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12/20 18:11
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary reveals a decline in key financial metrics such as EPS and total gross profit, coupled with a decrease in CAF income expectations. The Q&A section highlights challenges in used unit sales, competitive pricing issues, and flat or declining CAF income. Although cost reductions are planned, they are not expected to impact growth. The negative sentiment from analysts, along with unclear management responses, further supports a negative outlook.
Total Sales $6.6 billion, down 6% compared to last year, reflecting lower volume.
Retail Unit Sales Declined 5.4% year-over-year, with used unit comps down 6.3%. Performance was pressured across age 0 to 5 inventory but partially offset by increased sales in older, higher mileage vehicles.
Average Selling Price (Retail) $26,000, a year-over-year decrease of approximately $250 per unit.
Retail Gross Profit Per Used Unit $2,216, similar to last year but down approximately $200 from the first quarter. The sequential decline was more than twice the historical average, reflecting strategic actions to improve price competitiveness.
Wholesale Unit Sales Down 2.2% year-over-year. Average wholesale selling price increased approximately $125 per unit to $7,900.
Wholesale Gross Profit Per Unit $993, historically strong and similar to last year.
Vehicles Bought Approximately 293,000 vehicles, down 2% from last year. Purchases from consumers were approximately 262,000, with more than half through online instant appraisal. Dealer-sourced vehicles were approximately 31,000, slightly up from last year.
CarMax Auto Finance (CAF) Income $103 million, down $13 million from FY '25. Net interest margin on the portfolio was 6.6%, up over 50 basis points from last year.
Loan Loss Provision $142 million, with $71 million attributed to new originations and $71 million as an adjustment to the loss expectation of the existing portfolio. The adjustment was driven by additional losses anticipated within the 2022 and 2023 vintages.
Net Earnings Per Diluted Share $0.64, down from $0.85 a year ago, driven primarily by lower volume and the CAF loss provision adjustment.
Total Gross Profit $718 million, down 6% from last year's second quarter. Used retail margin decreased by 8%, with lower volume and relatively stable per unit margins.
SG&A Expenses $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation. SG&A to gross profit deleveraged 350 basis points to 84% due to lower volume.
Wanna Drive? brand campaign: Launched a new brand campaign to highlight CarMax's omnichannel experience, aiming to empower customers to buy their way with clarity, confidence, and control.
Market share and sales focus: Focused on driving sales and gaining market share despite a 6% decline in total sales to $6.6 billion compared to last year.
SG&A reductions: Targeting incremental SG&A reductions of at least $150 million over the next 18 months through technology and efficiency improvements.
AI technology deployment: Leveraging AI-powered tools like Skye 2.0 to improve operational efficiency and customer experience.
Inventory and pricing strategy: Adjusted inventory and pricing strategies to improve price competitiveness and align inventory with sales.
CAF penetration and profitability: Increased CarMax Auto Finance (CAF) penetration to 42.6%, with a focus on full credit spectrum expansion and securitization strategies.
Sales Volume Decline: Total sales decreased by 6% year-over-year, with retail unit sales down 5.4% and used unit comps declining by 6.3%. This reflects lower consumer demand and competitive pressures.
Inventory Management Challenges: The company ramped up inventory in anticipation of higher demand, but subsequent depreciation of $1,000 per unit negatively impacted price competitiveness and sales.
Economic and Market Conditions: Macroeconomic factors, including inflation and tariff speculation, have impacted consumer demand and pricing strategies.
Loan Loss Provisions: CarMax Auto Finance (CAF) had to adjust its loan loss provisions by $71 million due to anticipated losses in 2022 and 2023 loan vintages, reflecting increased credit risk.
SG&A Cost Pressures: Despite efforts to reduce SG&A expenses, cost pressures and lower sales volume led to a 350 basis point deleverage in SG&A to gross profit.
Profit Margin Decline: Retail gross profit per used unit decreased by $200 sequentially, more than twice the historical average, due to pricing adjustments to drive sales.
Customer Credit Risk: CAF's adjustments to underwriting criteria indicate increased risk in customer credit profiles, particularly in Tier 2 and Tier 3 segments.
Seasonal and Service Margin Pressures: Service margins are expected to face seasonal pressures in the second half of the year, potentially impacting overall profitability.
Revenue Expectations: The company expects to see year-over-year improvement in vehicle buys in the third quarter, which could positively impact revenue. Additionally, the company is focused on maintaining price competitiveness and leveraging selection and margins to drive sales.
Margin Projections: The company aims to deliver incremental SG&A reductions of at least $150 million over the next 18 months, which will improve cost efficiency and provide flexibility for reinvestment. Service margin is expected to face pressure in the back half of the year due to seasonal sales volumes, but the company still expects to deliver positive margin for the full year.
Capital Expenditures: The company is investing in technology, systems, and processes to modernize and consolidate its technology infrastructure, automate manual processes, and eliminate redundancies. These investments are expected to support the $150 million SG&A reduction goal.
Market Trends: The company is observing a shift in consumer demand towards older, higher mileage vehicles. Additionally, the company is leveraging its new 'Wanna Drive?' brand campaign to increase consumer awareness and drive sales.
Business Segment Performance: CarMax Auto Finance (CAF) expects to see growth in penetration rates due to underwriting adjustments, with an anticipated gain on sale of $25 million to $30 million in third quarter income from a recent securitization transaction. The company also expects $40 million to $45 million in additional CAF income related to servicing fees and retained beneficial interest over the life of the transaction.
Share Repurchase: During the second quarter, we continued our share repurchases at an accelerated pace, buying back approximately 2.9 million shares for a total expenditure of $180 million. As of the end of the quarter, we had approximately $1.56 billion of our repurchase authorization remaining.
The earnings call summary reveals strong financial performance expectations, optimistic guidance, and strategic initiatives, particularly in cost reductions and marketing. The Q&A section supports this sentiment, highlighting management's focus on competitive pricing, digital transformation, and strategic adjustments to drive sales. Despite some vague responses, the overall tone is positive, especially with the emphasis on SG&A reductions and market strategy improvements. The positive sentiment is further reinforced by optimistic guidance and strategic focus on growth opportunities, suggesting a likely positive stock price movement over the next two weeks.
The earnings call summary reveals a decline in key financial metrics such as EPS and total gross profit, coupled with a decrease in CAF income expectations. The Q&A section highlights challenges in used unit sales, competitive pricing issues, and flat or declining CAF income. Although cost reductions are planned, they are not expected to impact growth. The negative sentiment from analysts, along with unclear management responses, further supports a negative outlook.
The earnings call summary shows strong financial performance with a 12% increase in net sales, a 42% rise in EPS, and significant share repurchases. The Q&A highlights a positive outlook on business acceleration and cost management, despite some vagueness in responses about comp growth and macro impacts. The company's strategic focus on digital sales, cost efficiency, and market expansion supports a positive sentiment. However, the lack of clear guidance on certain financial metrics tempers the enthusiasm slightly, leading to an overall positive sentiment.
The earnings call summary and Q&A indicate strong financial performance with year-over-year growth in revenue, gross profit, and unit sales. Despite some concerns over tariff impacts and macroeconomic uncertainties, management remains optimistic about future growth, supported by strategic initiatives like AI-powered tools and improved customer experience. The company's robust financial health, coupled with a significant share repurchase authorization, suggests a positive outlook. While some uncertainties exist, the overall sentiment leans positive, likely resulting in a stock price increase of 2% to 8% over the next two weeks.
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