The paragraph introduces the Q1 Quarter Fiscal Year 2025 CarMax Earnings Release Conference Call and the speakers present. It also mentions that the call is being recorded and provides information on how to access additional information. The speakers remind listeners that their statements are forward-looking and subject to risks and uncertainties. They also provide contact information for follow-up questions and ask that participants limit themselves to one question. The CEO then begins speaking.

In the first quarter, the company saw positive trends such as price declines and growth in demand. They also delivered strong retail and wholesale sales and increased their used-saleable inventory units. The company also grew their CAF income and actively managed their SG&A. Total sales for the quarter were $7.1 billion, a 7% decrease from last year. Retail unit sales and average selling price declined, while wholesale unit sales were down 8.3%. However, wholesale gross profit per unit increased and the company bought 9% fewer vehicles due to lower seasonal appreciation.

In the first quarter, the company purchased a large number of vehicles from consumers, with most coming through their online appraisal experience. They also saw an increase in vehicles sourced through dealers and a steady adoption of their omnichannel retail experience. Online transactions accounted for 30% of total revenue and all wholesale auctions and sales were virtual. CarMax Auto Finance delivered strong income and the company is making progress in becoming a full credit spectrum lender. The first quarter saw strong per unit margins for both used and wholesale, as well as growth in other gross profit margins and CAF contributions. Net earnings per diluted share declined due to a legal settlement in the previous year. Total gross profit decreased by 3% with lower volume and flat per unit margins in used retail.

In the first quarter, wholesale vehicle margin declined by 6%, but other gross profit increased by 3% due to higher EPP and margin increases for MaxCare. CAF delivered $3 million in margin, flat from last year. SG&A expenses were $639 million, up 3%, but excluding one-time items, they were down year-over-year due to disciplined spending. However, other overhead increased by $6 million compared to last year's first quarter.

In the first quarter, total compensation and benefits decreased by $3 million due to a focus on efficiency. The company also accelerated its share repurchase pace and paid off a $300 million loan. In terms of CarMax Auto Finance, sales penetration was up and the weighted average contract rate increased. Partner Tier 2 penetration decreased, but Tier 3 volume increased. CAF income was up $10 million, primarily due to an increase in total interest margin.

The net interest margin percentage for the quarter was in-line with expectations and the provision for loan losses remained flat. CAF is investing in the Tier 2 space and developing a new underwriting model to expand its participation across all credit tiers. They also plan to expand their asset-backed securitization program to better align with investors and generate more funding capacity. These actions put CAF in a strategic position for future growth.

The company has made several improvements to its operations, including expanding vehicle sourcing capabilities, increasing used inventory units, enhancing its lending capabilities, and improving efficiency. They have also launched EV research tools and are testing new capabilities to support increased EV sales. Additionally, the company is focused on driving down costs through efficiency opportunities in logistics and reconditioning operations, including testing a new transportation management system.

In the paragraph, Bill Nash discusses the company's strategies for reducing costs and improving efficiency in their reconditioning process. He also mentions that same-store sales have improved as the first quarter has progressed and that they are currently running slightly positive comps in June. He addresses the question of how CarMax is performing in the market compared to peers and explains that they have seen improved performance and are encouraged by the trend.

The speaker discusses market share data for the first three months of the year, noting that it is higher than the previous quarter and similar to the same time period last year. They attribute this to a similar trend of market corrections in the fourth quarter. The speaker plans to update on market share again at the end of the year, unless there is a significant impact from external factors. The speaker then addresses questions about cash reserves and the potential need for more aggressive reserving if loss trends continue. They also mention the possibility of ramping up Tier 2 and Tier 3 lending with the implementation of a non-prime securitization program.

The company's provision is flat year-over-year, and their reserved receivable ratio is also flat. They typically see higher provision and lower credit quality in the quarter due to tax time. They are investing in Tier 2 and Tier 3 volume and are excited about their non-prime securitization program. They will continue to learn about the Tier 2 space and expect to grow beyond 43% in the future.

