CarMax (KMX) 19 Jun 202021 Q1 Earnings call transcript

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 First 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. you. Thank like Investor call Relations. now Frole, to turn President, Vice to would over the Stacy I

call. with Thank CFO. President for CEO, Finance; XXXX conference and joining Carol. Tom our here you, Good Vice our fiscal first morning. Reedy, our Enrique quarter President President Mayor-Mora, Nash, and our Bill Thank Executive you I'm and today of earnings Vice Senior

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

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

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

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

start stand make need racial hatred, or proud positive values doing on the our that ethnicity, at as right been country. I we we have facing must doing shareholders I'm and committed started, the more. regardless race, to get we a are to a difference against communities, championing that and a significant comment company everyone I associates, I'm this injustice, we that's and as social a CarMax, always know of I treating wanted do why for with challenges want ensure violence. as Change thing our focused but personally better on we the and respect top background, country. to Before to the to and At future. are united

the the for moving Now, quarter. to highlights

As morning, down our significantly At impacted performance earnings XX%. release sales in you first more April, the quarter than were read the our in this by early was peak coronavirus.

officials Limited time, due limited stores XX% our this under sell under operations orders the only, or were mandates approximately delivery, home were During of all to the was half operations combination country means stores or pickup, but agencies. curbside shelter-in-place of and closed government to public health could the some three. and of of appointment limited cars,

and given the operations. largest prior guidelines this and/or open the put more impacted any XX% perspective, routinely distancing which To occupancy the stores XXX closed saw further into than operating at virus on day. store restrictions under were quarter days than in by were limited first that more stores, of including capacity our also Social our shopping stores, limited customers to in a

was results described of lot are still we of limited with than release. on XXst, morning's a within earlier. stores operations, our more believe first our more As time our we restrictions XX% we quarter included will trends, of spend May open, than as Since all with but running that not of not I were XX% future this stores indicative of and commentary occupancy had

new strategic thrive trends we in other believe and opportunities we will to used the distance priorities, near-term navigated and car provide recent insight environment. However, further crisis, from into our this we create how sales retailers

of pandemic, lower an core pleased of the I'm of levels of say more We've our had how extremely challenging They to and tough each today, taking the to to have associates, this to as rapidly near care that changing these normal very to live decision other, to lot At this proud saying our our of care back we taking start our furlough help we me and start store continue to customers associates' and XX,XXX called associates a more the demand. return back we expect environment. giving everyday to make than accomplished Let than due XX% in I and communities. operating closures to future. quarter. by am response of by values

Our to pandemic, virus following of and which of as spread implementing the react officials changing exposure distancing the were in the as procedures and customers robust risk government daily. of We to of our our start stores, and mandates introduce reduce quick teams health the associates. for to at further well agencies, risk social public were sanitation plans the reduce and the

needs open temporary launched to a pickup, also such entire of shifted our We who We customers. meet their initiatives of or from lane to And to where to payment assistance in-person contactless to new our wholesale extension cars. possible we for sell near-term customers keep online warranty curbside and as our business the XX-day appraisal auctions. needed quickly cash our continue wanted

and In management customers, retail and ever we've the addition in and steepest to keeping to selling our environment our open we for were pleased stores margin wholesale very inventory with experienced. cars depreciation both

Since even we stores to as an start position We car customers we reopen, occupancy a stronger buying. our hitting in begin progressively than early seen in have had entered. improve, ease and quarter in restrictions also reengage the trough to sales exited April, liquidity

the early is doing pay channels reaching traffic in highs, late our at Looking and a year-over-year new in reflection in encouraged team strength SEO marketing by great we’re capture to non-brand recent more and we of work performance, Web demand is up and performance. trends the June. experienced May

or addition, into CECs In Customer Centers, continue increase coming to Experience leads our week-over-week.

for have year's many comp within four stores operations occupancy with June, the recognize Customers We've on behavior. a accelerated sales been they first in and have buy the of more of convenience and has shift XX% stores unit now with environment ever buying last consumer than the seeking restrictions, we in limited weeks than vehicle. comping shop Although more are still personalization for and safety, how current XX% positively. two our sales

this is strategy investments. that for a unique forward. to our our the creates the other us, environment opportunity path omni-channel right us reaffirms driven accelerate And current For and digitally experience

an of the rolled making Before online, financing experience. management that significant online tools, new already customer omni-channel were out combination a buy customers as in in-store we crisis, the lead both. digital merchandising, opportunity It's investments to gives seamless we and experience our or

efforts this customer omni-channel second optimizing experience the our complete in focusing new enhancements. quarter with to expect We rollout our and are on

invest and our opportunities model quickly consumer us provide core growth, speak Enrique, update This a to act in-turn financial and business call provide to to pursue to around ability which Tom to to shortly. in strong. over additional turn the remaining who proven for Our Right detail financially customer and will continue us I'll meet allowed will I'd expectations, now, aggressively like new business then to while enables financing.

