A strong U.S. economy has brought great success to the automotive industry, driving huge sales volumes for U.S. automakers over the past year. Those favorable conditions have also helped used-car and wholesaler CarMax (NYSE:KMX) produce impressive results, and coming into Thursday morning's fiscal-fourth-quarter financial report, shareholders were looking for continued strength from the company. CarMax didn't disappoint, with solid growth in revenue and earnings that point to a successful 2015 ahead. Let's take a closer look at CarMax and how it fared in its most recent quarter.
CarMax is no lemon
CarMax once again gave investors the growth they have come to expect from the car specialist. Net revenue climbed more than 14% to $3.51 billion, slightly topping the consensus figure among those following the stock. About half of that growth came from expansion, but comparable used-car sales climbed 7%, mostly sustaining the impressive pace from the previous quarter. CarMax delivered earnings of $0.65 per share after adjusting downward for a one-time interest-related item, beating the analyst estimate by a nickel.
Looking at CarMax's various segments, performance was balanced during the quarter. Used-car sales climbed 12.4%, while wholesale unit volume jumped 12.3%. In the used-car segment, CarMax said it boosted its market share in sales of vehicles that were less than a decade old by 5 percentage points in 2014, pointing to the company's success in attracting customers to its unique car-shopping experience. Selling prices were largely flat, with used vehicles rising just 0.5% but wholesale vehicle prices climbing about 3.5% from year-ago levels.
One interesting side note is that CarMax has kept pushing sales of its extended protection plans, which has yielded impressive gains. During the quarter, revenue from warranty plans more than doubled from year-ago levels, making up nearly 2% of total sales.
CarMax's auto finance segment also revealed some interesting information about the industry. Income jumped almost 12%, with average loan receivables rising nearly 18%. But the unit has faced pressure from falling interest margins, as spreads between CarMax's financing costs and the interest and fees the company charges its customers fell by three-tenths of a percentage point compared to the previous year.
CarMax said it reached several milestones during the quarter. CEO Tom Folliard noted the company in its history had as of the quarter sold more than 5 million used cars, along with more than 3 million cars at wholesale. Folliard also praised the company's performance, pointing to the balance across used, wholesale, and auto-finance operations to produce profits.
What's next for CarMax?
For investors focused on CarMax's share price, the auto retailer's stock buyback program should have a positive influence well into the future. CarMax spent $913 million buying back 17.5 million shares last year, and $2.37 billion remains on its current share repurchase authorization. That could help keep shares moving higher even if market conditions deteriorate.
CarMax also expects to continue its growth aspirations. Having opened 13 stores last year, CarMax expects 14 new locations this year and between 13 and 16 store openings in the following couple of years. With remodeling plans, CarMax expects to spend about $360 million on capital expenditures during the new fiscal year.
CarMax shareholders celebrated the strong quarterly results, sending the stock up about 9% by 1 p.m. With the company pointing to the continued health of the auto industry, consumers are in their best position financially in years, and that should help CarMax keep moving higher as long as nothing jeopardizes the favorable trends helping its customers.