KMX - Earnings call transcript Q3 2021

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Operator

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the CarMax Fiscal 2021 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. to Investor call Relations. like Frole, to now President, Vice would turn over the Stacy I

Stacy Frole

call. operations. today Thank CFO; President for and of XXXX Senior conference Finance; joining our Carole. CEO; and our am you, Good Executive President, our Vice fiscal Jon third morning. Tom Reedy, Enrique quarter Daniels, Vice our Mayor-Mora, Bill and Nash, with Thank our you I CAF President here President earnings Vice Senior

regarding today and from could we the future me the remind differ of statements Let statements, management’s or results to statements based to expectations. performance Private uncertainties our the actual statements our intent prospects XXXX. plans, forward-looking Safe obligation current and the them. are financial Act and on make involve company’s update and Litigation that of you company business about knowledge to cause Reform other materially Securities These assumptions providing future Harbor In projections are events provisions any forward-looking disclaims risks pursuant that

additional fiscal XXXX SEC. Investor that you on these department free XX-K the have the follow-up Relations our please see the annual February ended issued XXXX. could Form the at and Form on factors X-K For expectations, company’s report this contact after questions call, for affect filed morning important with XXX-XXX-XXXX XX, to year information its feel any Should extension please

one for for advance only more in question the getting Bill? you thank asking me let follow-ups. back and Lastly, in queue

Bill Nash

and for us. Good everyone morning, Thank Stacy. thanks you, Great. joining

Tom February will our in announcement on seen this XX. in X-K have may that morning’s You retire

best he done. him all his us in focus leadership moment CarMax. contributions transformation leading in We for us started, On well-earned to we update tremendous and best-in-class get discuss our you has I Jon our helped your take other strategic to first and Tom’s directly we want been you instrumental before expertise, Tom, and Daniels, turn omni-channel will congratulate of today’s retirement. guiding CarMax continue who questions. you Finance and our reporting very that team thank largest an quarter many performance through a know, opening then on have financial in organization me. company’s have will a begin initiatives the thank the Auto to experience our for call, finance Before history. strategic up build and you and wish already to it third for to will

results strong solid and business deliver macro bad retail, the diversified factors. income up CAF quarter EPS the with disciplined Our our by were sales auto another CarMax quarter to due or quarter of great part combined spanning as cost teams model XX%. management, continued growth in finance, execution delivered Finance hampered with strong wholesale and retail Auto even to of this

CAF in customer Jon credit addition, will lenders our shortly. provide on contribution tiers. In and all details and CAF partner delivered financing strong more conversion

$X,XXX will a comps comparable down run the X% our driven This a unit compared year with last than the unit algorithms third datasets delivered also these despite decrease market. used a buy quarter rate. buyers, strength were of ago, quarter in profit is to with gross was strong retail were quarter. unit slight sharp third $XXX. up The appraisal business and by was results wholesale broader the per used used profit which XX.X%, Our period per unit depreciation up year-over-year Total sales record wholesale only for auctions our X%. in with year’s less Gross volumes All virtually with results, throughout the extensive while enabled retail quarter. same

However, macro how environment business. our impacted the of full picture retail this really doesn’t view paint a

positive the quarter, we the growth, continuing end of from momentum part the For second of mid comp the first quarter. the achieved single-digit

election saw which cases, orders, soften. tightened the restrictions occupancy there was and we approach shelter-in-place COVID-XX However, demand in surge another and

down a down first X% As December the part weeks trended This with trend sales continued X has approximately result, back of year-over-year. quarter. in sales of into the the

reminder, quarter we year, had As a last Leap and a Day. of added an fourth strong benefit

ahead, limiting the of the into sales restrictions connect are than our our in in more nature. trends and occupancy are XX third have restrictions, to us with and mandates. shorter allowing stores more less. Looking term ever. quarter customers approximately local December experience we with place government part ways mandates to we confident than due the half in transact state to or XX% capacity stores Of these these, of in experienced have latter omni-channel Even and Today, is

later. choose. systems, in the we continue I whether our CarMax will additional we through performance our combination that’s investing first, continue I to are people more our offerings, whatever they Enrique? financing. turn Jon experience customers serve provide consumer the and attract Enrique detail enhancements will then over experience in-store our on or to around and will better to our to to we quarter But speak through CECs, third As like online ongoing offer who financial the omni-channel information all call to to needs, to would and their more our provide confident

Enrique Mayor-Mora

everyone. Thanks, Bill morning, and good

reserves primarily increased grew X.X% comparable the to the prior due we quarter, in $X.X gross by to the adjustments the sharing profit profit X%. ESP million profits maintained quarter, year XX% our penetration $X.X third at EPP million with revenue or and cancellation quarter. favorable recognized or In quarter. rate For other

cost the other pursuing discipline, the front, and our of do continued an experience omni-channel opportunities. On SG&A supporting investment in to we growth job excellent while maintaining

since year per and The or to million decrease compensation per $X,XXX due $XX $X in pandemic-related was third $XX litigation third increase costs. XX% SG&A over other stock-based lower unit by was third drivers in leverage expenses year-over-year quarter. in was following driven quarter. the These SG&A advertising approximately by partially offset expense, in in a the year a expenses XX of of million X.X%, decrease for to and favorability expense million overhead notable last base strategic to a $XXX quarter, our decreased store overhead were represents on The beginning continued $XX and our year, the a X% opening to which technology the costs other primarily of in and decrease in platforms reductions growth expense the million. unit of initiatives. advance SG&A the reductions the quarter For quarter, due SG&A decrease spending third stores the a

