CarMax (KMX) 12 Apr 222022 Q4 Earnings call transcript

Company Profile

Participants

David Lowenstein	Investor Relations
Bill Nash	President and Chief Executive Officer
Enrique Mayor-Mora	Senior Vice President and Chief Financial Officer
Jon Daniels	Senior Vice President, CarMax Auto Finance Operations
Craig Kennison	Baird
Sharon Zackfia	William Blair
Rajat Gupta	JPMorgan
John Healy	Northcoast Research
Daniel Imbro	Stephens
Michael Montani	Evercore ISI
Seth Basham	Wedbush Securities
Chris Bottiglieri	BNP Paribas
David Whiston	Morningstar
Sharon Zackfia	William Blair

Call transcript

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Operator

Thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2022 CarMax Earnings Release Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. David Lowenstein, AVP, Investor Relations. sir. ahead, go Please

David Lowenstein

Mayor-Mora, Good CarMax quarter you am earnings Nash, our CEO; with Jess. CFO; President fiscal Jon Finance and here joining Operations. XXXX Bill Daniels, Enrique and President fourth conference Vice our Senior morning. you, Vice for and President, Thank Senior our today our Auto Thank call. I

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

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

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

Bill Nash

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

from Fourth $XXX.X fiscal year prices units with volume the of ago. by year’s of sold. partially driven FY a $X.X quarter net share down and per billion, fourth for fourth by million diluted quarter year. diversified selling compared model gains earnings billion in total For our last XX% average $X.XX, fourth wholesale growth offset for was in $X.X the Net business earnings delivered a and up XX% used was ‘XX, sales quarter, the quarter decline

sales performance with at that December, the During fourth quarter. we the we in were of shared our start our pleased call

of began used versus In the last the see believe market-wide several lapping retail COVID sales, holidays total the end stimulus surge down business, including unit on vehicle the car used quarter. factors pressure and through the quarter confidence, declined in were comps macro weighed we the However, our X.X% consumer X.X% year. sales to after fourth period. quarter that continued Omicron the year in benefits We fourth affordability, and prior paid unit

was long-term well for wholesale and challenging, the our While success extremely continued accomplishments CarMax XXXX we proud Auto market our positioned fiscal for retail across fourth are Finance. we believe used of and and quarter are we business

year as full well in growth initiatives. solid Our progress reflect our earnings and market sales, on share strategic a as significant results

fact, been CEO my experience industry. in retail is our reflection our as this on of focus market past a it’s tenure highest the In during the year share the was growth delivering and most customer-centric

channels, comparing versus our we deliver the our market during Our fourth last a profitable X.X% data total continued we XXXX. cars published to that share We quarter. fiscal in gains in up sales during data suggest fourth nationwide market any and to SAAR results environment. believe are decline share well-positioned year’s share retail calendar from vehicle in take to grew the period. wholesale in during quarter, XXX,XXX in to quarter, vehicles XX% of sold XXXX Despite X.X% share Across approximately we indicates XX-year-old our to posting XX% our that used X

X.X wholesale million retail approximately up fiscal year-over-year. the and year, cars we XX% combined, For sold

from last quarter, We approximately consumers. continue up consumers the nation’s be bought to versus from XX% cars largest buyer We period. the of year’s vehicles XXX,XXX during

car We during the reported fiscal consumers, fourth XX% to per above XX%. up year, from year-over-year. up versus elevated, With used to $X,XXX, gross and be prices. prior between quarter, cost, bought Self-sufficiency $XXX struck to the inflationary prices along our the We cars pass continued remaining savings retail keeping used via million we believe unit unit year right more self-efficiency some the we quarter profit chose we consumers balance lower strong period. affordable. per For acquisition remaining maintaining X.X covering of approximately of cost fourth margin vehicles our

gross CAF the XX.X% margin what’s which who appraisal our delivered high commitment of I’d during fourth to year success or last of driven but and supported $XXX $XXX valuations the last quarter business. turn the quarter, a our unit this our reflects of contributions, CarMax approach primarily to were our wholesale to fourth from by growth more Finance instant The which was Our on the the same year. point, financial profit the over for quarter provide will per continuation information Enrique? ultimately the year sales compared on Auto Wholesale income and financing quarter $X,XXX performance. online offering. was a to call few right relative John up at last our of minutes, In units like ongoing during to drives unit more doing ago. period million, detail fourth provide million up Enrique, strength $XXX CAF Wholesale year. historically customer, in the from will remained customer

Enrique Mayor-Mora

per due fourth profit gross with year’s million, staffing COVID last $XXX growth in reflected $XX reduction gross XX%. us from the efficiency largely fourth deleverage the of XX% and and flat to the quarter. last million decline X% Total surge primarily in impacts which by the gross Used driven million, This down up an from quarter. in million profit sales wholesale quarter. unit. Other service margin margin lever. $XXX strong everyone. offset providing and the profit the was driven business was units Bill is fourth Omicron in continued This vehicle million, quarter, good decrease over $XXX The was profit relatively up of increase last a with fourth of wholesale year’s a in was by primarily morning increase by year’s the from vehicle $XXX margin Thanks, decrease was

performance operate can contribution be trends service-as-a-profit third-party as which for year-over-year offsetting revenues of providers XX%. center, from implemented quarter, cancellation to and penetration by be at This as benefit second to was $XX reserves. adjustments a to intent Our profit from an revenues. million disruptions. our one in decline finance their $XX million staffing and million for Recall profit sharing shift timing and net of quarter Partially EPP from EPP approximately with our admins. quarter-to-quarter recognition stable margin fees driven by favorability the from X% in sharing or this impacted September, by of well our year-over-year sales favorability period was continues call grew $X.X the in

timing, aligns recognition same fourth to the utilize now providers our quarter. as our of which applicable All

by fees This finance $X.X million driven improvement million, was cost volume $X.X last improved Tier with of compared to a last Third-party income quarter. with year’s year. by X $X.X of million lower compared fourth

was for support deleveraged The appraisal XX.X% increased that of as the occurred year in gross mainly due consolidation costs customer primarily the from buys, to fourth XX% Edmunds XX% quarter and new quarter On up customer dollars increase quarter to at percent $XXX the growth profit related in the quarter. and during to the our and SG&A increase due experience of year’s expenses from million, SG&A the sales to or over decline centers a was in three continued due prior to to in CECs. strategic This in fourth last marketing, the front, in SG&A the deleverage last factors. our stores initiatives investment year.

