Carmax Inc Q1 2026 Earnings Call Transcript

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

Question: Brian Nagel - Oppenheimer & Co. - Analyst : Nice quarter. Congratulations. Really nice quarter.

Question: Brian Nagel - Oppenheimer & Co. - Analyst : I guess the question I want to ask obviously, we've seen a nice acceleration here in your used car business. I know you don't typically talk much about intra-quarter trends or trends in the full quarter. But the question we ask is, I mean, how are you viewing the sustainability here? Is -- as you're looking at this, is the business coming back? Is there anything unique to this reacceleration? And then a follow-up to that is, and you showed again in this quarter, nice SG&A leverage, but as we're thinking about sales continuing to restrain here, how should we consider expenses coming back into the model? Or to what degree expenses did you go back to the model to support those sales? 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 20, 2025 / 1:00PM, KMX.N - Q1 2026 Carmax Inc Earnings Call

Question: Brian Nagel - Oppenheimer & Co. - Analyst : Thanks guys. Again, congrats.

Question: Scot Ciccarelli - Truist Securities, Inc. - Analyst : Good morning, guys. Bill, I know you guys don't guide, but with comp growth kind of bouncing around a bit the way it has, and comparisons getting much more difficult in the balance of the year. How should we, from an outside modeling perspective, to be thinking about the comp growth on a go-forward basis? Are we thinking about stacks. Is that something that like two-year stacks or three-year stacks, is that relevant? I know obviously, there's a lot of moving pieces on the macro and you guys are making all the changes that you've already excited. But just from a broader perspective, like how should we be thinking about this for comp growth for the balance of the year?

Question: Scot Ciccarelli - Truist Securities, Inc. - Analyst : Okay, and then I'll take a quick follow up if I can. Can you just provide a little bit more color on the shift on the non-prime? Like if I heard you correctly, it sounded like there was going to be another $26 million provision, but you don't have to count it because it's now, being held for sale, was that the correct interpretation?

Question: Scot Ciccarelli - Truist Securities, Inc. - Analyst : Okay, super helpful. Thanks, guys.

Question: Michael Montani - Evercore ISI - Analyst : Yes, hey guys, good morning, congrats on the quarter. Thanks for taking the question.

Question: Michael Montani - Evercore ISI - Analyst : Just wanted to ask, I guess, the two-parter, but the first part was you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multichannel capabilities. So I'm just kind of wondering, can you share some basic levels of awareness kind of prior to that campaign? And what exactly it is you're doing differently there? And then I guess the follow-up was just also related to credit, which was does this signal that you'll be kind of increasing subprime penetration as a percentage of the loans that you're issuing as well? And just how should we think about that?

Question: Chris Bottiglieri - BNP Paribas - Analyst : Yeah, for the question. So first off, congrats on the metal agility around the subprime funding. I think it's an interesting structure. I just have one clarifying question on that just a broader question on credit. What percentage of new originations were classified as held for sale for those part of the $26 million you cited would that be incremental? And then my broader question is just, obviously, you elaborated on the allowance stepping up and some of the factors that drove that? How much of this is like the macro environment with student loan lending? Like are you seeing like as the credit scores have dropped and credit performance and the broader economy has worsened a bit. Is that impacting capital? Is that measurable? Like what percentage of your customers have standalone debt. Just curious how that's having an impact at all.

Question: Chris Bottiglieri - BNP Paribas - Analyst : Really helpful. Thank you.

Question: Sharon Zackfia - William Blair - Analyst : Hi, thanks for taking the question. I wanted to ask a question on CAF with the move to full spectrum lending how far have you gone into kind of the full spectrum so far? Like how do we think about that for the second half of the year? And then in terms of increasing that cap penetration, I know there was there are moving parts in this quarter, but do you expect cash penetration to increase year-over-year in the August quarter? 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 20, 2025 / 1:00PM, KMX.N - Q1 2026 Carmax Inc Earnings Call

Question: Sharon Zackfia - William Blair - Analyst : Thank you.

Question: David Bellinger - Mizuho Securities - Analyst : Hey everyone, good morning. Nice results and thanks for the question here. 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 20, 2025 / 1:00PM, KMX.N - Q1 2026 Carmax Inc Earnings Call Another one around the marketing spend and the new campaign understanding the flexibility for consumers will be front and center. But -- is some of that new push being driven by this omni cost neutrality that you mentioned in the prepared remarks and suggested that CarMax is now ready to flow more digitally initiated volumes and in a more profitable way going forward? I'm just trying to gauge whether you're seeing a step change within the digital economics of the business and opting to put more marketing dollars behind that now?

Question: David Bellinger - Mizuho Securities - Analyst : Great, thank you both, thank you.