Thanks, and everyone. Bill, morning, good

by our begin and be Our strength I'll our diversified challenging cash earnings business our times. strong while well from maximizing long-term an distancing growth model, overview manage operating us solid position. our review a allows extremely financial with short-term, balance sheet This of to in competitors. of further potential, the ourselves opportunistic to us performance, generation also followed and through position

margins, a operating front, of depreciation marketplace GPU job limitations. teams our the did a great despite period unprecedented managing On and

$X,XXX Our GPU unit a per the represented of the of for prior quarter decrease $XXX first year. versus

Out March prior by the $XX year quarter. wholesale challenging strong profit despite $XXX, is times. selling managing per April. cars unit and testament was a management proprietary gross our to at our versus in appraising experience and in down our Our late solid for only per buying, through professional the strength sharp GPU declines of unit values buyers, was in algorithms This wholesale and

were year-over-year experienced Our being wholesale operations traffic negatively in buy stores decrease Wholesale a business decline impacted or sales. from a lower closed limited unit appraisal rate. as sales in our well by XX% as having unit

both auctions we reopen transitioned improvement half as to the second online. see quarter, country the of During began to steady our the and began in areas

auctions at with quarter over historical of rate was our the sell-through Our XX%. in our consistent rate

crisis-driven by service decrease million in sold, is used a profit revenues. driven For the decrease EPP above a decrease post-sale warranty approximately decrease a for million receipt profits a $XX pay the the $XX also XX% reduction by the continued cancellation to our in increase and to by other The quarter. service. deleverage million. days in The slightly service overhead penetration related attributable the as to benefit the also and Service retail $XX gross XX be million EPP and as profits maintain profit reduction technicians, production. profits decreased reserve adversely to to despite well from quarter, provided units decrease of by department This were favorable continuity XX in $X offset profits We reflects in by we period rates our sharing in in affected pleased ESP a in adjustments. was

As in you implemented May of XX XX was may extension XXXX. the warranty recall, days from to of

inefficiencies As production in therefore, improvement continued the state. a result levels. to takes in time operating of May we a part as June, to of We, and inventory service sales it return production second are recent the expect our in increase normalized first to the quarter ramping

of align making us the pandemic, expenses that advantage. At business. the continue provide our our to impacted the our that time, first took experience and digital sales competitive state by the as in important other quarter, we began During advantage investments be a to the strength negatively we financial was with of omni-channel operating initiatives same with it

more spend advertising This also furloughing to a and a expense. and quarter, associated compensation in benefited settlement million with lawsuit XX% reduction the a from in for costs than class associates, reduction quarter expenses by temporarily million SG&A the in volume the due aligning of to on gain stock-based million. addition overhead business. or decrease in $XX sales variable $XX to For the reducing a decreased $XXX other action is SG&A

return continue spend demand ramp, which increases Bill our improves, As initiatives, expect from our advertising to in we invest increasing business associates discuss based on costs SG&A strategic furlough, the will shortly. will we as and

with an you a provide overview the position. I'll first our quarter position in ended of financial We liquidity we than started. Now stronger

billion of notes fourth leasebacks on historical our favorably approximately our XXXX. approximately leverage important payable, $XXX $XXX May debt with million of of by note select From stores. under debt, quickly million netting perspective, have compares April million and cash that liquidity in $X.X of volume. experiences. our we approximately quarter we when digital had loans the million announced adjusted outstanding $XXX We this notes senior continuing equivalents quarter to as in the ended in credit with on March able It's lower million, long-term $X.XX on did excluding near-term no to sale credit while increase related end cash the the below facility. billion the and maturities approximately were XX, had XX% omni financing $XXX and of out in million the call. and As X, first a facility, respectively, our our We selling and quarter inventory earliest costs revolver $XXX and debt-to-capital, and approximately to on consisting at through ended of We hand This our and unused cash capacity to obligations, revolving to invest of is largely modestly we aligning non-recourse we we in target XX% million we the $XXX $XXX to term accumulated.

in the During XXXX. stores we similar XXXX our quarter, mentioned and four to opened a it number capital to stores Previously, spend fiscal intent complete. fiscal that was XX minimal during new stores year open required year of we first

to this continue on on expansion activity we'll FY decision pause in later the and year. additional We revisit any in store spend XXXX,

repurchase on In committed currently to capital as hold share returning shareholders, addition, well. while our we to remain is program

initiatives. in are our the proud omni our push while digital liquidity position ability quarter, forward to very of extremely same and We our during at investments challenging time, a improve to continuing

over I'll now All favorably to us the and the as call consumer economy to market turn this Tom. rebounds. grow of profitably share positions

customers majority purchased who obtained to customers Thanks, have economic everybody. good sort access of Enrique, The all vehicle important it's vast that conditions. of some ensure in financing, we of range lending our and morning, a broad

quarter, a to continued consistently contributions channel cap, of to lending XX% Having for our arm of to to offers finance the of are difficult customers. In offers having vehicle. providing a group to applying origination first who business deliver, model captive finance replicate. the that numerous customers allows with our CarMax's a recognize us lenders, offers So diverse partner channel high-quality to value provide along the

Within the channel, CarMax's while life the contract. at CAF finances, sales. generating throughout of outstanding brand the of considerable finance CAF the services customers origination some captures promise continuing incremental fully finance income, all

