Carmax Inc.

Last modified by Md. Touhidul Islam on 2023/12/30 15:04

Contents

Summary
Brief Company Overview
Recent Business Developments
Recent Financing Activities
Financial Performance Highlights
Business Overview
Company History
References

Summary

CarMax sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges customer financing options.
Under the ownership of Circuit City Stores, Inc., CarMax began operations in 1993 with the opening of its first CarMax store in Richmond, Virginia.
The company operates in two reportable segments: CarMax Sales Operations (“CSO”) and CarMax Auto Finance (“CAF”).
In 2023, for the year ended 28 February 2023, CarMax reported a decrease in revenue by $2,215 million compared to the previous year. The total revenue for 2023 amounted to $29,685 million, reflecting a 7% decline from the $31,900 million reported in 2022.
As of 31 August 2023, for the quarter ended, the return on equity (ROE) and earnings per share (EPS) of CarMax are 2% and $0.75, respectively. As of 31 August 2023, the gross margin is 9.85%, the operating margin is 2.65%, and the net margin is 1.68%.

Brief Company Overview

carmax logo CarMax Inc. (NYSE: KMX), including its wholly-owned subsidiaries, is the nation’s largest retailer of used vehicles. The company sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges customer financing options. Under the ownership of Circuit City Stores, Inc., CarMax began operations in 1993 with the opening of its first CarMax store in Richmond, Virginia. On October 1, 2002, the CarMax business was separated from Circuit City through a tax-free transaction, becoming an independent, publicly traded company. The company’s headquarters is located in Richmond, Virginia. The company operates in two reportable segments: CarMax Sales Operations (“CSO”) and CarMax Auto Finance (“CAF”). The CSO consists of all aspects of the auto merchandising and service operations, excluding financing provided by CAF. The CAF segment consists solely of its own finance operation that provides financing to customers buying retail vehicles from CarMax. CarMax’s customers are mainly individual consumers who are looking for a wide selection of quality used vehicles and related products and services at competitive prices. CarMax does not disclose the names or details of its institutional customers, but some examples of potential buyers are rental car companies, fleet operators, or exporters. These customers may purchase vehicles from CarMax through its wholesale auctions, which are held at most of its locations across the country.

CarMax pioneered the used car superstore concept, offering a large selection of quality used vehicles, no-haggle pricing, and a hassle-free sales process. It also acquired its first new car franchise with Chrysler Corporation in 1996 and later added new vehicle franchises for Mitsubishi Motors, Toyota, and Nissan. However, by 2021, CarMax sold its last new vehicle dealership and focused on its core used car business.¹ CarMax was listed on the New York Stock Exchange (NYSE) under the ticker symbol KMX. The company’s initial public offering (IPO) was on Friday, February 07 1997, and it was spun off from Circuit City as an independent company in 2002. As of February 28, 2023, CarMax operated 240 used car stores.

carmax inc. cover photo

CarMax is the nation’s largest retailer of used cars, and it sold 807,823 used vehicles at retail during the fiscal year ended February 28, 2023. The company is also one of the nation’s largest operators of wholesale vehicle auctions, with 585,071 vehicles sold during fiscal 2023 and one of the nation’s largest providers of used vehicle financing, servicing approximately 1.1 million customer accounts. The U.S. used car marketplace is highly fragmented. CarMax faces competition from franchised dealers selling new and used vehicles, online sellers, independent used car dealers, and private parties. According to industry sources, as of December 31, 2022, there were over 18,000 franchised dealers in the U.S. Bill Nash is president and chief executive officer of CarMax, the nation’s largest retailer of used cars, with more than 30,000 employees. As of 31 August 2023, for the quarter ended, the return on equity (ROE) and earnings per share (EPS) of CarMax are 2% and $0.75, respectively. The company does not pay any dividends. As of August 2023, CarMax has 158.48 million shares outstanding. CarMax had 945 institutional shareholders. The top 10 institutional shareholders held 46.42% of the total shares, with Vanguard Group Inc being the largest shareholder with 17,854,777 shares. The 52-week share price range is between $55.77 to $87.50, and the trailing PE is 24.45. As of 31 August 2023, the gross margin is 9.85%, the operating margin is 2.65%, and the net margin is 1.68%.

