Carmax Inc (KMX)

Sales Momentum and Comps
Q: What's a normalized used car unit comp for CarMax?
A: It's hard to pinpoint a normalized comp, but we're pleased with the sales momentum. Throughout the quarter, comps improved sequentially each month. December's performance month-to-date has accelerated beyond the third quarter's comp. We believe the fourth quarter will be stronger from a comp performance than the third quarter, despite headwinds. -

Expense Leverage and SG&A
Q: How should we think about expense leverage as comps improve?
A: We're making progress toward our goal of hitting a mid-70% SG&A to gross profit ratio. With improved sales volumes and our cost management efforts, we're confident in our ability to leverage SG&A more effectively. We're past the heavy investment phase and are now focusing on enhancing capabilities to drive growth and efficiencies. -

Supply and Sourcing Strategy
Q: Are you changing sourcing to lower-priced or older vehicles due to supply shortage?
A: There's no significant change in our age mix; we've maintained a similar vehicle mix year-over-year. The notable difference is an increase in sales of vehicles under $20,000, which grew from 25% to 30% of sales year-over-year. Our diversified sourcing from consumers and dealers allows us to obtain hard-to-find vehicles, helping us navigate supply challenges. - -

Cost Reduction Initiatives
Q: Update on $200 per unit cost-out initiatives and use of savings?
A: We've realized about half of the $200 per unit cost reduction, equally split between reconditioning and logistics, with the remainder expected in upcoming quarters. We're passing most of these savings to consumers while ensuring solid margins. -

Market Share Gains
Q: Are you back to gaining market share as prices stabilize?
A: While we prefer to measure market share annually, we feel great about our sales momentum and our ability to gain market share. We'll provide an update at the end of the year, barring any major price swings. -

CAF Allowance and Provisions
Q: What led to the cut in the allowance for loan losses?
A: Our provision reflects expected losses on new originations and any necessary true-up on existing receivables. This quarter's provision is at a more normalized level, with less true-up needed compared to last quarter. We originated $1.9 billion this quarter; tightening in Tier 1 is offset by testing in Tier 2 and Tier 3. - -

Payment Extensions Impact
Q: Provide more color on payment extensions and their P&L impact.
A: We've adjusted our extension policies to help customers facing temporary hardships, allowing them to make partial payments to qualify for extensions. This helps customers stay in their cars and potentially lowers losses. We've reserved accordingly for any potential impact, which is reflected in our provision and reserve. -

Wholesale Business Growth
Q: How sustainable are the gains in wholesale growth?
A: We aim to increase wholesale volumes as much as possible. Our focus is on buying more cars, both retail and wholesale. Our partnership with Edmunds has helped sign up more dealers, and we see plenty of opportunity to expand. We offer dealers an additional avenue to sell unwanted cars, complementing traditional auctions. -

Omnichannel Experience Improvements
Q: Has the omnichannel experience shift significantly benefited this quarter?
A: Improvements in the omnichannel experience are a continuous build over recent quarters. We're seeing continued benefits from enhancing the customer experience, reducing friction, and improving conversion rates both online and in-store. Customers doing more remotely leads to better conversion, and our stores are leveraging tools for seamless customer interaction. - -

Store Expansion Plans
Q: Is there an opportunity to reach 300 stores, or leverage multichannel?
A: We have 249 stores and believe we can go beyond 300 stores in the long term. We review our pipeline annually and see plenty of opportunities for expansion. While the omnichannel experience allows consumers to do more remotely, we believe a strategic physical footprint remains critical. -

Earnings Growth Expectations
Q: Should low single-digit comps yield double-digit earnings growth?
A: Our objective is robust top and bottom-line growth. With the investments we've made, we're positioned to leverage these as the operating environment improves. We've had two positive quarters of comps, with acceleration into the fourth quarter, and we're excited about our growth path moving forward. -

Inventory Build-Up and Tax Season
Q: Is inventory build-up for tax season affecting cash flow?
A: Inventory increased slightly as we're preparing for the upcoming tax season, which is a normal seasonal pattern. Our team has managed inventory well, improving turns year-over-year, and we're in good shape for tax time. - -

Consumer Mindset and Demand
Q: Has there been a change in consumer mindset driving demand?
A: We haven't seen a significant change in consumer mindset. Improvements are largely due to our internal efforts to enhance the customer experience and reduce friction, as well as prices being down year-over-year. Some consumers are still financially pinched, particularly those with monthly household incomes below $3,000. -

Lending Partner Stance
Q: Any noticeable changes from lending partners recently?
A: Our lending partners remain steady, without significant adjustments. They love the CarMax business and are supportive in various conditions, but they're being prudent as any lender should be. We haven't observed major changes in their lending appetite. -

Impact of Consumers Shifting from New to Used
Q: Are you gaining new customers shifting from new to used vehicles?
A: Overall used car volumes have declined, especially in the 0- to 4-year-old segment, which is our sweet spot. Consumers are financially pinched, impacting the used car industry, particularly late-model sales. We believe consumers will return as economic pressures ease. -

EPP Penetration and Margins
Q: Was EPP growth due to penetration or price increases?
A: We raised prices on our Extended Protection Plans starting in the fourth quarter of last year, leading to higher margins. While penetration has decreased, we're overall making more money. We'll be lapping over that increase in the upcoming quarter. -

Used Car Pricing Trends
Q: Are used car prices rising year-over-year?
A: We feel good about our pricing due to actions taken and diversified sourcing. Off the top of my head, we're probably running a little lighter year-over-year in December, but we'll see how it pans out. -