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Letter to the Editor

Carmax 1Q Net Earnings Fall 55 Percent

Comparable store used unit sales rose one percent for the first quarter. Total used unit sales grew ten percent for the first quarter. Net earnings decreased 55 percent to $29.6 million, compared with $65.4 million earned in the first quarter of fiscal 2008.

“The slowdown in the economy, the dramatic rise in gasoline and food costs and the related impact on consumer spending adversely affected our first quarter performance,” said Tom Folliard, president and chief executive officer. “For the first time in more than two years, we experienced a modest decline in customer traffic in our stores. Additionally, credit availability from our third-party nonprime lenders declined slightly during the quarter. However, solid execution by our store teams resulted in a small improvement in our conversion rate, and this, together with the benefit of an extra Saturday in the quarter, contributed to the one percent increase in comparable store used unit sales. Despite the slower-than-expected sales, our data indicates that we continued to gain market share in the late-model used vehicle market."

Wholesale unit sales declined two percent. During the quarter, wholesale industry prices for SUVs and trucks declined nearly 25 percent, which is approximately four times the normal depreciation expected over this period and well in excess of the depreciation expected over a full year.

“This is the most rapid depreciation of any vehicle segment that we have experienced in our 15 years,” said Folliard.

New vehicle unit sales declined 26 percent, reflecting the combination of the soft new car sales environment and the sale of an Orlando Chrysler Jeep Dodge franchise in the second quarter of fiscal 2008.

The total gross profit per unit declined by $237 to $2,564 compared with $2,801 in the first quarter of fiscal 2008. The majority of the decline resulted from the $192 per unit decrease in gross profit per used vehicle.

CarMax Auto Finance income declined to $9.8 million from $37.1 million in the first quarter of fiscal 2008, reflecting the continuing effects of the disruption in global credit markets and the more challenging economic environment.

First quarter net earnings declined to $29.6 million from $65.4 million in fiscal 2008.

“The decrease in earnings was primarily related to the reductions in gross profit per unit and CAF income, as well as the lower-than-expected sales, all of which we believe were the direct result of external conditions,” said Folliard. “We are encouraged, however, by our continued ability to execute in our stores and to gain market share, regardless of the external environment.”

During the first quarter, the company opened six used car superstores, plans to open an additional eight used car superstores during the remainder of fiscal 2009.

CarMax expanded its car-buying center test with an opening in Dallas, Texas, in April and an opening in Baltimore, Maryland, shortly after the end of the first quarter. The company now has a total of five car-buying centers, at which CarMax conducts appraisals and purchase, but does not sell, vehicles. These centers represent a controlled concept test to determine whether we can achieve a meaningful increase in the percentage of vehicles sourced directly from consumers.

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