continued our anticipation First, driven a ramp including of increase staffing, staffing in and $XX total million by proactive and season wage strong increases. compensation in tax benefits in

bonus-related a had Partially the versus of compensation. this offsetting a year we increase stock-based a million increase compensation inclusion decrease payroll quarter in admin’s Additionally, $XX this was plus in million $XX annual ago.

The overhead. Second, advance investments increase as a increase and well technology costs. of growth-related this include million our to $XX initiatives primary drivers in strategic platforms as other

our Third, by CarMax and $XX awareness acquisition increase amplify customer build of to in our expense drive plan a to through ongoing offerings. omnichannel the million brand continuing advertising

of profit X a over SG&A was as leveraging year, full XX.X%, year’s the last percent XX.X%. For point percentage of gross approximately

and costs approach heading next into remains SG&A consistent. Our to year

our ensuring effective results deliver in continue that over spend are and and target areas to will business. in to we time, continue efficient the time. our same We we remain we to we of expect At that committed invest will focus

and We expect lever X% to to X% to well growth-related the FY in largely investments an driven increase require is profit gross timing beyond as as inflationary pressures. costs strategic range of growth This by the ‘XX. heightened of

mode years, next expect the to our down after remain expect over we back While leverage in we to point FY ‘XX. investment go few

remains Our capital philosophy consistent. allocation

returned opportunities approximately to million. repurchase to excess repurchased shares core our In business, continue approximately partnerships will We shareholders. invest the or we $XXX and consider through our growth investments, to for quarter acquisitions our in regard new program, share XXX,XXX in capital

For have had shares the XXXX, March approximately as $XXX.X XX, authorizations million we million full of we for of $XXX.X year, million, X.X repurchased remaining. and

of repurchase to Directors and authorization reflects billion today, with creation Board’s our by expanded share timeline. return communicated authority Board As commitment expiration growth our The capital. ongoing of $X no value through has long-term CarMax’s shareholder

including plan technology. million ‘XX, for expenditures, sales approximately spend in XX production to by the our to X growth facilities in in initiatives in new This long-term and is market. capital investments increase addition driven first City anticipate $XXX locations, New FY auction, we For open metro ‘XX. FY our in capacity we continued stores York In

of network a competitive remain committed level appropriate CarMax, footprint differentiated and extensive investment to to continue logistics and assets. an on these Our we be for nationwide advantage

to Jon. like to Now, turn over call I’d the

Jon Daniels

Thanks, everyone. Enrique and good morning

strong Finance Auto CarMax Our once results business delivered again.

payoffs ago. sales with fourth XX% percentage with reduction of attributed year. is X outside larger with to X-day sales and in customers Tier of compared to a last quarter, year Year-over-year XX.X% in penetration Tier used CAF’s year, increased accounted CAF’s of for X the of X.X% penetration unit compared XX% X.X% net a financing. For with last coming XX.X% compared was

Our the spectrum to and offers, for lower and as driven and portion continue highly penetration Tier the corresponding channel. between monthly X prices compete by selling volume higher average decrease contributed conversion X. with in strong Tiers the the offers the Max These credit competitive X swap in within provide additional to credit of they partners payments, along

X.XX% past new losses, The the million in lower the current loan mix Total fourth benefited current a of customers third more for $XX.X fee an growth of X.X% the interest the in of start higher million, quarter our in to additional million the of the Tier resulted rate the CAF the During million CAF. the X for the of ending to deals includes was online pandemic. million $XXX $XX from X.XX% million our the provide X volume quarter, loans originated by of last and fourth with In X% was the the from average point This margin $XX X in year’s reserve normalized X.X%, the quarter a driven This made average million at $X.X and quarter. and more result regarding the few in accomplishments is year in basis EPR an offset the the this than year’s improvement reserve over X.X% year. provision the and finance in in from since continue to is want loan margin nearly at experience. highlight or from continued Tier weighted a in billion. with in period continued call The provision growth receivables. booking quarter. contract of net $X adjustment largely $XXX income expense time. and $XX charged quarter was ago which increase COVID consistent to also year’s prior CAF’s our interest balance fourth receivables down difference take receivables established credit third $X.X ABS fourth end for opportunity a The the quarter, interest managed year’s or losses a the primarily customers CAF. and of reduction for prior by that a in originated CAF’s from increase $XX was value in I million, provision last same million that quarter’s increased versus managed income substantial was of

inventory begin carmax.com, our process requested dollar of As on nearly vehicle amount. our applying X/X financing a in customers their reminder, any on or simply a

payment allows to a to customer shopping for user a into characteristics, to monthly such finance and personalized terms Our on sort search unique finance-based on down available or incorporated allowing customers, the payment. of carmax.com, but is within our on fingertips. engine, decisions tool our decision co-applicants as This page the filter lenders of full inventory at the also entire and consumer’s suite not most vehicles available to multiple important the only single provide

further our that full experience. that and our with our of the feature, we are testing no-impact-to-your-credit-score During streamlined strengthen along platform, real-time provides are the that month decisions and March, on on process enhanced with will application experience further inventory. enhancements now multi-lender coupled this digital horizon, differentiated shopping additional We believe the credit these a

Now, I over will turn the to call back Bill.

