Carmax Inc Q3 2025 Earnings Call Transcript

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

Question: Brian Nagel - Oppenheimer - Analyst : First off, congratulations. Nice quarter.

Question: Brian Nagel - Oppenheimer - Analyst : So I'm going to -- I have two questions, but I'll merge them to one, just to comply with -- have rules. But I get the first question. So look, now we have the second consecutive quarter, solid, positive used car unit comps. The question I want to ask there is, as you're thinking about the model and recognizing you don't give -- you don't provide guidance. But as you look at the model flex now, I mean what's -- what should we consider to be kind of a normalized used car unit comp for Carmax? And then the second part of the question, look, we've seen now starting to see really nice expense leverage as these comps have turned positive. How should we think about the kind of the path forward on that, assuming comps now on a better trajectory?

Question: Brian Nagel - Oppenheimer - Analyst : Well, I appreciate the call. Thank you. Congrats again.

Question: Sharon Zackfia - William Blair - Analyst : And I guess when you think about the improvement you've seen over the last six, seven months, has it been a reflection more of conversion than traffic to the web or the stores? And I guess if it has been more conversion, how much of that would you attribute to kind of prices coming down industry-wide versus what you've been doing internally to kind of lessen the friction of the consumer experience?

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

Question: John Murphy - Bank of America - Analyst : Good morning guys. Just, Bill, to ask about the same-store sales comp in a different way. Everybody in the industry, including the folks at the auction houses are saying that there's a real shortage of used supply, and it's tough to get vehicles. But you're putting up good numbers. So obviously, you're doing well on the sourcing side. But one thing that's interesting, I think the average price was down about $1,000 year-over-year. So I'm just curious if you're making a considered decision on sourcing to maybe go down market a little bit in age and maybe trim, to open up the market to yourselves and get away from some of the competition where things are tighter sort of at the high end? And is that something that might be able to continue going forward to support same-store sales comp?

Question: John Murphy - Bank of America - Analyst : Got it. But so -- but no change in what you're doing as far as age, obviously, what you just mentioned, or trim. I mean are you able to kind of go downstream levels to try to open up a better pricing? Because I mean use to go pricing sequentially is not actually going down. It's actually gone up a little bit in the industry.

Question: John Murphy - Bank of America - Analyst : What was that last year, I'm sorry?

Question: John Murphy - Bank of America - Analyst : That's good focus. Thank you very much guys. I appreciate it.

Question: Seth Basham - Wedbush Securities - Analyst : Thanks a lot and good morning and nice quarter. My first question is on your GP performance in retail and then wholesale. Within retail, can you give us an update on your cost-out initiatives. Are you still on track for $200 per unit? How much have you achieved so far? And what are you doing with that savings? How much are you reinvesting in price?

Question: Seth Basham - Wedbush Securities - Analyst : That's helpful. And then as a follow-up on the wholesale side, how much implemented do you think is because of market conditions relative to some of the things you're doing like max offer, you posted some really good numbers this quarter.

Question: Seth Basham - Wedbush Securities - Analyst : Wonderful. Thank you and happy holidays.

Question: Chris Bottiglieri - BNP Paribas - Analyst : I just wanted to just to -- wanted to just go with the allowance a little bit more detail, hopefully. Can you just give us a sense like what's your -- I think the past, you've given like the expected loss on new originations and get a sense like what kind of led the cut to the allowance? Is it more just the remaining bit? Or are you cutting the provision on new originations as well?

Question: Chris Bottiglieri - BNP Paribas - Analyst : Okay, thank you.

Question: Craig Kennison - Baird - Analyst : Hey, good morning. Thanks for taking my question. Bill, I know you like to measure market share annually, but I think perceived market share has probably been something that held back your stock relative to peers, at least this year. I'm curious, as prices stabilize, do you have any evidence that you're back to gaining share?

Question: Scot Ciccarelli - Truist - Analyst : Good morning guys. Two-part question. First, outside of the price stabilization, what else would you attribute the magnitude of industry improvement to, Bill, just given your long experience in the industry? And then kind of part 2 there is, can you guys provide some more color around the payment extension, like how's that process work? And how is it reflected in the P&L? Thanks.

Question: Scot Ciccarelli - Truist - Analyst : Happy holidays. Thanks.

Question: Jeff Lick - Stephens - Analyst : Good morning. Congrats on the second consecutive part of the quarter and the progress. question revolves around the wholesale is some pretty interesting growth there in Dynamics, 73 or 74 units wholesale for retail, 50% growth in dealer buys and with gross profit margins up as well. I'm just curious where you think you can take that? I think that's kind of a hidden source of gross profit dollar growth rate. I'd love to know where you think this is going and how sustainable these games are.