The company is uncertain about the exact percentage of funding capacity they will have, but they believe it will be substantial. They are excited about entering a new market, which will give them an additional $2-3 billion in funding capacity. There has been a slight increase in ad spend per total unit, but the company is committed to managing it to an average of $200 per unit for the whole year. They expect SG&A expenses to remain stable for the rest of the year.

The company is proud of their first quarter performance and expects challenges in the rest of the year. They are focused on active cost management to leverage on low single-digit gross profit growth. The company has shifted to a more fixed cost structure and expects to leverage when sales increase. In regards to the first non-prime securitization, the company sees potential for driving better share and profitability. They also mention their sourcing of vehicles from dealers and the potential sustainability and positive impact on margins.

The speaker confirms that they will continue to focus on increasing sales by 43%, and believes that for every one point of sales they can add, it will bring $10-12 million in value to CarMax. While there may be initial costs, eventually it will become profitable. The company is also diversifying its sourcing of vehicles by buying from dealers in addition to consumers, which is showing positive results. Improvements to the platform have also contributed to the success.

The speaker discusses the increase in dealers actively using their product, which has gone up by 50% in the past year. They attribute this improvement to a combination of internal efforts and more stable vehicle prices. They also note that depreciation trends have been more normal this year compared to the previous year.

The speaker discusses the impact of price corrections and market conditions on CarMax's strategy and operations. They express confidence in their current approach and note that the recent decline in unit comps and market share is due to external factors, such as an increase in sales of older cars. However, they emphasize that the company is actively working to improve and will see benefits from their efforts in the future.

The executives of the company are discussing their strategy and actions taken in response to the decrease in used car sales. They mention the impact on the less than six year old category and the importance of affordability. They also mention their efforts to control reconditioning and logistics costs, as well as their plans for expanding sourcing and financing options. They believe that these measures will make them a stronger company in the future.

Bill Nash, in response to a question about the positive trends seen in the second quarter, states that the company is encouraged by the continued trend and will continue to work towards it. He also mentions cost of goods sold initiatives related to logistics and reconditioning that are expected to save a couple hundred dollars per unit. These savings may be reflected in the bottom-line through pricing decisions.

Chris Bottiglieri asks about the company's decision-making process for utilizing efficiencies and how it will affect prices. He also asks about the company's parts acquisition and how it differs from their previous approach. He then asks about the credit portfolio and how it differs between Tier 2 and the legacy portfolio.

The speaker apologizes for breaking Davi's Rule and explains that the company has good relationships with national parts partners. They are working on optimizing parts internally but do not want to give the impression that they do not have good partners. The other speaker, Jon, adds that they will split their legacy $5 billion portfolio into a higher prime program and a non-prime program, which will include Tier 2 and Tier 3 volume that they have not previously securitized.

The company is looking to capture back small pockets of Tier 1 sales and is always looking for growth opportunities in the wider spectrum of Tier 2 and Tier 3 sales. They believe there is potential for growth in these areas and want their partners to continue benefiting from the volume. The split between high prime and non-prime customers is roughly below and above $650 million in FICO score. The company's mix of late-model product may be a key driver in its relative growth rates compared to other players in the market.

Bill Nash, a representative from a car dealership, believes that the main factor contributing to the drop in sales is the price correction that occurred at the end of last year. He also mentions that their focus is on selling cars that are 0-4 years old, but they have seen a trend of people looking for cheaper cars. Nash also mentions that their market share in some areas is still over 10%.

In response to a question about supply, the speaker notes that they have not had any issues sourcing cars and that the SAAR is continuing to rise, which will lead to more cars entering the market and potentially bringing down prices. They clarify that they are not choosing to source older vehicles, but rather focusing on newer models.

The speaker discusses potential supply issues at CarMax, particularly with older vehicles meeting their quality standards. They mention that the supply of vehicles is improving due to the increasing SAAR and prices coming down. They also clarify that CarMax does not use CDK as their DMS and therefore is not affected by the widespread dealer software issues.

The speaker explains that the impact of system downtime on their business is minimal, primarily affecting parts and title work. They thank their associates and encourage listeners to read their recent responsibility report, which highlights their values and impact on local communities. The company aims to drive long-term sustainable value for shareholders. The call concludes.

This summary was generated with AI and may contain some inaccuracies.