Bill Nash

Thank you, Enrique. Jon. Thank Great. you,

As to I this invest fiscal through sold of aggressively XXXX. platforms. our wholesale proud and mentioned bought our growth to more opportunities. am new retail to call, and in in than and innovate, vehicles earlier areas core business I pursue ever We’ve we in very of We performed how before continued

efforts, share, more these year-over-year we to take well believe share. we’ve double-digit are we result of our As and achieved growth even market in positioned a

to have market, as have positive to have new and continued and those to capabilities, returns. see come out continued enhanced build We we capabilities

from have by highlights this with for Some anticipated of are, full customer first first, end to our the impact self-progression year this capabilities enabling available of quarter. availability currently that XX% customers a approximately lasting online every will

car new Next, that combined the and record we directly foundation Also, well to in unit us for to engine, a leveraging out CAF sustainable us which buy instant customer legacy nearly our as our is customers appraisal enhance just shopping our experience our finally, CAF’s to e-commerce auto a experience. receivable value as and footprint, best physical drive drive to modernized unparalleled what capabilities rolling as consumers, used loan key a the online self-sufficiency – provides And we our of us which system offering finance-based to servicing our helps Jon allows described, growth transitioning the enable with number wholesale double from believe provide growth. technology, brand nationwide industry. cars is

a sales across Our gives metrics, prior access ability addressable approximately of were our to integration is quarter largest seamless the differentiator, XX% quarter that transactions one continue retail key enhance. to regard total from online, us and year’s physical digital offer unit fourth of will to and X%. to we In online market up

resulting considered Approximately bought This is XX% auctions remain XX% unit wholesale from revenue, wholesale represents transactions XX% transactions. year’s Total consumers. virtual, customers channel, approximately from in the total approximately sales, we appraisal. XXX% from prior again, approximately online last year’s about online Our omni so total online of of half was our from are in buys which This XX% fourth quarter. quarter. XXX,XXX sales retail through represents roughly fiscal total vehicles this XX%. sales revenue of up we fourth of our XXX,XXX consumers. up our from were from buys through In this quarter, year, bought half the of instant quarter, representing That cars

enable a for key in-store evolve and I would we of capabilities like X FY to customers. to more to and areas for our our associates forward, highlight focus seamless will online Going ‘XX. continue experience

earlier, as and real-time mentioned our more John version sophisticated a with offers pre-qualify score. ability to impact we customers that finance-based of their the shopping a deploying First, enables for our capability loan decisions no to credit are

capabilities to appraisals self-service pickups. including and adding express enhance interactions, Second, in-store

industry. offering the fiscal expand provide focus business strong Again, other science, in pursuing to large they efficiencies data buying our And are improve acquisition the our best AI in vehicle are and to offices and continuing and experience due for growing proud businesses. to finally, we ‘XX of leverage new and the dealers our CEC. customers to organization, through appraisal as relentless very customers effectiveness part as we partnerships results to our Third, across attracting and automation

share position We are in and a and strong to continue innovate moving invest market to forward, we will profitable achieve growth.

‘XX, don’t appropriate million revenue respectively, we targets our that $XX up ‘XX targets updating ‘XX. we Though May, in we performance targets million at has new Analyst last combined time. on of is our FY and these $XX and FY sold announced achieving believe $X.X retail strong a us this billion, perspective our units during billion During in given and share to annually, FY X wholesale anticipate from Day of long-term

revising our thank million work for regard to but billion units to Last, are keys We’re of They I excited $XX confident a consumer ‘XX billion. and the These vehicle X to share, between with our FY our the demand targets truly the by and expand macro and to earlier In future million the importantly, of range to that X.X we they end beyond ongoing reflect result of all revenue reflect want the had $XX combined market most I’m associates we do. ranges it in that could X% factors XXXX. volatility calendar that will pricing. for success. in

Just yesterday, Companies of Work each this I to supporting our other, Fortune For congratulate to that, for XXth year proud commitment day. it of will to to its due questions. associates’ of Magazine With as all and associates. communities one recognition is to I’m our row. we the named incredibly be happy and customers every our a CarMax take our in as your XXX thank want Best

Operator

you. Kennison with Thank from first Baird. comes Instructions] Your question Craig [Operator

sir. go open, ahead. is line Please Your

Craig Kennison

instant appraisal for taking guess morning. tool. I’m curious the my Thanks Good I question. about online

you Just that And you that? dealers. fiscal XXXX could then on other this you shed roll mentioned to some have you for Bill, out of this landscape plans positioning competitive you Are putting Maybe to advantage? you while competitive marketing light competitive effort think behind that. enough are a the number about How questions and that How market? in spend your would assess different? I

Bill Nash

that lot is Good Craig. There Sure. question. in morning, a

great feel really So first our success. about I IO of all,

of the ease really a it’s the reasons. successful of One, and think product. think it’s I experience of because really I of use bunch been so the

recognition this do. let’s what since also think forget, and We’ve we I CarMax, XXXX. mean, it the been has is from backing cars the I of consumers brand not and buying

We break acquisition would so vehicle advertising. more quarter it down than our have look a this fourth we started quarter acquisition the about advertising, about between of it. and obviously, I previous think The bit brand If the we awareness spent in awareness, good at on I awareness. advertising quarters, spend, tell and acquisition we little we kind feel for awareness have past you.

from think, valuations, I excited a the is think of we’re think we’ve Now little bit seen, benefiting I bump that’s so but minority the obviously, higher in marketplace I everybody the about that that.

far comments my that roll look, all, other we make it we’re we’re way It’s as experience testing leverage that will for also look they dealers. this earlier, As available yes, partnerships of to looking for first will But to to our as to inventory of get easy rid to continue to out been consumers. as where – we’ve rid going improve continue of an we to well are other get this. can we and

Operator

Our Zackfia with comes next William Sharon Blair. from question

go open. line Please is Your ahead.

