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CarMax, Inc. reported significant improvement for used-vehicle sales in the quarter ended Nov. 30.
Total sales of used units climbed 16 percent and comparable store sales were up 12 percent. The comparable store used unit growth was driven by improved conversion, which CarMax executives say resulted in part from more compelling credit offers from third-party finance providers and its own CarMax Auto Finance, increased inventory selection, improved customer sentiment and continued strong in-store execution.
The used vehicle average selling price was similar to the prior year's quarter.
Wholesale vehicle unit sales grew 10 percent compared with last year's quarter. Wholesale unit sales benefited from an increase in appraisal traffic, while the appraisal buy rate was similar to the prior year's quarter.
Other sales and revenues increased 5 percent compared with the prior year's quarter, as an increase in extended service plan (ESP) revenues was largely offset by a reduction in net third-party finance fees. Third-party subprime providers, who purchase subprime financings at a discount, originated 14 percent of used vehicle unit sales in the current quarter compared with 9 percent in the prior year quarter. ESP revenues climbed 22 percent due to both the growth in used vehicle sales and an increase in ESP penetration.
Total gross profit increased to $345.2 million from $303.2 million in the same quarter last year, primarily reflecting the increased used and wholesale vehicle unit sales, as well as higher other gross profit.
Used vehicle gross profit rose to $227 million driven by the 16 percent increase in used unit sales. Used vehicle gross profit per unit was relatively consistent at $2,146 versus $2,171 in last year's same quarter.
Wholesale gross profit increased to $73.6 million, driven by the 10 percent increase in wholesale unit sales. Wholesale vehicle gross profit per unit remained stable at $923 compared with $914 in the prior year quarter.
Other gross profit rose to $43.7 million, as improved ESP and service department profits were partially offset by the lower net third-party finance fees.
CarMax Auto Finance income increased to $72.5 million compared with $62.6 million in last year's same quarter. The growth in CAF income was largely attributable to the 15 percent increase in average managed receivables, which grew to $5.48 billion from $4.77 billion in the prior year period. The increase in average managed receivables reflected the rise in CAF origination volume throughout fiscal 2012 and fiscal 2013 as the company transitioned back to its pre-recession origination strategy, higher average amounts financed and the growth in retail unit sales.
The allowance for loan losses was 1 percent of managed receivables as of Nov. 30, compared with 0.9 percent as of Nov. 30, 2011. Continued favorable loss experience partially offset the effect of the change in credit mix resulting from the transition in origination strategy.
Selling, general and administrative expenses increased to $257.3 million from $225.8 million in the prior year's same quarter. The increase primarily reflected the combination of the 9 percent increase in the company's store base since the beginning of last year's third quarter (representing the addition of 10 stores) and higher variable selling costs resulting from the 12 percent increase in comparable store used unit sales. SG&A per retail unit declined to $2,393 versus $2,436 in the prior year's quarter as the leverage resulting from the comparable store unit sales growth was partially offset by higher costs related to growing the store base.