The paragraph is the introduction to CarMax's Fourth Quarter Fiscal Year 2025 Earnings Release Conference Call. The call is hosted by David Lowenstein, VP of Investor Relations, along with Bill Nash, the President and CEO, Enrique Mayor-Mora, the Executive Vice President and CFO, and Jon Daniels, the Senior VP of CarMax Auto Finance Operations. The statements made during the call include forward-looking statements subject to risks and uncertainties, as per the Private Securities Litigation Reform Act of 1995. The information is based on current knowledge and assumptions, and CarMax disclaims any obligation to update these projections. For more details on the associated risks, participants are directed to relevant SEC filings, and follow-up questions can be directed to their Investor Relations Department.

The paragraph details the success of the company during the fourth quarter, highlighting strong execution and a robust business model that resulted in significant year-over-year EPS growth through increased sales, buys, and profitability. The company's customer-centric approach and integration of technology and digital capabilities have differentiated it in the used car market, positioning it to capture market share and drive future earnings growth. Key achievements include volume growth in retail and wholesale units, increased gross profit, record vehicle purchases from consumers and dealers, improved net interest margin, and leveraged expenses. Despite challenges like fewer selling days and a delayed tax season, total sales reached $6 billion, marking a 7% increase, driven by a 6.2% rise in unit sales.

In the full year, total retail unit sales rose by 3.1%, with used unit comps increasing by 2.2%, despite a first-quarter decline that was offset by gains in the subsequent quarters. The company's market share for 0 to 10-year-old used vehicles remained at 3.7% from 2023 to 2024, with recovery and growth seen particularly in 0 to 4-year-old vehicles during the second half of 2024. Market share continued to grow as of January 2025. Fourth-quarter retail gross profit per used unit reached a record $2,322, and wholesale unit sales increased by 3.1% year-over-year, though the wholesale gross profit per unit decreased to $1,045. The company purchased 269,000 vehicles, a 15% increase, with around 223,000 sourced from consumers and the remaining 46,000 from dealers, a 114% increase. Online retail sales accounted for 15% of total sales, while online transaction revenue slightly decreased to 29%.

The paragraph discusses the sales performance of the company's virtual wholesale auctions and retail unit sales for the quarter. Virtual auctions contributed to 17% of total quarterly revenue, while 67% of retail sales were considered omni-channel, up from 64% the previous year. The omni-channel sales definition now includes additional online activities such as pre-qualifying for financing, setting appointments, and signing up for notifications. Over 80% of sales were digitally supported. The company anticipates growth in digitally supported sales as they enhance online tools and improve tracking. CarMax Auto Finance reported a 8% increase in income to $159 million. Enrique is set to discuss the financial performance further.

In the fourth quarter, Enrique Mayor-Mora highlighted the company's continued positive momentum, with significant growth across various financial metrics. Net earnings per diluted share rose to $0.58, an 81% increase from the previous year, with an adjusted EPS of $0.64 after accounting for a non-cash impairment. Total gross profit increased by 14% to $668 million, primarily driven by a 9% increase in used retail margins and notable gains in other gross profits, particularly from EPP and service improvements. While wholesale vehicle margins declined by 4%, improvements in cost coverage and efficiency measures led to a $44 million enhancement in service performance compared to the previous year. SG&A expenses rose by 5% to $611 million, influenced by higher compensation, benefits, and increased advertising costs.

In the fourth quarter, the company repurchased 1.2 million shares for $99 million, leaving $1.94 billion for future repurchases. They are focusing on enhancing EPP products to increase margins, with expected growth in FY '26 and potential expansion in FY '27. Service margins are also expected to grow in FY '26, contributing positively to profits. The company aims for low-single-digit gross profit growth in the near term to manage SG&A costs and achieve omni-cost neutrality in FY '26. They plan to maintain marketing spend at FY '25 levels and have budgeted $575 million for capital expenditures in FY '26, mainly due to favorable land purchase timings.

In the article paragraph, CarMax outlines its capital expenditure plans focused on expanding facilities for long-term growth, with more store locations and reconditioning centers planned for FY ‘25 and FY ‘26. CarMax Auto Finance originated $1.9 billion in loans during the fourth quarter, maintaining a sales penetration rate of 42.3%. The average contract rate decreased due to credit tightening, and third-party lending volumes declined. Cap income rose to $159 million, driven by a stable net interest margin, while the reserve for loan losses improved to $459 million. The company remains optimistic about its full spectrum lending initiative and the potential growth from expanding its securitization program.

