2 forward-looking statement this presentation contains forward-looking statements, which are subject...
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2
Forward-Looking Statement
This presentation contains forward-looking statements, which are subject to risks and uncertainties. Additional discussion of factors that could cause actual results to differ materially from management’s projections, forecasts, estimates and expectations is contained in the CarMax, Inc. SEC filings.
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CarMax TodayUsed Car Superstores
Sacramento
Richmond
Raleigh
Atlanta
Nashville
Orlando
Tampa
Miami / Ft. Lauderdale
San Antonio
Dallas/Fort Worth
Houston
Los Angeles
Baltimore / DC
Chicago
Charlotte Greensboro
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1
4
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11
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22
21
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3
1
7
Mid-sized Markets (13)
Large Markets (8)
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Greenville
Knoxville1
Nation’s leading used car specialist
Pioneered used car superstore –1993
Operates 44 used car superstores
FY03: Sales: $ 4Bn Net profit: $ 95mm Separation Costs: $ 8mm Earnings ex Sep.: $103mm
1Las Vegas
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1
Kansas City
1Birmingham
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Unique retail opportunity
Provides superior economic returns
What Is CarMax?
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CarMax Sells More Cars
CARMAX 5,210
Public dealers 2,023
Average dealer (NADA) 1,376
Sales/Store (Units)
2002
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CarMax Gains Market Share
CARMAX + 8%
Public dealers - 8%
Used Car Comp Unit Sales
2002
6.7%
10.2%10.5%
12.4%12.8%12.9%
15.8%
14.1%
0
2
4
6
8
10
12
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HD BBY KMX KSS WMT COST SPLS AutoDealer
Average
RO
IC (
%)
(2)
(1) After-tax EBITR/Average invested capital. Invested capital includes operating leases capitalized at 8x.
(2) Auto dealer average includes: ABG, AN, GPI, LAD, SAH and UAG.
Source: CarMax calculations based on companies’ public filings, most recent fiscal year.
ROIC
CarMax Earns Higher Returns
(1)
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Why Does CarMax Work?
Used car focus
Consumer-preferred concept
Process-driven competitive advantages
Organic growth plan
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Used Car Focus
CARMAX 91%
Public new car companies 38%
Average new car dealers (NADA) 48%
Used Car Mix % (Units)
10
Why Used Cars?
Huge, fragmented business
Non-commodity
Stable
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(15.0)%(10.0)%
(5.0)%0.0%5.0%
10.0%15.0%
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85
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86
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87
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88
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90
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91
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92
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94
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97
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98
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99
20
00
20
01
20
02
% Change New Vehicle Unit Sales % Change Used-Vehicle Unit Sales
Used Vehicle Sales Stable
Source: Manheim Auctions
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Proprietary Operating Process
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Marketing
CARMAX MARKETING
COMPETITIVE ADVANTAGES
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CarMax MarketingCompetitive Advantages
I. What we offer
Marketing
II. How we offer it
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I. The CarMax Offer - Overview
Marketing
Consumer Need CarMax Offer1. “No Games” Low No-Haggle Price
2. “I don’t want to driveall over town”
Broad Selection
3. “I want a car I cantrust”
Great Quality
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1. Low, No Haggle Prices
I. The CarMax Offer
No haggle on price
- on trade-in
- on financing
- on extended service plan
Competitive Prices ($500 - $1,000 Below KBB)
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2. Great Selection
10x typical dealer
All makes and models on one lot - tailored to local area
15,000+ cars available for transfer
I. The CarMax Offer
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3. Great Quality
No flood/frame damage
125+ point inspections andreconditioning
5 day money back guarantee
30 day worry free warranty
Extended warranties
I. The CarMax Offer
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Matching Consumer Needs
I. The CarMax Offer
Percent of shoppers stating they came to CarMax because of... (n = 9800)
78%
79%
81%
Vehicle Quality
Large Selection
No Haggle Pricing
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Superior to Competition
I. The CarMax Offer
Shoppers that rate CarMax superior to other dealerships on... (n = 9800)
75%
81%
72%
Vehicle Quality
Selection
Price
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CarMax MarketingCompetitive Advantages
I. What We offer
Marketing
II. How We Offer It
- Internet Competitive Advantages
- Newspaper Competitive Advantages
- Television Competitive Advantages
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CarMax Primary Competition
II. How We Offer It
Small FranchiseDealers
Mid-Size FranchiseDealers
Large FranchiseDealers
New SalesPer Month
Less than35
35-65 65+
Used SalesPer Month
Less than25
25-45 45+
Number ofDealerships