Recent Business Developments

On April 01, 2021, CarMax announced it had signed a definitive agreement to acquire Edmunds, one of the most well-established and trusted online guides for automotive information and a recognised industry leader in digital car shopping innovations.²
On July 14, 2022, The National Women’s Soccer League and CarMax announced a multi-year partnership. CarMax became the Official Auto Retailer of the NWSL, the first in league history. It served as the presenting sponsor of the NWSL Shield, awarded to the club with the best record at the conclusion of the regular season.³
On December 12, 2023, CarMax announced the pilot of its first all-electric semi-truck that is being used as a vehicle haulier in California’s San Joaquin Valley. The truck can transport up to seven vehicles at one time and can travel an estimated 230 miles on a single charge, enabling it to serve CarMax’s stores in the region efficiently.⁴
On November 15, 2023, CarMax announced plans to open its first stand-alone reconditioning centre, which will be located in Carrollton, Georgia. The exclusive purpose of the state-of-the-art facility will be to recondition used vehicles to be sold to customers at CarMax stores in the Atlanta region, with the ability to ship nationwide.⁵
On March 23, 2023, CarMax was named the official used auto retail partner of Barclays Center, the Brooklyn Nets, the New York Liberty and the Long Island Nets, the company’s first NBA G League team partner.⁶
On January 17, 2023, CarMax announced the national launch of its pre-qualification capability, a new online financing experience that empowers customers with the ability to shop vehicles nationwide with personalised financing terms, with no impact on their credit score.⁷

Recent Financing Activities

During the third quarter of fiscal year 2024, CarMax financed from non-recourse notes amounting to $9,009 million to fund changes in auto loans receivable and pay non-recourse notes payable.⁸
During the third quarter of fiscal year 2024, CarMax resumed its share repurchase program. The company repurchased 648,500 shares of common stock for $41.9 million in the quarter.⁹
During the third quarter of the fiscal year 2024, CarMax financed long-term debts amounting to $134 million to fund the share-repurchase program and pay long-term debts.¹⁰

Financial Performance Highlights

Q2 Performance Highlights

Net revenues for the second quarter of the 2023-24 fiscal year, as of 31 August 2023, were $7,073.8 million, declined by 13.1% compared with the prior year's second quarter revenue, which amounted to $8,144.8 million. Revenue from used vehicle sales was $5591.1 million, which declined by 11% compared with the prior year's second-quarter revenue, which amounted to $6,284.1 million. Revenue from wholesale vehicle sales was $1322.0 million, which declined by 21.8% compared with the prior year's second-quarter revenue, which amounted to $1,690.3 million. The decline in revenue can be attributed to a decline in unit sales by 7.4% in retail used vehicles and a decline in unit sales by 11.2% in the wholesale vehicle segment. Gross Profit for the second quarter of the 2023-24 fiscal year, as of 31 August 2023, were $696.8 million, declining by 5.5% compared with the prior year's second quarter gross profit, which amounted to $737.1 million. Gross Profit from used vehicle sales was $452.1 million, which declined by 8.7% compared with the prior year's second-quarter gross profit, which amounted to $495 million. Gross Profit from wholesale vehicle sales was $136.6 million, which declined by 2.9% compared with the prior year's second-quarter gross profit, which amounted to $140.7 million. The gross margin ratio as of 31 August 2023 was 9.8% compared with the prior year's second-quarter gross margin of 9.1%. The net margin ratio as of 31 August 2023 was 1.7% compared with the prior year's second-quarter gross margin of 1.5%. As of 31 August 2023, the earnings per share was $0.75 compared with the prior year's second-quarter earnings per share of $0.79 and the company did not pay any dividends.