we spend in in marketing discussed we our the last year. increasing As are call, of second half our the

compared benefits the will driven be and million $XX the of compared fourth spend properties. the year. the This year look our to of period of additional $X million, $XXX when on focus will vast in will XXXX, experience. campaign. quarter our quarter brand year-to-date our customers clearly roughly digital This and fiscal spend a to the our spend included advertising with The advertising drive by evolution fiscal year up quarter, in our the and year. brings last this omni-channel SEM, heavier this we X-month investments anticipate million brand on basis up full the content as we broadcasting campaign differentiating be For occur or of support demonstrating third with majority prior will On in increase same next to expense for X% when social

capital fund also perspective, allocation We continue From investments. spending initiatives. growth is digital ROI-based will a priority our to on

we in focused capabilities our quarter, investing enhance expansion In the be third vehicle experience, to footprint. the to continue activity new acquisitions due that strategic and and the had of required our paused in We aggressively the pandemic. on to store on stores quarter resumed the of we omni-channel the customer digital first expansion construction

We planning in stores XX to ‘XX. are open new currently to X FY

generates a of Our business amount unique model cash. significant

in priority repurchasing $XXX.X also back return quarter, our buyback shareholders. allows remains investing on approximately X.X resumed capital In shares growth, the million our the this strength million us share our program we while to in quarter. third our for So, to

million have current authorization. – remaining We the $X.X $X.X remaining billion on

Finally, adjusted capital. target of XX% historical debt to below our XX% leverage we quarter the to ended modestly

manage and well our a as we model, now Jon. us dynamic As to you over excellence can generation extremely see, the operating environment. cash will call diversified strong turn business I through positioned

Jon Daniels

everyone. and good Enrique Thanks, morning

partners results. As our deliver to Phil mentioned, lending CarMax Auto solid Finance continued and

of loans year mix average in function as the credit behavior by net second originated $X.X ago charged X% net CAF’s as was The X.X% quarter, that ago. Tier compared the weighted X.X%, sales Tier X.X% accounted tiers of to was X XX.X% up X applicants. the is customers for used quarter. slightly both new year from X.X% to contract last compared realized Year-over-year, XX.X% the XX.X% penetration up was a payoffs, unit across third X.X% with ago. to X-day the For Recall with CAF’s year. year a of compared rate billion. of with XX.X% lender a a distribution and well grew

the as we overall margin interest year portfolio, versus X.X% realized from costs. benefit increased X.X% lower funding last significant in the same to period Regarding the

We The was the managed income plus both resulting the to for reflecting transaction efficiently provision, X.XX% moderately million the up the than provision market in total million of the business the third receivables, for receivables. XX% ending at margin is end very investors. most the interest X.XX% CAF October in reserve our losses continue quarter. which was million, $X loss of quarter, loan and $XXX to recent balance ABS average in fund reserve of our received and well through an by $XXX in was managed second reduced quarter, increase lower an at

reflects relative and significant QX, environment recognized reserve adequately we to the the end the believe uncertain consumer from the at losses unpredictability of situation. the we of current While the favorability expectations

of back to Before call opportunity I our to needs take turning of recognize credit really outstanding to certainly our dedicated customers. Bill, associates the many the performance this like over would to

consistently Our of than ability aspect payoff this business another never to others. apparent in that year customer and service apart from is from to purchase more sets provide our us Bill? yet was past exceptional

Bill Nash

Enrique. and Jon you, Thank Great.

challenges Our execute dynamic environment. market the in teams Despite to this strong. remained the that pandemic, near-term the follow trajectory fundamentals of our continue

the an aspect amount CarMax a with every we business of to our how market the from position further of and now agile to have or term. experience shareholder is the across rollout our cash the announced they regardless been on longer the completed we a a customer create in seamless and infrastructure for with buy great We in had providing transforming footprint order in expand Last associates. generates of nationwide about car how of the our place national we stores seamless process deliver seat have empowers their in our experience. We our The our that, value we operate customer model to industry that of physical quarter, are a omni-channel an in-person the that common service systems the have supporting vehicle share best that’s all the over business, do to them we and terms, and efficient, whether and scale, driver significant us. To to choose that of leverages within putting combination interact platform online, two. CarMax customers used and

to online, the of appraisals, vehicle customers some transfers appointment such While scheduling, buy transaction require experience as from platform parts consultants. and current customer enables the assistance

sale focused We on significant enabling all the the deliver and will over are improvements for now self-service two quarters. components next of

it feature for less. example, expect been give rolling the tests, initial offering nationwide minutes offers on This by out their or this instant more X the these appraisals customers we vehicle end quarter. gives available are on in on an to For offer fourth appraisal customer have we standalone – of broadly testing and be Based carmax.com.

