CarMax Inc. (KMX)
Q1 2011 Earnings Call Transcript
June 23, 2010 9:00 a.m. ET

Executives

Katharine Kenny – Vice President, Investor Relations
Thomas J. Folliard – President and Chief Executive Officer
Keith D. Browning – Executive Vice President and Chief Financial Officer

Analysts

Simeon Gutman – Credit Suisse
Sharon Zackfia – William Blair & Company
Jason Blair – Rochdale Research
Himanshu Patel – J.P. Morgan
John Murphy – Banc of America/Merrill Lynch
Craig Kennison – Robert W. Baird
Matthew Fassler – Goldman Sachs
Dan Gallatin – Deutsche Bank
Brian Nagel – Oppenheimer
Scot Ciccarelli – RBC Capital Markets
William Truelove – UBS
William Armstrong – CL King & Associates
Tricia Gill – Wells Fargo Securities
Scott Stember – Sidoti & Company

Presentation

Operator

Good morning. My name is Tania and I will be your conference operator today. At this time, I would like to welcome everyone to the Quarter One Fiscal Year 2011 Quarterly Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your questions, press the pound key. Thank you. I will now turn the call over to Ms. Katharine Kenny. Ma’am, you begin your conference.

Katharine Kenny

Good morning. 104 in Richmond today. I’m Katharine Kenny, Vice President of Investor Relations at CarMax. I know you all want an update on the weather here. I’m also pleased to announce that CarMax was added to the S&P 500 as I’m sure you’re all aware. Thank you for joining our fiscal 2011 first quarter earnings conference call. On the call with me today as usual are Tom Folliard, our President and Chief Executive Officer and Keith Browning, our Executive Vice President and Chief Financial Officer.

Before we begin, let me remind you that our statements today regarding the company’s future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations.

In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the company’s annual report on Form 10-K for the fiscal year ended February 28, 2009 filed with the SEC.

One last comment, I think you will notice today that we have shortened Tom and Keith’s prepared remarks. Our reasoning was to reduce the redundancy of information readily available in the press release and focus more on questions from our conference call participants. Again, thanks for joining. I’ll turn the call over to Tom.

Thomas J. Folliard

Thank you, Katharine. Good morning everyone. Well, we’re pleased to report a 9% used unit comp, used unit comp growth in the first quarter of fiscal 2011. This was driven primarily by an increase in our customer traffic.

On a two-year basis our comp store unit sales trend improved sequentially from a negative 14% in the fourth quarter of fiscal 2010 to a negative 8% in the first quarter. Now, let me highlight some of our key achievements for the quarter. Year-over-year we improved used vehicle margins by over $200. We delivered both strong sales execution and strong inventory turns.

Our wholesale unit sales grew by 52% and our buy ratio, which is percentage of cars that we appraise, how many of those we buy was over 30% for the quarter and we also increased wholesale gross profit per vehicle. In addition, CarMax Auto Finance had better than expected quarter which Keith will provide a little more detail in a moment.

Our notable increase in used vehicle gross profit per unit was due to a variety of factors, including greater self-sufficiency, which is the amount of inventory that we retail that is sourced through our store appraisal lane. Also as you know, the dramatic wholesale price appreciation we saw last year represented a substantial tailwind for our gross profit per used vehicle and it continued to support our gross profit during the first quarter, although to a lesser extent.

Other factors supporting the increase in gross profit were our reduction in reconditioning costs, which we have talked about previously and once again strong inventory turns. Now, I’ll ask Keith to comment on CarMax Auto Finance results. Keith?

Keith D. Browning