CarMax Q1 2026 Earnings Report

CarMax EPS Results

• Actual EPS: $1.38
• Consensus EPS: $1.18
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: $0.97

CarMax Revenue Results

• Actual Revenue: $7.55 billion
• Expected Revenue: $7.58 billion
• Beat/Miss: Missed by -$37.96 million
• YoY Revenue Growth: +6.10%

CarMax Announcement Details

• Quarter: Q1 2026
• Date: 6/20/2025
• Time: Before Market Opens
• Conference Call Date: Friday, June 20, 2025
• Conference Call Time: 9:00AM ET

CarMax (NYSE:KMX), through its subsidiaries, operates as a retailer of used vehicles and related products in the United States. It operates in two segments: CarMax Sales Operations and CarMax Auto Finance. The CarMax Sales Operations segment offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; used vehicle auctions; extended protection plans to customers at the time of sale; and reconditioning and vehicle repair services. The CarMax Auto Finance segment provides financing alternatives for retail customers across a range of credit spectrum and arrangements with various financial institutions. The company was founded in 1993 and is based in Richmond, Virginia.

CarMax Q1 2026 Earnings Call Transcript

Key Takeaways

• CarMax delivered 6% total sales growth with retail unit sales up 9%, record retail gross profit per used unit, and 42% year-over-year EPS growth in Q1.
• Digital capabilities supported 80% of retail sales—66% omni-channel and 14% online—while Net Promoter Scores for online and omni experiences reached record highs.
• CarMax Auto Finance originated $2.3 billion in loans with net interest margin up 30 bps to 6.5%, but Q1 loan-loss provisions rose to $102 million and a $632 million non-prime loan pool was classified held-for-sale for securitization.
• SG&A was materially leveraged by 680 basis points to 74% of gross profit, aided by AI-driven efficiency gains including 30% better virtual assistant containment and 24% higher consultant productivity.
• The company doubled its share repurchase pace with $200 million bought in Q1 and retains $1.74 billion in authorization, while maintaining flat marketing spend per unit and targeting full-year service margin growth.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year twenty twenty six CarMax Earnings Release Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

[Operator]

I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead.

[David Lowenstein, Vice President - Investor Relations at CarMax]

Thank you, Nikki. Good morning, everyone, and thank you for joining our fiscal twenty twenty six first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO Enrique Mayor Mora, our Executive Vice President and CFO and John Daniels, our Executive Vice President, CarMax Auto Finance. Let me remind you, our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects and financial performance are forward looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations.

[David Lowenstein, Vice President - Investor Relations at CarMax]

In providing projections and other forward looking statements, we disclaim any intent or obligation to update them. For additional information on important facts and risks that could affect these expectations, please see our Form eight ks filed with the SEC this morning and our annual report on Form 10 ks for fiscal year twenty twenty five previously filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at 80474704227865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow ups. Bill?

[Bill Nash, President & CEO at CarMax]

Thank you, David. Good morning, everyone, and thanks for joining us. Our first quarter results highlight the strength of our earnings growth model, which is underpinned by our best in class omni channel experience, diversity of our business and a sharp focus on execution. Across the company, we are operating with a continuous improvement mindset. We are focused on growing sales and getting market share, expanding gross profit, managing CAF's credit spectrum expansion, leveraging SG and A and buying back shares.

[Bill Nash, President & CEO at CarMax]

This focus combined with our ability to provide a unique customer experience across our large total addressable market provides a long runway for profitable growth. In the first quarter on a year over year basis, we grew retail and wholesale unit volume. We delivered robust retail, wholesale, EPP and service GPUs. We bought more vehicles from both consumers and dealers achieving an all time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting and funding model.

[Bill Nash, President & CEO at CarMax]

We materially leveraged SG and A as a percent of gross profit. We doubled the pace of our share repurchases and we achieved 42% EPS growth. This marks our fourth consecutive quarter of positive retail unit comps and double digit year over year earnings per share growth. During the period, we delivered total sales of $7,500,000,000 up 6% compared to last year, reflecting higher volume partially offset by lower prices. In our retail business, total unit sales increased 9% and used unit comps were up 8.1%.

[Bill Nash, President & CEO at CarMax]

Average selling price was $26,100 a decrease of approximately $400 per unit year over year. First quarter retail gross profit per used unit was an all time record driven by strong demand and operating efficiencies across logistics network and reconditioning operations. Wholesale unit sales were up 1.2 versus the first quarter last year. Average wholesale selling price declined approximately $150 per unit to $8,000 Wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 336,000 vehicles during the quarter, up 7% from last year.

[Bill Nash, President & CEO at CarMax]

We purchased approximately 288,000 vehicles from consumers with more than half of those buys coming through our online instant appraisal experience. With the support of our Edmund sales team, we sourced the remaining approximately 48,000 vehicles through dealers, which is up 38% from last year. Our digital capability supported 80% of our retail unit sales during the first quarter, 66% were omni and 14% were online. Relative to traditional and online only dealers, we are the only nationwide retailer to offer an integrated simple, seamless and personalized experience to meet the largest and growing segment of used car buyers. According to Cox Automotive Research as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience.

[Bill Nash, President & CEO at CarMax]

The combination of our associates, stores, technology and digital capabilities all seamlessly tied together is a key differentiator that gives consumers the optionality to shop online, in store or a combination of the two. Our Net Promoter Score is the highest it's been since rolling out our digital capabilities nationwide, supported by new record high online and omni scores reflecting that this experience is resonating well with customers. Our differentiating offering gives us a unique opportunity to reach more customers. To further capitalize on this opportunity, we're excited to launch a new marketing campaign later in the summer that will bring our omni channel experience and our digital capabilities to the forefront for a broad set of consumers. And now I'll turn the call over to John to provide more detail on CarMax Auto Finance. John?

[Jon Daniels, EVP, Auto Finance at CarMax]

Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2,300,000,000 resulting in sales penetration of 41.8% net of three day payoffs, which was 150 basis points below last year. The weighted average contract rate charged to new customers was 11.4%, in line with last year's first quarter. Cash reduction in penetration was primarily driven by an influx of self funded higher credit purchasers seen during the initial announcement of tariffs and to a lesser degree, a higher Tier three penetration, both of which more than offset our expansion since Q4. Third party Tier two penetration in the quarter was down 100 basis points year over year to 17.7% of sales, while third party Tier three volume accounted for 8% of sales, up from 7.5% last year.