is there Even for the We ability by choose are the to have customers our there transact them with middle know customers focusing as having real-time available and should is online value model our centralized to in-person the just CECs. of who of the buy support This online. developed us XX% customers customer In advantage approximately interacted their centers with customers why our experience. choose quarter, advance customers the sales in-store process. is assist third CECs believe ability most the that independently on value we associates a supporting for on we in to to our appreciate next sales of choose. our and that track having of vehicle experience progress in chose get greater transaction how year. to car fiscal they online resources Again, they is their friendly, bought omni-channel XX% And more from the of helpful process untapped to our online, they to than we

those are we online, addition, at seeing progress to of of preferring our stores. more customers their ownership the one but of In transaction still vehicle take

already less were early by chosen customers, alternative curbside XX% just than that a completed a was our of seamlessly and deliveries too It our delivery platform supports initial but CarMax omni-channel the quarter, and Atlanta. just experience. years year, have online including we omni-channel it’s third as to quantify the home we last across the launched of For integrated pickup, ago experience its of whole, in impact that benefits Having first evidence in-store sales. X rollout

Now, can very years omni-channel and pricing in continued growth competitive after on market. experience sustained and we is X this testing our see that advertising, delivering

has During time, this high outperformed of third in quarter single-digit Atlanta the X-year XX%. stack company the market the and comps with comps

our We our are omni-channel markets other are as also offerings how ramping very pleased with mature.

sales. remains when and overall with relatively including the compared Atlanta the addition, the of number last although piece by of this alternative small XX% delivery, curbside pickup market, of quarter In increased deliveries third in a home has year,

to online this to marketplace. elevate omni-channel and our our and the brand As we our CarMax enhancing it’s and on customers in position offerings, differentiate our continue important educate experience experience evolving

to will understand In also on offers next that national campaign CarMax way. next beyond we are pricing of core week, flexibility multimedia in mentioned enhancements national ultimate with their capabilities. omni-channel making improvements year we markets. and to of the the that last buy the their tests just our select customers Within combination marketing additional we omni-channel marketing phase and shop to to the terms, experience, are the introduce increase awareness I campaign implementing and want We our began our

the profit fourth We above $X,XXX. continue in per unit gross attractive to reporting quarter retail expect

However, the in will larger change experienced we this metric year-over-year we have recent years. than be anticipate in what

continued Finally, our going CarMax Day year take we that Analyst There to it. into lot to we and delivering customers. share to forum host know would detail And that greater at valued earnings I to our is large event on before provide end like go questions, the we metrics our us progress to will your plan let opportunity a strategy you Virtual the excited call. and we innovations think on following are this we the behind and a are

the have please are In Investor logistics reach this out our e-mail questions dates department and free XXXX. regarding early invitations finalizing to feel you plan event. We the in and to any to meantime, Relations should

we will Operator? be questions. to Now, your happy take

Operator

Scot Please Thank ahead. Ciccarelli you. Instructions] RBC [Operator Capital comes Markets. Your from morning first this from go question

Scot Ciccarelli

happy Good holidays guys morning, and to you.

Bill Nash

Scot. morning, Good

Scot Ciccarelli

the slowing in quarter any you business? and you had correlation the those the impact sales might occupancy be can think the trends help of Bill, an morning. Good ramped provide in to on us better like restrictions restrictions how understand how big between up occupancy terms of color just kind the able you of

Bill Nash

Yes.

are had stores saw or stores, XX%. about a saw there that I think have Scot, that the back the until good of restrictions. the I that that, at beginning of we it or XX% part ballots, was we and noted go these quarter. had those of down we that said growth tighter didn’t think of than actually the I when majority XX elections was restrictions. continued And more decrease the election opening think at that are the I So, less, type before – are that’s step remarks, those, XX most week those we that really, of of or less. a we If seeing that started many when I as in than to of it half so I almost is more June, – up XX% And in really

the exactly but So, those down absolutely shelter-in-place, in we it’s hard step to markets. versus restrictions a the quantify see

down a the we have about that effect. step larger into under went think markets are restrictions, restrictions the some these of saw absolutely once you If

Scot Ciccarelli

If That’s really said. a I on follow-up something you just have quick already helpful. could

get it You talked business? the try those and ramp kind understand roll people the and maybe about guys you of then next to higher as would fourth a marketing the in forward Is little to quarter the GPU. similar assume year changes less trends in fair to

Bill Nash

Yes.

we’re us. in stepped opportunity – great bit. little the We a The like have of quarter, a front obviously feel third we we stepping fourth So, up up. quarter,

And so, a awareness. to it little build while takes

next So about more but a the I would fourth step-up, of we’ll the there end be would expect year, at quarter. talk that

Scot Ciccarelli

Very helpful. guys. Alright. Thanks,

Bill Nash

Thank you, Scot.

Operator

from Your go Montoni Please comes Michael next ahead. from Evercore. question

Michael Montoni

question. for Thanks morning. Good taking the

Bill Nash

Good morning.

Michael Montoni

more, on to a in Bill, could, that dig I color. wanted the was in little that I if you’ve some seen bit I helpful thought experience Atlanta.

wanted a by person consumers I But themselves, calendar So hearing that online, for the I decide transaction they middle as ‘XX, the was just to do a hoping confirming, sounded they then, of a would share to you bit live. speak click if the more. was and right you frictionless like do basically so experience basically if earlier, could just could button go it And to well. part can

make and color multi-channel So would sure extra I just I be wanted that understood to then some great. on the

Bill Nash

Yes. Thank question, you Yes. your for Michael.