Sharon Zackfia

good morning. Hi,

Bill Nash

Good morning.

Sharon Zackfia

color kind to how interested of some prices is Thanks a long-term I’m prices they about can you in you wondering. environment, sure used this car consumer of particularly where passing kind And the bit but quarter, in on I’m the for everyone better consumers with the are. little all on plans. talked pivot current in

fourth for and How have shipping your ago If to are where that? car of now you year demand prices, given SUVs? somewhat kind that are lapped pivoting you’ve but that on you inventory any are that, a make try the both one-part you points in know. more have know in all And fourth sorry. would kind falloff prices important the March that distinct I gas then Omicron how a like are And of question. average much affordable? age just to to additional in might any you kind and to helpful First, if then of used there the for XX-part, be price seeing of was it’s of It’s was stimulus the period, benefited lot there, impact I think I that? there is think to cover older quarter? isolated insight guess, I any quarter you in

Bill Nash

to like a That’s one. But all Yes. way of XX creative look, get I’m to into questions the them. take happy first

prices. – guzzlers impact start, year-over-year. really as just me look I a see first prices let gas standpoint, gas from very So on we didn’t the of shift. on two, last all, gas quarter, at similar far Look, an the as a your much for sales the of

need So as to I do monitor we continue go think that’s an area forward. we to that

has certainly seen successful have something as uptick, example, in like before Edmunds We as and want been things very navigated for that But and well. that seen EV we’ve an searches, consumers different.

for right them. We’re there

worried will not about really on that. pivot able be I’m we to that, and So

a age to is average retail did standpoint, did on bit obviously question little little car, which bit from Your of – a shift we older cheaper. vehicles, a a see we

X year-over-year, I’m little think think I the X that XX I at X to, X to from X if points the bucket bucket. say, into bit mix, looking higher, let’s to the changed which maybe was about there

seen a we of our inventory out again, see have of beauty for make inventory, as bit And shift we looking is, different customers business we there. sure of types So the that get we there. little

So that. we feel about good

lapping stimulus. January stimulus and out last was of kind into are see then weighing more the even a time had bunch the more And was in car And consumer in magnitude, COVID We macro confidence. I As frame, January, whole factors the each think came January. list, think of a one. at of again, are There December, just transitioned around If the that the that in surge. then the and I commentary out hard March. this of the prices also then highlighted rank coming industry. quantify of different the lower order there I stimulus I is on But top coming think things primarily look, think exactly far to surge with overall high whole would COVID followed used out I code surge, this as comps, federal say did to I in or I by – of that it’s some probably the it

– think quarter. also it? do in on probably I adding we well. Did the certainly I How the questions? your as quarter just think I all softness to the first weighed So get look as it’s into did that And I

Sharon Zackfia

Yes, I queue. you. Thank the in think so. back get will I

Bill Nash

Sharon. Thanks, Alright.

Operator

from next JPMorgan. with comes Gupta question Rajat Our

Your line open. Please is go ahead.

Rajat Gupta

How worsening Great. to how you somewhat just Maybe given Thanks. on taking we Thanks in million consumer being And particular in forward? going business? run to for able cost, rate, comment of overhead to widening you of given – curious like in I’m good do that in terms assume the the terms to $XXX increases are how need does environment? benchmark the that implications the pass the a volume of a if market? ABS for line you if or weaker that pass the you in on changes like gas any through just confident that, affordability about question. little is baseline How toggle environment. not And to kind item through that are in should the maybe on you’re to think with near-term? side, then any kind the could things able of SG&A CAF, the this confident

Bill Nash

that, let so. talk let we I’ll then business, answer about Enrique And the CAF Yes. Jon will SG&A. the

Enrique Mayor-Mora

Yes.

a So, Rajat, your whole? make overhead specifically you want SG&A understood I I as talking or question. over Are about sure to just other

Rajat Gupta

overhead. Other

Enrique Mayor-Mora

Yes.

quarter a growth. spend also technology our to our it’s was continuation costs investment and in other this related overhead of So really

well cars got to lane, that buying through to in keep in an A our as the you amount So mind tremendous as lane, of the business. appraisal wholesale the we’re increase

continue say was be quarter. to would I up this to it expect would certainly that I So up.

X% back, look we my though, prepared a really SG&A in order our of all We timing in business overall to staffing has growth in next remarks, do up. investments taking Heading year. need its profit think and I the successful in were to at year, taking growth to into the X% a of that to as components. with this in mentioned excess and expect, the step lever, I in do

of next recall that some and had into year. you year, up the we challenges comp that and the beginning we As at year, throughout the staffing ramped will staffing

really, at business. by year, when that next profit we look to need primarily that So to grow investments driven timing X% of X% continue it’s to higher for this staffing that that we gross and