We job the and have quickly mid-March, of increasing phenomenal responding the In more quarter, of mobilizing our as associates the work payment This repositions, demands customers. customers. a disaster place policies. than a pandemic this XXX fees measures help remotely, team entire CAF and in to while did to escalated, at waiving our CAF variety relief under we put late providing included to suspending our

did throughout to service the coronavirus. business, we auto and evolve while retail supporting wholesale protecting our portfolio. Our impacted our CAF quarter, offering also was our focused performance the as by customers, – Similar on to also

substantially due quarter, demand. the stores lower sales decreased closed For originations to and

testing from some to routing mix, it three-day last and the penetration temporary to on preserving decreased some in $XX conversion tests adjustments $XXX penetration, QX was income year the from mix. in loan for strong. net from QX for CAF's the significantly first in partners. change of from of our increased million, for the in focused ago, was from in in third-party affected as benefited quarter quarter's customer of our the XX.X% the pockets, year, XX.X% to high-quality X's CAF CAF loan impact credit to credit to $XX last routing quarter which which from year. provision in certain customer understandably as payoffs underwriting the predominantly customer is also increased a by Tier to million a XX.X% the in increase X's X it up benefited and credit mix Tier change also In shift XX.X% due XX.X% XX.X% million, losses a this addition, portfolio, the Tier quarter. remained year ago,

reserve a the significant quarter, from million reserve two $XXX first year arose ending increase versus was ago. in balance The $XXX the loss For factors. million the

to required second, tax we loan sheet net consolidated the which of million standard, is quarter First, opening of recorded on adoption and referred the of with the loss experience accounting increase current for million a coronavirus. corresponding the adjustment of commonly unfavorable from CECL, to an new adoption $XXX expected $XXX arising the a for credit CECL; as balance the retained adjustments allowance first losses in earnings. Upon

us following the net of whereas reserve previously discussed, As the requires reserved lifetime most previously for to element we significant CECL losses, for expected XX months.

of lifetime incorporation loss adjustment the the a requires in factors CECL addition, as In projection. economic component

expectations, to through in initial changes CECL Just in our remaining The of resulting losses clear, through largely life an largely XX% provision portfolio CECL. losses includes the a $XX entire the loan to as the provision expectations on be this the of not for and first applied in quarter did $XXX factors. estimate to the million of adoption, million loss quarter's Post adjustment in losses. end the on remaining The coronavirus the our impact provision of turmoil adoption nearly for economic ran million and retained earnings, the originations. lifetime with run any QX. the for accordance it of are of worsening on increase losses books is the reflects estimate the This increase $XX lifetime our of receivables from QX

XX% roughly result, which Tier Recall, our a X.XX% receivables cash at and X% X receivables, of ending portfolio. reserve includes of represent reserve now billion. the As this of is $XX.X managed loss the

X% adjustments loan which the the to our end I loss, range currently target underwriting targeting cumulative With net are historic new for X.X%. of we or higher originations mentioned earlier, is

last flexibility customers loans and of efforts loans quarter, delinquency to help believe impact. are rates an lower maximize is are time, We minimize this At this ultimate X CAF defaults not year-over-year. mentioned we the having at As our Tier originating time.

number is granted. However, this due somewhat that extensions have been distorted to payment

and As recent have one willingness ability payment customers weeks exhibited significantly expect, would extension pay. April the have in spiked in and to declined as

ABS April. customers support was with while ability our portfolio. of at focus Going We've lines $X.XX we a in relief, demonstrated time, of to totaling end forward, receivables payment of our with which the we at appropriate maintained the protecting core manage on capacity available the And extensions billion billion May. business, will CAF billion $X.X $X.XX finance continue of transaction execution to same the warehouse and providing an with the

iconic to to more our for this customer technology We in look during we and with provide Finally, finance customers will customers provide auto to FY been strive our the flexibility investments, an to investment their opportunities experience out forward provide platforms offer that customized Like buying process large XXXX. our and rolling in making more car own self-serve experience. finance a have experience. channel multiyear we

and successfully hard I'll our environment. challenging and Richmond partnerships Bill. remain teams Our manage now lending to Atlanta moment for turn in work. dedication thank like ever-changing through call I'd their to us resources, strong a to back helping over instrumental expertise, and in and take And the this

Great. Thank and you, Enrique. Tom,

behavior as record last Our with online, that a that shop in is want market year, the combined believe in-store, omnichannel unmatched We changing strategy and an whether is now retailer customers and them in that forward. consumer of than to our path share right omnichannel gain or the both. validate CarMax seamless industry offerings, the combination used as favor earnings, on ever, car their multichannel more to of experience terms, allows and personalize sales,

years, Over ourselves environment. digital The our on focus and on in investments adapt near-term for I invested of associates. the inherent our the we've proud being am quickly company. the business. technologies, larger ourselves to opportunities an up reorganizing more and of our strategic set systems, advantages the also to investments million focus will experience, a future. priority quickly, of have and offerings, our than and us ever-evolving on customer past operating expanding digital about vehicle initiatives, modernizing while capitalizing our our innovate acquisition, investments $XXX several we've These in wholesale to how excited these I'm empowered consumer extremely

will agile new In organization to more assess continue in effective evolve leaner, more which grow. turn the funds opportunities over addition, ways to and cost we and a become long-term, to

the Our customer's multiple already experience that experience personalizing differentiator the a significant omni-channel through a offerings is is unique known truly customer providing evolution next by channels each of journey for, retail CarMax exceptional us. for are

improving complete, the experience. and rollout towards this With omni-channel turning is our evolving almost of focus

we year, fully buy a is car before to last a example, a customer For home. online it where delivered began process, home post-sale delivery can testing their

