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CarMax: Quarter And Fiscal Year Results Richmond, Va.,

The following excerpt is from the company's SEC filing.

April 7, 2016

– CarMax, Inc. (NYSE:KMX) today reported results for the

fourth

quarter and fiscal year ended

February 29, 2016

Net sales and operating revenues increased

$3.71 billion

in the fourth quarter. For the fiscal year, net sales and operating revenues increased

$15.15 billion

Used unit sales in comparable stores increased

in the fourth quarter and

in the fiscal year.

Total used unit sales rose

Our data indicates that in our markets, we increased our share of the 0-10 year old used car market by approxima tely 1% in calendar year 2015.

Total wholesale unit sales increased

CarMax Auto Finance (CAF) income increased

$92.3 million

in the fourth quarter. For the fiscal year, CAF income rose 6.7% to $392.0 million.

In the fourth quarter, net earnings declined

$141.0 million

, while net earnings per diluted share rose

. Net earnings for this year’s fourth quarter was reduced by

$5.2 million

, net of tax, or

per diluted share, for an impairment-related charge associated with a property that we no longer plan to use. Year-over-year comparisons were affected by (i) a previously reported adjustment to capitalized interest expense recorded in the prior year’s quarter, which increased earnings by $4.2 million, net of tax, or $0.02 per diluted share and (ii) the impairment-related charge recorded in the current year’s quarter.

For the fiscal year, net earnings increased

$623.4 million

and net earnings per diluted share rose

. Year-over-year comparisons were affected by a previously announced receipt of proceeds in a class action lawsuit in the second quarter of the prior fiscal year, which increased earnings by $12.9 million, net of tax, or $0.06 per diluted share.

-more-

“While we faced a somewhat more challenging sales environment in the second half of the year, we delivered solid revenue and EPS growth in both the fourth quarter and the fiscal year, we opened a record number of stores and we made progress toward optimizing our capital structure by buying back 16.3 million shares in fiscal 2016,” said Tom Folliard, chief executive officer.

Fourth

Quarter Business Performance Review

. Total used vehicle unit sales grew

and comparable store used unit sales rose

versus the prior year’s fourth quarter. The comparable store used unit sales performance was driven by improved conversion and the solid execution of our store teams.

Wholesale vehicle unit sales grew

versus the fourth quarter of fiscal 2015, driven by the growth in our store base.

Other sales and revenues declined

year-over-year primarily reflecting our disposal of new car franchises earlier in the fiscal year. Starting this quarter, new car sales are included as a component of other sales and revenues. Extended protection plan (EPP) revenues increased

, largely reflecting the growth in our used unit sales. Net third-party finance fees improved by

primarily due to shifts in the mix among finance providers. Vehicles financed by the Tier 3 providers (those providers to whom we pay a fee) and those included in the CAF Tier 3 loan origination program represented 15.1% of retail unit sales in the current quarter versus 17.0% in the prior year’s fourth quarter.

Gross Profit

. Total gross profit increased

versus last year’s fourth quarter, to

$489.3 million

. Used vehicle gross profit rose

increase in total used unit sales. Used vehicle gross profit per unit declined to

$2,109

compared with

$2,148

in the corresponding prior year period. Wholesale vehicle gross profit declined

versus the prior year’s quarter, as the

increase in wholesale vehicle unit sales was offset by a decrease in wholesale vehicle gross profit per unit to

$1,005

$1,036

. Other gross profit rose

, primarily reflecting the improvements in EPP revenues and net third-party finance fees.

Compared with the fourth quarter of fiscal 2015, SG&A expenses increased

$333.9 million

. The growth primarily reflected the 10% increase in our store base since the beginning of last year’s fourth quarter (representing the addition of 15 stores), largely offset by a $14.2 million decrease in share-based compensation expense. Advertising expense was flat versus the prior year quarter, primarily reflecting a shift in timing of expenditures to earlier quarters of fiscal 2016. SG&A per used unit was

$2,151

in the current quarter, down

year-over-year. The decrease in share-based compensation expense reduced SG&A per used unit by $97.

Compared with last year’s fourth quarter, CAF income rose

$92.3 million

, driven by an increase in average managed receivables, which was largely offset by a lower total interest margin percentage and an increase in the provision for loan losses. Average managed receivables grew

$9.45 billion

. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to

of average managed receivables from

in last year’s fourth quarter. The increase in the provision for loan losses reflects the growth in our managed receivables and favorable loss experience in last year’s fourth quarter, which reduced the prior year provision. The allowance for loan losses as a percentage of ending managed receivables remained similar at 0.99% as of February 29, 2016 compared with 0.97% as of February 28, 2015.

Starting this quarter, SG&A per unit calculations are based on used units; previously they were based on retail units.

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

In January 2014, CAF launched a test originating loans for customers who typically would be financed by our Tier 3 finance providers. As of February 29, 2016, a total of $96.5 million in receivables were outstanding related to this program. We plan to continue to originate loans in the Tier 3 space at a share of Tier 3 originations similar to that during the past two years.

Interest Expense

. Interest expense rose to

$11.8 million

in the fourth quarter of fiscal 2016 from

$2.2 million

in the prior year’s quarter. During the prior year’s quarter, interest expense was reduced by $6.9 million, before tax, representing capitalized interest related to earlier quarters of fiscal 2015. Excluding this adjustment, the year-over-year increase in interest expense primarily reflected our higher average outstanding debt in the current fiscal year.

Other Expense

During the current year’s fourth quarter, we recorded an impairment-related charge of $8.3 million, before tax, associated with a property that we no longer plan to use.

Store Openings

. During the fourth quarter, we opened five stores, including three stores in new markets (two in Boston and one in Peoria/Bloomington) and two in existing markets (our...


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