CarMax Inc. (KMX - Analyst Report) posted earnings per share of 86 cents in the first quarter of fiscal 2015, ended May 31, 2015, highlighting an increase of 13.2% from 76 cents a year ago. Earnings also marginally surpassed the Zacks Consensus Estimate of 85 cents.

Net sales and operating revenues in the reported quarter rose 7.1% year over year to $4.01 billion, but fell short of the Zacks Consensus Estimate of $4.14 billion. The year-over-year improvement in the top line was mainly driven by increased used vehicle sales and a rise in comparable store used unit sales.

Used vehicle revenues appreciated 7.6% to $3.3 billion in the quarter, driven by higher unit sales. Unit sales of used vehicles increased 9.3% to 164,510 vehicles, but their average selling price declined 1.6% to $19,851. Comparable-store used vehicle unit sales rose 4.9% in the quarter. The improvement can be attributed to higher footfall in stores and improved conversion.

New vehicle revenues decreased 14% to $60 million due to lower unit sales. Unit sales of new vehicles declined 14.7% to 2,215 vehicles, but their average selling price inched up 0.9% to $26,997.

Wholesale vehicle revenues rose 5.8% to $576.6 million in the quarter. Unit sales increased 4.7% to 101,630 vehicles. Wholesale unit sales benefited from improvement in store base. Average selling price of wholesale vehicles was flat year over year at $5,449.

Other sales and revenues went up 14.3% to $85.6 million. Extended protection plan (“EPP”) revenues increased 12.5% to $71.7 million.

Gross profit improved 8.4% to $543.8 million from $501.7 million in the year-ago quarter.

CarMax Auto Finance (CAF)

CAF reported a 15.3% increase in income to $109.1 million in first-quarter fiscal 2016 from $94.6 million a year ago. The improvement was primarily driven by an increase in average managed receivables and lower loss, partially offset by a lower total interest margin.

Store Openings

During the reported quarter, CarMax opened three stores, including two in new markets (Minneapolis and Gainesville, FL). The third store was opened in the Philadelphia market. Subsequent to the end of the quarter, the company expanded in the Denver market with the addition of two stores. Also, it opened a second store in the Providence market. In fiscal 2016, the company plans to open 14 stores and relocate 1 store whose lease is expiring. The company intends to open 13–16 superstores in each of the next two fiscal years.

Share Repurchase Program

During the first quarter of fiscal 2016, CarMax spent $119.9 million to repurchase 1.8 million shares under its existing share repurchase program. As of May 31, 2015, the company had $2.25 billion of authorization remaining under its share repurchase program.

Financial Position

CarMax had cash and cash equivalents of $351.7 million as of May 31, 2015, down from $532.2 million as of May 31, 2014. Total debt (including financing and capital lease obligations, and non-recourse notes payable) rose to $9.5 billion as of May 31, 2015, from $8 billion as of May 31, 2014.

In the first quarter of fiscal 2016, CarMax had a cash flow of $117.6 million from operations, compared with cash used of $209.1 million in the prior-year period. Capital expenditures were $59.4 million in the quarter, down from $53.7 million in the first quarter of fiscal 2015. The company expects capital expenditures of around $360 million for fiscal 2016.

Zacks Rank

CarMax currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include O'Reilly Automotive Inc. (ORLY - Analyst Report), Pep Boys - Manny, Moe & Jack (PBY - Snapshot Report) and U.S. Auto Parts Network, Inc. (PRTS - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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