Question: Rajat Gupta - JP Morgan - Analyst : Great, thanks for being the questions. Just had like a couple of clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started. You were anecdotes broader macro around some meaningful pullback from like just the prebuy ahead of tariffs. I was curious if your business has felt any of that here in June? Any color you could give on comps there? And then just on CAF, I mean, obviously, a lot of discussion there. In the last quarter, you had given us some guidance around the provisioning cadence for the year. Any color you could give us on how the second quarter might look like, especially in context of all the changes that are happening, that would be helpful. Thanks.

Question: Rajat Gupta - JP Morgan - Analyst : Understood. Great. Thanks for the color.

Question: Craig Kennison - Robert W. Baird - Analyst : Hey, good morning. It's been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%. That was down from 82% in the February quarter. So I think you lost a point on omni and a point in online. I know you're really focused on the omnichannel, but digital had been gaining share and clearly feels like the future. So I'm just curious if you can explain why that might have stepped back in this quarter.

Question: Craig Kennison - Robert W. Baird - Analyst : And then just to follow up on the marketing comments you've made, how is AI changing the way you think about search engine optimization as part of this new marketing campaign?

Question: Craig Kennison - Robert W. Baird - Analyst : Thank you.

Question: Jeff Lick - Stephens Inc. - Analyst : Good morning. Congrats on a great, quarter, and thanks for taking my question. Congrats on a great quarter. There was obviously -- this quarter is a lot of puts and takes in terms of you expanding the credit spectrum kind of the tariff surge. And then also, you guys have kind of been indicated your Analyst Day leaning into a bit more on the value cars, the 6, 7-plus years. Maybe if you could just kind of walk us through anything -- any callouts as the quarter progressed and how those buckets influenced your impressive comp?

Question: Jeff Lick - Stephens Inc. - Analyst : Great, I'll get back in the queue, let someone else ask a question. Congrats again.

Question: David Whiston - Morningstar - Analyst : Thanks, good morning. I was curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to Q1 spend? And how financially stressed is the consumer right now in your opinion?

Question: Chris Pierce - Needham & Company - Analyst : Hey, good morning, everyone. Can you just walk me through cost avoidance in other cost of sales? I just -- I'm not sure what the model going forward. It was down $33 million year-over-year and drove a pretty high -- yes, I'd just love to hear about cost avoidance there and what to think about going forward.

Question: Chris Pierce - Needham & Company - Analyst :

Question: Chris Pierce - Needham & Company - Analyst : So those -- that 95% other gross margin, that's something -- I mean, I guess, how should we think about the gross margin going forward, given the impact it has on EPS.

Question: Chris Pierce - Needham & Company - Analyst : Okay. And then just lastly, going back to the first question, per retail unit was down mid-single digits year-over-year, but it was sort of flattish if we look back two years ago. I just kind of want to get a sense of where we are in fully levering omnicost and how should think about this kind of going forward?

Question: Chris Pierce - Needham & Company - Analyst : Alright, thank you.

Question: Rajat Gupta - JP Morgan - Analyst : Great, yeah, sorry for the follow up. I just wanted to follow up on the new off-balance sheet approach. And is it fair to assume that a lot of the incremental penetration that you see in the CAF book from 42% to 50%. All of that will go through this off-balance sheet approach. 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 20, 2025 / 1:00PM, KMX.N - Q1 2026 Carmax Inc Earnings Call Basically trying to understand like what's the mix going to be or what you're targeting in terms of on versus off balance sheet for CAF. Thanks.

Question: Rajat Gupta - JP Morgan - Analyst : I understood that makes a lot of sense, and thanks for answering the question.

Question: Jeff Lick - Stephens Inc. - Analyst : I'm great, thanks for taking the follow up. I just wanted to double back or ask about retail GPUs surprised we actually haven't hit on this. It's a record at 24.07 first time you've seen the 2,400. Last quarter, you talked a little bit and highlighted the improvements in logistics and then also recon, if we could get into the -- if you wouldn't mind elaborating on the stand-alone recon centers, do that -- do those have an immediate impact? Or does it -- is it actually dilutive for a few quarters or a year before they show up? And then, I guess, lastly on GPUs, are the 10 year-plus old vehicles? I'm assuming those might have higher GPUs than the chain average. So can you just kind of talk about the improvements you're seeing there and where the trajectory might be? 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 20, 2025 / 1:00PM, KMX.N - Q1 2026 Carmax Inc Earnings Call

Question: Jeff Lick - Stephens Inc. - Analyst : Okay, great. Well, nice progress.

Question: Jeff Lick - Stephens Inc. - Analyst : Thank you.