Annual Performance Highlights

In 2023, for the year ended 28 February 2023, CarMax reported a decrease in revenue by $2,215 million compared to the previous year. The total revenue for 2023 amounted to $29,685 million, reflecting a 7% decline from the $31,900 million reported in 2022. The decline in the revenue was due to a decline in unit sales by 12.6% in the retail used vehicle segment and a decline in sales units by 17.2% in the wholesale vehicle segment. The gross profit for 2023 stood at $2,800 million, resulting in a 15% decrease from the $3,288 million recorded in 2022. The gross margin, calculated as a percentage of revenue, decreased from 10.31% in 2022 to 9.43% in 2023. The net profit for 2023 was $485 million, indicating a 58% decline in gain from the $1,151 million net profit reported in 2022. This change can be attributed to a decline in the Auto Finance Income and an increase in operating expenses, depreciation, amortization, and interest expenses. The operating profit in 2023 reached $748 million, with a 52% decline in profit from the $1,552 million reported in 2022. The operating margin declined from a 4.86% profit in 2022 to a 2.52% profit in 2023. The net margin for 2023, calculated as the ratio of net profit to revenue, was 1.63%, compared to 3.61% in 2022. The earnings per share was equal to 7.09 in 2022 and 3.05 in 2023. The company paid no dividends.

The cash flow statement reveals positive trends in cash flows during the year ended 28 February 2023. Operating, investing, and financing activities experienced notable changes. There was a net cash inflow in operating activities amounting to $1,283 million in 2023 and a net cash outflow amounting to $2,549 million in 2022 and 2021, respectively. The net cash used in investing activities was $426 million and $524 million in 2023 and 2022, respectively. The net cash used in financing activities was $710 million in 2023, and the net cash received was $3,105 million in 2022.

Revenue from used vehicle sales was $23,034 million for the year ended 28 February 2023, which declined by 5.7% compared with the prior year's revenue, which amounted to $24,437 million. Gross Profit from used vehicle sales was $1,848 million, which declined by 9.3% compared with the prior year's gross profit, which amounted to $2,038 million. The 5.7% decrease in used vehicle revenues in fiscal 2023 was primarily driven by a 12.6% decrease in used unit sales, partially offset by a 7.8% increase in average retail selling price. The decrease in used units included a 14.3% decrease in comparable store-used unit sales. Online retail sales, as defined previously, accounted for 12% of used unit sales in fiscal year 2023, compared with 9% in fiscal year 2022. Used vehicle gross profit decreased 9.3% in fiscal 2023, driven by the 12.6% decrease in total used unit sales, partially offset by the $83 increase in used vehicle gross profit per unit.

Revenue from wholesale vehicle sales was $5,990 million for the year ended 28 February 2023, which declined by 11.4% compared with the prior year's revenue, which amounted to $6,76 million. Gross Profit from wholesale vehicle sales was $590 million, which declined by 22.9% compared with the prior year's gross profit, which amounted to $765 million. The 11.4% decrease in wholesale vehicle revenues in fiscal 2023 was primarily due to a 17.2% decrease in unit sales, partially offset by a 6.9% increase in average selling price. Wholesale vehicle gross profit decreased 22.9% in fiscal 2023, driven by the 17.2% decrease in wholesale unit sales as well as the $75 decrease in wholesale vehicle gross profit per unit.

CAF Income decreased $138.1 million, or 17.2%, reflecting an increase in the provision for loan losses and a decrease in the net interest margin percentage, partially offset by an increase in average managed receivables. Provision for Loan Losses Increased to $317.0 million from $141.7 million.