While some and purchase, capability vehicles taking most customers wants who this of any our is by prefer this goal see for before to without shop steps. drive these end by nationwide to want purchase scale to allowed to quickly year were It way. the customer law this

experience CECs. our area focus that to is will we Another on centralized continue

they know effectiveness ramp. will we in inefficiencies some training run While exist provide improved, they significant specialization of and to Opportunities they will near-term associate as benefits, roles. long-term the with drive through

through We new buyer right efficiently the comes our of to investments we the used are customer focus and opportunities improving to data-driven near and the right it us going to also up vehicles, automation, acquisition, In see channels the cars. the to to associate to term, vehicle get smart buying which unique When on time. our core right avenues gain efficiencies channels. with opening at algorithms provides buying routing are source largest

will platforms, modernizing in and all enable operate in wholesale simultaneously auctions person. invest which auction to to continue also will We us our online

in the to our further looking are over These as we the a across keep a car adapting in is the include areas our car of way favoring personalized, rapidly places used efficiencies seamless We all combination designed physical believe the to and customer a used is retailer talented variety the iconic and the offerings. while experience, we footprint, the experience behavior more because in store omni-channel deliver our become and and experience, best It buying terms, industry. provide other America. taking to one our consumer separating a infrastructure experience experience leaner, associates, for agile are and ourselves there position world-class journey. steps customers two. we companies a this buy car can, the with their world-class safe omni-channel that we empowers future, car workplace of on multichannel is to more customer their No our have best national of as The at in-store online of work reconditioning Finally, long-term. And online a cost-effective to experience brands. changing our

our are questions. excited advancing very we continue as also future with to we be innovations. time, of will new about We capabilities, take be glad the to -- while great this all your At leverage

go And question-and-answer this our question from we Ciccarelli time, Markets. be Our at Thank Scot comes first session. [Operator you. Capital Please RBC from morning conducting will this Instructions] ahead.

Good positive late we early I improvement fact and think But hope comps, shift under a their have both I well April. morning, nice a the posting When one used saw is since performance. call negative regarding you just guys. competitors XX%. Bill, just question are to or down March, and mean, every competitors very in franchise kind XX% I your e-commerce I business. obviously we've it, comps is healthy of still sequential there. seen

quarter? CarMax are in especially it fourth I why by your I'm that outperformance the magnitude, guess, underperforming reasons structural So would be there any others call given wondering

Scot. morning, Good Yes.

to I first difficult little it's comparisons So a of think, do this all, point. at

growth to You at going it. look rates have into

at have currently they're growth to that at. look You rates

I I about I cars in and on restrictions. in think responses not tell the are because to that that were there others have single following sell differences. month. I mandates occupancy it's I every know mind geographic XXX the to operations than about remind limited the biggest have talked we you, this more I think also we even the that and opening the at remarks can you think But to look my different mandates. we structural think, think average factor, important mandates consideration a you though factor to in market, I Keep everyone, into are following take

when were of about upwards you a that in life or a where start bring let XX markets of a have time, it XX restrictions, We bunch customers in talking locations to for X,XXX operations could have occupancy And limited cars occupancy me store sell customers. your at had total you. you that's restrictions month. We all

buying matter doesn't appraisals, XX. if they're if for retail, or only there they're have they're it for can So you for

alone, and that like Because cars, the sheer occupancy think would XXX operations the little restriction XX hurt even it the as I limited probably that as be them just XX of if customers impactful bit dealer again, is it a So eliminate for not you're us. volume. more someone to us sells to because a at a time on

So there with the impact within is your estimate restrictions weeks? occupancy had of some way any that mind, potentially in of business last on have to the these couple that

Yes. that we the when operations. specifics. point, we half peak, of either closed. It's at down were limited them my remarks, had had them to bulk pinpoint In hard closed or opening we of to that At the

over what XX were about had the limited operations operations. from saw were XXX-plus had restrictions. time, to closed, then And occupancy restrictions. eventually And we remaining stores close limited to store shifted under we that and limited operations occupancy from XX So that is

is; news our occupancy still stores ease. requirements, currently, to great of have starting occupancy half they're we that restrictions the Now the have although

right occupancy, up of but now, still to more full XX% to or based XX% starting operations them mandates in four XX limited have occupancy operations a back the occupancy, XX% We instead to big to we difference. So customers stores only off get that are hope makes migrate having future. near the you're running which or

mind store rise we a positive in the in with deep And then spiking store. normal there big any time, we in result at to because some test protocol, keep here clean of the of and we Now close, a our virus in point have we given close the reopen. may do a markets, and

about of around So back of days -- it operations. days out things limited a at the little -- if days both we when in the operations. with limited combined, above XX% closed operations, it's the quarter them look ran right closed going you -- the QX with ran XX% about closed of And on we percent XX% had of look XX-ish probably and totally I

Thanks, helpful. Okay. Very guys. Good luck.