Jon Daniels

question. I think Rajat, the credit question. market. spectrum can Yes. maybe we affordability of take Yes, non-CAF out the kind before we’ve the customer, often in of customer, I the affordability mentioned that prime Appreciate lower certainly, feel is

there well. X see you coming can You that last there a putting maybe think car, of CAF But $X,XXX here, the sales. $XX,XXX customer in micro if reflected customer, at I is look our the I purchasing probably was at Tier of aspect percentage impact as down. in If look kind year

is are are as lenders they affordability saw same they they do, $XX,XXX and they Now that $XX,XXX. make, they asking if person borrow are that much there that are more they coming in decision has So an and in down, that $X,XXX and money? there. to a they are going financing for all $XX,XXX let CAF – to question in case, coming they are borrowing

is, $XX,XXX. seeing penetration the are CAF, case amount. we just allowing in we level what speak will quarter this same and increase was think requested as Potentially, to at to someone our necessarily their didn’t not of I their the borrow CAF income that

to prevalence car were it’s a or loans dollar be there may higher months. out Right higher may trying is manage used willing are exacerbating of lenders our even not see That that you that. marked does that that larger So year-over-year. It’s right than months, provide there. there maybe decision not taking did to are terms CAF that people XX actually affordability that provide but lear, them, CAF now, People through for a loan longer than much are affect XX so greater term. other penetration. out amount, the

to going thing continue of We’ve do often a CAF where So couple clearly up. probably clearly other We rates, will there our the year. or manage a impacts do gone test seen we half are rates go this affect your think thing the right point last things I that going will and are we up back actually price shared on and for think We to quarter, penetration or up, have prices go clear this lenders that is signaling as do up in up. to our did as affordability we think that will continue up did think follow of we They to a penetration, customer. The of down impact go have testing but are movement testing, some They The it’s compressed. this margin. to quarter. initially. we kind price be that We we up see randomly. did to the

So highly will pass bit on just remain And in make Rajat, along little that we’re that to sure fit. managing to well. as We the a we as want merchant SG&A. marketplace, see that competitive but we yes, to want we expand

I the performance our profitable for quarter, whether important and as despite we’re like market which the which forward, transforming remember segment. time performance huge our and we So just industry, a going to about sales talked us, his capturing or faced opportunities think Bill industry believe periods to going And have that to there right that challenged continue. invest. market fourth is down in share, in it’s invest is we’re means we and that to in opportunity we prepared take us, in whether do is quarter, that’s the continue it’s more objective It’s to for we again, fourth our the remarks, on well where we’re as still continue move in being right? to of focused goal to as our fragmented industry strong share

Operator

I’ll from Nagel next our take Oppenheimer. with question Brian

open. Your go line Please ahead. is

Unidentified Analyst

Good Hi. on for This Brian Nagel. is morning. [indiscernible]

Bill Nash

Good morning.

Unidentified Analyst

to nature the in business was ask wanted So car we the QX. the fiscal that fiscal question deceleration to the on used of QX from

QX? this You consider talked did the about QX? declining about should factor about in When into we we come And confidence? previously. should dynamic of how it think fiscal factors How the consumer

Bill Nash

Yes.

I said of think, consumer the earlier, one as obviously confidence was factors. I

that see transitioning kind I after out of we COVID we I right rates on that, the the very the just in we’re actually going the now, got lot just up. standpoint, right And confidence. think you’ve we of that Inflation, that’s you’ve to just From lack Ukraine-Russia a talked think similar consumer now. I There consumer a kind right interest – saw affordability of situation an war. we about. got started think for surge, weighing we’re reasons as is of

again, So to this. think as it far to through manage we managed I to cycles before, know. we I gain to market we’re a around, We’ve position continue when we’re going I think But as way that do can mean, like point and to in turns that continue this in Enrique’s a earlier, don’t share.

Operator

next We will Research. Healy Northcoast go John to with

open. Your go line is Please ahead.

John Healy

picture a just kind Bill, question. of big wanted to Great. I ask

us realized of You’re which lower. affordability about kind headwind makes makes that sense. talking being a higher Which values all the business, to kind rates, maybe to of with come need

used think to fluctuate could car maybe is achievable little your a of to give going X in pressured between lot the in that how softening of thoughts maybe GP are next a what bit? And there confidence benchmark, that, months? over sales? kind market a and is where you your protect are ASPs market the you and kind used maybe of terms and ASP, have kind guys So still in you values potentially inventory XX with even $X,XXX GP the us maybe of relationship at view, maybe And in car of of same-store you and expense the the unit

Bill Nash

the for question. John. Thanks good Yes, morning,

it’s while you GPU right, the wholesale saw, because for our for one wholesale good as our that’s margins. business the it’s the think all, up. saw wholesale, of headwind I retail, you’re you was of a as benefits having of And First affordability, diversified actually for

come unit if we X given supply I around would not relief. Ukraine some think will this the car the sure. said you’d X probably ask not I Russia, later me, or ASP, I is that’s just year, be this year, months was I’m hoping war new later going to I’m to and sure determined. Especially in ago, have see

about at we the your a a and great the cars. both thing is inflation bit what well. we’ve everybody you you think benefit though, is pressures. I is, inflationary GPU, talked in that, we if mean, mitigate will just tell factor some that think I of question we’re I new little to I will overall that’s that’s a about spot. big The that pressure in help used I price have self-sufficiency, got nice a as offsetting with inflationary – look lever and those seeing But

And So be average be to pass your have selling think if into pressures, raising to obviously to are then over I kind of prices. that’s the you your maturing. we our benefit benefits that margin going consumers. either going retail didn’t still have still or And cutting a left along self-sufficiency inflationary lever beyond to it’s offsetting

I our think there of how we there manage we thing. is how offers, that kind more do that potential and and

about you into So in maintain to the which consistent think environment, time a get able we environment, depreciating shown over still even depreciating have if we as future, very a GPUs. I are

wholesale with think that unit margins can good retail maintain which great with prices. I business having think profit – can very per be the generated CAF wholesale think our profit front as be I self-sufficiency, I as additional generated diversified that well can we

So I it’s forward. however the for positioned well think going if we’re market,

John Healy

Great. Thank guys. you,

Bill Nash

Thanks, John.

