and benefits (3)

$

334.1

$

291.5

14.6

%

$

1,326.4

$

1,021.5

29.8

%

Occupancy costs

64.9

52.3

23.9

%

229.9

204.7

12.3

%

Advertising expense

92.3

73.7

25.2

%

325.9

217.5

49.8

%

Other overhead costs (4)

129.6

89.3

45.3

%

443.0

260.7

70.0

%

Total SG&A expenses

$

620.9

$

506.8

22.5

%

$

2,325.2

$

1,704.4

36.4

%

SG&A as % of gross profit

87.3

%

79.0

%

8.3

%

70.7

%

71.6

%

(0.9

) %

(1) Depreciation and amortization previously included in SG&A expenses is now separately presented and is excluded from this table.
Prior period amounts have been reclassified to conform to the current period’s presentation.

(2) Amounts are net of intercompany eliminations.

(3) Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales.

(4) Includes IT expenses, non-CAF bad debt, insurance, preopening and relocation costs, charitable contributions, travel and other administrative expenses.

Components of CAF Income and Other CAF Information

Three Months Ended February 28

Years Ended February 28

(In millions)

2022

% (1)

2021

% (1)

2022

% (1)

2021

% (1)

Interest margin:

Interest and fee income

$

332.4

8.5

$

290.9

8.5

$

1,296.8

8.7

$

1,142.0

8.5

Interest expense

(48.8

)

(1.3

)

(71.1

)

(2.1

)

(228.8

)

(1.5

)

(314.1

)

(2.3

)

Total interest margin

283.6

7.3

219.8

6.4

1,068.0

7.2

827.9

6.1

Provision for loan losses

(54.4

)

(1.4

)

(4.6

)

(0.1

)

(141.7

)

(0.9

)

(160.7

)

(1.2

)

Total interest margin after provision for loan losses

229.2

5.9

215.2

6.3

926.3

6.2

667.2

5.0

Total other expense

(2.2

)

Total direct expenses

(35.4

)

(0.9

)

(27.0

)

(0.8

)

(124.8

)

(0.8

)

(102.2

)

(0.8

)

CarMax Auto Finance income

$

193.8

5.0

$

188.2

5.5

$

801.5

5.4

$

562.8

4.2

Total average managed receivables

$

15,615.3