The financial constraints of expanding in the face of persistent losses presented formidable obstacles to Sharp and Ligon. Although
Circuit City had contributed to CarMax's startup, the company's financial assistance to CarMax essentially ended there. The
arrangement kept Circuit City's financial health from being drained by CarMax's costly expansion program, forcing Sharp and Ligon
to find other ways to secure capital. At the end of 1996, the pair proposed a new method of securing financing, announcing that
Circuit City would sell a portion of the CarMax subsidiary to the public. The initial proposal called for offering between 15 and 20
percent of CarMax to the public, a stake that was expected to raise as much as $300 million. The offering was completed in
February 1997, providing CarMax with fresh resources to finance its expansion and to repay its rising debt.
The proceeds gained from CarMax's public offering enabled the company to accelerate its expansion program. At the time of the
offering, the company had seven superstores in operation, which generated nearly $450 million in revenues. By mid-1998, there
were 23 superstores in operation, enabling the company to record $1.47 billion in sales for fiscal 1998. Despite the impressive gain
in sales, the company continued to be hobbled by annual losses. CarMax lost $23.5 million in fiscal 1998, enough of a loss to
prompt Sharp and Ligon to scale back expansion plans for 1999. Instead of opening between 15 and 20 stores in 1999, as originally
planned, the company announced it would open 10 stores that year.
By the end of the decade, CarMax was nearing the moment of truth. "We've had to learn as we go along," Ligon explained in a July
12, 1999 interview with Automotive News. "We're going to hit about $2 billion in sales this year, which is about the critical mass we
need to get to make a profit." Roughly six months later, when the financial results for fiscal 2000 were announced, something
unprecedented in the history of CarMax occurred. For the year, the company generated $2.01 billion in revenues and a profit of $1.1
million, the first time CarMax ended a fiscal year in the black. The profit total was meager, but it suggested there was financial
viability in the "big box" used car retailing concept. CarMax's progress in the coming years underscored the success of 2000,
prompting critics to alter their assessment of the company's business strategy.
Profits and Independence in the 21st Century
Buoyed by the first annual profit in the company's history, Ligon focused on plans for the future. A national rollout of CarMax
superstores remained the company's long-term objective, a goal that was expected to require between 20 and 25 years to achieve.
"You can't do it any faster than that," Ligon informed Automotive News in a July 10, 2000 interview. More immediate plans called for
a measured pace of expansion, as the company sought to add to the 40 new car franchises and used car superstores in operation
at the beginning of the century. Despite the eventual goal of national expansion, initially the company planned to open new locations
in markets where it already maintained a presence, focusing on markets with populations ranging between one and two million
residents.
As CarMax's 10th anniversary approached, the company's financial results provided cause for celebration. In fiscal 2001, sales
leaped to $2.5 billion, but the most impressive gain was achieved in CarMax's profit total, which by far eclipsed the symbolic $1.1
million recorded in 2000. Ligon expected to post between $40 million and $43 million in net income in 2001, but the company did
better, posting $45.6 million in profits. In 2002, the results were equally as sanguine, as revenues swelled 28 percent to $3.2 billion
and net income nearly doubled, jumping to $90.8 million.
Against the backdrop of vigorous financial growth, a new era at CarMax began. In the spring of 2002, Circuit City announced it
intended to spin off its CarMax subsidiary into a separate, publicly traded company, part of the consumer electronics chain's plan to
focus on its core business. The spinoff, completed in October 2002, created CarMax Inc., a corporate entity distinct from Circuit
City with Ligon serving as its chief executive officer, a title he gained at the time of the spinoff. As CarMax prepared for its second
decade of business, expectations for further financial growth were high. Ligon anticipated opening between six and eight used car
superstores per year through 2005, building on the 37 used car superstores and 17 new car franchises already in operation.
Principal Subsidiaries: CarMax Auto Finance.
Principal Competitors: AutoNation, Inc.; Hendrick Automotive Group; United Auto Group, Inc.
Further Reading:
"Circuit City to Spin Off CarMax, Chain Will Focus on Electronics," Chain Store Age Executive Fax, March 1, 2002, p. 1.
Gilligan, Gregory J., "Circuit City's CarMax Superstores Pass $300 Million in Yearly Sales," Knight Ridder/Tribune Business
News, April 5, 1996.
------, "Circuit City Stores to Sell Stake in CarMax Used-Car Chain," Knight Ridder/Tribune Business News, November 14,
1996.
Heller, Laura, "Circuit City Restructures, Spins Off CarMax Unit," DSN Retailing Today, March 11, 2002, p. 3.
McLean, Bethany, "Squeaky Wheels," Fortune, March 17, 1997, p. 202.
Rubinstein, Ed, "Sharp Touts Potential of CarMax," Discount Store News, November 4, 1996, p. 6.
Rudnitsky, Howard, "Would You Buy a Used Car from This Man?," Forbes, October 23, 1995, p. 52.
Sawyers, Arlena, "CarMax Doubles Profit, Plans More Stores," Automotive News, April 8, 2002, p. 16.
------, "CarMax Says It's Prepared to Fly Solo," Automotive News, November 4, 2002, p. 17.
------, "CarMax's Ligon: Shoppers Are Happy, Profits Are Near," Automotive News, July 12, 1999, p. 32.
------, "CarMax Speeds into Expansion Fast Lane," Automotive News, January 15, 2001, p. 69.