Operator

We will Imbro Daniel to Stephens. go with next

open. Your go is ahead. Please line

Daniel Imbro

think thanks, I Hey, hired I season, tax actually think ask to just total refund on you mean, you and up. are paid started this one, Enrique, guys. they year I mentioned the earlier season. tax ahead of dollars proactively Wanted

look ahead those of ‘XX tax of paid rest the the as expected your of you as the did the in got opinion you’ve transit trends I’m seen of out changed you have for as maybe of consumer got curious, refunds So pickup fiscal And see kind underlying the us? out? health guys paid

Bill Nash

Yes, Daniel.

think it’s the I we I I year, season what saw look year. of very think last representative when at tax this

Now we remember, normally season a what comparison late it tax to year, in last was see.

which, So other was had you you refunds year the this this last that January don’t year and paid in think year are I year year. versus that was very factor little year. higher But just – similar bit regardless this of as consumer as last hard was tax ago. – it’s I consumer to decouple I kind I March, earlier, just year think, on the so back isn’t all season, – a is the complicating to comments a timing the have of is the position last that out do were that. was confidence think would I they think strong the go which the stimulus a my really

Operator

next to with We Evercore go Michael will ISI. Montani

open. Please line go Your is ahead.

Michael Montani

if taking there. front. wanted ask, could, morning Hey to capacity on and I Good thanks the for the I question.

terms up the and just hires to recondition vehicles do of of us could now for? would light staffed looking some are work you some that you etcetera. Do that to now, were through you you speed in bring full in incremental of all the disruptions, ability to If you to get kind COVID hoped of that question. the first was of kind recon appropriately kind feel the of the have able that So,

Bill Nash

Yes.

great coming second we at about look look inventory need was been I our we And big about on where So, about staffing quarter. quarter, up, we on be. I inventory capacity our at production average, the I a at talked for point. I the have out on fourth get first feel as a our Pretty comments. way it lower don’t inventory quarter, always quarter, to talked are to whole about XXX. year, average historically, I a I to had of the our inventory. kind When Look, third this and capacity, per trying and necessarily both it’s always ramped much quarter, topic made well think of staffing third to levels, getting store,

cars We need. we story. are I can X it obviously have you, expenditures than got do our that’s think capacity all at the about earlier, talked the have And XXX. part year. would But we – of quite the we currently, feel don’t right, capital not planning was Enrique big I – like a a I tell that We process. can build million natural we more

As we additional production facilities have facilities. we already but these production some look out on, working we to the are future, are

given sure we we the business, wholesale As our well space. as want all can accommodate the just that success to of make

we it. So do just really, normally doing it’s business as us

Enrique Mayor-Mora

it’s very just thoughtful Bill that sure CapEx like And capacity we kind targets said, of have demand. From term Yes. approach the are can we that over longer make expansion to our capacity being to perspective, term longer time, just a matching out we natural really we are set to in meet just our steps the taking, there.

Bill Nash

Yes.

now, stepped-up capital just couple on difference expenditures, the only Enrique in is in called technology. the the has which think out investment calls I different a of

spend. overall Just CapEx as a of bigger our percent

Enrique Mayor-Mora

CapEx direction a technology. we And been XX% related this fairly this XX% looking have about Yes, spend our back business, to our years, Analyst that about becoming transforming next you year, certainly, but about Day, we it’s year omni-channel to And on not of of as interesting. technology, I actually if we on so go spend talked our in retailer. and look overall are at of was CapEx few now the is

Michael Montani

build of channel do on one And recently. the in acquisition is And comment did an major I to wanted competitors what guess I your wholesale then just the you made.

profit CapEx is think that the the you and is some kind capabilities core potentially enough do of in the to you of alternative there feel opportunity tech, step-up there then set do given So, an that towards or bolster spend opportunities you given have, in-house, inorganically?

Bill Nash

capacity? you from Are production about a talking

Michael Montani

tech relates there as you inorganic it investment this is I as platform side, in of also business, You just then to that there is that or inorganically? targeting given right? capabilities on there. think stepped-up the have that done potentially, some one CapEx, faster opportunity wholesale grow a be And to Is well? kind year past even the adequate, job guys the might an great potentially is

Bill Nash

feel the business. we Look, auction great about No. Yes.

Auctions that quicker you out mean facilities, need as the When pace out facilities, building a we inventory. a I this retail normal run But wholesale the lot to you is kind continue essentially expense are it’s feel – CapEx, build virtual very have just the sees but the point. than grow been great of to hold just on we cars. at with expensive. business, Because overall when we less now. really, that we know, comfortable you we that expense. you are there your auction along right production, than fact can at with are XXX% the some some plans to space auction growing larger continue more about is and production operating, it growth think how sell about they and As this your

Operator

with next to Seth will Basham We Wedbush Securities. go

Your ahead. line go is open. Please

Seth Basham

according Thanks decline There on share a fair been X%. quarterly CAF, know basis, I market good the a to And fiscal retail measure but a call. lot in fourth market the has share vehicle quarter, morning. this talk don’t a about and you on amount of saw used

Your you would that other market share. GPU, or because declined reasons more quarter? some sense to, sales lost as give you that, retail share basis is you are market please so protecting Can lost us a have on in you unit than there why might have are

Bill Nash

is really only Yes, Seth. we was because fourth look at title go data. look market When the an quarter, in Pulp and we we growth, is on share off had even we two-month three-month which share like The a and reason data, there. annual market great it lag basis of to

only we X year, market doesn’t break year, in we for on all it zero as the are when market share the we to market the for XX I whole whole going gained gained if it share years growth the buckets. what’s despite quarter we feel for really And not the gains share my but quarter. comment cars, down got earlier, about but first very matter to look said So, X gained to fourth X-year-old we it factors. that the macro at we double-digit share, years, in good years in years, And only not really, confident you X those market

It’s market I we the – a that is bunch whole primarily like which, are again, market we feel growth have comps. it’s share through about. not is and would other great share, the opened point it. markets, about thing So, we what’s And excited new driving that’s out of coming

