The paragraph is an introduction to CarMax, Inc.'s First Quarter Fiscal Year 2026 Earnings Release Conference Call. David Lowenstein, Vice President of Investor Relations, introduces key participants, including the CEO, CFO, and EVP of CarMax Auto Finance. He reminds listeners that forward-looking statements made during the call are subject to risks and uncertainties and are not obligations to update them. He also directs listeners to refer to official filings with the SEC for more information. Attendees are encouraged to limit their questions to one per turn and contact Investor Relations for follow-ups.

In the second quarter, Bill Nash highlighted the company's strong earnings growth driven by a focus on omni-channel experience, market share expansion, and execution. The company achieved year-over-year growth in retail and wholesale unit volumes, set records in buying vehicles from dealers, and saw a 42% increase in EPS. Total sales were $7.5 billion, up 6% from the previous year, with a 9% increase in retail unit sales despite a decrease in average selling price. Retail gross profit per unit reached a record high due to strong demand and operational efficiencies. While wholesale unit sales increased by 1.2%, the average wholesale selling price declined slightly.

The paragraph discusses the strong performance and growth in vehicle purchases and sales at a wholesale level, with a significant portion coming from online engagements. The company bought 336,000 vehicles in the quarter, with 288,000 from consumers, primarily through an online appraisal system. The remainder was sourced from dealers, marking a 38% increase from the previous year. Retail sales were largely supported by digital capabilities, with 66% being omni transactions and 14% online. The company's integrated approach, offering a seamless experience combining online and in-store shopping, positions it uniquely in the market according to customer research and satisfaction metrics, reflected by a high Net Promoter Score. The company plans to launch a new marketing campaign to emphasize its omnichannel and digital strengths. The paragraph concludes with a handover to Jon Daniels to discuss CarMax Auto Finance details.

During the first quarter, CarMax Auto Finance originated over $2.3 billion in loans with a sales penetration of 41.8%, a decrease from the previous year due to an increase in self-funded higher credit purchasers and higher Tier 3 penetration. The average contract rate was 11.4%, consistent with last year. Third-party Tier 2 penetration dropped to 17.7%, while Tier 3 volume rose to 8% of sales. CAF's income was $142 million, down $5 million from FY '25, but the net interest margin increased to 6.5%. A $102 million loan loss provision was required due to seasonal sales patterns, recent vintages' performance, and uncertain economic conditions. CAF is expanding its lending capabilities while managing risks, and it plans to sell a $632 million loan pool from its non-prime portfolio through a securitization transaction.

The paragraph discusses CarMax's financial strategy and performance. By removing requirements for reserving future losses on a pool of receivables and selling financial interests in loans through an ABS transaction, CarMax gains financial flexibility and mitigates risk. This approach, along with other off-balance sheet funding options, supports their growth plan. CarMax also decreased loan loss provisions this quarter by $26 million, resulting in a total reserve balance of $474 million or 2.76% of managed receivables. CarMax Auto Finance (CAF) has performed well, contributing to solid income. The paragraph transitions to Enrique Mayor-Mora, who will detail first-quarter financial performance, highlighting a 42% rise in net earnings per diluted share and a 13% increase in total gross profit.

The paragraph discusses the company's financial performance, focusing on wholesale vehicle margins, other gross profits, and SG&A expenses. Despite a flat wholesale vehicle margin of $157 million, there was a notable increase in other gross profit, primarily due to improved EPP and service margins. SG&A expenses rose by 3% to $660 million, mainly due to increased compensation costs linked to unit volume growth. The company is making efficiency gains and aims for cost neutrality by fiscal year 2026, achieving improved efficiency compared to pre-omni models and last year. These gains and enhanced customer experiences are driven by strategic AI technology deployment.

