Q2 2013 Earnings Call
September 20, 2012 9:00 am ET
Katharine W. Kenny - Vice President of Investor Relations
Thomas J. Folliard - Chief Executive Officer, President and Director
Thomas W. Reedy - Chief Financial Officer and Executive Vice President
Scot Ciccarelli - RBC Capital Markets, LLC, Research Division
John Murphy - BofA Merrill Lynch, Research Division
Ravi Shanker - Morgan Stanley, Research Division
Sharon Zackfia - William Blair & Company L.L.C., Research Division
Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division
Joshua Dolin - Wells Fargo Securities, LLC, Research Division
James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division
Matthew J. Fassler - Goldman Sachs Group Inc., Research Division
Rod Lache - Deutsche Bank AG, Research Division
Clint D. Fendley - Davenport & Company, LLC, Research Division
William R. Armstrong - CL King & Associates, Inc., Research Division
Efraim Levy - S&P Equity Research
David Whiston - Morningstar Inc., Research Division
Good morning. My name is Whitney, and I will be your conference operator today. At this time, I would like to welcome everyone to the CarMax Second Quarter Earnings Call. [Operator Instructions]
I will now turn the call over to Katharine Kenny. Please go ahead.
Katharine W. Kenny
Thank you, and good morning. Thank you for joining our fiscal 2013 second quarter earnings conference call. On the call today with me, as usual, are Tom Folliard, our President and Chief Executive Officer; and Tom Reedy, our Executive Vice President and CFO.
Before we begin, let me remind you that our statements today regarding the company's future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the company's annual report on Form 10-K for the fiscal year ended February 29, 2012, filed with the SEC.
Before I turn the call over to Tom, let me also remind you that we are holding 2 of our regular analyst days in our home office here in Richmond on October 2 and October 30. If you're interested in attending, please let us know. Tom?
Thomas J. Folliard
Thank you, Katharine, and good morning, everyone. We were pleased to report used unit comps for the second quarter of 5% compared to last year and total growth in used units of 8%. Traffic was somewhat lower than last year but conversion increased due to the continuation of better credit offers and strong execution by our store sales teams.
Total used vehicle gross profit grew with total sales by 8%. Used vehicle gross profit per unit of $2,172 remained virtually unchanged compared to last year's second quarter. Appraisal traffic was up again this quarter but wholesale unit sales decreased by 2% due to a drop in the buy rate compared to last year. Remember, the buy rate for this quarter was approximately 28%. And as we've discussed before, the buy rate is correlated to changes in overall wholesale pricing, which affect the offers we can make to consumers, and we recently have seen some moderating wholesale vehicle valuations.
Total wholesale gross profit fell as a result of lower unit sales and a slightly lower per-unit gross profit of $907. As far as cash, cash quarterly income grew by 19%, Tom will talk more about that in a second, to $76 million, largely as a result of a 14% increase in total managed receivables. I'll talk a bit about supply and mix of sales.
We do believe the decrease in the supply of used vehicles since 2008 has adversely impacted our sales over the last couple of years. Assuming current car trends continue, we expect to see an improving supply situation, particularly in 0- to 4-year-old cars where we have historically had higher share. We believe that as supply rebounds, it will positively impact our business over the next year or 2.
For mix, during the quarter, sales of 5-year and older vehicles as a percentage of our total sales remained well above 25%. Year-over-year, sales of SUVs and trucks fell by about 2 points -- 2 percentage points this quarter and was offset by a similar increase in the percentage of compact and midsized vehicles sold.
I'll now turn the call over to Tom Reedy to talk about financing. Tom?
Thomas W. Reedy
Thanks, Tom. Good morning, everybody. As on the press release, CarMax Auto Finance continued to deliver strong results. CAF income grew $12 million or 19% compared to the second quarter fiscal 2012. This modestly outpaced the growth in our portfolio of average managed receivables, which increased 14% to more than $5.2 billion. Our interest margin after the provision for loan losses was up 16% due to the average receivables growth plus the combination of the transition back to our pre-recession origination strategy, continued low funding costs and favorable loss performance.
We also realized a year-over-year reduction in expenses arising from operating efficiencies. The growth in managed receivables was largely driven by strong origination volumes over the course of fiscal 2012 and into early fiscal 2013, which were lifted by the expansion in CAF penetration over that period, increased average selling prices and CarMax sales growth. For the quarter, net penetration was 37%, down modestly compared to the second quarter of FY '12, and net loans originated in the quarter increased 7% year-over-year.
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