CarMax Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
September 25, 2025

Key Takeaways

  • Negative Sentiment: In Q2, CarMax reported a 6% decline in total sales to $6.6 billion, a 5.4% drop in retail unit sales, and EPS fell to $0.64 from $0.85 a year ago.
  • Negative Sentiment: Auto finance income decreased to $103 million, driven by a $142 million loan‐loss provision due to elevated losses in 2022–2023 vintages.
  • Positive Sentiment: Management plans at least $150 million in SG&A cuts over the next 18 months, leveraging AI and process automation, with savings partly reinvested into growth initiatives.
  • Positive Sentiment: Launched the “Wanna Drive” omnichannel marketing campaign in August, supported by record‐high net promoter scores and stronger online‐to‐store conversion.
  • Positive Sentiment: Completed a $900 million non‐prime securitization transaction, expected to generate a $25–$30 million Q3 gain and move most residual interests off the balance sheet.
AI Generated. May Contain Errors.
Earnings Conference Call
CarMax Q2 2026
00:00 / 00:00

Transcript Sections

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter fiscal year 2026 CarMax earnings release conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead.

David Lowenstein
David Lowenstein
VP - IR at CarMax

Thank you, Nikki. Good morning, everyone. Thank you for joining our fiscal 2026 second 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 Jon 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. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them.

David Lowenstein
David Lowenstein
VP - IR at CarMax

For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our annual report on Form 10-K for fiscal year 2025, and our quarterly reports on Form 10-Q previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation, and both documents are available on the Investor Relations section of our website. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at 804-747-0422, extension 7865. 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
Bill Nash
President, CEO & Director at CarMax

Great, thank you, David. Good morning, everyone, and thanks for joining us. Today, I want to start with our priorities. While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come. We have a differentiated and best-in-class omnichannel customer experience and are focused on maximizing that advantage by driving operational efficiency and sharpening our go-to-market approach. With this mindset, our key priorities include: First, focusing on price and selection. This includes maintaining competitive prices while minimizing macro factor impact and having the cars consumers are looking for at CarMax's high-quality standards. Second, driving consumer awareness of our differentiated experience. This includes not only our new brand campaign, Wanna Drive, but also enhancing the conversion waterfall from web traffic all the way to the ultimate buy and/or sell decision.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Third, delivering incremental SG&A reductions of at least $150 million over the next 18 months. This will be broad-based, and it includes leveraging technology to drive efficiencies and our net promoter score to new heights. Finally, generating additional profit through components of our diversified business. This includes increasing CAF penetration and profitability in a responsible and thoughtful way. It also includes pursuing other opportunities across our business to drive incremental flow-through to our bottom line. We are already making progress across these fronts and are confident in our strategy and our earnings model, which will produce high team EPS growth with mid-single-digit retail unit growth. During our first quarter call, I mentioned that we saw an uptick in sales volume in March and April due to the tariff speculation. This impacted our performance in the second quarter in two ways.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

First, we ramped our inventory ahead of the second quarter to support this growth. Across the back half of May through the end of June, we saw about $1,000 in depreciation, which natively impacted our price competitiveness and our sales. Second, while hard to quantify, we believe there was a pull forward of demand into the first quarter. In the second quarter, we responded by lowering retail margins to drive sell-through, and we intentionally slowed buys to balance our inventory with sales. This strategy has worked as both price competitiveness and inventory position have improved since that time and have put us in a better position for the third quarter. During the quarter, we delivered total sales of $6.6 billion, down 6% compared to last year, reflecting lower volume. In our retail business, total unit sales declined 5.4%, and used unit comps were down 6.3%.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Pressured performance across our age 0 to 5 inventory was partially offset by increased sales in older, higher-mileage vehicles. Average selling price was $26,000, a year-over-year decrease of approximately $250 per unit. Second quarter retail gross profit per used unit was similar to last year, but down approximately $200 from the first quarter. The sequential decline was more than twice our historical average, reflecting the actions that I mentioned earlier. We will continue to focus on maintaining our price competitiveness, and we will remain disciplined yet nimble in leveraging selection and margin to drive sales. Wholesale unit sales were down 2.2% versus the second quarter last year. Average wholesale selling price increased approximately $125 per unit to $7,900, and wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 293,000 vehicles during the quarter, down 2% from last year.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

We purchased approximately 262,000 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 31,000 vehicles through dealers, which is slightly up from last year. This quarter's buy performance is a direct result of our decision to pull back offers to right-size inventory. We are no longer intentionally slowing buys and expect to see year-over-year improvement in the third quarter. At the end of August, we launched our new Wanna Drive brand positioning campaign that brings to light our unique omnichannel experience. Our net promoter score is the highest it's been since we rolled out our digital capabilities nationwide, driven by record high satisfaction among customers purchasing online as well as those using our omnichannel experience.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Wanna Drive spotlights this unique offering, empowering customers to buy their way with the clarity, confidence, and control to navigate the journey on their terms. Wanna Drive appears across TV, streaming, social, digital, and audio, and represents the first phase of a sustained multiphase strategy. This approach, which we will complement with increased advertising spend, demonstrates our commitment to long-term brand investment that supports our growth objectives. As previously discussed, we've been focused on driving SG&A efficiencies. We're pleased with our progress so far and have line of sight to at least an incremental $150 million in SG&A reductions over the next 18 months. This does not impact our growth strategy, as we will continue to invest in initiatives that position us for the future. Later, Enrique will comment on the anticipated scope of our efforts and the likely timing.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

At this time, I will now turn the call over to Jon to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion. Jon?