8,690 6,080 6,950
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Internet Competitive Advantages
National scale: selection
II. How We Offer It
Site optimization
Consumer Preferred
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National Scale: Selection
Single national brand
II. Internet Competitive Advantages
15,000+ cars
Transferable anywhere - Over 4,500 SUV’s - Over 2,300 vehicles under $10K - Over 525 Jeep Grand Cherokees
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Ease of UseII. Internet Competitive Advantage
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Consumer Preferred
Number 1 car site in every market
84% say site is excellent/very good
90% say better than other dealers
Second most mentioned car sitenationwide! (J.D. Power)
II. Internet Competitive Advantage
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Newspaper Competitive Advantages
Scale: lower costs
II. How We Offer It
Ad optimization
Consumer Preferred
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Scale: Lower Costs
Purchasing advantage vs. 90% of dealers
Consistent ad (3,000 ads - 4 designers)
II. Newspaper Competitive Advantages
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Optimized for Used Car Shopper
II. Newspaper Competitive Advantages
Price
Quality
Selection
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Consumer Preferred
II. Newspaper Competitive Advantage
Non-CarMax markets 190+ competitor ads
CarMax Ad Had Highest Visit Intent (n = 400)
First Top 3
16%
46%
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Television Competitive Advantages
Scale: lower costs
II. How We Offer It
Ad optimization
Consumer Preferred
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Scale: Lower Costs
Buying scale vs. most (10 - 35%)
II. Television Competitive Advantages
Ad production economies (20 ads vs. 0-4 ads)
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Ad Optimization
350-600 consumers test every ad
II. Television Competitive Advantage
2-4 cities
Moment to moment reaction
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Consumer Preferred
II. Television Competitive Advantage
Likelihood to Visit
Local dealerad (22 ads)
TypicalCarMax ad
Less Neutral More
-16%
+30%
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Impact of Marketing Scale
II. How We Offer It
Small Dealer(40%)
Large Dealer(30%) CarMax
Unique websiteVisitors/month
0-100 1,000-5,000+ 50,000+
NewspaperPages/week
0.1 1.0 2.1
TV points/week 3 17 150
Marketing Expense(% of sales)
1.2% 1.3% 1.3%
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Proprietary Operating Process
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Proprietary Operating Process
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Proprietary Operating Process
Competitive Advantage
Consistent processes across stores
Scalable
Hard to replicate
– time
– re-applied learning
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Proprietary Operating Process
Why Others Failed
Operating processes weak
Only copied the sales end
Did not fully adopt equities
Focused on the visible consumer offer
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Consumer
Offer
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Purchasing /
Inventory
Management
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance OriginationsReconditioning
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Consumer
Offer
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Purchasing/ Inventory
Management
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Information Systems
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Finance
Originations
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Purchasing /
Inventory
Management
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Purchasing/ Inventory Management
Efficient Inventory Management
1 million served
4 million appraisals
All transactions captured and analyzed
Right car, right place, right price and right time
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Purchasing/ Inventory Management
People Development
Volume buying = great buyers
130 buyers with over 10,000 appraisals
Report card = accountability and improvement
Difficult to replicate
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Purchasing/ Inventory Management
Proprietary Pricing Model
Sophisticated model
Refined over 10 years
Store specific
Automated and flexible
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Purchasing/ Inventory Management
We Buy Cars
Cash offer on every car
We will buy your car even if you don’t buy from us
1/2 of our vehicles are sourced through appraisals
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Purchasing /
Inventory
Management
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Auctions: Disposing of Vehicles
We Buy Cars
The majority of appraisal buys don’t make the cut
125,000 cars/$420 million in sales
$3,400 cost, 10 years old, over 100,000 miles
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Auctions: Disposing of Vehicles
Traditional Disposal Options
Wholesale individually
Take to off-site auction– Excessive fees
– 60% sales rate
– 1:6 dealer/car ratio
Minimal control, high cost
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Auctions: Disposing of Vehicles
Carmax Auctions
Economic and efficient– No fees
– 98% sales rate
– 1:2 dealer to car ratio
Real-time market feedback
Total control
611
Auctions: Disposing of Vehicles
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Auctions: Disposing of Vehicles
Auction Summary
500,000 vehicles sold
Integrated operating system
Customer profiles
Industry-leading attendance and results
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance OriginationsReconditioning