I Atlanta as been to. like market in we said, the kind this And was rolled that that Atlanta we Atlanta So new of the first testing we’ve market – things. first roll

actually and we start order the there user the some markets other a customer order that in fact, experience out building that themselves. In build right allows – have the to now new

markets Atlanta they And is other at some markets XX we rest we of waves early that year. that company, producing are – group from it fact, see shows as the comps. currently have just nice than continue those ramp. matures, in of And the about Because performance markets, we the are we which better strong open to So, then in for that as at longer. if a been have I indicative that and stores look have those mature the these corresponding least stores think performance

by all So, we’re that. encouraged

been one few which other of extend testing, markets the of haven’t want the we other which a some to comments things the and we’ve the places, of Atlanta doing on is the pricing. think, advertising reasons we the and rolled is I out some in

choose question, mean, frictionless, parts experience get I the customer us. the where it right involved now, online a consumer we’ll But great And option of next focus that. I of to middle as quarter, self-serve, of so make that And good strides. buy have the part second next On the be right self-serve we’ll second make on work in I to CEC if quarters. needs The from the the there’s two Yes, fiscal majority now mentioned, think year. is in great consultant our of will the we’ll customers they without do your with consumer. progress And shape to we think can and strides

Michael Montoni

Thank you for that update.

Bill Nash

Sure.

Operator

Your next question from Please from ahead. America. Bank comes of John Murphy go

John Murphy

congrats, guys and on new Tom and retirement and morning, Good the Jon, roles.

at Just here, of of a sales shelter-in-place regulatory But you Obviously understand this. Bill. concern look same-store sales, requirements question the the or driving lot they’re when regime And there’s the XX.X%. of down. wholesale around sort I up a being some are

So a functioning really even because constraints. problem are there’s market that’s here skeptic big your wholesale these really there’s sales a some say, of part hey, would well under listen, strong. the And

other cars ever Somebody’s of wholesale constraints, big really I and the you there before. it. gap the quite that could remember be mean, you’d interpret between the optimist say, and do not. indication how big that can’t And an retail? side XX.X% retailing you’re these that gap on some ex is sort I any listen, hey, crushing that

what’s going on? trying to understand just So

Bill Nash

quarter. obviously we of think the lot there I talked and the election. about a for COVID the mean, restrictions. I Look, about John. talked the Sure, surge mix into with going third factors lockdowns We are the

third that that. cars are in from an mind, prices quarter third leading And on up into steep are was the of appreciation. used lot You earlier the the keep bought in months point. the in bring know earlier very for there a the you quarter, month up that interesting sold Higher

I And new. talked between of that so, a a happened in is, is, what gap and late-model have the hadn’t the you this about other factor really used quarter tightening

seen gotten some in I then, car think tell the you external would industry depreciation seeing And we’re softer. So And that. We’ve quarter. out is external throughout used sources that’s also in factor the there. has that – a there think marketplace I that there the

what Now, above year-over-year we’re but in. a is was value still depreciation year kick it seeing ago, certainly the

John Murphy

conversely there’s means long does profits the manage you just lower Okay. sales actually and and mean, But I it up your mean and – Lower does like unit seem as lower I means you prices necessarily pricing, for indication your kind an not same. well, volume profits up. as lower goes it mean, of go

as as just for our like, happened come seems opposed there’s number just the increases sales to seems it what’s it with wholesale sort harbinger is like volume a just real mean, that maybe of the what are I interpretation and better things That’s to of normalizes, market So, your headed? same-store comp. potential where

Bill Nash

that we different what inventory mind, obviously when our selling lot. inventory in dramatically What you’re we’re in our them we’re different. But is keep is quickly. Well, than retail the – wholesale, the flip wholesale, And getting through dramatically you’re real-time. auctions selling wholesale wholesale a cars very real-time and on selling

that we’ve side, bought we leading the earlier that quarter. the inventory up got On we’ve been working into retail through

John Murphy

I’m kind the restrictions by And are the side, the right? as correct? – wholesale retail wholesale on restrictions. – same have of that what So hampered just is Is you any not not just sorry, obviously

Bill Nash

I locations side, folks have the to wholesale keep markets we’ve that of sales keep given quarter virtual. chose turned everything on. sales to our our all we nature back keep bringing store some into virtual. we of mean, are for physical safe, the The But the just bunch No. our actually could associates of decided There a to

John Murphy

you Thank very Great. much.

Bill Nash

Thank you, John.

Operator

William question next go Blair. Zackfia from Sharon Your Please ahead. from comes

Sharon Zackfia

morning. Good Hi.

Bill Nash

morning, Good Sharon.

Sharon Zackfia

the which in marketing think rest tests sounds really and country. mentioned, all his to I surfing, wanted encouraging. spend of on you’re congratulations way, the that Bill, was bit what is But hoping so to going by pricing of retirement seeing him. delve a was hi. of you kind suspect into And I dynamic maybe – little I hoping, the Tom I that for to Atlanta, to deeper some accelerate

awareness seems it’s the at – increase quickly more is just of but way happening, I had us maybe my that it the originally than end Because day, question anticipated. a is there of to of the some seems happening omni-channel So, it’s that offerings? slowly more guess, it

programs awareness? on love of for And I of secondarily, effectiveness the pricing to if related marketing pricing? as I’d different to that that hear unit can So, to the then you more opposed kinds actual do delivery didn’t test, national about any accelerate of was pricing and/or to catch