Seth Basham

it. Got

you just then the And mind. CAF Okay. business, if follow-up a on don’t

credit loan loss no you so loan Your going think then your from forward? increase redos deterioration. perspective, have about I provision you guess expect to as normal we environment in now forward, don’t loss going Jon. And deterioration, is there framed need the seen it, a you range, and your was further further But any

Jon Daniels

kind Seth. comments, really were have good to We No, ratio Yes. think last pre-pandemic returned now, this we handle quarter, on we levels. we feel we our We steady say point would to quarter to Fair there. and of from our a just like Yes. we about reserve-to-receivable felt are business. good right I mentioned reserve the .

will So, we point expect, of X, on X, Tier think are originate, be spot. there obviously, a I we focal pretty the and as really, good a new perform if the all mix on provision in future Tier but things Tier X we then originations. the and is And volume steady the

Operator

move We to will BNP next Chris of Bottiglieri Paribas.

Your line is open. Please ahead. go

Chris Bottiglieri

Yes. taking the Thanks question. for

given it’s we status. that’s be next like run obviously, think take is accrual EPP? Should year? of new the for it true do fourth and quarter on the where this on QX a in of that kind going first the rate, to like year is change kind that we just of average or So, weighted EPP, up kind How like question

Enrique Mayor-Mora

Yes.

which driven and that with sales ESP have business, rate our is attach I core EPP, in The and a kind by products. different an is right. think there from our we are year-end partners. there of the sharing profit considerations EPP then And

that grow. fourth more then had penetration, will higher. just was profit this we was So, growing sharing it’s sharing fourth I we in think our consideration the And quarter, quarter profit revenue on year our business, our that the the than prior year, the to in did year last I think growing continue

the when of we so that. timing recognize And given

well. year, our take at recall, so an recognized our take in second is has They partners you taking again, which had if business, one of quarter, rates, fiscal recognition the profit our year been at bit But quarter. quarterly in saw sales, little of this look higher you actually in a we attachment If quarter. really now fourth the is basis, moved to a the going EPP profit-sharing of look were year basis. which the They fourth core at sharing on a in profit why have you we that of a look last was ‘XX in revenue all sharing a annual

are would at we expect to about stable that forward XX%, We and moving as well. continue

Bill Nash

would I to for consumer. bunch generate have Chris, that, The our thing things a sharing. profit to only Yes. of these I want to we add other mean fairly isn’t goal is the priced

that. drive the things got goal a lack the sharing, just of was some not of recognition driven But to revenue big our more end is You at people think like necessarily just profit year. I it by driving, –

Chris Bottiglieri

picture question Got on it. sourcing. customer bigger A

age a know instant are the today taking it is indirectly, once much growing like you So, growth in vehicle out. like difficult to of you business what’s tease sense buyer talked the from versus And private in cars pre-COVID? how like it’s sourcing, market and to do auction dealers, buying payment buy of have think way you customer is the a the make the that about traded that rate on those, I But retail? appraisal incremental or as the Is perspective would profile TAM would to have are you come based much of versus from share? like from a lastly, you other statement how for party coming – appraise on a gone internally versus purchases this or where was of could rates, there been car, just a what

Bill Nash

Okay.

great on that just that to the kind are trying looks that have developing a increased were certainly on process kind last be and just essentially metric the about working of we now with consumer, person were incremental share Chris, more. to – with of it at know they We So, we the originally so are that able are The in was that, we there. share, vehicles a of consumer. buy and we quantify We share. feel by

that’s looking coming from that this we But other the of are comfortable So, consumers. at. are something bulk certainly are we

instant of rate ended would then we as percent As online buy we the we in we we kind folks people shop who measure is way actually – and take we – you what getting of buy we there how many vehicle up in rate, appraisal buy about just appraisal, before Then those far and buy X a buy. instant to Historically, million the issuing the a did into talked is instant store an couple added was is see and cars their to quarter, what what – way the worth. the now a offer lot come are of because rate offers probably and

we offers we buy buy is at of right So, rate. now way the the at in actually the are on XX% addition to how when looked instant the calculate they way show up the convert traditional it. those we that And much in store,

at at look used you probably traditional the to low-XX%ish, it’s If the look that more we it, way in it XX%ish.

that So hopefully, color you that’s needed. the

Chris Bottiglieri

appreciate far more it. I you. Yes, Thank complex.

Operator

at will go We Morningstar. to Whiston David next

go Please open. is line Your ahead.

David Whiston

Thanks. on morning, Good CAF three-day payoffs. more penetration,

an is be? And to just like, obviously, business. that or part, that mid-decade, you If I penetration, do on roughly say looks is fiscal to essential net, your X is or you more then either there just ‘XX and gross your were It something decline? driving is taking And thing it am by where else so, curious. want or down, Tier

Jon Daniels

People around highest mentioned I Yes. up I of the more our I really appreciate quarters, said, believe question, appreciate to financing. looking levels. CAF let’s that it penetration is QX Historically, against an outside affordability being Yes, penetration affordability, and there. not the But given tax obviously just earlier money previously, one in out ASPs wedged mentioned to penetration comments the to going this being down, about are losing are be time. is pre-pandemic borrow coming we is in David. going that you talk are aspect. we back to

more are a to is, make, which lender, have we to we a down. As ask for going money decision

income We are same maybe provide externally that the have level. borrow amount given not full are is even going to full lender higher let that some though them gone there and at them they borrow cases, we perhaps amount, that’s asking not to willing for the up In that are amount. letting the full ASP, that another

of the that That So, in clearly CarMax. term our greater that are any do. a I we right losing CAF we term. impactful monthly longer around rate we so a than a is provide do to than payment mentioned affordability People managing far loan adjustment, terms. used does case. are lenders None not not impacted to now. extending XX-month think on also actually lowering the more

are shown in that are that. there think we providing So, That’s absolutely data. people out there been the

did be headed things So, in I which, trying think to also our with two to interest again, are testing we I contributing line price margins. to mentioned manage penetration. those up rates where are

we there. did some see impacts So,

competitive what but ebbs provide But want based an platform. what on that’s So, time love I customers it about highly we it want this think think to opportunity penetration what’s To that’s highly as think be, to external are we changing to actual question more where the folks for finance and all we higher-end we the of flows quarter. do about your be our There we do, probably internally. to competitive. remain want and I our

