CarMax Inc Stock

CarMax, Inc. (CarMax) offers a broad selection of used vehicles and related products and services.

The company sold 924,338 used vehicles at retail during the year ended February 28, 2022. The company is also one of the nation’s largest operators of wholesale vehicle auctions, with 706,212 vehicles sold during the year ended February 28, 2022; and one of the nation’s largest providers of used vehicle financing, servicing approximately 1.1 million customer accounts in its portfolio of managed receivables as of February 28, 2022.

The company’s omni-channel platform, which gives it the largest addressable market in the used car industry, empowers its retail customers to buy a car on their terms – online, in-store or a seamless combination of both. Customers can choose to complete the car-buying experience in-person at one of the company’s stores; or buy the car online and receive delivery through express pickup, available nationwide, or home delivery, available to most customers.

On June 1, 2021, the company completed the acquisition of Edmunds Holding Company (Edmunds), one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations.

Segments

The company operates through two segments, CarMax Sales Operations and CarMax Auto Finance (CAF).

CarMax Sales Operations segment

This segment consists of all aspects of the company’s auto merchandising and service operations, excluding financing provided by CAF. The company’s 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, no-haggle prices. The company enables its customers to separately evaluate each component of the sales process based on comprehensive information about the terms and associated prices of each component.

Purchasing a Vehicle

The company’s omni-channel platform provides multiple ways for its customers to interact with it, including completely online. As of February 28, 2022, the company had approximately 71,000 saleable retail vehicles in its inventory. In addition to retailing used vehicles, the company sold new vehicles under franchise agreements at one location during the year ended February 28, 2022.

Selling a Vehicle

The company also provides online instant appraisal offers, which quickly give customers an offer on their vehicle. Based on age, mileage or condition, approximately half of the vehicles acquired through the company’s appraisal processes meet its retail standards. Unlike many other auto auctions, the company owns all the vehicles that it sells in its auctions, which allows it to maintain a high auction sales rate.

Financing a Vehicle

The company’s finance program provides access to credit for customers across a wide range of the credit spectrum through both CAF and third-party providers. The company’s online checkout process includes a financing offer product, which allows eligible customers to apply and accept finance offers without needing the assistance of an associate to submit a credit application over the phone or in store. The company also provides a finance-based shopping capability to the majority of its customers, which enables them to see personalized finance terms from multiple lenders across the full inventory of vehicles on its website. The company continues to enhance and further expand these products.

Related Products and Services

The company 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. The company’s ESP customers have access to vehicle repair service at each CarMax store and at thousands of independent and franchised service providers.

CarMax Auto Finance segment

This segment 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 company’s scoring models are optimized for the CarMax channel. CAF also services all auto loans it originates and is responsible for providing billing statements, collecting payments, maintaining contact with delinquent customers, and arranging for the repossession of vehicles securing defaulted loans.

This segment operates and is a significant participant in the auto finance sector of the consumer finance market. This sector primarily consists of banks, captive finance divisions of new car manufacturers, credit unions and independent finance companies.

Products and Services

Retail Merchandising: The company 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. The company’s focuses on vehicles that are 0 to 10 years old; and these vehicles have historically ranged in price from $11,000 to $37,000. The mix of the company’s used vehicle inventory by make, model and age will vary from time to time, depending on consumer preferences, seasonality and availability.

Wholesale Auctions: The typical vehicle sold at the company’s wholesale auctions is approximately 10 years old and has more than 100,000 miles. The company 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 its auctions.

Extended Protection Plans: In conjunction with the sale of a vehicle, the company offers customers EPP products. The company receives revenue for selling these plans on behalf of unrelated third parties, who are the primary obligors. The company has no contractual liability to customers for claims under these agreements. The ESPs the company offers 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. The EPPs that the company sells have been designed to its specifications and are administered by the third parties through private-label arrangements. Periodically, the company may receive profit-sharing revenues based upon the performance of the ESP policies administered by third parties. As of February 28, 2022, the company’s third-party ESP providers included Assurant, Inc.; CNA National Warranty Corporation; and Fidelity Warranty Services, Inc.

Reconditioning and Service: An integral part of the company’s used car consumer offer is the reconditioning process designed to make sure every car meets its internal standards before it can become a CarMax Quality Certified vehicle. This process includes an inspection of the engine and all major systems. Based on this inspection, the company determines the reconditioning necessary to bring the vehicle up to its internal quality standards. Many of the company’s stores depend upon nearby, typically larger, CarMax stores for reconditioning. The company performs most routine mechanical and minor body repairs in-house, however for some reconditioning services, including but not limited to, services related to manufacturer’s warranties, it engages third parties specializing in those services.

All CarMax used car stores provide vehicle repair service, including repairs of vehicles covered by the ESPs the company sells. Additionally, the company has partnered with third-party providers of auto service and repair.

Customer Credit: The company offers financing alternatives for retail customers across a wide range of the credit spectrum through CAF and arrangements with several financial institutions. Vehicles are financed using retail installment contracts secured by the vehicle. As of February 28, 2022, the company’s third-party finance providers included Ally Financial; American Credit Acceptance; Capital One Auto Finance; Chase Auto Finance; Exeter Finance Corp.; Santander Consumer USA; and Westlake Financial Services.

Seasonality

Historically, the company’s business has been seasonal. The company’s stores typically experience their strongest traffic and sales in the spring and summer, with an increase in traffic and sales in February and March, coinciding with federal income tax refunds. Sales are typically slowest in the fall.

Marketing and Advertising

The company’s website and related mobile app received an average of 33 million monthly visits during year ended February 28, 2022 and is a critical part of the customer’s journey, allowing them to learn about CarMax, explore its full inventory in real time, initiate vehicle transfers, apply for financing pre-approval, receive an appraisal offer and even buy a car fully online.

During the fourth quarter of fiscal 2021, the company introduced the next phase of this national multi-media marketing campaign to increase awareness of its core omni-channel capabilities, including its Love Your Car Guarantee campaign, highlighting its 24-hour test drives and 30-day/1,500 mile money-back guarantee, aimed at elevating its customers’ confidence in their CarMax vehicle purchase.

Regulations

The company’s activities are subject to enforcement by the Federal Trade Commission and other federal and state regulators. Its financing activities are also subject to enforcement by the Consumer Financial Protection Bureau.

History

CarMax, Inc. was founded in 1993. The company was incorporated under the laws of the Commonwealth of Virginia in 1996.