[Jon Daniels, EVP, Auto Finance at CarMax]

CAF income for the quarter was $142,000,000 which was down $5,000,000 from FY 2025. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding cost. CAF's loan loss provision of $102,000,000 was impacted by several notable items. First, Q1 is a seasonally higher sales and lower credit quality period requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages along with the uncertain economic outlook necessitated additional loss reserves.

[Jon Daniels, EVP, Auto Finance at CarMax]

Note that 2024 vintages remain largely in line with our original loss expectation. The last noteworthy item impacting the Q1 provision relates to CAF's continued build out of our full spectrum lending capabilities. While we remain focused on increasing our penetration across the credit spectrum, we also want to carefully manage future risk from higher profit, higher loss receivables. To that end, during the quarter, we earmarked a held for sale pool of loans with a $632,000,000 principal balance from our non prime portfolio. That loan pool is intended to be fully sold off our balance sheet as a part of a non prime securitization transaction.

[Jon Daniels, EVP, Auto Finance at CarMax]

In the immediate term, this treatment removes the requirements to reserve for future losses expected on this pool of receivables. In the period in which the ABS transaction closes, CAF will book any gain realized by selling the financial interest in the loans. Also, the risk of any financial impact from this pool due to future deterioration is removed once sold. This additional funding lever as well as other off balance sheet funding vehicles under consideration will provide CarMax with significant flexibility and allow us to mitigate risk while focusing on our growth plan. Our loan loss provision of $102,000,000 results in a total reserve balance of $474,000,000 or 2.76% of managed receivables exclusive of auto loans held for sale.

[Jon Daniels, EVP, Auto Finance at CarMax]

Note there was a reduction on this quarter's provision stemming from $26,000,000 in the reserve allocated to loans booked prior to the first quarter now classified as held for sale. As we reflect on the bigger picture, CAF has delivered solid income for yet another quarter, and we see tremendous potential for the future. Now I'd like to turn the call over to Enrique to discuss our first quarter financial performance in more detail. Enrique?

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Thanks, John, and good morning, everyone.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

As a reminder, last quarter, we provided a view into the strength of the earnings model that we have built as part of our omni transformation. This model is designed to deliver an annual earnings per share CAGR in the high teens when retail unit growth is in the mid single digits. First quarter results delivered net earnings per diluted share of $1.38 up 42% versus a year ago. Total gross profit was $894,000,000 up 13% from last year's first quarter. Used retail margin of $554,000,000 increased by 12% with higher volume and per unit margins.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Retail gross profit per used unit was $2,407 up $60 from a year ago and a record high. Wholesale vehicle margin of $157,000,000 was flat from a year ago with an increase in volume offset by a slight reduction in per unit margins. Wholesale gross profit per unit was $10.47 dollars which was historically strong, though down slightly from a year ago. Other gross profit was $183,000,000 up 31% from a year ago. This was driven primarily by a combination of EPP and service.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

EPP increased by 13,000,000 or $9 per retail unit as we fully comped over margin increases taken in the prior year. Service recorded a $33,000,000 margin, which was $30,000,000 improvement over last year's first quarter. We achieved this performance improvement through cost coverage, volume based leverage and efficiencies. On the SG and A front, expenses for the first quarter were $660,000,000 up 3% or $21,000,000 from the prior year. SG and A to gross profit leveraged by six eighty basis points to 74%, driven by the growth in gross profit and our ongoing actions to improve expense efficiencies.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

SG and A dollars for the first quarter versus last year was mainly impacted by compensation and benefits increase of $19,000,000 The majority of this increase was related to unit volume growth. We continue to deliver efficiency gains across the business. We are off to a strong start in achieving our goal of omni cost neutrality in fiscal year twenty twenty six for the first time across three key metrics. In the first quarter, we were both more efficient versus pre omni and versus last year per used unit, per total unit and as a percent of gross profit. Recall that this compares the variable commission costs of selling and buying vehicles in our pre Honey model to our cost now, which includes a new per unit commission as well as the costs of running our customer experience centers.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

A key driver of these efficiency gains and experience enhancements has strategic deployment of AI technology across our operations. A few key metrics that illustrate the progress we are making year over year include Sky, our AI powered virtual assistant realized a 30% improvement in containment rate. Our Customer Experience Consultants productivity improved by 24%, and phone and web response rate SLAs improved by double digits. We see tremendous opportunity to continue expanding AI applications across our business to drive both the top line growth and operational excellence. Turning to capital allocation.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

We remain committed to creating long term shareholder value. Our priorities are clear: invest in the core business, primarily through the reallocation of resources evaluate new growth opportunities through investments, partnerships or acquisitions and return excess capital to shareholders. During the first quarter, we accelerated the pace of our share repurchases, buying back approximately 3,000,000 shares for a total spend of $200,000,000 As of the end of the quarter, we had approximately $1,740,000,000 of repurchase authorization remaining. Looking forward to the balance of the year, I'll cover a few items. We expect service margin to grow year over year, predominantly in the first half of the year and to deliver a positive profit contribution for the full year as governed by sales performance given the leverage deleverage nature of service.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Recall that the first quarter is typically the strongest for service margin due to higher seasonal sales volumes. Turning to marketing. We expect for the full year that our spend on a total unit basis will be flat year over year. Regarding CAF's funding strategy, our current plan is to execute the programmatic off balance sheet sale of the financial interest in the non prime securitization once a year. As John noted, we will also be assessing additional off balance sheet funding levers to further accelerate CAF penetration while continuing to learn from our full spectrum models. Now I'll turn the call back over to Bill.

[Bill Nash, President & CEO at CarMax]

Great. Thank you, Enrique and John. Before I open it up for questions, let me summarize what you heard from us today about our strong first quarter. We delivered our fourth consecutive quarter of retail of positive retail unit comps and double digit earnings per share growth. We grew both retail and wholesale unit volume.

[Bill Nash, President & CEO at CarMax]

Our sourcing efforts hit another milestone with a record dealer volume through Max Offer and we continue to leverage our cost structure with meaningful SG and A improvement. Our digital capabilities and overall experiences are resonating with customers as evidenced by our Net Promoter Score. We're also continuing to leverage AI across the business to further enhance the experience for both customers and associates and to increase operational efficiencies. We're taking the next steps in our credit expansion by delivering a new funding method for a portion of our non prime portfolio that mitigates risk, gives us more flexibility and supports the growth of CAF income. And we doubled our share repurchase pace.