The company highlights key year-over-year improvements, such as a 30% increase in the containment rate of their AI-powered assistant, Sky, a 24% boost in customer experience consultants' productivity, and significant improvements in phone and web response rate SLAs. They plan to expand AI applications to enhance growth and operational efficiency. Capital allocation focuses on core business investment, exploring new growth opportunities, and returning excess capital to shareholders. They repurchased 3 million shares for $200 million, with $1.74 billion remaining authorized for repurchase. They anticipate service margin growth mainly in the year's first half and a flat year-over-year marketing spend. For funding strategy, they plan an annual off-balance sheet sale for non-prime securitization and will explore additional funding options to enhance CAF penetration.

The paragraph summarizes the company's strong performance in the first quarter, highlighting positive retail unit comps and double-digit earnings per share growth, along with increased retail and wholesale unit volume. The company achieved a record dealer volume through Max Offer and improved its cost structure through better SG&A management. Enhanced digital capabilities and a high Net Promoter Score reflect customer satisfaction. Additionally, the company is expanding its credit operations and has doubled its pace of share repurchase. The focus on customer-centric experiences is cited as a differentiator in a fragmented market, positioning the company for continued sales growth and earnings expansion. The paragraph ends by thanking employees and opening the floor to questions from analysts.

The paragraph is from an earnings call where Brian Nagel and Bill Nash discuss the recent performance of their used car business. Brian congratulates Bill on a strong quarter and inquires about the sustainability of their business growth and the impact of sales trends on expenses. Bill expresses satisfaction with four consecutive quarters of comparable sales growth and attributes the recent acceleration to both macroeconomic factors and their own strategic efforts. He highlights that each month of the quarter showed positive results, with a notable uptick in sales towards the end of the quarter, especially in April, which was their strongest month.

The paragraph discusses the company's recent performance and future outlook. It highlights that the business was growing before the initial market uptick due to internal efforts in inventory management, pricing, savings, and enhancing the omnichannel experience. The company expects to continue growing sales and gaining market share. Enrique Mayor-Mora discusses leveraging SG&A (Selling, General & Administrative expenses) by focusing on efficiency, which resulted in significant cost leverage this quarter. Bill Nash adds that they aim to continue improving efficiencies and reducing SG&A, seeing further opportunities for cost savings. Brian Nagel congratulates them on their performance.

In this paragraph, Scot Ciccarelli asks Bill Nash about how to model comp growth given fluctuating growth rates and difficult comparisons for the rest of the year. Bill Nash responds by stating that while two- or three-year stack comparisons offer some insights, they are not entirely reliable due to various dynamic factors. He reassures that their outlook for the year remains unchanged, expecting continued sales growth and increased market share. Scot follows up with a question about a $26 million provision related to non-prime shifts and whether it needs to be accounted for since it's now held for sale. Bill confirms and begins to address the "Help Yourself" transaction.

The paragraph discusses a company's strategy involving securitization and off-balance sheet transactions. They have bifurcated their securitization program and executed transactions to retain future cash flows. This approach includes selling receivables, which eliminates the need for a loss reserve and reduces future risk. This strategy targets the non-prime space to drive growth, and the company expects to capture gains from these sales upfront, rather than over time. Additionally, the provision for the quarter accounted for origination volume and adjustments from previous vintages, while the "held for sale" strategy allowed them to offset some reserve requirements.

The paragraph discusses a conversation between Bill Nash, Scot Ciccarelli, Enrique Mayor-Mora, and Michael Montani regarding a program aimed at enhancing income growth and mitigating risk, while also exploring balance sheet funding vehicles to support their strategy. Michael Montani asks about a recent marketing campaign focused on raising awareness of the company's multichannel capabilities, aiming to improve understanding of their digital and online sales potential. He also inquires whether there will be an increase in subprime loan issuance. Bill Nash explains that previous marketing efforts have already helped boost awareness of their digital and online sales capabilities.

The paragraph discusses CarMax's strategies and goals. They have partnered with a new ad agency, 72 and Sunny, to promote the message that consumers have options when purchasing cars and should not feel forced to buy only in-store. CarMax aims to provide flexible purchasing options and emphasize that customers do not need to settle for less. On another note, Jon Daniels addresses the company's strategy regarding subprime growth, noting their intention to expand their penetration rate from historically 42-43% to a future target of 50%. Although this growth won't be immediate, CarMax is excited about implementing strategies, such as a full spectrum approach, which supports this expansion plan.