Business Overview

CarMax Inc. (NYSE: KMX), including its wholly-owned subsidiaries, is the nation’s largest retailer of used vehicles. The company sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges customer financing options. It is the nation’s largest retailer of used cars, and it sold 807,823 used vehicles at retail during the fiscal year ended February 28, 2023. It is also one of the nation’s largest operators of wholesale vehicle auctions, with 585,071 vehicles sold during fiscal 2023, and one of the nation’s largest providers of used vehicle financing, servicing approximately 1.1 million customer accounts in its $16.77 billion portfolio of managed receivables as of February 28, 2023. The omni-channel platform, which gives CarMax the largest addressable market in the used car industry, empowers the retail customers to buy a car on their terms including online, in-store or an integrated combination of both. The company operates in two reportable segments: CarMax Sales Operations (“CSO”) and CarMax Auto Finance (“CAF”). The CSO consists of all aspects of the auto merchandising and service operations, excluding financing provided by CAF. The CAF segment consists solely of its own finance operation that provides financing to customers buying retail vehicles from CarMax.. CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options for customers, all for competitive prices. On June 1, 2021, CarMax completed the acquisition of Edmunds Holding Company, one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations.¹¹ With this acquisition, CarMax has enhanced its digital capabilities and further strengthened its role and reach across the used auto ecosystem while adding exceptional technology and creative talent.

carmax business

The omni-channel platform provides multiple ways for the customers to interact with CarMax, including completely online. CarMax reconditions every used vehicle it retails to meet the CarMax Quality Certified standards, and each vehicle must pass an inspection before being offered for sale. The compnay stands behind every used vehicle it sells with the Love Your Car Guarantee. This guarantee gives customers the ability to take 24-hour test drives before committing to purchase as well as provides a 30day/1,500 mile money-back guarantee and a 90-day/4,000-mile limited warranty. The CarMax Quality Certified standards were developed internally by CarMax and are not affiliated with any third party or original equipment manufacturer program.

Vehicle purchases are also made through MaxOffer, the digital appraisal product for dealers. The company leverages the Edmunds sales team to open new markets and sign-up new dealers for MaxOffer. In fiscal 2023, the company purchased approximately 1.2 million vehicles from consumers and dealers. Based on age, mileage or condition, approximately half of the vehicles acquired through the appraisal processes meet the retail standards. Those vehicles that do not meet the retail standards are sold to licensed dealers through the wholesale auctions. Unlike many other auto auctions, CarMax owns all the vehicles that it sells in the auctions, which allows the company to maintain a high auction sales rate. This high sales rate, combined with dealer-friendly practices, makes the auctions an attractive source of vehicles for licensed dealers. For fiscal 2023, the average auction sales rate was approximately 95%.

The availability of financing is a critical component of the vehicle purchase process, and having an array of finance sources increases approvals, expands access to financing for the customers and mitigates risk to CarMax. The finance program accommodates customers across a wide range of the credit spectrum through both CAF and third-party providers. CarMax believes that the processes and systems, transparency of pricing, and vehicle quality, as well as the integrity of the information collected at the time the customer applies for credit, enable CAF and the third-party providers to make underwriting decisions in a unique and advantageous environment distinct from the traditional auto retail environment. All finance offers, whether from CAF or the third-party providers, are backed by a 3-day payoff option, which allows customers to refinance their loan with another finance provider within three business days at no charge.

Retail Used Vehicle

CarMax offers customers a broad selection of makes and models of used vehicles, including domestic, imported and luxury vehicles, as well as hybrid and electric vehicles, at competitive prices. The focus is vehicles that are 0 to 10 years old; these vehicles have historically ranged in price from $11,000 to $37,000, however, similar to fiscal 2022, the past year generally ranged in price from $16,000 to $49,000 due to higher vehicle acquisition costs driven by market. Revenue from used vehicle sales was $23,034 million for the year ended 28 February 2023, which declined by 5.7% compared with the prior year's revenue, which amounted to $24,437 million. Gross Profit from used vehicle sales was $1,848 million, which declined by 9.3% compared with the prior year's gross profit, which amounted to $2,038 million. The 5.7% decrease in used vehicle revenues in fiscal 2023 was primarily driven by a 12.6% decrease in used unit sales, partially offset by a 7.8% increase in average retail selling price. The decrease in used units included a 14.3% decrease in comparable store-used unit sales. Online retail sales, as defined previously, accounted for 12% of used unit sales in fiscal year 2023, compared with 9% in fiscal year 2022. During fiscal 2023, CarMax believes a number of macroeconomic factors impacted the used unit sales performance, including challenges to vehicle affordability that stem from broad inflation, rising interest rates, tightening lending standards, and low consumer confidence. The performance was also impacted by transitory competitive responses to the current environment while the company maintained its focus on profitable market share gains. The increase in the average retail selling price in fiscal 2023 reflected higher vehicle acquisition costs, partially offset by shifts in the mix of the sales by vehicle age. Used vehicle gross profit decreased 9.3% in fiscal 2023, driven by the 12.6% decrease in total used unit sales, partially offset by the $83 increase in used vehicle gross profit per unit. CarMax continues to focus on striking the right balance between covering cost increases, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Wholesale Used Vehicle

