Carmax

About Carmax

To the greatest extent possible, CarMax helps drivers find late-model used autos. The US's largest specialty used-car retailer buys, reconditions, and sells cars and light trucks at more than 100 superstores in 25 US states, mainly in the Southeast and Midwest; CarMax also operates four new-car franchises and sells older vehicles through about 263,000 in-store – more... auctions each year at some 50 stores. CarMax sells vehicles that are generally fewer than six years old with less than 60,000 miles. It also sells older cars and trucks with higher mileage via its ValuMax program. The company's website lets customers search CarMax outlets nationwide for a particular model. Its CarMax Auto Finance unit offers financing.

Operations

The company's financing activities, conducted through CarMax Auto Finance, have been a profit center for the firm, which began offering loans to customers at rates of 9% or more. Also, with an average selling price of more than $17,000 for one of its late-model used vehicles, and its "no-haggle" pricing policy, CarMax realizes a hefty $2,000 gross profit on each sale.  Despite sales of more than 415,000 vehicles a year, CarMax has less than 3% of the late-model used-car market.

Financial Analysis

CarMax's sales hit $10 billion in fiscal 2012 (ends February), up more than 11% vs. the prior year. Net income increased by nearly 9% over the same period. Sales and profit growth have accelerated in recent years as the economy picks up speed. Cash flow however continued its steep three-year decline.

Strategy

CarMax's used-vehicle niche was a buffer for the firm during the deep recession and credit crisis, which negatively impacted both new- and used-car sales. Indeed, used vehicles account for more than 75% of total sales. While the number of vehicles sold at auction to represent 14% of its revenue, new car sales declined for the fifth consecutive year. To make room for more used-car sales, CarMax has divested half of its new-car franchises and may sell more. New vehicles account for only 3% of CarMax's retail vehicle unit sales. Historically fast-growing CarMax, which increased its store count from 58 locations in 2005 to 100 in 2009, put the brakes on new superstore openings after a dramatic drop in sales. However, given the recent improvement in the economy, credit markets, and retail scene, the used-car dealer has begun growing again with eight new locations opened in the past two years, and as many as 10 new superstores slated to open in 2012. With a presence more than 50 metropolitan markets nationwide, CarMax feels it has plenty of room to grow. Also, in the wake of the worst financial crisis since the Great Depression, CarMax believes that many newly thrifty consumers will buy a used vehicle when the time comes to replace their current ride.

Ownership

Capital World Investors owns 12% of CarMax. – less

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