[Bill Nash, President & CEO at CarMax]

Our associates, stores, technology and digital capabilities all seamlessly tied together enable us to provide the most customer centric car buying and selling experience. This is a key differentiator in a very large and fragmented market and positions us to continue to drive sales, gain market share and deliver significant year over year earnings growth for years to come. I want to thank our associates across the country for their dedication in delivering these results and providing an unmatched experience for our customers. With that, we'll be happy to take your questions.

[Operator]

And your first question comes from the line of Brian Nigel with Oppenheimer. Line is open. May now ask your question.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Nice quarter. Congratulations. Really nice quarter.

[Bill Nash, President & CEO at CarMax]

Thank you, Ryan.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Thank you.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

So I guess the question I want ask, we've seen a nice acceleration here in your used car business. I know you don't typically talk much about your intra quarter trends or trends into the following quarter. But the question I want to ask is, I mean, how are you viewing the sustainability here? As you look at this, is the business coming back? Is there anything unique to this reacceleration?

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

And then a follow-up to that is, and you showed again in this quarter nice SG and A leverage. But as we're thinking about sales continuing to restrain in here, how should we consider expenses coming back into the model? To what degree expenses need to come back to the model to support those sales? Thanks.

[Bill Nash, President & CEO at CarMax]

Sure, Brian. I'll take the first one and Enrique you want to talk about the expenses. As far as acceleration, look, Brian we feel really good. I mean first of all just back up a second. We're really pleased that this is the fourth consecutive quarter of comp growth.

[Bill Nash, President & CEO at CarMax]

Obviously this quarter we're pleased with the comps especially all three months were positive. As I think about the acceleration and we talked a little bit about this last quarter. Think this month or this quarter's performance is driven some by the macro factors, but I also think it's driven some by with what we have can control. I would go back to some remarks I made in the last quarterly call, which is the quarter started off strong and then we saw an uptick at the end of the quarter when there was speculation about the tariffs. And then I talked about that uptick towards the March.

[Bill Nash, President & CEO at CarMax]

And then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But I would just go back to even before we saw that the initial uptick, the business was growing was doing well. And I think that's a reflection of a lot of the work that we've internally whether it's the inventory management, it's our pricing, it's our savings, it's the omni channel experience continuing to make that better. So I think there's this performance is both part market driven.

[Bill Nash, President & CEO at CarMax]

I think it's also driven by us. We feel great about the rest of the year. As I said at the beginning of the at the end of last year that we would expect to grow sales and gain share this year, and there's nothing that's changed that outlook. Enrique?

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. For SG and A, you know, Brian, we've spent the past couple of years being able to lever SG and A, and that's really given all the actions we've taken on focusing on efficiency. And, you know, we're committed to continuing to lever the business. I I do think this quarter is really illustrative of the power of the model that we've built. So strong comps, and we levered SG and A almost 700 basis points this quarter.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

And when you look at the increase in SG and A for this quarter, it's primarily it was driven by variable costs. But again, with those variable costs, we were able to lever again by almost 700 basis points, taking us to the mid 70% in in the first quarter here. So, you know, we're committed to continue doing that, and you can see the power of the model here.

[Bill Nash, President & CEO at CarMax]

Yeah. And, Brian, the only thing I would add to that is that's a that's a big focus for us is continuing that leverage. And we certainly like the additional volume and how it helps that, but we're also very much focused on continuing to find efficiencies, continuing to take SG and A out. And we just think there's a lot of opportunities still there.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Thanks, guys. Again, congrats.

[Bill Nash, President & CEO at CarMax]

Thanks, Brian.

[Operator]

Thank you. Our next question comes from Scott Ciccarelli with Charisse. Please go ahead. Your line is open. Scott, your line is open.

[Scot Ciccarelli, MD & Senior Equity Research Analyst at Truist Securities]

Good morning, guys. I apologize.

[Bill Nash, President & CEO at CarMax]

Good morning.

[Scot Ciccarelli, MD & Senior Equity Research Analyst at Truist Securities]

Bill, I know you guys don't guide, but with comp growth kind of bouncing around a bit the way it has and comparisons getting much more difficult in the balance of the year, how should we, from an outside modeling perspective, be thinking about the comp growth on a go forward basis? Are we thinking about stacks? Is that something that, like, two year stacks or three year stacks, is that relevant? I know, obviously, there's a lot of moving pieces on the macro, and you guys are making all the changes that you've already cited. But just just from a a broader, perspective, like, how how should we be thinking about the the comp growth for the balance of the year?

[Bill Nash, President & CEO at CarMax]

Yeah. I'll I'll tie back a little bit to what I I talked about and Brian. But, you know, as far as, like, you can look at two year stacks, three year stacks, they tell a little bit of a mixed story. I think that's you can't rely a 100% on that because there's lots of dynamics that happened over the years. And, as far as the outlook for the rest of the year, look, we feel like we put ourselves in a good position.

[Bill Nash, President & CEO at CarMax]

And as I said to Brian's question, we don't we're not changing our outlook for the year based off of what we laid out there for the beginning of the year. And so we expect to continue to grow sales and continue to gain market share. Nothing has changed that outlook.

[Scot Ciccarelli, MD & Senior Equity Research Analyst at Truist Securities]

Okay. And then I'll take a quick follow-up if I can. Can you just provide a little bit more color on the shift on the non prime? Like, if I heard you correctly, it sounded like there was going to be another $26,000,000 provision, but you don't have to count it because it's now being held for sale. Was that the correct interpretation?

[Jon Daniels, EVP, Auto Finance at CarMax]

Sure. Yes. I can take that question, Scott. So first, overarching, let's just talk about the held for sale transaction. Broader picture, like, are super excited about our full spectrum strategy.

[Jon Daniels, EVP, Auto Finance at CarMax]

If you look at what we put in place, we bifurcated our securitization program. We've implemented our new models. We've executed two transactions where we held the the future cash flows, and this is the next step. The sell for sale transaction is something we have been thinking about along with other off balance sheet transactions, but it was just the right time to move on this thing. So the mechanics of it is ultimately for those receivables, you do not need to hold any loss reserve because you have intent to sell them.

