Jeffrey Francis Lick

Jeffrey Francis Lick inquired about the drivers behind the impressive 100 basis points of gross margin expansion in service and parts, and its sustainability. He also asked for insights into the future trajectory of the SG&A ratio (67.4% of gross profit) and the factors influencing it.

Answer

CFO Tom Szlosek attributed the aftersales gross margin expansion to an equal balance of volume growth (parts, repair orders, labor hours) and price increases (offsetting inflation, mixed favorability). He highlighted the success of technician hiring, training, and service capacity initiatives. Regarding SG&A, Szlosek noted the 67.4% ratio is strong, especially considering AutoNation includes service loaner expenses, which can make it appear higher than some peers. He emphasized ongoing productivity initiatives in sales and service, thoughtful advertising ROI, and diligent management of other SG&A costs, expecting continued close management.

Jeffrey Francis Lick asked for an outlook on new vehicle GPUs for Q4 and 2026, considering potential impacts from tariffs and the competitive environment. He also inquired about the drivers and sustainability of the 300 basis point improvement in service and parts gross margin.

Answer

Bryan DeBoer, President and CEO, noted that Q4 of last year had strong numbers but expects incentives, such as 0% APR from Korean manufacturers, to help offset comparative challenges. He believes tariffs' impact is largely offset by the competitive landscape and new product lines, with Japanese and Korean brands offering better, more economical cars without significant price increases. Tina Miller, Senior Vice President and CFO, added that the 300 basis point improvement in service and parts gross margin was driven by a mix shift towards higher-margin labor-based business, with strong performance in both customer pay and warranty work.

Jeffrey Francis Lick asked about CarMax's 'reserved inventory' policy, noting that it can account for up to 40% of online inventory for around seven days, and how this affects sales and if the policy is under review. He also inquired about the percentage of reserved inventory that ultimately sells versus returning to general availability.

Answer

President and CEO Bill Nash explained that reserved inventory is for customers interested in specific vehicles, facilitating transfers which account for one-third of sales. He stated that CarMax actively manages the duration a customer can hold a reservation to ensure transaction progression. Non-transferable vehicles are typically due to title issues. Nash confirmed that the company evaluates the economics of this process and feels good about it, with potential for minor enhancements.

Jeffrey Francis Lick asked about CarMax's 'reserved inventory' policy, noting that approximately 40% of online inventory is reserved for up to seven days, potentially making attractive units unavailable to other buyers. He questioned its effect on sales and if the policy is under review.

Answer

Bill Nash, President and CEO, explained that reserved inventory is for customers interested in specific vehicles, often for transfers (which account for one-third of sales). He stated CarMax continuously evaluates the economics of this process and ensures transactions progress, considering minor enhancements to hold times. Vehicles labeled 'not transferred' are typically due to title issues in certain states.