Bill Nash

All right. There’s in Sharon. question, a lot that

we And out can may which everybody platform because hard milestone me the there common of be about. get I in before online if think Let and of highlights year to a which and kind think quarter. go quarter, campaign, And whether significant of end see for in really a we have the it all. be But – was us third this I excited flexibility part started out we get we platform from to on or and same dealers it it’s that that really dealers the I important to really us question. ask we off marketing we got you really the all, to we of needed third kick by I have. the And to wanted new repeat educate first the to planned a worked traditional nice it like differentiating we’re of the the consumer. job the I capabilities multimedia said, really does

going so billboards, social, be digital, about out-of-home, It’s can everything broadcast excited. that you think think we’re to to that to from kind of to And of you so, thing.

and sweeping opportunity an broad a effort is because that really awareness. consumer do it think we drive the to educate So there’s

when are necessarily advertising, in to of majority Now, a aren’t awareness on takes advertising, little any the the are because awareness that folks when it of we’re that they mind. market. is top point the market do that the – it the in sure time doesn’t you But hearing it make

So think up will that’s a the to And haven’t done point. really that we be real to going focus. catalyst. mean, I be this I that

out to we’re that there. get So excited

pricing question was – part the clarify other that Is the your think you on I that of could part? delivery.

Sharon Zackfia

on you around was talked and didn’t dynamic GPU. in some just include that know the elasticity of the the sort of about quarter Well, current cost impact pricing to tests that consumer? going if price delivery to I

Bill Nash

Yes.

So, the I pricing we’re the GPU when specifically was earlier, more made comments speaking retail – constantly to or pricing. I

We’re to the consumers, we’ll continue constantly doing well. doing test and on as delivery that

have forward, we’re we things whether been it’s And I transfer advertising, it’s expect, go like would to when very comes pricing, fees. it doing this doing We analytic that. as and it’s whether the

We’re going combinations. do to

We’re do to by themselves. There’s them things this different going of whole trying going bunch to we’re that quarter. a be

Sharon Zackfia

I pricing the in markets there? Can quarter. you’re doing if and one test So, ask just see some follow-up? something Sorry. quickly you marketing encouraging this pivot you How can

Bill Nash

I think we can pivot very quickly.

then the some we’re going campaign And to of marketing. going going First all, markets everywhere. on awareness to we’re have fit of these with additional some

be acquisitions. more awareness may and Some of maybe it

pivot quickly. very we feel I can confident So, that

Sharon Zackfia

you. Thank

Jon Daniels

I our the marketing, to it’s the opportunity time omni us now really for is through out invest testing the right rolled right add We’ve through platform. lower pricing. in that think just I’d and increase

omni. of We continue to enhance the capabilities

our Bill opportunities moving time the we to forward about do grow our believe So is excited, share. now we’re grow and And to that. brand market as to said, the right

Operator

Your next go ahead. question Please comes Wedbush Securities. Basham from from Seth

Seth Basham

My a Thanks and congrats, is good tests as lot morning and question around well. Tom. pricing the

much decrease out quarter, unprecedented cash in in You’re of times would GPU fourth be shock. a which signaling of free as the year-over-year as X% market

give some you’re test prior that forward? about this go widespread you what color planning. is a terms exactly or you’re of price how price in think thinking test Could relative pretty should us to very the So, the we more on that you cuts presumably deep and plan tests

Bill Nash

to probably year-over-year pricing at quarter, look we’ve a GPU, be given us in about this Good given in different band know a you And going Yes, of – your it, comments kind think been the should if the the of always probably probably give range. Thank think morning, – that should Yes. look in than you saying, $XX this some And a is test, will you I would throughout you Seth. several we – back That’s say, trying markets. to to it $XX any different I year, we we’ll range. you on on you – do question. on the for On normal us that bit that. flexibility way do quarter, be the historically in allow when for somewhere would little will more that you are some And things. it’s outside my tighter us quarter, year-over-year. do to but full expect – testing

know of market So, again, we’re combinations is same levers. to the to also respond And we going that excited the of things. different not about some way every

So be we’ll that’s checking. what

Seth Basham

Got right. it. All

little a could you’ve and in the that be your depth the the bit way of of than widespread test done it’s interpret presumably right than normal to deeper the cuts past. more Is it? in So, terms price

Bill Nash

Yes.

Seth Basham

good. Thank very you much. Very

Bill Nash

Thank you, Seth.

Operator

Gupta comes from Your question next Rajat ahead. JPMorgan. from Please go

Rajat Gupta

how we you could quarter. this question. underlying the into quarter? similar from then provided the taking you Thanks you Is something morning. there the look versus had benefits the took quarter fourth on during for good last provide Hey, and believe one factors should just for I the growth? losses split on I the quarter? moving that the break in Could out the help economic a CAF. just my follow-up And you what Thanks. were

Enrique Mayor-Mora

Yes. for Rajat. Thanks Yes. Sure. your question,

lower really of A I our than We the can our that down. quarter going favor a million things break So, losses, expectation And the $XX for quarter. saw of perspective, number into no fantastic us net was in from there. losses much is really, – QX worked doubt. which

CAF. First, we execution I had think excellent at

good to And and going are then quarter. You have in when who payments. able a units to consumer was very losses make are the the obviously be willing lower, to

also previous the within that liquidate that hit an were of quarters we had to inventory able us charge-offs We in quarter.

