RICHMOND, Va.--(BUSINESS WIRE)--CarMax, Inc. (NYSE:KMX), the nation’s largest and most profitable retailer of used cars, today reported results for the fourth quarter and fiscal year ended February 28, 2021. 

Fourth Quarter Highlights and Recent Developments:

• Net sales and operating revenues increased 4.1% to $5.16 billion when compared with the prior year fourth quarter. Net earnings decreased 2.3% to $209.9 million and net earnings per diluted share decreased 2.3% to $1.27 compared with the prior year quarter.
• Total used unit sales and unit sales in comparable stores decreased 0.9% and 2.3%, respectively, and wholesale units decreased 1.2% when compared with the prior year quarter. Total used, comparable store unit, and wholesale unit sales were positive for the quarter when excluding the impact of calendar shifts. Sales impacted by the delay in tax refunds and severe weather.
  • On a two-year stack, total used and comparable store unit sales were up 13.8% and 8.7%, respectively.
• Robust used unit sales growth in March 2021 when compared with COVID-impacted March 2020 and a record March 2019. Increase supported by the initial distribution of tax refund and stimulus checks, improved weather, and favorable customer response to digital enhancements and strategic initiatives.
• CarMax Auto Finance (CAF) income increased 68.2% due to the combined effects of favorable loan loss performance, higher net interest margin and an increase in average managed receivables.
• Three-quarters of our customers advanced their transaction digitally, with approximately 25% of our customers eligible to buy a vehicle online independently.
• Completed nationwide rollout of online instant appraisal offer on carmax.com, positioning us to become the largest online buyer of used autos from consumers and strengthening our leadership as the largest used auto buyer from consumers.
• Signed a definitive agreement to acquire Edmunds, further strengthening our role and reach across the used auto ecosystem while adding exceptional technology and creative talent.

CEO Commentary:

“We are extremely proud of what we have accomplished this year and how the strategic changes we have made to our business position us for accelerated growth across retail, wholesale and CarMax Auto Finance,” said Bill Nash, president and chief executive officer. “Our omni-channel experience and Love Your Car Guarantee further enhance the most customer-centric offering on the market today. Additionally, the rapid adoption of our online instant appraisal offer positions us to become the largest online buyer of used autos from consumers.

“The acquisition of Edmunds will further strengthen the role and reach of both companies,” continued Nash. “Our partnership to date has proven to be an outstanding combination as we’ve developed innovative products, including an online instant appraisal offer on both edmunds.com and carmax.com. We look forward to collaborating on new products and initiatives leveraging Edmunds’ industry-leading content and technology expertise to serve both CarMax and Edmunds’ customers.”

Nash concluded by stating, “We have the technology, data, talent, physical assets and scale to unlock opportunities across the used auto ecosystem. We’re excited about the future as we expect robust top line, bottom line and market share growth for the upcoming year.”

Edmunds Acquisition:

In a separate release issued today, we announced that we have signed a definitive agreement to acquire Edmunds, one of the most well established and trusted online guides for automotive information and a recognized industry leader in digital car shopping innovations. With this acquisition, CarMax will enhance its digital capabilities and further strengthen its role and reach across the used auto ecosystem while adding exceptional technology and creative talent. Edmunds will continue to operate independently and will remain focused on delivering confidence to consumers and excellent value to its dealer and OEM clients. Additionally, this acquisition will allow both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by leveraging Edmunds’ compelling content and technology, our unparalleled national scale and infrastructure, and the combined talent of both businesses. A copy of the news release is available on our investor relations website at investors.carmax.com under the News Releases tab.

Fourth Quarter Business Performance Review:

Sales. Total used vehicle unit sales decreased 0.9% while comparable store used unit sales decreased 2.3% compared with increases of 14.7% and 11.0%, respectively, for the prior year’s fourth quarter. Excluding the added benefit of leap day in the prior year quarter, both total used unit and comparable store sales would have increased slightly year-over-year. For the first part of the quarter, retail sales were pressured due to the surge in COVID-19 cases, resulting in the tightening of occupancy restrictions and shelter-in-place orders. Sales then began to accelerate towards the end of December and into January as we launched our new marketing campaign, expanded our pricing tests, introduced new customer offerings and a second round of stimulus checks was issued. This trend continued until the middle of February when severe winter weather across a large portion of the U.S., delays in tax refunds relative to last year’s timing, and a lower inventory position due to COVID- and weather-related production constraints, negatively impacted retail sales. Total used vehicle revenues increased 1.8% due primarily to higher average retail selling prices versus the prior year quarter.

Total wholesale vehicle unit sales decreased 1.2% compared with the fourth quarter of fiscal 2020. The decrease in units was due to one less auction day in the quarter when compared with the prior year, the delays in tax refunds, severe weather and lower store traffic. This was partially offset by a strong fourth quarter appraisal buy rate.

