CarMax 2016 Annual Report Download - page 18
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Please find page 18 of the 2016 CarMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.14
We are a growth retailer. Our failure to manage our growth and the related challenges could have a material adverse effect
on our business, sales and results of operations.
Our business strategy includes opening stores in new and existing markets and implementing new initiatives to elevate the
experience of our customers. The expansion of our store base places significant demands on our management team, our associates
and our information systems. If we fail to effectively or efficiently manage our growth, it could have a material adverse effect on
our business, sales and results of operations. The expansion of our store base and implementation of new initiatives also requires
us to recruit and retain the associates necessary to support that expansion. See the risk factor above titled “Our success depends
upon the continued contributions of our more than 22,000 associates” for discussion of this risk. The expansion of our store base
also requires real estate. Our inability to acquire or lease suitable real estate at favorable terms could limit our expansion and
could have a material adverse effect on our business and results of operations.
If we are forced to curtail or stop growth it could have a material adverse effect on our business and results of operations.
We rely on sophisticated information systems to run our business. The failure of these systems, or the inability to enhance our
capabilities, could have a material adverse effect on our business, sales and results of operations.
Our business is dependent upon the integrity and efficient operation of our information systems. In particular, we rely on our
information systems to manage sales, inventory, our customer-facing websites and applications (carmax.com, CarMax mobile
apps, and carmaxauctions.com), consumer financing and customer information. The failure of these systems to perform as
designed, the failure to maintain or update these systems as necessary, or the inability to enhance our information technology
capabilities, could disrupt our business operations and have a material adverse effect on our sales and results of operations.
In addition, despite our ongoing efforts to maintain and enhance the integrity and security of these systems, we could be subjected
to attacks by hackers, including denial-of-service attacks directed at our websites or other system breaches or malfunctions due
to associate error or misconduct or other disruptions. Such incidents could disrupt our business and have a material adverse effect
on sales and results of operations. See the risk factor above titled “We collect sensitive confidential information from our customers”
for the risks associated with a breach of confidential customer or associate information.
We are subject to numerous legal proceedings. If the outcomes of these proceedings are adverse to CarMax, it could have a
material adverse effect on our business, results of operations and financial condition.
We are subject to various litigation matters from time to time, which could have a material adverse effect on our business, results
of operations and financial condition. Claims arising out of actual or alleged violations of law could be asserted against us by
individuals, either individually or through class actions, or by governmental entities in civil or criminal investigations and
proceedings. These claims could be asserted under a variety of laws including, but not limited to, consumer finance laws, consumer
protection laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit
laws. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive
relief and criminal and civil fines and penalties including, but not limited to, suspension or revocation of licenses to conduct
business.
Our business is sensitive to conditions affecting automotive manufacturers, including manufacturer recalls.
Adverse conditions affecting one or more automotive manufacturers could have a material adverse effect on our sales and results
of operations and could impact the supply of vehicles, including the supply of late-model used vehicles. In addition, manufacturer
recalls are a common occurrence that have accelerated in frequency and scope in recent years. Recalls could adversely affect used
vehicle sales or valuations, could cause us to temporarily remove vehicles from inventory, could force us to incur increased costs
and could expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse
effect on our business, sales and results of operations.
Our results of operations and financial condition are subject to management’s accounting judgments and estimates, as well
as changes in accounting policies.
The preparation of our financial statements requires us to make estimates and assumptions affecting the reported amounts of
CarMax’s assets, liabilities, revenues, expenses and earnings. If these estimates or assumptions are incorrect, it could have a
material adverse effect on our results of operations or financial condition. We have identified several accounting policies as being
“critical” to the fair presentation of our financial condition and results of operations because they involve major aspects of our
business and require us to make judgments about matters that are inherently uncertain. These policies are described in Item 7.