[Jon Daniels, EVP, Auto Finance at CarMax]

So those $630,000,000 were able to not have to put dollars into the reserve. So that works for you and your provision line. Beyond that, there's no future risk there associated with those receivables if there were deterioration. I mentioned that in the prepared remarks. So that, again, is a risk mitigant there, especially really well targeted to this non prime space, which we're looking to really drive growth in.

[Jon Daniels, EVP, Auto Finance at CarMax]

On top of that, you're going to capture the gain when this sale closes. Don't know when the sale will close, but you can imagine it's probably not in Q2, but sometime after that, which is going to bring all of those cash flows upfront for us. So rather than earning them over time, we get them right upfront. So again, a really pivotal thing for us in our strategy and just an extra tool in our toolkit. Regarding the provision in the quarter, just as you mentioned, just to play that out.

[Jon Daniels, EVP, Auto Finance at CarMax]

So again, you had your origination volume. We signaled about $100,000,000 provision in the Q4 call. We landed on that number, but there were puts and takes there. You had some increase in the provision from the true up 2022 and 2023 vintages, which we've mentioned. The economic view that we have, we've put aside not an insignificant amount of dollars for that as well.

[Jon Daniels, EVP, Auto Finance at CarMax]

But again, this held for sale, you're able to offset some of that with dollars you no longer have to hold in the reserve. So long answer, want to lay out the entire transaction, how it plays out and how the provision was impacted by that. So hopefully, that's clear.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

I think, Scott, you know what I would add to that is, we're really excited about the program. I think a simple way to think about it is that it really enables full spectrum and CAF income growth while mitigating risk.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

So it's a tool that we're excited about. As John had mentioned in his remarks, we're also looking at other off balance sheet potential funding vehicles as well to further accelerate and help us grow our full spectrum strategy.

[Scot Ciccarelli, MD & Senior Equity Research Analyst at Truist Securities]

Okay. Super helpful. Thanks, guys.

[Operator]

Thank you. Our next question comes from Michael Montani with Evercore. Please go ahead. Your line is open.

[Michael Montani, Managing Director at Evercore]

Yes. Hey guys, good morning. Congrats on the quarter. Thanks for taking the question.

[Bill Nash, President & CEO at CarMax]

Thank you.

[Michael Montani, Managing Director at Evercore]

Just wanted to ask, I guess, a two parter. But the first part was, you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multichannel capabilities. So I'm just kind of wondering, you share some some basic levels of awareness kind of prior to that campaign and and what exactly it is you're doing differently there? And then I guess the follow-up was just also related to credit, which was does this signal that you'll be kind of increasing subprime penetration as a percentage of the loans that you're issuing as well? And just how should we think about that?

[Bill Nash, President & CEO at CarMax]

Yeah. Great. I'll I'll hit the marketing, then I'll pass it to John to talk about the the subprime question. As far as the the marketing goes and kind of awareness there, Mike Mike, we've had we've built up our awareness on both digital capabilities and the fact that we can do an online sale. So that's been increasing through our our our marketing campaigns in the past.

[Bill Nash, President & CEO at CarMax]

I think I I talked about the last call, you know, we've gone with a new ad agency, seventy two and Sunny, and we're really pleased with how the relationship is going. And, you know, I cited some some Cox information, and and I did that purposeful because if you look at how customers want to buy, they they intend to buy omni. But if you look at the how the vast majority of them still buy today, it's all in store. And I think what happens is consumers, they wanna buy a certain way, but then they settle. They go into a dealership and they they're forced to buy a certain way.

[Bill Nash, President & CEO at CarMax]

And what we wanna make sure that we educate the consumers on is that, look, you don't have to settle. You don't have to go for the one way a deal has. You have optionality. So I think the campaign build out is, like, don't don't settle. Like, you know, CarMax has a has the best experience no matter how you wanna to buy.

[Bill Nash, President & CEO at CarMax]

And I think that is really going to start to resonate with folks as they're looking for options in the future. John, I'll turn it over to you on the subprime.

[Jon Daniels, EVP, Auto Finance at CarMax]

Yes. Michael, I'll take that take your question on the subprime growth. And yes, fair question. Short answer is absolutely, we are looking to grow. We've signaled that very clearly.

[Jon Daniels, EVP, Auto Finance at CarMax]

We made adjustments at the beginning of Q1 taking volume back. We signaled 100 basis to 150 basis points of growth. Now that was muted because of a lot of stuff that happened in the first quarter tariffs, etcetera. We cited that in the prepared remarks. But yes, we're if you look at what we're doing from our full spectrum strategy, we're putting things in place that allow and fuel that growth, especially we think the sub for sale supports that.

[Jon Daniels, EVP, Auto Finance at CarMax]

So if I were signaling a level to you of penetration because, again, we're 42, 43% historically, we said we want to grow that. I'd put a great first step for us at 50%. We're not going to get there this year. We will tell you as we grow that. But yes, that is our plan, And we're really excited about it.

[Jon Daniels, EVP, Auto Finance at CarMax]

A tremendous amount of value as we grow this in the quarters and upcoming years.

[Operator]

Thank you. Our next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead. Your line is open.

[Chris Bottiglieri, Senior Equity Research Analyst at BNP Paribas]

Hey, guys. Thanks for taking the question.

[Chris Bottiglieri, Senior Equity Research Analyst at BNP Paribas]

So first off, congrats on the mental agility around the subprime funding, think it's an interesting structure. I just have one clarifying question, but then just a broader question on on credit. What percentage of new originations were classified as held for sale? Were those part of the 26,000,000 you cited, would that be incremental? And then my broader question is just, know, obviously, you elaborate on the, you know, the the allowance stepping up and some of the factors that drove that.

[Chris Bottiglieri, Senior Equity Research Analyst at BNP Paribas]

Much of this is, the the macro environment with student loan lending? Like, are you seeing, like, as the credit scores have dropped and credit performance in the broader economy has worsened a bit, is that impacting capital? Is that measurable? Like what percentage of your customers have student loan debt? Just curious if that's having an impact at all.

[Jon Daniels, EVP, Auto Finance at CarMax]

Sure. Yes. I appreciate the questions, Chris. Sorry, take them in order. So how do we think about the provision takedown from the held for sale?

[Jon Daniels, EVP, Auto Finance at CarMax]

How much was it from new originations versus the fourth quarter originations or previous originations we had on the that were already in the reserve. I'll just tell you the majority of it was from receivables that were already in the reserve. So yes, certainly some of it from Q1, but the majority were already in the reserve. So that handles that one. Second question, give a little more flavor around what we're seeing in the step up in the reserve, the 2.76 percent, what we're seeing in performance and as it relates to student loans.