In March, CAF began expanding by reclaiming profitable Tier 1 originations that were previously shifted to Tier 2 lenders due to tightened lending standards. This strategy aims to increase penetration by 100 to 150 basis points, supported by a non-prime securitization program that retains the economic value of contracts. The company successfully completed its second non-prime ABS transaction, signaling positive market reception. CAF is learning from new underwriting models and expects to increase volumes in Tier 2 and Tier 3 later in the fiscal year while remaining vigilant of consumer and economic trends. Despite a forecasted increase in provisions due to higher origination volume and lower credit quality, the company expects long-term income benefits from growing CAF penetration. Bill Nash acknowledges the positive momentum and credits new tools launched in fiscal '25 for enhancing customer experience and operational efficiency.

The paragraph highlights various initiatives and improvements made by a retail company to enhance consumer experiences, streamline operations, and boost sales. These efforts include implementing new retail systems like order processing and AI-driven tools, such as the Sky virtual assistant, which now autonomously answers over half of customer inquiries. The company's self-service digital sales tools led to a 25% increase in online sales completion in fiscal 2025. They have improved appraisal services for both consumers and dealers, achieving 99% online appraisals, and have optimized credit scoring models and finance options. Additionally, the company is focusing on reducing the cost of goods sold, achieving savings of $125 per unit this year, with plans to save another $125 per unit in fiscal 2026, surpassing their original target.

The paragraph outlines the company's plans to boost growth and efficiency by leveraging data science, AI, and innovative offerings. It aims to enhance digital experiences for customers and improve online processes, such as vehicle transfer and appraisal services. The company will also launch a marketing campaign to highlight its omnichannel experience. In the credit sector, it plans to broaden its participation and improve the ownership experience on its digital platform. These initiatives are intended to drive growth in retail and wholesale sales, increase market share, and achieve long-term earnings per share growth in the high-teens.

The paragraph discusses CarMax's key growth drivers, including retail and wholesale expansion, credit spectrum expansion, operational efficiencies, and a share repurchase program. The company is reassessing the timelines for its long-term goals due to macroeconomic factors. CarMax recently achieved two milestones: being named one of Fortune Magazine's 100 best companies to work for the 21st consecutive year and opening its 250th store. The company emphasizes the importance of its associates, the strength of its business model, and its ability to offer a customer-centric buying experience through both online and in-store channels. CarMax is optimistic about future opportunities to grow sales and earnings in the used car market. The paragraph ends by opening the floor for questions, with Sharon Zackfia from William Blair being the first to speak.

In the paragraph, Sharon Zackfia asks Bill Nash about the contrasting performance in the first and second halves of fiscal '25, highlighting losses followed by gains, and seeks insights into the drivers of these changes. She also inquires about lessons learned that could benefit the business if used car prices increase due to tariffs. Bill Nash explains that the initial losses were influenced by a significant price correction in the previous year's last quarter, affecting depreciation rates. He attributes subsequent gains to improved consumer experiences, better execution, efficiency, flexible pricing, competitive margins, and an expanded inventory acquisition strategy, particularly through their MAX offer, which increased inventory variety.

The paragraph discusses the company's adjustments and developments over the past years, highlighting the return to a normal pricing environment and the strategic actions taken to build momentum. Key improvements include enhancing the focus on six to 10-year-old cars, expanding sourcing, and addressing loan opportunities through ABS bifurcation. The text also mentions cost improvements and initiatives like the FDS, which simplifies understanding monthly payments for customers. Despite challenges from COVID-19, the company continued to make progress towards its goals.

In the paragraph, Seth Basham from Wedbush Securities asks Bill Nash about the current trends in used car sales and the potential impact of new car tariffs on market share and industry growth. Bill Nash explains that December and January were strong months for sales, while February was softer due to factors like the absence of leap day and delayed tax refunds, although sales picked up in March and into early April. He notes that first-quarter sales are running high in single digits. On the topic of new car tariffs, Nash indicates that they could significantly impact the used car market and market share, though there are many variables to consider.

The paragraph discusses the impacts of tariffs on new and used car markets, highlighting that rising new car prices, driven by tariffs and market conditions, could increase consumer interest in late-model used cars. The demand for used cars is likely to rise, pushing their prices up as well. Additionally, tariffs are affecting parts costs, impacting businesses involved in vehicle reconditioning by necessitating a focus on cost efficiencies to counteract these increases. Seth Basham and Bill Nash briefly discuss these points, and John Murphy from Bank of America inquires about the benefits of investments in recon centers and auctions, questioning if these developments will help maintain or increase presence in the market for six to ten-year-old cars, while also noting COGS (Cost of Goods Sold) savings estimates have increased to $250 million.

Bill Nash discusses the company's reconditioning efforts and efficiencies in handling car sales, emphasizing their strategy to increase capacity and provide the car types consumers desire without compromising quality. Although they aim to sell more cars aged six to ten years, they also noticed a higher demand for newer cars (zero to four years old) in the recent quarter. Nash is optimistic about achieving $250 in efficiency gains across their operations, though he acknowledges that tariffs on parts might affect this goal. Despite these challenges, the company remains committed to maintaining quality and exploring opportunities to enhance its operations.