Other sales and revenues decreased 1.9% to $157.4 million when compared with the fourth quarter of fiscal 2020. This decrease was mostly due to the divestiture of a new car franchise, partially offset by the 72.9% improvement in net third-party finance fees due to the favorable renegotiation of fee structures with Tier 2 and Tier 3 third-party finance providers.

Gross Profit. Total gross profit decreased 4.7% versus last year’s fourth quarter to $641.4 million. Used vehicle gross profit declined 5.8%, reflecting the decrease in total used unit sales and the impact of price reduction tests rolled out in select markets. Used vehicle gross profit per unit decreased to $2,086 compared with $2,195 in the prior year’s quarter and was consistent with our expectations. Wholesale vehicle gross profit decreased 1.5% versus the prior year’s quarter, reflecting the loss of an auction day when compared with the prior year. Wholesale vehicle gross profit of $990 per unit was in-line with the prior year quarter. Other gross profit decreased 3.2%, reflecting a decline in service profits, partially offset by changes in net third-party finance provider fees and growth in EPP revenues, which was driven by favorable adjustments to cancellation reserves and an increase in profit sharing revenue.

SG&A. SG&A expenses increased 14.7% to $556.1 million when compared with the fourth quarter of fiscal 2020. Factors contributing to the increase include a $32.7 million increase in stock-based compensation expense and a $23.0 million increase in advertising expense. The growth in stock-based compensation expense was primarily driven by the 27.8% increase in our stock price during the current quarter versus the 10.2% decrease during the prior year quarter. Advertising expense increased due to the heavier support for our new advertising campaign launched at the end of December. SG&A per used unit was $2,713, up $368 year-over-year, largely reflecting the deleverage associated with the decline in comparable store used unit sales, the $160 per unit increase in stock-based compensation expense, the $115 per unit increase primarily in awareness advertising expense and the continued spending to advance our technology platforms and strategic support initiatives. We expect marketing spend in fiscal 2022 to remain elevated with similar per unit expenses in the second half of fiscal 2021.

CarMax Auto Finance.(1) CAF income increased 68.2% to $188.2 million when compared with last year’s fourth quarter, reflecting a decrease in the provision for loan losses to $4.6 million from $53.0 million in the prior year quarter, plus an increase in net interest margin and average managed receivables. This lower provision was a function of the observed favorable loan loss experience within the quarter compared with expectations set at the end of the third quarter, as well as our outlook on future losses. As of February 28, 2021, the allowance for loan losses of $411.1 million was 2.97% of ending managed receivables, down from 3.17% as of November 30, 2020.

CAF’s total interest margin percentage, which represents the spread between interest and fees charged to consumers and our funding costs, improved to 6.4% of average managed receivables from 5.8% in the prior year’s fourth quarter, primarily due to lower funding costs. After the effect of 3-day payoffs, CAF financed 43.5% of units sold in the current quarter, in-line with the prior year’s fourth quarter.

CAF will increase its targeted Tier 3 share from 5% to 10% with the anticipation of reaching this level by the end of the first quarter. We will continue to evaluate the lending environment and will consider adjusting the target if and when we believe changes are sustainable and in the best interest of our long-term business goals.

Share Repurchase Activity. We repurchased 0.7 million shares of common stock for $66.3 million pursuant to our share repurchase program during the fourth quarter of fiscal 2021. As of February 28, 2021, we had $1.34 billion remaining available for repurchase under the outstanding authorization.

Fiscal 2022 Capital Spending Plan.We estimate capital expenditures will increase to approximately $350 million in fiscal 2022, up from $164.5 million in fiscal 2021 and $331.9 million in fiscal 2020. The increase in planned capital spending in fiscal 2022 reflects several factors, including continued spending on technology and the opening of 10 new locations.

About CarMax

CarMax, the nation’s largest retailer of used cars, revolutionized the automotive retail industry by driving integrity, honesty and transparency in every interaction. The company offers a truly personalized experience with the option for customers to do as much, or as little, online and in-store as they want. CarMax also provides a variety of vehicle delivery methods, including home delivery, contactless curbside pickup and appointments in its stores. During the fiscal year ending February 28, 2021, CarMax sold more than 750,000 used cars and more than 425,000 wholesale vehicles at its in-store and virtual auctions. In addition, CarMax Auto Finance originated more than $6 billion in receivables during fiscal year 2021, adding to its near $14 billion portfolio. CarMax has 220 stores, over 25,000 Associates, and is proud to have been recognized for 16 consecutive years as one of the Fortune 100 Best Companies to Work For®. For more information, visit www.carmax.com.