you. Thank

Our Suisse. from go next Crédit ahead. Please Seth comes Sigman from question

Hey, taking to guys. Good I the morning. that on Thanks want point. last question. follow-up for

discuss in So Bill, positive the weeks. did to returning recent some you stores

So if across still quarter-to-date, you're a the imply base. running it overall does pretty down XX% store big gap

purely is sense want the restrictions, occupancy differences? or if much you any positive be to maybe the just can, I are regional are trends how how other And Thanks. that can versus anyway base. to So, other you there or to stores a And that us positive that confirm, on speak then, across helpful. give would store not,

Yes, Seth.

period. So, you that regionally, markets time lot if were throughout a certain there more obviously, for look were at longer quarter, the lot it a restrictive

some And mind. stores West the of Coast to come

lots of by mandates the -- keep in So right there's difference different limited now, I driver of out there think the occupancy restrictions and mind, local the operations are level. big the between

the it's the our an more And are, on have going so, mandates business. the to restrictive more impact

of open starting are these weeks some what's for markets So well now, as of I the that's really reopen. kind performance, other to markets as been driving, different think, just three, have four

think And ease. significantly with I again, that we're already But, driver big comping with between the year. of pleased our do over we starting to we're occupancy how the are So higher pleased both have last the stores differences. fact sales a that's bunch restrictions

means, significant how what over quantify the to way last much Any Okay. year?

quite at stores that are Well, comping. stores of it's do a not point, this many the we but majority

perfect. very Okay, much. Thanks

you. Thank

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

morning. Good Hi.

Sharon. morning, Good

of been some Obviously, out you pick out curbside you've hoping talk Good in rolling omni-channel morning. consumer some the about the could think, on numbers I either Any alluded in rate and you would as around shifts delivery I to was that. earlier of behavior, you rolled more on curbside and put that's indication aggressively reopen, did useful. opt-in markets what trending pretty get up quarter. be, how Look, or you also pickup? kind

Sure, Sharon. Yes.

the about all, your the first The to way I'll And now, through how alternative online to us the XX% were So, online. forward with sales reflective to virus kind about to customers things do about our engaging are think of I that's I way Fast our was CECs. although with measure coming number omni-channel hitting, I of many delivery, speak CECs. roughly necessarily of our question. think with don't our our to I think engagement it it, omni-channel that prior wanting of that of more north through answer XX%. is, And customers experience experience, of is

looking at operations. stores home for the that services, us, delivery, the close starting opting still most The store. at you're interesting but of ahead it's We markets combined, to heavy markets to offer And to were XX% to about the you curbside, about now And is of kind look things when customers If engagement alternative under though time, closed peak, go are limited thing penetration. doing running so still see delivery. online, those open. and are

down little has XX%, a around actually number the So settled bit under right between now XX%. those two,

Thanks through that. cost Are question, expecting if this point? kind you you've follow-up well. for you And feel just quarter, pressure additional on pressure this inventory the and you incremental inventory I with at or GPU the like, that an lower second obviously, of could you any have managed kind a mean, of I managed quarter, GPU in saw very do

Great opening Yes. No, you and back I are on in to Recession, Again, XXXX over great in depreciation in my we to just it said phenomenal that put the the a go team the this And worst XXXX if shape. think I cycle. perspective, did remarks job.

did depreciation we over a depreciation. we about the period, time. this saw not go We've seen imagination. $X,XXX strategic and in The we the this In about time, team we stretch mode saw into did $X,XXX a phenomenal to do that a year's over depreciation. markdowns our we pieces on period, like fire never of by five-week inventory any job we inventory, certainly of of did But magnitude into saw level. So about cell the make rightsizing got certain sure right it of

think with this going I our continue the really economy, forward. about So we economy there's feel – of great really but And assuming we I on uncertainty feel obviously, I about margins headwinds assuming great that us. GPU position. lots the the now, beyond right cycle, that are our

you. Thank Okay.

Sharon. Thank you,

go from ahead. Our Basham next comes from Seth Please Wedbush. question

Thanks question sales that so a Q&A. haven't far the morning. and in on first good mentioned lot is around just restraints you My

on how back of recent you quantify second sense sales is those and your how is First CAF held on in of can weeks? Any much inventory underwriting.

Yes. I'll inventory. the about talk

obviously, and immediate security the really the virus when also associates, the inventory focus security was the of of organization. kind and And So crisis health was safety our always and but hit, our have safety our hit, that's inventory. financial we the rightsizing that part financial sales. And wellbeing health appropriate of of sure we – customers, about, immediate the the when make focus okay, financial our then the of in for virus

So into okay, absolutely this When down, go was we let's got the no different. our demand sized. saw mode the inventory right of, we get

operational, all Now, but the back what than great bit expected better headwind of we've production quicker our it period. back right and news we a over is, up the a come facilities now. a got is time And sales have

you this If side on rather equation. is but we sales the and I'd than of our the want truthful side than at be lighter where to, other the the inventory demand of look equation