[Jon Daniels, EVP, Auto Finance at CarMax]

Yes, as I said in the prepared remarks, I think the 2022 and 2023 vintages certainly were ones that performed more unfavorably in the quarter. Again, we think we have appropriately reserved and adjusted accordingly. I did say in the prepared remarks, actually 2024, we feel real good about. We're kind of on the mark there, a year in on that stuff, a year plus in on that stuff. Regarding student loans, yes, let's give you some statistics there.

[Jon Daniels, EVP, Auto Finance at CarMax]

In the CAF portfolio, about 30% of that we can see for the credit bureaus, 30% of our customers have student loans. We've been watching them, as you might imagine, for years now, with the thought of our payment is going to be made, what forgiveness is done for those and how they performed. Ultimately, what I'll tell you is we have not seen a material change in those customers in the recent year as compared to what we've normally seen. So we're watching this very, very closely as payments are expected as it may impact their credit report, etcetera. We would hope that auto still remains top of wallet share for them, but we'll watch them closely, but no change today.

[Bill Nash, President & CEO at CarMax]

And Chris, the only thing I would add there, when you think about kind of what I call the true up, that was primarily driven by the '22 and '23 vintages. And I just want to remind everybody, even with that, they're still super profitable. And then to a lesser degree, kind of the economic factors as you lean forward, not immaterial, but I want to make sure everybody understands it's more of the 2022, 2023 that are driving that. And even with that, they're still very, very profitable.

[Jon Daniels, EVP, Auto Finance at CarMax]

Yeah. And to clarify that, last thing I'll tackle on there is unemployment rates, the big the big one that's driving that. Yeah. Again, not insignificant contributor, but not the majority of it.

[Bill Nash, President & CEO at CarMax]

On the economic factors.

[Jon Daniels, EVP, Auto Finance at CarMax]

Correct. Yes.

[Chris Bottiglieri, Senior Equity Research Analyst at BNP Paribas]

Really helpful. Thank you.

[Bill Nash, President & CEO at CarMax]

Yes. Thank you.

[Operator]

Thank you. Our next question comes from Sharon Zackfia with William Blair. Please go ahead. Your line is open.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Hi. Thanks for taking the question. I wanted to ask a question on CAF with the move to full spectrum lending. How far have you gone into kind of the full spectrum so far? Like, how do we think about that for the second half of the year?

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

And then in terms of increasing that CAF penetration, I know there was there were moving parts in this quarter, but do you expect CAF penetration to increase year over year in the August? Thanks.

[Jon Daniels, EVP, Auto Finance at CarMax]

Yes, sure. Appreciate the question, Sharon. So let's just break down penetration as it typically sits. CAF has been historically sitting in where it's where it's normally originated, 42% to 43%. We've cited our Tier two and Tier three players taking combined call it, 26% of volume.

[Jon Daniels, EVP, Auto Finance at CarMax]

As we grow, that is definitely where we're looking to grow. So we're looking to penetrate that. When you think about I think really, since your question is how fast will we grow, where that's really where we're looking to grow down there. I think key for us will be we've got securitizations in play. We're looking for the Help for Sandd transaction that we need to close.

[Jon Daniels, EVP, Auto Finance at CarMax]

That's got to happen. We're just coming up anniversarying on our models. We put in place 100 to 150 basis points of growth at the beginning of the quarter. Now as we say, tariffs really threw a bit of a snafu in that in showing that growth that we realized. But we have made progress as sort of that volume normalizes because so much of it came with non coming up with our own financing.

[Jon Daniels, EVP, Auto Finance at CarMax]

As that normalizes, you're going to see that we have made progress on that. And again, we're going to look to grow that. We will signal when that happens. But I think you're going to see material growth we would expect in the not going to get there this year, Sharon, at that 50% number I labeled, but you're going to see hopefully material growth in the quarters to come.

[Bill Nash, President & CEO at CarMax]

Sharon, the only other thing I you know, when when you think about the penetration speed, there's really two governors on that. One is having your your funding available, and that's certainly taken care of. The other one, to to John's point, is is your your credit model. Remember, you know, we had a lot of experience at the top. We had a lot of experience at the bottom, but then we put the full spectrum credit model in there, which we're still testing.

[Bill Nash, President & CEO at CarMax]

I mean, John, how long has that been in play that, you know Yeah.

[Jon Daniels, EVP, Auto Finance at CarMax]

August, we launched it.

[Bill Nash, President & CEO at CarMax]

Yeah. So it just takes time to make sure your model is exactly the way. So those are the the the two governors.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Thank you.

[Jon Daniels, EVP, Auto Finance at CarMax]

Sure. Thank you.

[Operator]

Thank you. Our next question comes from David Bellinger with Mizuho. Please go ahead. Your line is open.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Hey, everyone. Good morning. Nice results and thanks for the question here. Another one around the marketing spend in the new campaign and understanding the flexibility for consumers will be front and center. But is some of that new push being driven by this omni cost neutrality that you mentioned in the prepared remarks and suggested that CarMax is now ready to flow more digitally initiated volumes and in a more profitable way going forward.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

We're just trying to gauge whether you're seeing a step change within the digital economics of the business and opting to put more marketing dollars behind that now.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. I mean, that definitely enables, you know, the the push on efficiency, the productivity, customer service, all of those things, again, fueled by AI, fueled by our associates, definitely enabling a better experience. But then it makes us feel a lot better about going out there and advertising and letting our customers know the incredible experience and highly differentiated experience that they're going get through CarMax.

[Bill Nash, President & CEO at CarMax]

Yes. Think, David, the way I think about it too is FY 2025 was a big year for most from an experience standpoint and really closing some of the last big gaps with the rollout of order processing and shopping cart. And so we feel like we're at a point where if you're going go out and celebrate this and really point direct customers to this fact that like you don't have to be forced into a fixed path. You better have best in class in store. You better have best in class omni.

[Bill Nash, President & CEO at CarMax]

You better have a best in class online only experience. And we feel like we're at that point where, like, we need consumers to understand you don't have to settle. And so that's a lot of the thrust why we're thinking about it now in addition to the efficiency stuff that Enrique has already mentioned.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Great. Thank you both.

[Bill Nash, President & CEO at CarMax]

Thank you.