was would very guy not they we really in auctions, So a And as that vehicles a is performed that a recovery go-forward good those well in probably – something the rate. from wholesale on basis. well as we sold our obviously expect

in our forward. together provision a that when going of in a said, I we So, in quarter included are a to all strong give in lot and $X quarter the going inherent was the with that relatively see restarting hiatus working being that necessarily upcoming A would and which originations of saw expect we billion there, us and of we we and feel a summer, provision strong quarter that things that But $X positive really X being drove million number factor realized quarter, economic had in do that we forward. we a had – positivity the a there’s and originations look of our that our at so That things the the reflects uncertainty we model also of really quarters believe $X.X reserve, set million there’s some that we over as said, provision. the ahead. lot Tier adjustment our our benefit

going about good feel there’s we recovery X that to in the be the and Tier reserve, I So, the in there. X, all-in reserve. tell Tier you would cost the volume

just there’s overall, little a we feel probably would is great than normal like in cautious ahead. expect loss what there. we’re We’re reserve quarter, normally lies The cumulative we from factor. adequate, our what but higher uncertainty out under But times

Rajat Gupta

that volumes we an year-over-year. that normal year the And at would just to like mix the on And that and comps quarter Tier CAF, should CAF Tier same-store levels more back combined going Got aggregated absolute noticed was a down have deliberate while expect just fourth remain it. captive or effort? influence level? color. the this next through in in were helpful sold roughly quarter? up year-over-year, your then, Thanks. volumes should the X the Was That’s plus that on X% X And

Enrique Mayor-Mora

question. Sure. fair Yes, a

mentioned to that be amongst two CAF a function see quarter, was I behavior things, generally lender In a it I in as you’re think there to tiers going the or lenders the this thing. really my well. is and much distribution really mix. As of certainly penetration was change across going ultimately don’t comments, mix

it I and that’s mix really quarter, to hard think So, next so say. what drove

how So out. it we’ll see plays

Jon Daniels

up And else question up, by – part Yes. if to your picked I somebody been on hadn’t picked them think, have sales. they same-store on your Rajat, CAF would

Bill Nash

loans, considerable for that this again. life loan us sale the that’s employ to financing, that that the look see for a going loan a you over forward. bit gain we’re and this is you’re for really the do consider out I got of the just on not of on profitability I our loss you net a quarter margin would tailwind life quarter business. other to is take CAF see little underlying the the moving to When because reserve piece at Rajat, on profitability Since of the think, continue the we continue to the interest cap going that overshadowed call benefit adjustment the

the our So, just again, forward from quarter considerable and of business. CAF this benefit moving profitability

Rajat Gupta

for Got it. color the and kind a good luck. sense Makes and thanks all of

Bill Nash

you. Thank

Jon Daniels

Thank you.

Operator

go question comes Brian next Nagel Oppenheimer. from Your Please from ahead.

Brian Nagel

Hi. Good morning.

Bill Nash

morning. Good

Brian Nagel

you questions. for Thank my taking

beating First new at dead the and of and off, here. kind Jon, the role, Tom look, the retirement the so, horse of risk congratulations for

Just QX stack maybe in at to year-on-year were squeeze But difficult fiscal actually comparisons clearly, say, it comparisons a with – the got you if questions – the And QX. to the look sales in strengthened third more versus couple here I’ll quarter. regard together. so trends, the of the business up,

that the So discuss quarter, weren’t more I between you more the less there trend business talked a the in stores. have second – with out were the the question in the is, turning getting did restrictions restricted lot restrictions that the about and there spread there with you look restrictions at stores we where where any is, maybe that you I slowing, COVID Could called in stores then as difficult? where question COVID – place? comparisons the coincide And were in have significant

Bill Nash

Brian. Yes,

And requirements. restrictions. saw we versus especially to at of said Chicago I California, the don’t in you there will post-restrictions, area a COVID stores tell that I’m we specifics particular that shelter-in-place. earlier, some of absolutely I going I compare it the country, are on like mean, markets. or into ones the So, have the have restrictions the you states can look if certainly Obviously any not strictest really like on and the rest pre-restrictions step-down.

the On think, first repeat – I the you that part of your part? can question,

Brian Nagel

Yes.

comparison Just from a standpoint.

aggregate, you a comparisons more basis – on improved your used actually difficult if comps QX. QX. turned at So from car in unit QX X-year look In

as you at more trends looking as comparisons step is, down intra-quarter, had did got the were difficult? I the question business the So

Bill Nash

Yes.

last strong kind if So, quarters the look I throughout and third quarter. quarter at of both year, fourth it certainly were built year-over-year, and quarter

– factors lot So it’s the a external have of I got are a think comparisons you combination that these little weighing of in. tougher, a then but also other

Brian Nagel

Got it.

Okay. Thank you.

Bill Nash

Alright. Thank you, Brian.

Operator

question from ahead. Craig go Please comes from Kennison next Baird. Your

Craig Kennison

wholesale Jon. on pivot business circle your Hey, to I wanted and with congratulations, back thanks and online. the Tom

of perfecting in experience omni-channel retail. in are What omni-channel like ton too. It space right analogy? experience that You the this in is feels wholesale, an a does look happening disruption there that’s if like

Jon Daniels

Yes. about No, the about thinking way think thinking it Craig, we’re it. you’re I that

sets. We two customer have

with continue about have customers important. a an area our wholesale We that also them retail our are the of customers. for we I’ve lot about what in omni-channel match past the one wholesale for as our to experience customers. wholesale we and providing up wholesale the our customers experience of customers our talked And strategic initiatives want. Both want retail invest. our equally an talk is And But to

needs. like the just So there’s retail with different customers,

coming some And the all that. now that doing to position some sales, we’ll we be just like ourselves combination, accommodate Some like like a physical put of virtual. a able in to dealers

on, when this bid can we will person virtually. that And you simulcast. sales there’ll So turn we be physical is be great. And you actually or this in back – can come think

ourselves be And up attend vehicles. on the As to drive it to physically will be dealers allows business having there. prices forward, we to a and attending, buying, allows more we think us that’s more move put able It to dealers without dealers it thing. good more more

best together put customer the both for way, same about thinking you’re sets. So, experience we’re trying the to

