CARMAX INC Q3 FY2025 earnings call

• The diversified business showed continuous positive trends in the third quarter with retail, wholesale, and CAF all achieving year - over - year growth. - Solid execution was carried out in a more stable vehicle valuation environment, leading to an increase in unit volume, maintaining strong margins, stabilizing the loan loss provision, and realizing cost efficiencies. - The best - in - class omni - channel experience served as a key differentiator. For the third quarter, approximately 15% of retail unit sales were online, and 56% were omni sales. - In retail, more vehicles were bought from both consumers and dealers, with over half of consumer purchases made through the online instant appraisal experience. - In wholesale, a record number of vehicle buys from dealers were achieved. - CAF continued to advance its full credit spectrum underwriting model. - SG&A was leveraged by 640 basis points due to the growth in gross profit and expense efficiency measures. - The nationwide rollout of customer shopping accounts was completed, the AI - powered virtual assistant Sky was utilized, the online appraisal experience was enhanced, a new Tier 3 origination model was tested, and the test of a new transportation management process leveraging data science and AI was expanded.

In the third quarter of FY'25, CarMax's diversified business model achieved total sales of $6.2 billion, a 1% increase compared to the previous year. In the retail business, total unit sales grew by 5.4%, used unit comps rose by 4.3%, the average selling price decreased by approximately $1,100 per unit or 4%, and the third - quarter retail gross profit per used unit was $2,306, matching last year's level. For the wholesale business, unit sales went up by 6.3% compared to the third quarter of the previous year, the average selling price dropped by approximately $500 per unit or 6%, and the third - quarter wholesale gross profit per unit was $1,015, an increase from $961 in the same period last year. CarMax Auto Finance (CAF) generated an income of $160 million, which was an 8% year - over - year growth.

• It is expected that the fourth - quarter sales performance will be stronger than that of the third quarter. - There will be a continued focus on SG&A leverage, and it is anticipated that the service margin will continue to improve year - over - year. - The advertising spend in the fourth quarter on a total unit basis is expected to be higher than the year - to - date rate and last year's fourth - quarter level, with the full - year spend expected to be approximately $200 per total unit. - Benefits from cost - efficiency measures such as the new transportation management process are expected to be seen in the cost of goods sold over time.

• Market price fluctuations may have an impact on sales and margins. - There is credit risk related to loan losses, although the provision was adjusted based on the observed performance. - Changes in consumer behavior, for example, delinquent customers may revert to delinquency after payment extensions, which could affect the financial results.

Q: Regarding the normalized unit comp, what is the outlook for the fourth quarter?

A: Bill Nash stated that they believe the fourth - quarter comp performance will be stronger than that of the third quarter, despite some headwinds like losing a Saturday and leap day.

Q: When considering the improvement seen in the last six to seven months, what is driving it more, conversion or traffic?

A: Bill Nash said it is a combination of internal and external factors, including the decrease in prices, and internal execution improvements such as better experiences and efficiencies.

Q: For the GPU performance in retail and wholesale, provide an update on the cost - reduction initiatives?

A: Bill Nash said that the $200 per unit is driven by reconditioning and logistics, about half of which has been achieved so far, and the bulk of the savings is passed on to consumers.

Q: For the allowance for loan losses, provide details on what led to the cut?

A: Enrique Mayor - Mora said that the provision is a combination of the expected loss on new originations and the true - up on existing receivables, and the provision in this quarter is more normalized.

Q: Regarding market share, has it stabilized and are you gaining share?

A: Bill Nash said that they are very confident in the sales momentum and their ability to gain market share, and they will update it at the end of the year.

Q: For the payment extension, how does it work and how is it reflected in the P&L?

A: Enrique Mayor - Mora said that it is to help consumers navigate temporary difficulties. Historically, it has been less than 1% of the portfolio, some testing has been carried out, and it is reserved accordingly in the provision and reserve.

Q: Regarding the growth of the wholesale business, where can it go?

A: Bill Nash said that the focus is on buying more cars, using the Max offer to attract more dealers, and providing dealers with another tool.

Q: Regarding the tone and appetite of lending partners, is there any change?

A: Bill Nash said that lending partners are steady, supportive, but being cautious.

Q: Regarding stores and labor compensation, what is the opportunity for stores and the leverage of comp and benefits?

A: Bill Nash said that there is an opportunity to go beyond 300 stores, and Enrique Mayor - Mora said that it is expected to leverage comp and benefits more strongly as the omni - channel model is more efficient.

Q: Regarding the consumer shift from new to used vehicles, is there any data on that?

A: Bill Nash said that the overall used vehicle industry has declined, especially in the 0 - 4% range, and consumers are under financial pressure.

Q: Regarding comps and CAF, provide color on the consumer mindset and the CAF reserve?

A: Bill Nash said that the comps are driven by internal improvements and macro factors, and Jon Daniels said that the reserve adjustment was adequate based on the observed performance.

Q: Regarding inventory and EPP growth, what is the cause of the inventory drain and the growth of EPP?

A: Bill Nash said that the inventory drain is a normal seasonal phenomenon for tax season, and Jon Daniels said that the growth of EPP was due to the price increase starting from the fourth quarter of last year