So work again, And we'll fill weeks a next inventory the team job. already did started up pipeline. think our to right few over the great sized. get We've I to the back

sale more less it's – our mean, year-over-year inventory than of I down inventory. down total is Our

talk CAF. So teams Tom a then little job now And just getting matter let bit do phenomenal of it a on. it's about produced, our a which I'll

hey, and precise credit even And that mix buy loss within overall segments. CAF portion X. But the – mix we we in customers, a of moving higher that at hesitate it's a was saw how mix segments shift Tier higher you the a out X a of Seth, When tease means drivers of so try Tier the sales. quarter for shift we greater have Yes, just because during in but the numbers what really was not parts, many approves, there's and greater on to at most proportion. lower look –

financeability, accommodate is for what know as go-forward it, And the typically down to of overall, we it's go X some, because there to delighted out, at to on they as are the as that, a being, Tier that least that high portfolio what see But in fine-tuning us. X, loss mean? I means nice offers conversion we and them loans end go than buy. you those So what We segments. some for because on of basis, the our those some highest pressure quite when would Tier them, by CAF. our see aren't first lenders does X preserve they time they rather at Tier see to order most those That and the made target carving call and part,

them for part. see did the we So taking most up

Tier we I increase on is the of in credit that down into is one and to the pushed overall to two made. lower falls X. diminish was a the think go But some normal getting points sales categories means pressure because that within there and on adjustments or see portfolio the back FICO -- X, percentage based mix as and we will score pressure, both maybe mix those Tier

you. Thank

other mention we we that that Hey I the saw would up had did of bit a going get CECs to I'll headwind idea you from online, to folks to jump quarter Seth, no the big thing of expected this over Because there far We that as well. period. get there. about four-week we're a engaging as be headwind not consider the is, as also a mention

of CECs, to bit is in had a near-term, So, the we ramp the up headwind. which a

we as be. at continue want well. them service will that to But now where that levels Our to and again, improve were we're not right fixing

loans, the relates of your current And just up that's Tom, it we a And is Great the in as saw originated of which you. provision, peak Recession. loan the follow-up, to as that range at balance, your X.X% Thank loans loss for the think in provision in what going that profile go do is likely this how well the you that But forward? loan above some to loss is there's and credit X.X% originated where about shift quarter, we of rate quarter. understanding it,

way Well, and estimate our we work, things up. we where the it expect make portfolio is best to may take an -- end information the on

know So, expect to we today. we not learn to information our We were or to that existing expectation new in that everything would loans, is based evolve on unless new for things the evolve economy. X.XX%

as to origination things originations, we're to I financeable adjustments As of X.X%. X% far and our evolve do expect I higher target think, ensures our striving strategy what a of portfolio those going. as we've and made in should said, we and that new to keep range end That's some that, kind the of

you. Thank Understood.

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

Good morning.

Hi good had for from a I my just then taking prior morning. and questions Thanks follow-up. here. question one clarification one

unit of I'm to for level clarification, want about on is that like omni XX% So, talked that penetration that I XX% -- mean right or alternative through the now completely just is XX% correctly? -- does you XX% definition earlier, sales that the make to delivery to understanding sure sales channels

Yes.

the -- that the XX%. most XX% the the to we saw home of combined when curbside, saw in delivery we have operations, eligible So, so the and in close peak markets or stores to -- markets, limited the virus, at had the closed the peak peak we

it but it's a bit settled -- was whole -- at a was XX%, bit organization, now XX%, little the it little in and a a If it as XX%. percent XX%, you across around little it in sales under to of above settled looked around back total

Got it.

for through in roughly? XX,XXX Is So, so that will or last quarter channel? the that units were mean like around alternative us the like bulk

maybe bit Yes, a higher. little Roughly.

side I crisis, related of your significant Got on we efficiencies during cost or just to to want and it. the crisis XXXX similar as permanent sales? should reductions just reconditioning. time XXXX, levels the did improvement SG&A the a then around you're clarify two Do equation, and a when well? on points. the -- see And do through in in any in see for structural something Thanks we we headcount the to mean, expect there GPU. was clarifying relatedly, lower to expect this shift those normalized of furloughs process Just maybe reductions, you of more we should back retail that. the -- magnitude And Thanks.

the the reconditioning about talk I'll and talk SG&A. I'll about then Yeah. let side, Enrique

to I said as take the The well look reconditioning side, cost earlier, out. we're continue one. going ways reconditioning So for on to be to

remember had to back there. I you think is be reconditioning. would What I improvements they're improvements If the XXXX, say in in significant going incremental we

of this, be north of lot be a big, of going be say the it's there, to things. wouldn't version to store was but you're rolling as SG&A. flow up talk efficiencies, continue unit. it new and There's going we all So efficiencies that is $XXX see reconditioning we'll stores, to as the going side about in per going procurement out the into I then, -- do We're There the go well well. let I'll in pick $XXX. And side, for both back no as incremental Enrique to our look okay,

aligning aggressively our we've traditionally fixed demand. Yeah. really From as the considered what focus perspective, to an costs quarter, lower we the SG&A on actions match within better

reduction, the increase, too some advertising in there's as business reduction expect staffing quarter. I our What in to store-based efficient. rebound, were to within not our always do really items all to well. we costs I whether ways sales we're opportunities. earlier, on acted furloughs, will spoke though, So tell we at will through as like aggressively office-based is of early kind But contractors, project, home invest these projects get looking but you, that or It's as more continue tell systematic to to

a strong we So balance have sheet.