Craig Kennison

you. Thank

Jon Daniels

Craig. you, Thank

Operator

go Jonas Your Morgan from from Adam Stanley. Please ahead. next question comes

Adam Jonas

thanks other omni the extra that and the some rate vehicles that’s appreciate Bill, the Hey, really us alternative distribution color if front way? I especially – and the on describe and alternative units products things on color distribution, GPU for F&I through of could Can going on the color non-alternative going of end KPIs distribution like on versus to it attach helpful, be forward. for incredibly specifically everybody. the give on you the

Bill Nash

Sure, Adam. Yes.

look So MaxCare, consistent at in-store pretty on alternative like the finance products experience. the delivery, is when finance, the you to

the home that the we can process and I but area alternative usually that’s bit think curbside, MaxCare, or delivery, one similar an a fairly it’s very to – It’s needle. on an think, the on down the express the pickup there’s that’s is. consistent of what that continue store a deliveries focus like – move on little with I on

business, the alternative the someone’s or the GPU as it’s our our far way delivered express vehicle at on store, GPU to different done a lot. is if As manage or we on home isn’t pickup as goes, curbside that’s it delivery

don’t I see difference a So that. in

Adam Jonas

Thanks, Bill.

Operator

from Your next question Stephens. go comes Nelson ahead. from Please Rick

Rick Nelson

Jon to Hi, Tom and as good morning. Congrats well.

So, question this jumped last quarter. quarter were X.X%. regarding on CAF, the X.X% We rate at contract

I declining funding lower that you I’m taking guess, place raising environment. cost is are in why take CAF same-store curious and APRs spreads, You – a use sales? to could drive more

Bill Nash

question, thanks for Yes, Rick. the Sure.

mix the mix there the those through before in interest there. Tier coming a penetration it’s Similarly Tier X, wasn’t X, X, door across really for the through within with door. the increase rates people kind mentioned play as of was CAF, really coming So, those Tier big of an

think Tier always sole very lender a So competitive change. to offer environment, customer that. given at job it interest interest really, and a rate X have we interest close do through very as on a what higher regard overall was run CAF’s there rates out as market, With we we I lower CAF rate we rate setting a said to opposed keep the a always coming should the to its a obviously eye provide rates, can

now, marketplace competitors a the a driving keep good will a metrics key We thing. in on there are increase yes, out that, right mix feel from we what not and wasn’t like rate X-day there payoffs but eye an see in obviously like we very and purely we position,

Jon Daniels

Yes.

as the earlier, question – up think the I have this we Rick, sales. picked the those that as somebody would customer, same, far impact same-store hadn’t on them picked else if up

Rick Nelson

it as go-forward on is could that. relates provisioning allowance CAF managed. the X.X% I a to account on If follow-up of for basis, receivables thanks do a Okay, down

time? about I to come to Would X.X%. future of past, X% expect allowance over talked the proportion loss in rate think you here that down you have expectations

Enrique Mayor-Mora

right with numbers. And number on quarter, things out the with to X.XX% business historically. that is Tier X versus reported Yes, in for couple Rick, point as X% a the to those think of Yes, X.X% important well. X.XX% the that Sure. I

of we receivables and X% whereas Tier XX% have loss, to is the the referenced X.X% said We that’s accounts generally of business. historically X% roughly our the for in X

which reserve, the want out. adoption in to money of put really X% to our net contemplated in that the have Also, the actual recover, not for in to cost you again also with to we CECL So, X.X%.

Obviously, of to we you as net So, volume think out, in. is expect I billion still $X.X environment would that range. our trend back with things existing we a above say there now, are uncertainty items that’s get back to But But right normal. regard and and those a of both to level given portfolio. the hopefully origination to normal reasonable we are both that when we probably little the the

targeted those after net hopefully out, back our normal to range you things maybe but go soon. than things higher little again, So,

Rick Nelson

got the for color. it. Thanks Okay,

Bill Nash

Rick. you, Thank

Operator

Your next from ahead. from BNP Paribas. Exane Bottiglieri Please Chris question comes go

Chris Bottiglieri

Hi, thanks for taking the question.

question. lot are you bigger clarifying the new a On speak can originations? what have quarters to a gave for you on quick first question new at of I to what last provision couple the just trying I one of provisioning was Just on and then you CAF, think noise understand loans?