The typical vehicle sold at the wholesale auctions is approximately 10 years old and has more than 100,000 miles. CarMax provides condition disclosures on each vehicle, including those for vehicles with major mechanical issues, possible frame or flood damage, branded titles, salvage history and unknown true mileage. Professional, licensed auctioneers conduct the auctions. Dealers pay a fee to CarMax based on the sales price of the vehicles they purchase. The auctions are generally held on a weekly or bi-weekly basis. Revenue from wholesale vehicle sales was $5,990 million for the year ended 28 February 2023, which declined by 11.4% compared with the prior year's revenue, which amounted to $6,76 million. Gross Profit from wholesale vehicle sales was $590 million, which declined by 22.9% compared with the prior year's gross profit, which amounted to $765 million. The 11.4% decrease in wholesale vehicle revenues in fiscal 2023 was primarily due to a 17.2% decrease in unit sales, partially offset by a 6.9% increase in average selling price. Wholesale volume was negatively impacted by the decision to shift some units from wholesale to retail to meet consumer demand for lower-priced vehicles. The net increase in average selling price in fiscal 2023 was primarily due to increased acquisition costs resulting from strong industry valuations in the beginning of fiscal 2023, which continued from the prior fiscal year, offsetting depreciation in the second half of the fiscal year. Wholesale vehicle gross profit decreased 22.9% in fiscal 2023, driven by the 17.2% decrease in wholesale unit sales as well as the $75 decrease in wholesale vehicle gross profit per unit. The company’s decision to source a higher mix of older vehicles for retail sale also impacted wholesale vehicle gross profit per unit. When those vehicles cannot be reconditioned to the standards for consumer sales, the company shifts them to wholesale, which often sell at lower margins. The wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of the auctions, as well as strong dealer attendance and resulting high dealer-to-car ratios at the auctions. The frequency of the auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on these vehicles. CarMax’s ability to adjust appraisal offers in response to the wholesale pricing environment is a key factor that influences wholesale gross profit.

Other Opertaions

CarMax provides customers with a range of other related products and services, including extended protection plan (“EPP”) products and vehicle repair service. EPP products include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”), which is designed to cover the unpaid balance on an auto loan in the event of a total loss of the vehicle or unrecovered theft. In conjunction with the sale of a vehicle, CarMax offers customers EPP products. The company receives revenue for selling these plans on behalf of unrelated third parties, who are the primary obligors. The ESPs CarMax currently offer on all used retail vehicles provide coverage up to 60 months (subject to mileage limitations). GAP covers the customer for the term of their finance contract. Periodically, CarMax may receive profit-sharing revenues based upon the performance of the ESP policies administered by third parties. As of February 28, 2023, The third-party ESP providers included Assurant, Inc., CNA National Warranty Corporation and Fidelity Warranty Services, Inc. The third-party GAP provider as of February 28, 2023 was Safe-Guard Products International LLCIn fiscal 2023, approximately 60% of the customers who purchased a retail used vehicle also purchased an ESP and approximately 16% purchased GAP.

