CarMax 2014 Annual Report Download - page 34

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GROSS PROFIT
Years Ended February 28 or 29
(In millions) 2014 Change 2013 Change 2012
Used vehicle gross profit $1,143.9 17.7 %$971.5 9.3 % $888.6
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ew vehicle gross profit 4.5 (9.5)% 5.0 (23.8) % 6.5
Wholesale vehicle gross profit 313.9 1.9 %308.1 2.1 % 301.8
Other gross profit 186.5 3.7 % 179.8 (1.2) % 181.9
Total $1,648.7 12.6 %$1,464.4 6.2 % $1,378.8
GROSS PROFIT PER UNIT
Years Ended February 28 or 29
2014 2013 2012
$ per unit (1) %
(2) $ per unit (1) % (2) $ per unit (1) % (2)
Used vehicle gross profit $2,171 11.1 $ 2,170 11.1 $ 2,177 11.4
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ew vehicle gross profit $577 2.1 $ 630 2.4 $ 847 3.2
Wholesale vehicle gross profit $916 17.2 $ 949 17.5 $ 953 17.5
Other gross profit $349 80.2 $ 395 72.3 $ 438 71.5
Total gross profit $3,083 13.1 $ 3,214 13.4 $ 3,316 13.8
(1) Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are
divided by total retail units sold.
(2) Calculated as a percentage of its respective sales or revenue.
Used Vehicle Gross Profit
We target a dollar range of gross profit per used unit sold. The gross profit dollar target for an individual vehicle is
based on a variety of factors, including its anticipated probability of sale and its mileage relative to its age; however,
it is not primarily based on the vehicle’s selling price. Our ability to quickly adjust appraisal offers to be consistent
with the broader market trade-in trends and our frequent inventory turns reduce our exposure to the inherent
continual fluctuation in used vehicle values and contribute to our ability to manage gross profit dollars per unit.
We employ a volume-based strategy, and we systematically mark down individual vehicle prices based on
proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit
achievement. Other factors that may influence gross profit include changes in our vehicle reconditioning costs,
changes in the percentage of vehicles sourced directly from consumers through our appraisal process and changes in
the wholesale pricing environment. Vehicles purchased directly from consumers typically generate more gross
profit per unit compared with vehicles purchased at auction. Over the past several years, we have been able to
manage to a relatively consistent used vehicle gross profit per unit.
Fiscal 2014 Versus Fiscal 2013. Used vehicle gross profit increased 18% in fiscal 2014, driven by the
corresponding increase in used unit sales. Used vehicle gross profit per unit remained consistent at $2,171 in fiscal
2014 versus $2,170 in fiscal 2013.
Fiscal 2013 Versus Fiscal 2012. Used vehicle gross profit increased 9% in fiscal 2013, driven primarily by the
10% increase in used unit sales. Used vehicles gross profit per unit was only marginally lower, averaging $2,170 in
fiscal 2013 versus $2,177 in fiscal 2012.
Wholesale Vehicle Gross Profit
Our wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of
our auctions, as well as the continued strong dealer attendance and resulting high dealer-to-car ratios at our auctions.
The frequency of our auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on
these vehicles.
Fiscal 2014 Versus Fiscal 2013. Wholesale vehicle gross profit increased 2% in fiscal 2014, with the 5% increase
in wholesale unit sales partially offset by a 3% reduction in wholesale gross profit per unit, which moderated to
$916 in fiscal 2014 compared with $949 in fiscal 2013.