Enrique Mayor-Mora

volume. was to as remember, based in a to of million said of that. is billion again question, reserve reminder, to $X.X the Yes, Tier there of Sure. last We things originations. that. X happy on just the Couple give $XX attributed

added up in As a back September. we had started and summer, we but that back reminder, the over hiatus

yes, $X.X billion. million that’s on So million going be in expense, that $XX but the net to inherent $XX recovery and

Chris Bottiglieri

changed keeping on raise proceeds out, buyer this, allowing then, And getting to you to auction so that’s to helpful. just I finding, the it is and environment raise guys GPU? something structurally especially it you trying kind just car of – following like again, that really buy still what’s impressive really GPU? apologize that or went keep appraisal understand, color you but Any are sustain through higher but if allowed That’s used has there Like are in up the pricing be stabilizing, cost rate materially questioning, like GPU at rate, rate the the so you keeping would that’s flat you appreciated. appraisal the

Bill Nash

Yes.

rates. So, And have I been testament the calls, the of professional using. buy continuing to few buyers, its Chris, I to algorithms, it’s mean, if some you buyers, have the technology do we noticed have are last our strong really a think we

being buy sharper the of So I we getting just is headwind dynamics. are in able I rate. respond to we depreciation some remarks on a depreciation And quarter. the to think generally market quicker noted earlier, for saw throughout

with rate little quarter-over-quarter, from consumers offer still pleased we are came a providing. And bit like real buy the so, that we the that are. tells we us the are It while where also down

I So our the it’s they strong auctions And of I the which a – are combination are as think think of values, given think I well. sales, factors. helps attendance commanding

Chris Bottiglieri

it. Got

Okay, thank you.

Bill Nash

Thank you, Chris.

Operator

Please go from Whiston Morningstar. ahead. next David Your comes from question

David Whiston

morning. Thanks. Good

of was or competition? response some pricing the program that once pilot On coming is was that something the for time cut you this have in more planned up, capabilities long XXX% ready a to

Jon Daniels

and feel been seen other discovering. doing. the is it’s of right learnings that we we that the of kind the we the and like – of things is opportunity one And based off some right it’s This just are tests the of have time evolved in we now that off those results some have

think So on of what an of we evolution it’s it’s really have that. continuation I kind a testing and been

David Whiston

as more optimistic And there term, Okay. can SG&A is longer out, scaling? we some rolls – omni-channel about be

Enrique Mayor-Mora

approach things. structural of the overhead, corporate CEC to of out that – There questions of coming reconditioning. management. very Coming are some maybe address have the some and do pandemic, in strong we Yes. a to out cost the pandemic, disciplined we your in Certainly, of coming specifically vehicle a savings couple efficiency, expect out of and also

savings those said, doing we reinvesting are that into are being that is growth. we Now what our

earlier, right us I invest. as it’s for time mentioned to Now the

the are new to growth. continue our of vehicles and grow store omni invest acquisition functionality, our We and customers to going and

So, that’s are we we company our question invest, how in we and savings to are are some to see we a do to CECs thinking growth but your continue to the efficiencies is about specifically. going expect really answer

Bill Nash

David, can is efficiency. we think place get just that the continue Yes. I CECs one to

procurement. with is there and reconditioning some I still think efficiencies store

facilities have just corporate I kind think making are we I a logistics. in think some we are efficiencies got where – from improvements of have on got we thing, we and that even overhead some

lot So, I efficiencies. think a there is of

to in Enrique’s point, to we business. want continue think I invest to the

up picking to to we business are we forward. the as want move continue So efficiencies,

So, that more little hopefully color. provides you bit

David Whiston

Yes. I appreciate it. Thanks, guys.

Bill Nash

you. Thank

Operator

Chris Bottiglieri from go BNP ahead. from Paribas. Your next Please question Exane comes

Chris Bottiglieri

me It’s again. guys. Hey,

operating this in investment gradually as levels longer rollout go-forward how shifts you And in the shifts is think in your you how then these capabilities Just I business Thank I your as of it like quick just think like step is looks term level guess raising online like you creeps But then, it’s like for the this you. and do advertising? payback? is online? business did that? like it up two think XX% terms Do advertising, question stuff do two, new investment and kind like probably from awareness payback, about, the or like primarily is that norm you think of just the we questions. initiatives, new right of like back QX, on omni-channel you a One the when as And if do quickly. just up math that more of about

Bill Nash

Yes.

primarily earlier, is to lot of it. it’s educating of a the the about components I Chris, going And brand awareness as step up campaign, really is different consumer building. It said really to new So, be and consumers’ some kind And yes, our a a multimedia you which towards benefit awareness it’s will from capabilities but when you on time. get over how experience. awareness, geared differentiated advertising, do changing have we it, happens the or

you that So, it turn minute it on. doesn’t happen the

it’s I in it we and year-over-year, beyond just does I itself will said advertising quarter continue some earlier, say the certainly fourth more happen safe details after sustain nor reinforcement. have will fourth I would have as think because doesn’t up again, awareness as that step without we – the quarter, forward, so, just to look a overnight I And to

Chris Bottiglieri

it. Got of sense. Thanks the a lot answer. for That makes

Bill Nash

Sure.

Operator

Q&A for back over today’s like to Bill the closing of to concludes portion This remarks. it would turn now I Nash call.

Bill Nash

Great. Thank you.

to thank for I always, I to want joining questions your As want your today. you the support. you thank call for and

our Our an on future experience also success but continues our only customers, associates. to for be focused that’s for providing exceptional not and

of are our customers. and going our thank values taking value do I We you basis, want remain on care of to of our committed other, taking daily all and we to our create a for will grow our each everything for purpose continue and associates to shareholders. that to care

all you a and customer-centric happy of the Thank the that associates will I all quarter. the reason you. are holiday experience most You talk the wish we I we within again offer and compelling all wish industry. next

Operator

Ladies and gentlemen, you this concludes Thank call. today’s for participating. conference

now You may disconnect.

CarMax (KMX) 22 Dec 202021 Q3 Earnings call transcript