Hitting the Growth Accelerator
The economic rebound may be lumpy and uncertain, but CarMax is certainly benefiting from some sort of recovery. Overall revenue jumped 23% this quarter, with same-store sales rising 16% (as measured in units) and 19% (as measured in dollars). Used car sales were up 20%, while wholesale rose 41% (to about 15% of revenue). Not only were these solid results in their own right, they met the highest published analyst estimate for the quarter.
Profitability was apparently where some investors saw trouble. Overall gross profit rose nearly 23% and the company basically maintained its overall corporate gross margin. Details matter though, and the company did report that the per-vehicle gross profit on used cars declined very slightly on an annual basis and about 5% on a sequential basis. Even though sequential declines are normal in this period and the prior quarter's result was exceptionally high, some investors were nevertheless disappointed. Likewise, perhaps a few sellers were spooked by the 11% sequential decline in volume, though again this is not all that exceptional.
Can the Company Drive the Growth that Matters?
CarMax has done well for itself, building a nationwide chain of 100 no-haggle used car superstores, and delivering compound revenue growth of about 13% over the past decade. On the other hand, the company performance in terms of free cash flow has been far less impressive. CarMax's best performance on this metric has been just $79 million, which represented a little more than 1% of revenue that year.
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