Revenue from other operations was $661 million for the year ended 28 February 2023, which declined by 5.5% compared with the prior year's revenue, which amounted to $700 million. Gross Profit from other operations was $362 million, which declined by 25.2% compared with the prior year's gross profit, which amounted to $485 million. Other sales and revenues decreased 5.5% in fiscal 2023, reflecting the decrease in EPP revenue and a decline in new vehicle sales, partially offset by the inclusion of twelve months of Edmunds’ revenue in fiscal 2023 compared to nine months of Edmunds’ revenue in fiscal 2022. EPP revenues decreased 11.7%, primarily driven by the decline in the retail unit volume and a decrease in profit-sharing revenue recognized in the current year, partially offset by increased margins. The decline in new car sales was driven by the divestiture of the remaining new car franchise in the third quarter of fiscal 2022. Other gross profit decreased 25.2% in fiscal 2023, primarily driven by an $81.5 million decline in service department margins as well as a decrease in EPP revenues, as discussed above, partially offset by the inclusion of twelve months of Edmunds' gross profit in fiscal 2023 compared with nine months of Edmunds' gross profit in fiscal 2022. The decline in service department profits was driven by deleverage resulting from lower retail unit sales, inflationary pressure, and the decision to maintain technician staffing. Other gross profit includes profits related to EPP revenues, net third-party finance income/(fees), advertising and subscription profits earned by the Edmunds business, and other revenues. Other revenues are predominantly comprised of service department operations, including used vehicle reconditioning. CarMax have no cost of sales related to EPP revenues or net third-party finance income/(fees), as these represent revenues paid to the company by certain third-party providers.

CarMax Auto Finance (CAF)

CAF provides financing solely to customers buying retail vehicles from CarMax. CAF allows the company to manage its reliance on third-party finance providers and to leverage knowledge of its business to provide qualifying customers a competitive financing option. CAF utilizes proprietary scoring models based upon the credit history and other credit data of the customer along with CAF’s historical experience to predict the likelihood of customer repayment. Because CAF offers financing solely to CarMax customers, the scoring models are optimized for the CarMax channel. CarMax believes CAF enables the company to capture additional profits, cash flows and sales. After the effect of 3-day payoffs and vehicle returns, CAF financed 42.1% of the retail used vehicle unit sales in fiscal 2023. CAF operates and is a significant participant in the auto finance sector of the consumer finance market. This sector is primarily comprised of banks, captive finance divisions of new car manufacturers, credit unions and independent finance companies. According to industry sources, this sector represented more than $1.5 trillion in outstanding receivables as of December 31, 2022. CAF’s primary competitors are banks and credit unions that offer direct financing to customers purchasing used cars. CAF Income decreased $138.1 million, or 17.2%, reflecting an increase in the provision for loan losses and a decrease in the net interest margin percentage, partially offset by an increase in average managed receivables. Provision for Loan Losses Increased to $317.0 million from $141.7 million. The current year provision increase was primarily the result of the previously disclosed expansion of Tier 2 and Tier 3 originations within CAF's portfolio and unfavorable performance within the portfolio as well as the uncertain macroeconomic environment. In addition, the prior fiscal year was positively impacted by a reduced provision coming out of the pandemic from fiscal 2021. The allowance for loan losses as a percentage of ending managed receivables was 3.02% as of February 28, 2023 compared with 2.77% as of February 28, 2022 due to the factors noted above. Total interest margin decreased as a percentage of average managed receivables to 6.9% in fiscal 2023 compared with 7.2% in fiscal 2022. The decrease was primarily the result of higher funding costs, partially offset by higher interest and fees from consumers.

