Carmax Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Healy - Northcoast Research Partners, LLC - Analyst : Bill, I'd love to just start with the top of the funnel for you guys, just on same-store sales. I think you mentioned the comp trends improved as we moved through Q1, and we'd just love to get your thoughts on maybe how those improved and maybe what you're seeing now? And just as a follow-up to that, how do you answer the share question because I think that's the biggest one investors bring up as we see these numbers for CarMax, but how do you feel you guys are performing in the market versus peers? And if there is a delta, how do you explain that delta? Thanks.

Question: Seth Basham - Wedbush Securities Inc. - Analyst : My multipart questions on cash. First, looking at the loss trends on your reserves continuing to see losses increase in your securitized portfolio. Your reserves looked a little bit like do you think that you're going to have to reserve more aggressively if the loss trends continue? And then secondly, how quickly can you ramp Tier 2 and Tier 3 lending as you now have a non-prime securitization program?

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Just on the expense side. So if you give the ad spend per total I think that was up about 5% year over year compares to your guidance for flattish. And maybe just walk us through any changes you're seeing there on the ad spend line and just overall how we should think about SG&A dollars in Q2 and over the balance of the year.

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Yeah, and just the second part is overall SG&A expense dollars, just how should we think about that level through the balance of the year.

Question: Brian Nagel - Oppenheimer & Co. Inc. - Analyst : A couple of questions. I'll lump them together. I mean, first, just with regard to the -- this first non-prime securitization. I think it's a follow-up to Seth's question before but as we think about this development, I mean, how -- what are the ramifications longer term for CarMax? Is this going to be a potential vehicle to drive better share and better profitability, both? Again how should we think about the model question now with this capability? And then my second question, unrelated, you keep calling out the sourcing vehicles from dealers. I guess the question is the sustainability of that and just also the potential positives for margins or other sourcing. Thank you.

Question: Sharon Zackfia - William Blair & Company - Analyst : I guess it's on the improvement in sales you've been seeing. I mean, do you think that's broader industry dynamics? Do you think there's something operationally you're doing? I know, obviously at the top of the funnel is increasing conversions, then down a little bit is that starting to improve for you and if so, where and why? Thanks.

Question: Rajat Gupta - J.P. Morgan Securities LLC - Analyst : Bill, I just had a question on the strategy and operation. I think you can all see like the factual data on the unit comps, the market share. It's not where CarMax used to be historically. And if you look at your margins and like the EBITDA per unit, as you exclude the one-time items this quarter, they have not changed or improved. So I'm curious if you think the current strategy that you have around sourcing, the impact omnichannel has had on your in-store culture? Is all of that still the right approach? Or do you think something needs to change? Or are we just waiting for the industry backdrop to improve for CarMax to do better on all these metrics, especially when some of the public peers are doing better. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 21, 2024 / 1:00PM, KMX.N - Q1 2025 Carmax Inc Earnings Call

Question: Rajat Gupta - J.P. Morgan Securities LLC - Analyst : Maybe just like on the June commentary, I mean is it fair to expect that the positive trends you're seeing should only get better through the course of the quarter? Or is there some monthly seasonality or comps to keep in mind there? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 21, 2024 / 1:00PM, KMX.N - Q1 2025 Carmax Inc Earnings Call

Question: Craig Kennison - Robert W. Baird & Co. Incorporated - Analyst : Bill, you mentioned some cost of goods sold initiatives related to logistics and reconditioning. Do you expect those savings to flow through to the bottom line or drives lower prices? And then is there any way for you to quantify the per unit impact of those initiatives?

Question: Craig Kennison - Robert W. Baird & Co. Incorporated - Analyst : Do you expect that to hit the bottom line or is that--?

Question: Craig Kennison - Robert W. Baird & Co. Incorporated - Analyst : I guess just to follow up, why not take -- if your prices are competitive today, why not take those efficiencies to the bottom line?

Question: Craig Kennison - Robert W. Baird & Co. Incorporated - Analyst : Yeah, yeah. Makes sense, Bill. Thank you.

Question: Chris Bottiglieri - BNP Paribas Exane - Analyst : So first, just wanted to follow up that last question, actually. Can you please elaborate more on the parts acquisition? It sounds pretty material. Are you going direct to vendor, sourcing yourself, are you asking your retail partners to reduce pricing? And I have a question on credit. I know I'm breaking David's rule, I apologize. I hope I'm not doing intentionally, so sorry but the prospectus on new -- new non-prime securitization would suggest there's $5 billion of this type of receivable. How does that $5 billion legacy portfolio that's behind that securitization? How does that differ between Tier 2, like is Tier 2, just like a higher [C&L] than the legacy five. Can you just elaborate like how this is different [and where is the ceiling]? Thank you.

Question: Scot Ciccarelli - Truist Securities, Inc. - Analyst : Bill, I know you've had a couple of different questions on market share, but I'm going to try -- swing out a little bit differently here. From the outside, I guess we can see growth rates of Carvana and the public dealers. Given your commentary earlier on mix, do you think it's your mix of late-model products that's the key driver to the relative growth rates that we're seeing? Where could there be other factors at play, whether it's credit approvals or something else?

Question: Scot Ciccarelli - Truist Securities, Inc. - Analyst : Okay. Can I ask a follow-up? Where is -- when you look across your markets, I know historically the older management team used to refer to 10% market share in certain markets, like what is your highest market share in a specific market just so we can compare the 4% average to it?

Question: Chris Pierce - Needham & Company, LLC - Analyst : Can you talk about supply? I know we're seeing commercial vehicles at auction grow year over year with more growth ahead. But is that the supply of cars that you need to come back, that will help the overall share of newer cars in the market gained share versus older share -- older cars. And that helps you gain share? Like what are you seeing from a supply perspective?

Question: Chris Pierce - Needham & Company, LLC - Analyst : Okay, so you're not having problems getting supply, but you're choosing not to source older vehicles. And that's what's hurting the share. But I just wanted to make sure I'm understanding where supply is going and the supply decisions you're making.

Question: Chris Pierce - Needham & Company, LLC - Analyst : So is the supply of vehicles that meet the CarMax standard growing or has it been flat, not changing? What's the right way to think about the supply of vehicles that you're going to retail? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 21, 2024 / 1:00PM, KMX.N - Q1 2025 Carmax Inc Earnings Call

Question: David Bellinger - Mizuho Securities USA LLC - Analyst : Just another one. Regarding the CDK and the dealer software issues that are pretty widespread right now. Does CarMax have any exposure there? Are you seeing any changes in volumes or consumer activity? Just any clarity you can provide on just some of the near-term implications from this widespread issue?