We position it to as strong financial in a growth allows well. have and continue our invest us to

Yeah.

other the think that. add to I thing to

make past were comps at to order to we've be to continue In lever. we're about going in were X% year, in the about thinking years, range coming investments. coronavirus, going looked talked to couple you before of -- what the to If of the into we needing X% this we

year, that. into this on looked we've experience, have would at been if you looking coming were all we omni If the at focused what than better we levered omni, with

back, still been but have We as would sales which hard Now gives We we the hit new to we color. have on been X% adapt. decision put into some just to in bit at X% normal so strategic hold. we this a the initiatives, it's quarter, made of year to year. had this point, of continue continue know we'll this come to them But -- to some still you little of range, that some hit a

Thanks Got good luck. the for it, color and great.

you. Thank

Our next go Morgan question Stanley. comes from Armintas ahead. Sinkevicius from Please

you press release? the was growth Thank experience in taking you morning. quantify web the could the growth traffic hoping the and center that the question. the highlighted to customer you for I in lead Good the in

Yeah.

and growth, traffic was both weeks was about digit. double two that were So I of leads June, talking first the

Both leads and traffic, for the okay. And what it was quarter?

that. was web leads the For XX% from off weren't and down, was it traffic about far quarter,

one Okay. And quick here. a then just

new to talk are less new being As your nearly market, portfolio about on Maybe pressure could may to about the to that new vehicle inventory there coming the be to vehicles demanding you how not, or be you them? able vehicle positioned we inventory. a of think age market sell and well

Yes.

building now, the So, really really during like market pretty back out inventory that vehicles. in external which the mode closed, We'll wholesale source the a as the of about we buying sales vehicles. lot vehicles being quarter, the We're much able were feel market being be don't problem far as the dramatically weren't But I to offered goes, the we isn't source those. sale. time, right you, will finding because for up, anyway. a low froze find to on we able had tell at concern the is production but

the didn't very really levels. the external have back. sales that and in volume at the back And seeing come at to getting look point the you seeing They're rate you it's they now matter. sales to in gone it you're So really pre-virus look sales, where, you're that near if the

selling you are you older Okay. seeing demand? younger the cars are Where But most cars? or seeing you

had we -- the during to mix to quarter, Well, two-year-old a car shift little to five of zero plus. bit a Yes. from shifted

during the saw we quarter. what that's So

the quarter, that sold look selling closures, was are gas several into if We we because fact pre-virus. on shift large average inventory primarily points up back percentage acquired bit, the a mix you up in SUV of that's And which were our to little of in time year-over-year. but appreciating We a was at the April – lot more was for also the price saw that. the had expensive and market a it due that March

it. Appreciate Okay.

Thank you.

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

for Thanks question. taking morning. my good Hi,

Brian. morning, Good

was was the on you, I and quickly crisis. conference nature in this then what in call very demand. quarter last Bill, of the asked right diminish beginning COVID I the kind we of discussed So the of

So into significant pickup the sales it's seeing here, you're into late quarter that saying the we're quarter. today, rather this very encouraging current

kind So you've to trying retail gotten all we're much the how better now? with as would characterize figure likely Is I demand what of hold that's CarMax got underlying demand weaker your see you have right from there itself? with – this several sales sustain taking to out this watching within general, underlying pent-up maybe we're ago, customers. data, rebounding mean, real weeks in to, you do or we

I Yes. were some pent-up Brian, weeks. demand people for staying know home several I to absolutely there's it's because for think sure. at mean, hard

some So there's of I think that.

of that’s reasons Act in I I given CARES one see you think the some has Tier money. And X. think the increase the why folks

refund money. like And tax the little When population go I have are folks the that driving FICO-type they tend out. see think customers. a bit it, that to biggest it's we lower that

I there. high sustainability, I uncertain mean, it's to such as out an got hard As the far now, tell. it's mean, right unemployment. environment we've

got cases. these in You've the spikes coronavirus

You got going social on. challenges the

well agile we're come more and this, I before. having positioned we're think think than I resilient through So even and

is it's too be So – going say, early And this to to need I it be think any to I I wherever a that but go, is this of going think is be hey, where factors, this to for may go? sustained? depend but you tell what is pivot going lot ready going we're think macro to to. we can we'll on to I it's way prepared

prior And some a That's questions. the question then my and of to follow-up think helpful. bit it's a of really I follow-up

what you that know right there's Just will, of with And How about with out we as a give look this used I'm is basically the car think between if inventory As shaping the you're -- now. parts to whatever sales I could -- up road? dynamics, saying, to that and down now. or better regard pricing, forward, environment? lot seeing But there are of opportunities right you inventory. I moving because what dynamics new bolster acquisition that for help in seeing spread, you mean, shifting actually

Yes.

the And happen a get to have or opened the how So, with and lot in. of of actually quarter, kind up production cars new collapsing. What's was I non-story new kind to that get as a far going factors struggling much able as of far the to again be gap back cars during you as look think forward, we as a weigh to going do? there's manufacture and they're as it They're there. out really widening to

