Accounting causes earnings to decline 7 percent at CarMax

THE TAKE: Henrico County-based CarMax Inc. reported that its fourth-quarter earnings declined 7 percent because of an accounting adjustment.

Profits totaled $99.2 million, 44 cents per diluted share, for the fourth quarter. For the full year, earnings were $496.2 million, up 13 percent, $2.16 per diluted share.

During the fourth quarter, the company changed its accounting related to cancellation reserves for extended service plan and guaranteed asset protection products. As a result, CarMax increased its cancellation reserves, which reduced diluted net earnings per share by 8 cents in the fourth quarter.

In addition to reporting results, CarMax announced that its board of directors has approved a $1 billion expansion of the company’s share repurchase program. The authorization expires Dec. 31, 2015.

THE NUMBERS:

• Net sales and operating revenues increased 9 percent to $3.08 billion in the fourth quarter. For the fiscal year, net sales and operating revenues increased 15 percent to $12.57 billion.
• Used unit sales in comparable stores increased 7 percent in the fourth quarter and 12 percent in the fiscal year.
• Total used unit sales rose 12 percent in the fourth quarter and 18 percent in the fiscal year.
• Total wholesale unit sales increased 2 percent in the fourth quarter and 5 percent in the fiscal year.

THE COMPANY’S TAKE:
“We had another great year, achieving several new milestones. Our comparable store used unit sales growth of 12 percent was our strongest since fiscal 2002, and for the first time, we retailed more than 500,000 vehicles in a single year,” Tom Folliard, the company’s president and chief executive officer, said in a statement. “While the accounting correction…had an impact on the fourth quarter, we posted solid earnings growth in fiscal 2014, and we believe our continued geographic expansion and market share growth will drive our success in the years to come.”