Other Information

The U.S. used car marketplace is highly fragmented, and CarMax faces competition from franchised dealers, who sell both new and used vehicles; online sellers; independent used car dealers; and private parties. According to industry sources, as of December 31, 2022, there were over 18,000 franchised dealers in the U.S., who sell the majority of latemodel used vehicles. Competition in this industry has evolved with the adoption of online platforms and marketing tools, all of which facilitate increased competition. Based on industry data, there were approximately 37 million used cars sold in the U.S. in calendar 2022, of which approximately 20 million were estimated to be age 0- to 10-year old vehicles. While CarMax is the largest retailer of used vehicles in the U.S., in calendar 2022, CarMax estimates that it sold approximately 4.0% of the age 0- to 10-year old vehicles sold on a nationwide basis, consistent with calendar 2021. CarMax estimates that it sold approximately 4.8% of the age 0- to 10-year old vehicles sold in the current comparable store markets in which the company operates in calendar 2022, consistent with 2021. The market share is generally correlated to the length of time the company has operated in a given market. The principal competitive advantages in used vehicle retailing include CarMax’s ability to provide a high degree of customer satisfaction with the car-buying experience by virtue of the competitive, no-haggle prices and the customer-friendly sales process; the breadth of selection of the most popular makes and models available; the quality of the vehicles; the proprietary information systems; the transparency and availability of CAF and third-party financing; the locations of the retail stores; and the commitment to evolving the car-buying experience to meet customers’ changing expectations. The omni-channel platform reinforces the competitive advantages as it empowers customers to buy a car on their own terms, whether online, in-store or through an integrated combination of online and in-store experiences. The diversified business model, combined with the exceptional associates and unparalleled omni-channel experience, is a unique advantage in the used car industry that firmly positions CarMax to drive profitable market share gains while creating shareholder value over the long-term. The wholesale auctions compete with other automotive in-person and online auctions. These competitors auction vehicles of all ages, while CarMax’s auctions predominantly sell older, higher mileage vehicles. The wholesale auctions were conducted virtually through the majority of fiscal 2023.

CarMax utilizes a multi-channel approach to distribute its used cars, aiming for a convenient and accessible experience for customers. CarMax operates a network of over 240 retail stores across the United States. These stores serve as the primary channel for browsing, inspecting, and purchasing vehicles. Customers can visit a store to test drive cars, get appraisals for their trade-ins, and complete the entire buying process. CarMax also maintains a robust online platform where customers can browse their extensive inventory, compare different models, and even initiate the buying process. They can schedule test drives, get online appraisals, and even complete financing paperwork online for a more streamlined experience. CarMax participates in wholesale auctions to acquire vehicles from various sources, including dealerships, rental companies, and individual sellers. This channel helps them diversify their inventory and source good deals on cars. CarMax offers home delivery and pick-up services for added convenience. Customers can purchase a car online or at a store and have it delivered to their doorstep. They can also schedule home appraisals for their trade-in vehicles. CarMax partners with select retailers and online platforms to expand its reach and offer its cars to a wider audience. These partnerships may involve co-branded marketing initiatives or direct integration of CarMax inventory on partner platforms.

Company History

CarMax, Inc. is a used vehicle retailer based in the United States. CarMax has transformed the used car market since its inception in 1993, revolutionizing the way people buy and sell pre-owned vehicles. The concept for CarMax was developed by Circuit City executives under then-CEO Richard L. Sharp.¹² It was developed for nearly a year in 1991, using the code name "Project X", and was also known as "Honest Rick's Used Cars" to those intimately involved in the skunk works team. The concept was actually first proposed by Ronald L. Moore of Richmond, Virginia, a consultant hired by Circuit City to evaluate possible business opportunities beyond the scope of their consumer electronics locations.

In 1993, The first CarMax used car lot opens in Richmond, Virginia as a side business of Circuit City, an American consumer electronics retail company. Under the ownership of Circuit City Stores, Inc., CarMax began operations in 1993 with the opening of its first CarMax store in Richmond, Virginia. CarMax pioneered the used car superstore concept, offering a large selection of quality used vehicles, no-haggle pricing, and a hassle-free sales process.

