Here at the Fool, we know you've got a life. Between working while the sun shines, and unwinding when it doesn't, you may find it hard to keep up to speed on Wall Street events -- like corporate "investor conferences."
These meetings ostensibly benefit investors, but the companies behind them rarely transcribe their proceedings and file them with the SEC, which usually leaves everyone who couldn't afford to be there in person out in the cold. (In all fairness, today's subject sometimes does make transcripts.) That's where our "Fool on the Street" series comes in.
Without further ado ...
Today, we'll recap the news from CarMax's
Folliard spent an unusual amount of time simply describing how the business works -- information I'm guessing is redundant to most of our readers. After all, CarMax has been an active recommendation of Motley Fool Inside Value for nearly a year and a half now. To keep this column short and sweet, I'll focus instead on the three most interesting items from his talk.
How big can it get?
With a stock up 47% over the last year, and 90% since we recommended it in January 2006, investors might well wonder just how much growth CarMax has left in its tank. We all know the numbers that management recites: long-term same-store sales growth of 4% to 8%, 15% to 20% growth in store count every year, $15 billion to $20 billion in revenue by 2012. But where's the road map? How does it start at Point A, and meet those goals by the time it reaches Point B?
Folliard laid it out for us: "We have 80 stores today. But the best part about, I think, our prospects is we're only in 40% of the U.S. market." Growing the store count by 15%-plus every year, CarMax will need "the next five years, and probably for the next five years after that," to fill out the U.S. market. So you've got as much as 10 years' further growth right there, just filling in the gaps in the national car market. According to Folliard, this would require CarMax to "double the number of stores we have in the next five years, and possibly double again the five years after that" -- so the firm won't saturate its market until it hits somewhere between 160 and 320 stores nationwide.
Further growth can be found in growing market share where CarMax already exists. CarMax controls just an "8% to 10% [market share] in our strong markets." Folliard cites the firm's 6% same-store sales growth over the last five years, as opposed to 3% same-store sales growth in used cars at "public new car dealers" such as AutoNation
This brings us, however, to one potential risk to CarMax's profitability. Remember how much trouble Costco
We're ... continuing to invest in California. We have six current stores in Los Angeles [and] we'll have eight stores at the end of this year. I think we could end up somewhere in the 15 to 20 range in terms of number of stores in Los Angeles... I think San Diego will be a multistore market for us as well. ... We'll open up another store in Modesto.
Back-of-the-envelope, this looks to me like roughly one full year's worth of store-count growth going into this single, high-cost state. I could be wrong about the risk here, though. Stay tuned.
Hit and run on the newspaper boy
One last point from Folliard's presentation before I sign off -- and this one concerns the newspaper industry more than CarMax. Asked about the mix of its ad spending among various media outlets, Folliard offered the following:
If you asked me that five years ago, I would never have expected that we would end up where we are today, which is almost completely out of the newspaper. All those newspaper dollars are now spent on the Internet. They're spent on the combination of page searches, [Google
(NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO)], or actually paid classifieds, like cars.com and autotrader.com, which now carry all of our ads. And my guess is you'll continue to see the shift in that direction.
If more CEOs are thinking like CarMax's CEO, I suspect that spells good news for investors in the big Internet names -- and worse news for anyone investing in Gannett
Costco and Yahoo! are Motley Fool Stock Advisor recommendations.