In the article's paragraph, Chris Bottiglieri from BNP Paribas congratulates the company on its strategy regarding subprime funding and asks about credit-related issues, specifically the percentage of new originations classified as held for sale and their relation to the $26 million cited. He also inquires about the impact of the macro environment, particularly student loans, on credit performance and capital. Jon Daniels responds by stating that most of the provision takedown came from receivables already in reserve, with a small portion from Q1 originations. He also notes that the recent vintages of 2022 and 2023 have shown poorer performance, contributing to the increase in reserve.

The paragraph discusses a company's financial outlook and its monitoring of customers with student loans. The company believes it has appropriately reserved funds for the future, specifically feeling optimistic about 2024. It notes that 30% of its customers have student loans and has been closely observing their payment behaviors, finding no significant changes recently. The conversation shifts to financial "true-up" processes affecting the 2022 and 2023 vintages, which remain profitable despite some economic factors like unemployment rates. The company aims to prioritize auto payments for customers and acknowledges various contributors to its financial adjustments. Sharon Zackfia from William Blair then asks a question related to CAF.

Jon Daniels discusses the company's strategy and progress in expanding full spectrum lending. Currently, CAF penetration is around 42-43%, with tier two and tier three players making up 26% of the volume. The company aims to grow in these areas and expects significant growth over time, although they won't reach the 50% target this year. Recent tariffs have slowed progress, but there have been advancements as the volume normalizes, and the company plans to signal when further growth is achieved.

In the paragraph, various speakers discuss CarMax's business strategies and developments. Bill Nash and Jon Daniels talk about factors affecting penetration speed, emphasizing the importance of having funding and a reliable credit model, which they are still testing. Enrique Mayor-Mora and David Bellinger mention CarMax's marketing strategies, focusing on the company's push for efficiency and improved customer experiences. They highlight the impact of AI and digital tools on enhancing productivity and customer service, which supports their decision to invest in marketing and promote CarMax's unique offerings.

The paragraph involves a discussion among executives about their progress in FY 2025, focusing on enhancing customer experiences through the implementation of order processing and shopping cart systems. They emphasize the importance of offering versatile and high-quality shopping experiences across different platforms. Rajat Gupta from JPMorgan asks for updates on the start of the second quarter, specifically regarding the impact of tariffs and provisioning guidance provided in the last quarter. Bill Nash responds that they are only nineteen days into June and will provide more information at the end of the second quarter.

In the paragraph, several individuals discuss different aspects of a business quarterly report. Jon Daniels explains that Q1 is expected to be the high point for provisions due to adjustments made to older vintages, but notes that future provisions depend on growth plans in the non-prime space. Bill Nash mentions that they are targeting an improvement of 100 to 150 basis points and are making progress toward it. Craig Kennison asks about a decrease in digitally supported sales, noting a decline from 82% to 80% and seeking an explanation for this shift. Bill Nash attributes the decline to seasonal factors.

The paragraph is a conversation between Craig Kennison and Bill Nash discussing the impact of AI on marketing strategies, specifically focusing on the shift from traditional search engine optimization (SEO) to generative engine optimization (GEO). Nash emphasizes the importance of GEO, suggesting that while SEO remains important, incorporating GEO techniques will be crucial for future marketing campaigns. He also highlights the potential of generative AI in marketing. After the discussion, Jeff Lick from Stephens Inc. congratulates the company on a successful quarter and inquires about their strategies related to expanding the credit spectrum, handling tariff surges, and focusing on value cars over six to seven years old.

In this paragraph, Bill Nash and Enrique Mayor-Mora discuss the factors that contributed to CarMax's strong quarterly performance. They note that despite some noise from credit spectrum expansion, the quarter was still impressive. CarMax saw increased sales of older cars (10-12 years old) due to customer interest and focused efforts in that area. Additionally, sales growth was observed in both lower-priced (under $20,000) and higher-priced (over $40,000) vehicles. Enrique highlights that the increase in sales of cars under $20,000 was a major driver of their comparable store sales, emphasizing the company's focus on affordability while maintaining quality standards.