The paragraph discusses the advantages of off-site reconditioning centers being closer to markets and stores, reducing logistics costs and providing savings regardless of tariffs. John Murphy appreciates the update, and Bill Nash responds to Brian Nagel's question regarding business trends and sustainability in an evolving macroeconomic environment. Nash believes the performance isn't merely a catch-up from February, citing minimal impact from factors like tax refunds and weather. He suggests the business benefits from proximity to markets rather than temporary catch-up effects.

In the discussion, Bill Nash expresses optimism about maintaining the company's positive momentum from the previous quarters into the current year, despite acknowledging the fluctuating macroeconomic environment. He emphasizes the company's focus on growing sales and robust earnings per share (EPS), which will naturally lead to increased market share. Nash mentions that the company is already gaining market share from other dealers and highlights the growth in peer-to-peer (P2P) sales, especially in older vehicles. Josh Shang inquires about the steps needed to reach a 5% market share target, and Nash reiterates that the company's strategic focus will help achieve this over time.

In this segment, Jeff Lick from Stephens Inc. asks about the company's sourcing strategy, particularly around acquiring units from dealers and consumers, in light of achieving a record purchase of 46,000 units from dealers. Bill Nash responds by emphasizing the importance of sourcing, highlighting their Max Offer product as a key solution. He attributes their success to dealer expansion and improvements in their service, which have made it easier for dealers to use their platform. Nash notes the expansion in active dealers, enhancements to the instant offer program, and the seamless transition between devices as key factors in improving the overall experience for dealers.

The paragraph discusses the integration of improvements into the inventory management systems at dealerships, making it more convenient and appealing for dealers. There is ongoing work on landing page enhancements and further integrations to attract more dealers. Consumer offers are mostly available online, with 99% of cases covered, although a few cars still need in-person evaluation. Progress includes advancements in appraisal processes and enhancing user experiences. Recent developments in auction lanes show increased bidding interest, which supports the current sourcing strategies. Bill Nash is optimistic about the initiatives, and Jeff Lick offers congratulations, while Rajat Gupta from JPMorgan is about to ask a follow-up question.

In the paragraph, Bill Nash addresses a question from Rajat Gupta regarding inventory acquisition amidst tariff uncertainties and auction lane activities. Nash expresses confidence in the organization's inventory management, citing over 30 years of experience and reliance on professional buyers and data. Gupta also inquires about the unusual improvement in service gross profit, typically subject to seasonal drops. Enrique Mayor-Mora responds, indicating that although there was a recent improvement, the usual seasonality is expected to continue.

The paragraph discusses the factors driving the improvement in service performance for a company over the past two years, including efficiency investments in technology like RFID trackers, cost coverage strategies, and positive sales trends. These factors are expected to lead to profitability in service for the first time in several years and support the company's goal of achieving double-digit EPS growth over time. The conversation ends with Rajat Gupta thanking the speaker, Enrique Mayor-Mora, who then turns the discussion over to the next question from Michael Montani of Evercore ISI.

In the conversation between Bill Nash and Michael Montani, Nash explains that in an environment with appreciating car prices, it becomes easier to manage margins and market share since there are fewer markdowns, and cars tend to sell for higher prices. Montani inquires about the impact of mid-single-digit unit growth on EPS growth, to which Enrique Mayor-Mora responds that the company has invested in an omnichannel model and efficiencies, which positions it to achieve high-teens EPS CAGR growth even with mid-single-digit retail sales growth. This strong performance is supported by robust margins and growth in other financial metrics beyond just retail units.

The paragraph discusses the company's transition from a period of heavy investment to leveraging existing capabilities to improve efficiencies and profitability. They mention a share repurchase program that will impact EPS (earnings per share) and investments in full spectrum credit as accelerators for EPS growth. Michael Montani asks about progress throughout the year, noting potential short-term CAF-related impacts and benefits from services and EPT. Enrique Mayor-Mora states that service performance is expected to be stronger in the year's first half due to seasonality, while Jon Daniels talks about an anticipated increase in provisions, particularly in Q4.

In the paragraph, the discussion focuses on anticipated financial provisions and volume management for the company. The speaker explains that the provision in Q1 will be 30% to 35% higher than in Q4 due to increased volume and lower credit quality. Additionally, the company plans to reclaim some volume from Tier 2 partners, predicting an overall provision increase of 45% to 50% in Q1 compared to Q4. They expect continued volume intake, which will require ongoing provisioning. The conversation shifts to future expectations: the company plans to take in more volume from Tier 2 and Tier 3 partners later in the year, which will further impact provisions. Despite the short-term impact on financial provisions, this strategy is deemed favorable for the company in the long term. The discussion then transitions to questions about cost management, where Chris Bottiglieri from BNP Paribas inquires about the company's ability to cut costs if the economy slows. Enrique Mayor-Mora confirms confidence in their capacity to manage costs effectively.