[Operator]

Thank you. Our next question comes from Rajat Gupta with JPMorgan. Please go ahead.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Great. Thanks for taking the questions. Just had like a couple of clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started? We've heard anecdotes just in the broader macro around some meaningful pullback from like just the pre buy ahead of tariffs.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Curious if your business has felt any of that here in June. Any color you could give on comps there? And then just on CAF, mean, obviously, a lot of discussion there. You know, in the last quarter, you had given us some guidance around the provisioning, cadence for the year. Any color you could give us on how the second quarter might look like especially in context of all the changes that are happening? That would be helpful. Thanks.

[Bill Nash, President & CEO at CarMax]

Okay, Rajat. On June, look, we're nineteen days into it. We'll talk about June when we talk about the second quarter at the end of the second quarter. The only thing I would add to that is just remember or you may not know this, but, the second quarter, we do lose a Saturday and that happens to fall out in the month of June and then you don't pick it up for the rest of the quarter. You won't pick that Saturday up until the rest of the year. John, I'll toss to you on the provision.

[Jon Daniels, EVP, Auto Finance at CarMax]

Sure. Yes. Just think about the cadence of provision for the year. We would expect Q1 to be the high watermark here. We've made the adjustment that we believe, needs to be made on those older vintages.

[Jon Daniels, EVP, Auto Finance at CarMax]

We feel good about the 24s. Obviously, notwithstanding the consumer and all that could happen in the future, but again, we feel good about our reserve. Ideally, this just be provisioning for new originations. The only thing that could throw that is what is our growth plan. Obviously, if we grow, you're going to have to add provision accordingly for that non prime space, but we'll signal that when we're going to do any material more growth there.

[Bill Nash, President & CEO at CarMax]

Yeah.

[Bill Nash, President & CEO at CarMax]

I think the way you should think about it is what he talked about last quarter is we're going in the near term after the 100 to 150 basis points. We're we're, you know, well on our way there. Just got a little bit math this this quarter.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Understood. Great. Thanks for the color.

[Bill Nash, President & CEO at CarMax]

Thank you.

[Jon Daniels, EVP, Auto Finance at CarMax]

Thank you.

[Operator]

Thank you. Our next question comes from Craig Kennison with Baird. Please go ahead.

[Craig Kennison, Director of Research Operations & Senior Research Analyst at Baird]

Hey, good morning. It's been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%.

[Craig Kennison, Director of Research Operations & Senior Research Analyst at Baird]

That was down from 82% in the February. So I think you lost a point in omni and a point in online. I know you're really focused on the omni channel, but digital had been gaining share and clearly feels like the future. So I'm just curious if you can explain why that might have stepped back in this quarter.

[Bill Nash, President & CEO at CarMax]

Yes. I think part of it is just seasonally, Craig. I mean, I don't really I mean, I think may I think Omni is actually up a point and maybe online's flat or or or, you know, maybe down a point. But, I mean, I think it's more seasonally driven. I think the the the more interesting and the more relevant, point is that we continue in the omni bucket.

[Bill Nash, President & CEO at CarMax]

We continue to see more transactions, more pieces of these digital capabilities being used. And I think that's the more relevant point than, oh, did everybody go to online or did everybody go to omni? It's like, okay. Of your omni bucket, you're seeing that the number of steps that they're doing is is continuing to increase.

[Craig Kennison, Director of Research Operations & Senior Research Analyst at Baird]

And then just to follow-up on the the marketing comments you've made. How is AI changing the way you think about search engine optimization as part of this new marketing campaign?

[Bill Nash, President & CEO at CarMax]

Yeah. Well, I think, you know, I think the the the big new buzzword is is GEO instead of SEO, and, you know, it's a generative engine optimization. That's what it's all about. It's like how do you show up well. So it's critical.

[Bill Nash, President & CEO at CarMax]

I think if you're only focused on SEO, you're going to miss the boat. SEO is still super important. You still got to focus that. But now you have to kind of also be really good at at at GEOs. So it'll play play a big role in the marketing campaign.

[Bill Nash, President & CEO at CarMax]

And I just think in marketing in general, I think, you know, generative AI, there's just a lot of potential there.

[Craig Kennison, Director of Research Operations & Senior Research Analyst at Baird]

Thank you.

[Bill Nash, President & CEO at CarMax]

Thank you.

[Operator]

Thank you. Our next question comes from Jeff Leak with Stephens Inc. Please go ahead.

[Jeff Lick, Managing Director at Stephens Inc]

Good morning. Congrats on a great quarter and thanks for taking my question. There was obviously this quarter is a lot of puts and takes in terms of you expanding the credit spectrum, kind of the tariff surge. And then also, guys have kind of been you indicated in your Analyst Day leaning into a bit more on the value cars, six to seven plus years. Maybe if you could just kind of walk us through anything any callouts as the quarter progressed and how those buckets influenced your impressive comp?

[Bill Nash, President & CEO at CarMax]

Yes. I appreciate the question, Jeff. Look, think take some of the noise like the credit spectrum expansion, take that out. It's still a great quarter. Okay?

[Bill Nash, President & CEO at CarMax]

We're really pleased with it. And I think the credit expansion, look, it's the next step. We've been working through that. We didn't contemplate it in the provision of the fourth quarter, but it's something we've been working on. So we're excited about that.

[Bill Nash, President & CEO at CarMax]

I think you brought up an interesting point on just the age. We did sell if I look at our, let's call it, 10 plus year old cars, we increased we probably sold roughly 25,000 more of cars. When I say it's like think about the 10 year old, the 11 year old, the 12 year old. And that's by continuing to really kind of push in that area because we do know customers, they're interested, they want to buy. But even like this past quarter where we saw this higher no finance, those are folks that have higher credit.

[Bill Nash, President & CEO at CarMax]

But interestingly, if you look at how they bought, they bought vehicles across the spectrum. In fact, our biggest growing contributor to sales this quarter It was the under $20,000 cars and the over $40,000 cars. And so I think having a good answer there for all those is going to be critical. And that's an area that we'll continue to focus on without sacrificing the quality standards of CarMax.

[Bill Nash, President & CEO at CarMax]

That is a work track that we're definitely focused on.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

And between those two is really the under 20,000 increase in under 20,000 that drove our comp. So that focus on affordability. And internally, as you know, we we call our certain cars, our older cars, more of a value max car. That was up five points year over year on the quarter as well. So those that bleeds into under $20,000 car.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

So focus on affordability and ability to meet the customer where they want to be met.