Question: Jeff Lick - Stephens - Analyst : And who do you think you're taking share from?

Question: Jeff Lick - Stephens - Analyst : Awesome. Well, congrats again and look forward to speaking.

Question: David Bellinger - Mizuho - Analyst : Hey, good morning. Thanks for the question. In terms of the operating environment, any noticeable differences lately or change in tone from your lending partners? Have they turned more aggressive postelection and willing to take on additional volume, maybe even those down the credit spectrum? Any additional color you can add as we gauge some of the lending appetite into 2025? Thank you.

Question: David Bellinger - Mizuho - Analyst : Great. If I could just add 1 other quick one. You had pretty significant earnings growth this quarter on the 4% comp. Maybe a bigger picture question. But as you begin to leverage and harvest a lot of this investment spend in the past few years and pushing more volume through the system. Should we expect a comp in that low single-digit, mid-single-digit type range to yield double-digit earnings growth from here? And then maybe the buyback is an accelerant on top of that. How should we think about the earnings growth and the sustainability from here?

Question: David Bellinger - Mizuho - Analyst : Great. Thank you.

Question: Michael Montani - Evercore - Analyst : Yes, good morning. Congrats on the quarter and thanks for taking the question.

Question: Michael Montani - Evercore - Analyst : I just wanted to ask -- follow the two-parter trend. First, Bill, can you just talk about, I think 245 stores today? Is there opportunity to get that to 300 stores again? And how should we think about the cadence of build-out? Or can you lever multichannel at this point? And then I guess the related question is on the labor compensation and benefits growth now. given that the model is more fixed cost structure, should we assume that compensation and benefits will grow slower than kind of top line units at this point for some nice leverage? Or how should we think through that?

Question: Michael Montani - Evercore - Analyst : Thank you and good luck.

Question: Chris Pierce - Needham - Analyst : Hey, Bill, you sort of mentioned it on your -- one of your remarks to a prior question, but do you guys keep data on pay, the consumer has pinched they're transferring from -- they're shifting from new to use? Like do you have data that you're picking up new customers and that's why they're preferencing used and could debut by these markets been strong?

Question: Chris Pierce - Needham - Analyst : Okay, thank you.

Question: Rajat Gupta - JPMorgan - Analyst : Great. Thanks for taking the questions and good execution on the cost side here. I just had one clarification on the comps and then had a CAF question. On the comps, I mean, just to tap in a bid on some of the comments that you made the industry acceleration that you've seen in November, it looks like it's continuing into December. Clearly, your results are benefiting as well. John mentioned earlier, like used car prices have actually probably gone up recently. So I'm curious like what do you think has really changed in terms of just the consumer mindset here? Is it just pent-up demand being unleashed somewhat both election anxiety, I don't know was there some hurricane benefit? Just curious if you could just add some color on those aspects? And I just had one quick one on the cash reserves. Thanks.

Question: Rajat Gupta - JPMorgan - Analyst : Got it. Got it. That's helpful. So clearly, there was like some meaningful shift around just the omni experience this quarter. I know you mentioned that the [Andes] event in October that you had the later innings getting the fruit service investments. It does look like that kind of had a big benefit, would you say this quarter relative to just the last quarter?

Question: Rajat Gupta - JPMorgan - Analyst : Got it. That's great color. And I think you probably answered like my CAF question as well. I mean it doesn't seem like there was a big change in the macro backdrop. So the reserve -- the lowering of the reserve in CAF, was just based on just recent tightening in your initial observed performance. Is that fair? And then nothing has changed in your macro outlook to drive that reserve lower?

Question: Rajat Gupta - JPMorgan - Analyst : Got it, got it. Thanks for all the color and good luck.

Question: David Whiston - Morningstar - Analyst : Thanks. Good morning. It looks like inventory was a free cash flow drain for the quarter. I was just curious, is that building up for tax season? Or is there something else going on there working capital-wise?

Question: David Whiston - Morningstar - Analyst : And EPP penetration or EPP growth, was that penetration growth? Or did you raise prices?

Question: Michael Montani - Evercore - Analyst : Hey, guys, thanks for letting me sneak back in. I just wanted to get some early thoughts that you might have around the upcoming tax season and how you're thinking about and planning for that. And then also, we did notice some uptick in pricing recently that was alluded to before. So as it stands early in the quarter, are you starting to see your prices rise year over year as well?