The paragraph discusses efficiency improvements and the ability to manage economic downturns, with a focus on adaptability in fluctuating market environments. It features a conversation involving Bill Nash and John Healy, where Nash addresses the news about Amazon entering the auto space, clarifying that Amazon is interested in listings, lead generation, and advertising rather than retailing vehicles themselves. Nash views Amazon as a potential collaborator rather than a competitor, highlighting existing collaborations with facilitators to enhance traffic through CarMax's own website, carmax.com.

In the paragraph, the speaker discusses the company’s transition to an omnichannel retail model, emphasizing the competitive advantage it provides by combining physical and digital assets in the car-buying process. This shift strengthens their position in the used car market, making it challenging for competitors to replicate. The conversation then shifts to the sale of older cars, specifically six to ten-year-old models. The speaker asserts that while CarMax has always sold one to ten-year-old cars, they maintain strict quality standards. They are committed to ensuring all vehicles meet the CarMax quality standard, even as they expand their offerings in this older car segment.

The paragraph discusses competition in the used car market, emphasizing the prevalence of consumer-to-consumer transactions involving older vehicles, which often don't meet certain quality standards. As consumers face financial challenges, they may opt for older cars than they traditionally would, such as choosing a six or seven-year-old car instead of a three or four-year-old one, or a late model instead of a new car. Jon Daniels clarifies that while expanding CAF's credit offerings might take some volume from existing partners, it will drive incremental sales across different car age segments, including six to ten-year-old cars and newer models. His colleague, Bill Nash, concurs, highlighting the love for a range of car ages among all tiers of credit partners.

The paragraph discusses CarMax's decision to withdraw a previously set $2 million goal without providing a new timeline, clarifying that this move isn't due to pessimism. Bill Nash explains that the uncertainty in the current macroeconomic environment makes it speculative to set a specific target. Instead, CarMax is prioritizing driving sales and robust earnings per share (EPS) growth. The company wants to remain flexible and responsive to market conditions rather than commit to a speculative target, focusing on achieving growth in both sales and the bottom line.

In the paragraph, the discussion revolves around the expectations for earnings per share (EPS) growth and the normalization of selling, general, and administrative (SG&A) expenses. John Murphy from Bank of America seeks clarification on whether the projected high-teens compound annual growth rate (CAGR) for EPS, coupled with mid-single-digit retail unit growth, accounts for the reduction of SG&A expenses from 90% down to mid-70s percentages. Enrique Mayor-Mora confirms that the expected return to mid-70s SG&A is included in their guidance and that the EPS growth projections account for this gradual reduction in SG&A expenses over time.

The paragraph is an excerpt from a financial discussion, likely from an earnings call or financial report, involving multiple speakers discussing operating metrics and financial outlooks. Bill Nash mentions uncertainties about achieving certain operating levels without robust volumes, yet expresses confidence in achieving strong EPS growth with the current model. Enrique Mayor-Mora provides additional context regarding SG&A (Selling, General, and Administrative expenses) as a percentage of gross profit, clarifying that Q4 typically sees a peak and that they're currently in the low-80s percentage range for the year. Rajat Gupta, an analyst from JPMorgan, seeks clarification on provisioning levels, particularly concerning the first quarter's increase, and asks if this trend will continue. Jon Daniels responds by explaining that the increase in provisioning is primarily due to a rise in volume and lower credit quality in Q1, which are the major drivers compared to Q4.

In the paragraph, the discussion focuses on capturing 100 to 150 basis points profitability, which requires higher loss reserves. This increase will be maintained in subsequent quarters, with plans to expand deeper into Tier 2 and Tier 3 markets. The added penetration volume must be considered in future provisioning decisions, and the macroeconomic climate will be monitored for planning. Bill Nash clarifies that the current strategy involves recapturing origination activities previously delegated to Tier 2 partners, without entering the subprime market, though deeper Tier 2 and Tier 3 involvement may occur later. Rajat Gupta acknowledges the explanation. Michael Montani asks about the Edmunds lease impairment charge and the timeline for the added penetration's benefits materializing.

In Article Paragraph 33, the discussion revolves around CarMax's financial strategy and operational decisions. Enrique Mayor-Mora mentions that they have been trying to sublease some floors in their Edmunds Santa Monica headquarters and successfully leased one floor to an elementary school affected by L.A. fires, benefiting both parties. Jon Daniels addresses a question about growth in capital income, confirming that despite an increase in provisions, they expect growth due to strong net interest margins and expense management. Michael Montani acknowledges the explanation, and the call concludes with Bill Nash thanking participants and expressing appreciation for the associates' contributions.

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