[Jeff Lick, Managing Director at Stephens Inc]

Great. I'll get back in the queue. Let someone else ask a question. Congrats again.

[Bill Nash, President & CEO at CarMax]

Thank you.

[Operator]

Thank you. Our next question comes from David Whiston with Morningstar. Please go ahead. Your line is open.

[David Whiston, Equity Strategist - U.S. Autos at Morningstar]

Thanks. Good morning. I was curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to Q1 spend? And how financially stressed is the consumer right now in your opinion?

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yes. On the share buyback, what I'd tell you is our intent entering this year was to modestly accelerate the pace of our buybacks as compared to last year. And in the first quarter, based on valuation, based on cash flow dynamics, we saw an opportunity to sizably increase the amount of share we post clearly. So when determining the pace for Q2 and beyond, we'll have the same considerations, the valuation, cash flow dynamics as well as the broader macro backdrop.

[Bill Nash, President & CEO at CarMax]

Yes. And I think as far as the consumers, how stressed that look, I wouldn't categorize it as way more stressed than the last. But I certainly would say they're less stressed. And I think what you're seeing is some of the consumers are obviously, we talked about the student loans. You can see some default on folks that have got student loans. We haven't seen any impact on our business.

[Bill Nash, President & CEO at CarMax]

But I think there's also a little bit of kind of wait and see on tariffs. While tariffs have impacted some prices, I think there's a lot of stuff was already a lot of things were already in The U. S. Before tariffs kicked in. So I think really we'll just need to watch going forward as prices go up on for everyday consumables how that might push them.

[Bill Nash, President & CEO at CarMax]

But I would say from a consumer sentiment standpoint, you know, they're they're probably a little less positive about the future, but I don't think it's necessarily showed up so much in in the buying habits at this point.

[David Whiston, Equity Strategist - U.S. Autos at Morningstar]

Thank

[Operator]

Thank you. We will move next with Chris Pearce with Needham. Please go ahead. Your line is open.

[Chris Pierce, Senior Analyst at Needham & Company]

Good morning everyone. Can you just walk me through cost avoidance and other cost of sales? I just I'm not sure what the model going forward. Was down $33,000,000 year over year and drove a pretty high yeah. I just love to hear about cost avoidance there and what to think about going forward.

[Bill Nash, President & CEO at CarMax]

Well, I'm sorry. Which which line are you talking about?

[Chris Pierce, Senior Analyst at Needham & Company]

$7,000,000 in other cost of sales versus 40,000,000 year over year.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Other If you're talking about service, we had an improvement of $30,000,000 in service line in our in our gross margin. If that's what you're talking about, then, again, we had benefits coming there from cost coverage that we had taken, meaning we had taken some fees to overcome some of the cost pressures we had last year. We saw a leverage on our on our largely fixed cost base in service. Right? So positive sales will create some leverage.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

And then we continue to go after efficiencies in that business as well, and we continue to deliver on those like we've committed to, on an annual basis. That's why we saw the improvement, $30,000,000 improvement in in service.

[Chris Pierce, Senior Analyst at Needham & Company]

So those that 95% other gross margin, that's something I mean, I guess, how should we think about other gross margin going forward given the impact it has on EPS?

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. Other gross margin, that's certainly aligned when I when I talked about our our earnings model and our focus on being able to deliver high teen EPS growth over time and on, you know, mid single digit comps. That is something that we're focused on is continuing to grow that margin, the other margin. And the key components in other margin are going to be service, like I just talked about. And the other component is our EPP products.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Right? We saw our EPP margin go up again this quarter. I talked last quarter about we're undergoing some tests in terms of product enhancements in our EPP products. We've been pleased with the results of those tests. In terms of product enhancements, those have to do with deductibles, terms, and we would expect to see a modest rollout in the back half of this year.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

And then with a full financial impact or more full financial impact as we head into FY 2027. But we are laser focused on other gross profit as a vehicle for growth in terms of fueling our EPS growth.

[Bill Nash, President & CEO at CarMax]

Yes. Think Chris for your modeling standpoint, think it goes to some comments earlier because a lot of that's being driven by service. And the service in the first quarter is always the strongest. We would expect as we said last quarter to be profitable for the year. But you shouldn't expect the the the service gains equal like you saw in the first quarter for the for the rest of the year.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. And I can and, yeah, I made a note of that in my prepared remarks as well. The first quarter is usually the strongest when it comes to service just because it's the highest volume quarter that we have just seasonally. And again, you're levering on somewhat fixed cost basis, and so you're gonna lever more strongly there. But again, we're committed to growing our other gross profit in totality as part of our earnings model moving forward.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

And that's what you've seen now for the past couple of years.

[Chris Pierce, Senior Analyst at Needham & Company]

Okay. And then just lastly, going back to the first question, SG and A per retail unit was down mid single digits year over year, but it was sort of flattish if we look back two years ago. So I just kind of want to get a sense of where we are in fully levering omni costs and how should you think about this kind of going forward?

[Bill Nash, President & CEO at CarMax]

Yes. I don't we have opportunity to continue to lever our costs, whether it'd specific on the sales side, when you're thinking about CEC expense, that kind of thing, or just across the business. And we have initiatives in pretty much every single area. So we still feel like there's additional opportunity there.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. And what you certainly see from us is a commitment to doing that. It's been a couple years now where we've been levering and levering our SG and A as a percent of gross profit. And whether comps were positive or whether comps were negative, we've been able to successfully lever our SG and A, and we intend on continuing to do that.

[Operator]

Our next question comes from actually a follow-up from Rajat Gupta with JPMorgan. Please go ahead. Your line is open.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Great. Yes. Sorry for the follow-up. Just wanted to follow-up on the new off balance sheet approach. And is it fair to assume that, you know, a lot of the incremental penetration, that you see in the cap book, you know, from 42 to 50%, all of that, will go through this off balance sheet approach, you know, Basically trying to understand like what's the mix going to be or what you are targeting in terms of on versus off balance sheet forecast? Thanks.

[Jon Daniels, EVP, Auto Finance at CarMax]

Yes. Appreciate the question, Rajat, and a fair follow-up. So I think one of the things I wanted to drive home here was we think this is a periodic play for us. It's obviously, we have our higher prime deals. We don't think it's necessarily set up for this approach, less volatility there, less risk in those customers.