The paragraph features a conversation about the company's financial strategies and the consumer market. Enrique Mayor-Mora discusses plans to modestly accelerate share buybacks this year compared to the previous year, evaluating factors such as valuation, cash flow, and the broader economic environment. Bill Nash comments on consumer stress, noting that while it's not significantly higher, there are concerns such as student loan defaults and potential impacts from tariffs. Both executives emphasize vigilance in monitoring how price increases on everyday goods might affect consumers.

The paragraph discusses a financial discussion between several participants, focusing on cost avoidance and other cost of sales metrics. Chris Pierce from Needham inquires about the significant year-over-year reduction in sales costs, which contributed to a high gross margin. Bill Nash and Enrique Mayor-Mora clarify that improvements and cost-covering measures in their service line, such as fees implemented to offset cost pressures, led to a $30 million improvement. They emphasize leveraging fixed costs and maintaining efficiency, aiming for high teen EPS growth and mid-single-digit comparable sales growth over time.

The paragraph discusses the company's focus on increasing other margins and key components such as services and EPP (Extended Protection Plan) products. The EPP margin has improved this quarter, and they are testing product enhancements related to deductibles and terms, with a modest rollout expected later this year and a more significant financial impact anticipated by FY 2027. They aim to grow other gross profit to drive EPS growth. Bill Nash and Enrique Mayor-Mora mention that the first quarter traditionally sees the strongest service performance due to high volume and fixed costs, but such gains should not be expected for the rest of the year. The goal is to continue growing other gross profit as part of the company's earnings model.

The paragraph discusses a conversation between several individuals about the SG&A (Selling, General and Administrative expenses) efficiency and strategies moving forward. Bill Nash and Enrique Mayor-Mora express optimism about continuing to leverage their SG&A costs across the business, highlighting initiatives in various areas and a track record of managing these costs as a percentage of gross profit. Chris Pierce and Rajat Gupta raise follow-up questions seeking clarification. Jon Daniels addresses Rajat, stating that their strategy for off-balance sheet financing is considered periodic and primarily applicable to certain high-prime deals, without committing to it as a universal approach for all transactions.

The paragraph discusses a strategic approach to managing risk and cash flows, particularly in relation to non-prime customers. The company is considering retaining some risk for additional value while sometimes offloading it for upfront cash, balancing between these strategies. Bill Nash and Jon Daniels emphasize that this approach isn't an all-or-nothing strategy. They aim to maintain tier one business while expanding other opportunities, keeping some subprime receivables for investment. The strategy aims to enhance income growth over time while managing risk. The discussion transitions to a question about retail GPUs (Gross Profit per Unit), noting a record figure of 2,407.

In this paragraph, Bill Nash addresses a complex question about improvements in logistics and standalone reconditioning centers, as well as the impact on retail Gross Profit per Unit (GPU), especially for older vehicles. He explains that while they are pleased with retail GPUs, predicting them requires a yearly perspective, acknowledging fluctuations in individual quarters due to various factors such as price competitiveness, variable costs, and attached services. He notes that savings from reconditioning and logistics improvements will sometimes be directed straight to the bottom line, as is the case in the current quarter.

The paragraph discusses the benefits of reconditioning and logistics improvements at standalone reconditioning centers. Despite having 250+ stores, the company operates over 100 car production locations and recently opened more large reconditioning centers. These centers improve logistics by reducing out-of-market shipping, leading to synergies and increased efficiency. The paragraph also mentions the higher margins on reconditioned older cars, considered unique offerings. Bill Nash expresses gratitude for continued questions and support, and appreciates employees' contributions, concluding the call with a note that they will meet again next quarter.

The paragraph announces the end of CarMax, Inc.'s first quarter fiscal year 2026 earnings release conference call and informs participants that they can disconnect.

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