CarMax. pick we the the in three-day payoff. lenders want have can amounts, stuff car extend we up You other full still don’t and can sell a do do We to if

come expect think time, are a over targeting and as So, prices it especially would I I don’t down. flow penetration, and we ebb to

Enrique Mayor-Mora

And and CAF. strong performing to strong approaching portfolio our us in way I receivables there really CAF of a consistent have what that out business really is really a think and business leads

Bill Nash

also lenders it’s Well, there is so CarMax’s also that thing. and to if very other I our having portfolio we the that a paper reason in have camp think keep consistent, great in want lenders you very, other

David Whiston

Tier and not do just capital, the me not partners said. only something let XX say And over clarify X you Tier months? X Did do you

Jon Daniels

XX in lenders. But doing It’s our Right future. not in not a may we than across something CarMax is the we the used we now, greater business, not in or CAF right months. the that now do may consider CarMax loan that other or are offer what or stores

David Whiston

do you months? And going over think to have you XX inevitably Okay. to have

Jon Daniels

the right for to chosen We Again, the we are trying have to. not decision make customer.

We we prices are obviously see is that we terms a And know are will XX but months the what dictates. convinced are car, necessarily market used expect that increasing, we increasing also best and still we it feel for sell on prices not without so want normalize decision best the vehicles But probably we and as able to might well, providing again, to to the make that are customer, and be necessary. like not we today.

David Whiston

Alright. Thank guys. you,

Bill Nash

Thank you.

Operator

open. to ahead. go line Please with we Next, Sharon, William Blair. Sharon is go your Zackfia will

Sharon Zackfia

planned follow-up. have a but had just that investments quarter. CAF more in fourth I in marketing, I Hi. really up quick you the know floated

I I think you it ended think year. the right in for the guardrails environment $XXX like be an consumer at Is how distracted? about up where $XXX run full am the And around a million million may around incredibly wondering rate? just marketing

Bill Nash

overall look, said question, more. of spend, great think And we spend I advertising I back said we we going kind pre-pandemic, we Sharon. are if on No, our look spending would, Yes. to – at as we are

XX% unit on basis. a about a it it’s basis, XX% look spending probably pre-pandemic, are increase you or unit at per which so a if than on about We more

a have point certain advertising. step out talked functionality. a unit. can’t this And we started back I and things at necessarily in sure range on new are out advertise we of think the to are our there tell when us in we want right we I kind get where And think mid-$XXX especially we taking being I we make we that as you, would this I came that of year per where year, there, see about

in on similar out to it year. last dynamics, spend year on your it, to But where step unit figure we right be to the you consumer what continue think was will to that. that’s to a good out up, what’s Now, the now, think way the we go question, for if do is where going I will per about is basis beyond this a figure

Sharon Zackfia

you. Thank

Bill Nash

Thank you.

Operator

We will with go next Stephens. to Daniel Imbro

Your line go is open. Please ahead.

Daniel Imbro

anticipate follow-up. think so they consumers for in on coming instant over return I much ability success offer as equity to how to their you return guys positive that one. buy instant are that that source, handle it want I taking equity would you to each that? make just financing we from Thanks now, money But years, we make harder cars, Can just that them you do on the easier the or impacting vehicles it follow-up have making you do your to of the think as because equity? with with roll or will to negative customer in consumers. for would just Yes. negative Right to offer you kind source and having into how do

Bill Nash

Yes.

that’s out still that XX are So in just prices an Daniel, surprisingly, negative we there the have are environment today, But lived I down there last the years. almost mean hot. up equity albeit folks because that it’s have for

coming consumers equity. have in negative We with

about some is the this them talked way got, a Now for down think have bit a this. little enough Jon is that because they road But and up there price about risk it harder down it – obviously, big with be again, the appreciation, you may payment I can’t a customers, come is or whatever.

think have down good look gone you down, putting so are down. loan-to-values more sign. loan-to-value, actually People a I payments If that’s at

with trade have have that going to from year we sprinkled are these will are be going like I manage like we think business or the now to now the buying equity. all from or now. They today, just from the thing is X a in other years decide years throughout negative X and other all time, they it’s not in are past to customers customers

feel we on well. So, from like point, manage as standpoint a to sales your we both able be it buy but the also standpoint, will to

Daniel Imbro

luck. Great. Thanks so much. Best of

Bill Nash

Thank you.

Operator

for Thank we the will closing back have At Bill further call time, questions. I hand to you. remarks. any And any don’t this

Bill Nash

back, thank is today to of for your and great market joining it’s earnings, Great. ‘XX you great questions Thank you, year. call a the all and FY listen, I It’s great Jess. support. your great Well, want look I sales. was share. It

for industry. as investments we are on talk about to Thank within are opportunities associates and that everything they basis, daily and really making are We the the investments for next And because that ahead a quarter. will our excited again have you disruptive they our again been and positive thank we of to car success. force do the Appreciate of paying reason us again, I want we used be your off, those all and time. continue

Operator

concludes that gentlemen, and XXXX earnings fourth year fiscal release call. conference Ladies you. quarter CarMax the Thank

may You now disconnect.

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