[Jon Daniels, EVP, Auto Finance at CarMax]

And the non prime approach, especially as we grow from 42% to 50%, which cited. And I think it really does set itself up to at some points in time, maybe we do want to retain that risk and all the additional cash flows that come with it because there is additional value there where we're willing to offload some of that risk, take the cash upfront. And again, maybe there's a little bit of a haircut there. But I think it's an opportunistic play as we're going to see. So maybe it's once a year.

[Jon Daniels, EVP, Auto Finance at CarMax]

We'll see how it plays out. But I wouldn't think about it as an all or nothing play here at all.

[Bill Nash, President & CEO at CarMax]

Yeah. I definitely wouldn't think about it that way. There's, you know, there's you look at the tier one business, we aren't changing. I mean, we we hold on to think about it more being able to to expand on some things that hey. At the end of the day, if I don't wanna carry that, you know.

[Bill Nash, President & CEO at CarMax]

And so to John's point, it's don't think about it as all in one bucket or the other. It's gonna be a nice complement of the two.

[Enrique Mayor-Mora, EVP and CFO at CarMax]

Yeah. They're definitely subprime receivables that we wanna keep and hold for investment, and we'll continue to do that. Absolutely. And think of this play, and I mentioned it earlier, just kinda simplistically, you know, it's gonna enable our full spectrum and cap income growth over time while mitigating some of that risk. So we're really excited for this program, but, you know, that that's how I think about it.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Understood. That makes a lot lot of sense. And thanks for thanks for taking the question. Sure.

[Operator]

Thank you. And we have another follow-up from Jeff Licht with Stephens Inc. Please go ahead.

[Jeff Lick, Managing Director at Stephens Inc]

Great. Thanks for taking the follow-up. I just wanted to double back or ask about retail GPUs. Surprised we actually haven't hit on this. It's a record at 24.7%, first time you've seen the 2,400.

[Jeff Lick, Managing Director at Stephens Inc]

Last quarter, talked a little bit or and highlighted the improvements in logistics. And then, also recon, if we could get into the if you wouldn't mind elaborating on the stand alone recon centers. Do that do those have an immediate impact, or does it is it actually dilutive for a few quarters or a year before they show up? And then I guess lastly on GPUs, are the ten plus year old vehicles, I'm assuming those might have higher GPUs than the chain average. So if you can just kind of talk about the improvements you're seeing there and where the trajectory might be?

[Bill Nash, President & CEO at CarMax]

All right, Jeff. I'm going try to hit it. There's a lot in that question. I'm going try to hit it all, but you can keep me honest at the end. So look, yes, we're pleased with the retail GPUs.

[Bill Nash, President & CEO at CarMax]

And I think the big thing there you should be thinking about and I talked a little bit about this last quarter because someone asked me, how do you think about retail GPUs? And I said, look, if you're modeling it, think about it on a yearly basis and think about it being similar to what it was last year. But I also said that, you know, on any individual quarter, it's gonna be up or down. And and the reason I said that is because you gotta look at the factors in the quarter. And, you know, sometimes it's know, if you you think about all the different things that that that go into the decision, you know, think about elasticity and price competitiveness and variable cost and how you're improving on that and ancillary services that you attach or products that you attach, there's gonna be some quarters where you know what?

[Bill Nash, President & CEO at CarMax]

And this is one of those quarters. Like, look, we're gonna we're gonna take some of those savings that you're talking about from the reconditioning and logistics, and we're gonna just flow them through to the to the bottom line. Now as far as the standalone reconditioning centers, look, our the benefits that we're getting from reconditioning and logistics, I I just wanna remind everyone, we've had large reconditioning centers all all up until now. Because if you think about it, we have two fifty plus stores, but we only have a little over 100 places where we produce cars. We're seeing the benefits across the board.

[Bill Nash, President & CEO at CarMax]

And it's so early on the reconditioning side. We just opened up a couple more large recon centers. We are seeing some improvements there, but that's more towards the logistics because we're having to ship cars from less out of market and being able to put them right there in the market. They're not I think we've got one that's probably fully ramped to capacity. I would expect to to continue to get synergies outside of those.

[Bill Nash, President & CEO at CarMax]

But, you know, we're getting synergies across the board when you think about the the reconditioning, and I would expect to continue to do that as we go forward. Did I miss anything? Okay. Oh, yes, did. Did. You asked about the

[Jeff Lick, Managing Director at Stephens Inc]

Tesla. Tesla 10 year old cars.

[Bill Nash, President & CEO at CarMax]

Yes. I I not yes, the 10 year old cars. Yes. I mean, historically, we've talked about older cars. You bring them up to CarMax standard, they're generally a little bit of a unicorn.

[Bill Nash, President & CEO at CarMax]

They will get a little bit more margin there. You're able to make a little bit more margin on those vehicles. So that's fair.

[Jeff Lick, Managing Director at Stephens Inc]

Okay. Great. Well, nice progress there.

[Bill Nash, President & CEO at CarMax]

All right. Thank you, Jeff.

[Jeff Lick, Managing Director at Stephens Inc]

Thank you.

[Operator]

Thank you. We don't have any further questions at this time. I will hand the call back to Bill for any closing remarks.

[Bill Nash, President & CEO at CarMax]

Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support. And as always, just want to thank our associates for everything that they do and how they take care of each other and our customers. We will talk again next quarter. Thank you.

[Operator]

Thank you. Ladies and gentlemen, that concludes our first quarter fiscal year twenty twenty six Corporix earnings release conference call. You may now disconnect.

Participants

Executives

• David Lowenstein, Vice President - Investor Relations
• Bill Nash, President & CEO
• Jon Daniels, EVP, Auto Finance
• Enrique Mayor-Mora, EVP and CFO

Analysts

• Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.
• Scot Ciccarelli, MD & Senior Equity Research Analyst at Truist Securities
• Michael Montani, Managing Director at Evercore
• Chris Bottiglieri, Senior Equity Research Analyst at BNP Paribas
• Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C
• David Bellinger, Director & Senior Analyst at Mizuho Financial Group
• Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co
• Craig Kennison, Director of Research Operations & Senior Research Analyst at Baird
• Jeff Lick, Managing Director at Stephens Inc
• David Whiston, Equity Strategist - U.S. Autos at Morningstar
• Chris Pierce, Senior Analyst at Needham & Company