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Service Operations
Service Operations
Reconditioning and retail service
Reconditioning is majority of work
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Service Operations
Competitive Advantages
1. Reconditioning treated as manufacturing
2. Centralized production planning
3. People development
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Service Operations
1. Reconditioning = Mfg.
Engineered process
Operating procedures on-line
Proprietary custom system – ERO
Maximize facility utilization
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Service Operations
2. Centralized Production Planning
Sophisticated weekly planning algorithm
Balances capacity across all stores
Minimizes inventories
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Service Operations
3. People Development
Structured training program
Technicians
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Consumer
Offer
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Business Office
Complex Transactions
An average transaction
How traditional dealers do it
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Business Office
Why That Won’t Work For Us
Volume
Across states
Store growth
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Business Office
10 Years Of Process Development
Over 4 million transactions
900 forms, 14,000 fees & taxes
Integrated systems designed around process
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Business Office
Competitive Advantage
44 stores, 1 system
Seamless transactions across stores
Easily leverage workforce for growth
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Business Office
791
Business Office
801
Business Office
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Consumer
Offer
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Sales Floor
Sales Force
Over 2000 sales consultants
Flat commissions benefit customer
Structured advancement program
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Sales Floor
Simplified Process
Online financing
Step by step delivery
Consistent and easy to learn
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Sales Floor
Performance Management
Systematic feedback
Goal oriented
Real time information
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Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
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Information Systems
Two Primary Advantages
Process for development
Cumulative result of that process
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Information Systems
Typical Dealer Systems
Few alternatives
Limited flexibility
High cost
Functionality does not exist
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Information Systems
Our Advantage vs. Dealers
Started with a blank slate
Tuned to the concept
Re-applied learning
Half the cost
Highly flexible
102
Purchasing/ Inventory
Management
Information Systems
Reconditioning
Consumer
Offer
PROPRIETARY OPERATING PROCESS
Process-driven
Finance Originations
Finance
Originations
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Consumer Finance
Finance Originations
Maximize sales
Minimize risk
Optimize profitability
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Consumer Finance
Maximizing Sales
CarMax consumer offer
– Low no-haggle prices
– Choice
– Customer-friendly process
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Maximizing Sales
Traditional Negotiations
Payment
Vehicle price
APR and term
Trade-in
Ancillary products
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Process Flow
Fast
Efficient
Technologically advanced
Maximizing Sales
107
Application RoutingPrime
Non-prime
KMX App. Routing
Customer Views and Chooses
From Among all
Offers
Transmission
Non-prime
Non-prime
Non-prime
Prime Decline
Prime #2
CAF
KMX App. Routing
KMX App. Routing
KMX App. Routing
Maximizing Sales
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Maximizing Sales
Technology Advantages
Connectivity
Scale
Data collection
Point of sale support
Accuracy / compliance
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Consumer Finance
Minimizing Risk
Transparent loan originations:
- Consumer risk
- Vehicle risk
- Intermediary risk
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Consumer Finance
Optimizing Profitability
3rd party finance company selection:
- CarMax-specific programs
- Stability and scale
- Balanced agreement
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Consumer Finance
Finance Originations
Maximize sales
Minimize risk
Optimize profitability
113
GROWTH PLAN
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Organic Growth
Creates value
Not acquisition dependent
Not 3rd-party constrained
Growth Plan
116
Opportunity Scale
Market: $265 Bn
Currently: 18%-20% of U.S.
Mature stores: 8%-10% market share
Growth Plan
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Expanding The Opportunity
Market share experience
Higher-density storing
- Charlotte
- Orlando
- Las Vegas
- Richmond
Growth Plan
118
Growth Plan To Date:FY02 FY03 FY04
Mid-SizedMarkets:
Greensboro SacramentoKnoxville
Las VegasKansas CityBirminghamMemphis (Oct.)Louisville (Feb.)
Large MarketSatellites:
CHI:Merrillville CHI: Oak LawnATL: Lithia Springs
CHI: Glencoe (Nov.)
Mid-Sized MarketSatellites:
CHA: South Blvd. ORL: SanfordLSV: Sahara (Jan.)
YE Total (Used): 35 40 48-49
Growth Plan
119
Growth Plan: Next 3 Years
FY05 FY06 FY07Store Goal: 8-10 10-12 12-14
Focus: Mid-sized Satellite
Mid-sized Satellite
Mid-sized Satellite New large
market
YE Total: 56-59 66-71 78-85
Growth Plan
120
Used Car Store Model
Year 1 Year 2 Year 5
Year 5StandardSuperstore
SatelliteSuperstore
$ mm $ mm
Sales Ramp 70% 88% 100% $60-120 $43-86
Store OperatingProfit
0.7-4.2% 2.9-6.3% 4.0-8.5% $2.4-10.3 $1.6-7.3
Growth Plan
121
Average Store Investment
Standard ($mm) Satellite ($mm)Land & Bldg. $12.6-20.0 $ 7.5 -10.5FF+ E 1.3 - 1.6 0.5 - 0.8Inventory 5.3 - 9.2 4.8 - 6.9Initial CarMax Cash $19.2-30.8 $12.8- 18.2
Cash RecoverySale/Leaseback $12.6-20.0 $7.5-10.5Inventory Financing (@ 90%) 4.8 - 8.3 4.3 - 6.2Net CarMax Cash(@ 90% Inventory)
$ 1.8 - 2.5 $1.0 - 1.5
Growth Plan
122
Investment ReturnsHistorical ROIC
Comparable Standard and Satellites (FY03) 18.7% (CAF normalized)
Total CarMax (FY03) 12.9%
Prototypical
Standard (Yr 5, CAF normalized) 14.9%
Satellite (Yr 5, CAF normalized) 16.6%
Leading Retail Comparison (‘92-’02 Avg.)
Home Depot 14.6%
Wal-Mart 12.4%
Growth Plan
123
4-year goal: $8 Bn
Comp used-unit growth : 5%-9%
New store openings : 15%-20%
New store openings
Store margin expansion
Corporate overhead leverage
Sales Growth
Profit Growth
Growth Plan
Growth Plan