So, I something think that into that weighs it. be will

think the little there's a released be I that of probably to up needs of sales bit. lot wholesale through backed inventory that a kind got

would I So being inventory wholesale offered. to see additional expect

So, what’s remarkably, it's new quarter, of how the I to progress out. talked which and timing think about mean, but as wholesale really the that the is to I It during I come some of remarkable car on continues this how when inventory as starts back. quick come was the as depreciation as depends. it just depends the well decline

we high, gets cars at sales. really far I think, depend will on, be supply pretty fine it down the is will And between think, the But as some self going supply corrects But production manufacturers. new I -- I if too side. market on And wholesale the think And gap slow regulating. itself. the it to it as point, just so, of

lot. Well, Appreciate a thanks Okay. color. the all

you, Brian. Thank

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

Hey. Thanks. any auction about tremendous your you format? that's that change? of to experiencing as model really unit, a do I per team. Are proceeds wholesale Good per cost happen of understand versus you And wholesale differences to digital-only taking sales to morning. economics this what that for the all in see unit? Thank the see on permanent like your traditional question. you the like that business, or as behalf you would ask pivot I fast, wanted my online execution

that you're been the two matter got of truly And the awesome. for virtual did fact past, the sales job. a It technology. over Craig. a We've is about simulcast team in a question, Thanks phenomenal team Yeah. And right. testing to The And the phenomenal all converted of some the the was really within remarkable. did weeks, job. platform about we've talked

But it's will didn't about far as attendance. economics, that. too you tell As the during talk I early that a period, of what degradation to see little is, dealer time we any

And ratio. far we have, high the So, as will very more you obviously, had the as goes. price your bring a more already dealers vehicles dealer-to-car

units it So, auctions, then the I and to also complementaring running having open in online it complementing with continue auctions, because but is that up having I'm it our even sales having -- sorry, think dealers. the presence I online, get for think more when these should physical as -- cars. able so great, presence to want buy to your for you the put and physical also And the more be can get will more value then we you theoretically, can, as car, for as dealers, more And it we you as have many value for your on to consumer can us, you possible. you much if

available think I but it's expect it to dealers. more little that make would will a early, the So, online I having

Bill. Thanks,

from next comes Please Our ahead. Montani Evercore. Michael from question go

morning. for taking Hey, Thanks the guys. Good question.

the Just, start advertising first front. wanted off, to on

of then see, light could quarter year curious kind multichannel. any per and the spend on of to in just you of the is if full ad where kind vehicle color see I follow-up was that You sales recovering? know, And a about give you Bill had fact I even going, next

Yes.

know, rollout. we came of on lot if it talked a a we think if a is back on here, basis We ramping the I would you virus So really up was a a been all quarter, unit had know, pulled to year pieces the the when we to look actually it This it. bit also year we've planning were about, you bit little and back already per advertising. on on that you unit little last we of look Obviously, hadn't we spend omnichannel – at stepped been during support up more but advertising different again. per basis

on par, the would continues on to would get had would the And to par this, expect what we get like business I hit more expecting of so – rest expect been year assuming virus that not the more I have us.

the then Great. front. And Okay. on just multichannel

a lot You release, you that of was that the know, in kind mentioned completed. now of rollout

how just I CECs, drill those so And and efficiency at we they net or the understand wanted stores into gain offering time ship-to-home kind would home like many gains point then that the are And anticipate it delivery relates generate in to to – of of currently to what – that to better as secondly, favorability start could capabilities? as scale?

Okay.

now was available experience, omnichannel at Omnichannel of experience roughly, We're mid-XX-ish. markets. on end let's in it roughly in were quarter, we of say, the about was XX-ish, So available. the the the the XX%

out with be quarter. rolling done omnichannel next We will

At some rolled about to off just we'll bat. markets have when one-off everywhere, goes, the delivery – omnichannel all that Now some point, different we home there's get small as delivery as out that said far only we're be it and to through. the markets home rolled available of probably because work will out logistics right when – XX%

expect we ramping we ramp to this they to up, we didn't as we going omni continue efficient to are inefficient. we into are the as efficiency CECs – didn't knew knew year, CEC far but CEC As and be we because really the the going efficiencies expect to of coming become are

in take some tell really you, progress with to the made we've next So really I'm – pleased hold I would But year. the already really fiscal expect the conversion. I on efficiencies of

the the of versus our there. we to old conversion see CECs at look improvements conversion you If of the continue process,

as going it. think we're forward. look give of excited so lot us we great a about And to it's benefits We

Great. you. Thank

you. Thank

answered. remarks. their our reached over to call Those I queue Investor have This Bill to Nash out closing as back questions concludes remaining XX now will in reach to we A.M. question-and-answer have can the Relations session turn for

Thank Great. Yes. Thank you. you, Carol.

really it's I of to we and in designed that believe of car experience fundamentally because online, different forward all omni-channel in-store support. is important, but I thank it about any our of equally path world-class it's we've investments your whether and model fact you, the business the and as the the And talked you accomplishments. have living our a associates I financial really In two. feel structure remarks, would changing tell thank say, to retail, or I continued want always, that all good us So strength our culture, for you and – our is never I'd retailer, our this. of all CAF. used it's rapidly to or We today. values And for every about because our my has it's than unique a all our experienced each different just such of really enabled world-class to Thank our business, it's environment the look questions of in navigate your other opening day. aspects wholesale, look, combination dedication for world-class their

success the are You CarMax. of

you for talk will do you and So, thank quarter. we again what next

does gentlemen, Thank and for conclude participating. Ladies call. you conference today's this

disconnect. may You now