By the mid-1990s, CarMax's expansion strategy included a new facet to the company's business. The company acquired its first new car franchise in 1996, a Chrysler-Plymouth-Jeep store located in Atlanta. Looking ahead, CarMax planned to open between 15 and 25 new car dealerships by 2002, stores that were to operate alongside the company's used car dealerships. It also acquired its first new car franchise with Chrysler Corporation in 1996 and later added new vehicle franchises for Mitsubishi Motors, Toyota, and Nissan. However, by 2021, CarMax sold its last new vehicle dealership and focused on its core used car business.¹³ As CarMax's 10th anniversary approached, the company's financial results provided cause for celebration. In fiscal 2001, sales leaped to $2.5 billion, but the most impressive gain was achieved in CarMax's profit total, which by far eclipsed the symbolic $1.1 million recorded in 2000. CarMax was expected to post between $40 million and $43 million in net income in 2001, but the company did better, posting $45.6 million in profits. In 2002, the results were equally as sanguine, as revenues swelled 28 percent to $3.2 billion and net income nearly doubled, jumping to $90.8 million. Against the backdrop of vigorous financial growth, a new era at CarMax began. In the spring of 2002, Circuit City announced it intended to spin off its CarMax subsidiary into a separate, publicly traded company, part of the consumer electronics chain's plan to focus on its core business. The spinoff, completed in October 2002, created CarMax Inc., a corporate entity distinct from Circuit City with Ligon serving as its chief executive officer, a title he gained at the time of the spinoff. As CarMax prepared for its second decade of business, expectations for further financial growth were high. Ligon anticipated opening between six and eight used car superstores per year through 2005, building on the 37 used car superstores and 17 new car franchises already in operation. Circuit City issued the first CarMax stock in February 1997, when CarMax had seven locations. Initially, the stock was a tracking stock still under the umbrella of Circuit City. CarMax officially split from Circuit City as of October 1, 2002, when it was spun off as a stock dividend for Circuit City shareholders, with shares also issued to those holding CarMax tracking stock. CarMax was listed on the New York Stock Exchange (NYSE) under the ticker symbol KMX.¹⁴ The company’s initial public offering (IPO) was on Friday, February 07 1997, and it was spun off from Circuit City as an independent company in 2002. On October 1, 2002, the CarMax business was separated from Circuit City through a tax-free transaction, becoming an independent, publicly traded company.

The company’s headquarters is located in Richmond, Virginia. The post-spin-off era saw continued expansion, with CarMax reaching over 100 stores by 2007. They also solidified their commitment to customer satisfaction, earning numerous accolades for their buying and selling experience. The 2008 financial crisis led to a temporary slowdown in the used car market. However, CarMax's strong financial position and focus on value helped them navigate through the tough times. In 2009, Sharp led Circuit City into the home security business and other ventures that critics contend forced the parent company to lose focus and eventually to shutter in 2009 amid competition from Best Buy and other stores. The 2010s saw CarMax embracing digital transformation. They revamped their online platform, launched mobile apps, and invested in omnichannel initiatives. By 2019, CarMax had crossed the 200-store mark and achieved record sales, solidifying their position as the largest used car retailer in the United States. The COVID-19 pandemic presented new challenges, forcing CarMax to adapt. They implemented online appointments, contactless delivery, and enhanced sanitation protocols to ensure customer safety.

On June 1, 2021, CarMax completed the acquisition of Edmunds Holding Company, one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations. With this acquisition, CarMax has enhanced its digital capabilities and further strengthened its role and reach across the used auto ecosystem while adding exceptional technology and creative talent. In 2023, CarMax is the nation’s largest retailer of used cars, and CarMax sold 807,823 used vehicles at retail during the fiscal year ended February 28, 2023. It is also one of the nation’s largest operators of wholesale vehicle auctions, with 585,071 vehicles sold during fiscal 2023, and one of the nation’s largest providers of used vehicle financing, servicing approximately 1.1 million customer accounts in its $16.77 billion portfolio of managed receivables as of February 28, 2023. The omni-channel platform, which gives CarMax the largest addressable market in the used car industry, empowers the retail customers to buy a car on their terms imcluding online, in-store or an integrated combination of both. As of February 28, 2023, CarMax operated 240 used car stores in the US.