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Thanks, Bill, and good morning, everyone. During the second quarter, CarMax Auto Finance originated over $2 billion, resulting in sales penetration of 42.6%, net of three-day payoffs, which was 60 basis points above last year. The weighted average contract rate charged to new customers was 11.2% versus 11.4% last quarter and reflects downward rate testing executed within the quarter. While CAF's full quarter increase in penetration appears modest, we believe the tariff pull forward in Q1 negatively impacted CAF share during the early part of the quarter. Since the beginning of the fiscal year, we have made underwriting adjustments that translate to 100 to 200 basis points of growth, but the full realization of this growth can be impacted by non-controllable factors such as customer credit mix and partner lender behavior.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

It is important to note that more than half of the impact from these adjustments comes from recaptured Tier 1 segments, but with additional criteria overlaid to reduce risk, while the remainder comes from within the top half of the Tier 2 space, which we have been testing over the past year. Third-party Tier 2 and Tier 3 penetration in the quarter combined for 23.8% of sales versus 24.4% last year, as CAF's growth had an impact on partner volume. CAF income for the quarter was $103 million, down $13 million from FY25. Net interest margin on the portfolio was 6.6%, up over 50 basis points from last year and relatively in line with last quarter. CAF's loan loss provision of $142 million results in a total reserve balance of $507 million for 3.02% of managed receivables exclusive of auto loans held for sale.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Of the $142 million, $71 million is attributed to new originations within the quarter, while the remaining $71 million is an adjustment to the loss expectation of the existing portfolio. Also of note, as was seen in the first quarter, there was a reduction on the required provision stemming from $16 million in the reserve allocated to loans booked prior to Q2, now classified as held for sale. The primary driver of the $71 million adjustment on the existing portfolio comes from additional losses anticipated within the 2022 and 2023 vintages. Recall, these customers have been the most impacted by the convergence of rapidly increasing vehicle prices and broader inflation. Despite the observed worsening, these vintages still remain highly profitable at an estimated lifetime profit of $1,500 per unit versus $1,800 contemplated at origination.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Additionally, they continue to shrink in size in contribution to the overall portfolio as they are replaced with more recently originated Tier 1 receivables at significantly lower loss rates. Note that 2024 and 2025 post-contraction vintages continue to be right in line with our original loss expectations. Regarding the funding aspect of our full spectrum efforts, yesterday we closed our 25B transaction, our second non-prime securitization of the year. This was upsized to $900 million in total notes and for the first time included the sale of most of the residual financial interest in the transaction to third-party investors, thus resulting in off-balance sheet treatment. We expect the gain on sale to be approximately $25 to $30 million in third quarter income.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

We also expect to receive approximately $40 to $45 million in additional CAF income related to servicing fees and the retained beneficial interest over the life of the transaction. As a reminder, going forward, there will be no loss allowance or provision for this pool of loans. Now I'd like to turn the call over to Enrique to discuss our second quarter financial performance in more detail. Enrique?

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Thanks, Jon, and good morning, everyone. The second quarter net earnings per diluted share was $0.64 versus $0.85 a year ago. The decrease was driven primarily by lower volume and the CAF loss provision adjustment. Total gross profit was $718 million, down 6% from last year's second quarter. Used retail margin of $443 million decreased by 8%, with lower volume and relatively stable per unit margins. Retail gross profit per used unit was $2,216, in line with historical average. Wholesale vehicle margin of $137 million decreased by less than 1% from a year ago, with lower volume partially offset by a slight increase in per unit margins. Wholesale gross profit per unit was $993. Other gross profit was $138 million, down 4% from a year ago. This was driven primarily by extended protection plans, which decreased by $6 million, driven by lower retail unit volume.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Service recorded a $4 million margin, reflecting a small improvement over last year's second quarter. Continued efficiency and cost coverage improvements were partially offset by the deleverage inherent in the lower year-over-year second quarter sales. On the SG&A front, expenses for the second quarter were $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation. We continued to realize expense savings, but they were offset by cost pressures in the quarter. SG&A to gross profit deleveraged 350 basis points to 84%, as lower volume more than offset lower costs. The continued deployment of AI technology remains a key driver of efficiency gains and experience enhancements across our operations. For example, this quarter, Sky, our AI-powered virtual assistant, continued to deliver year-over-year double-digit % improvements in containment rate, Customer Experience Consultants' productivity, and web and phone response rate SLAs.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

We recently fully rolled out Sky 2.0, which leverages Agentic AI, and expect this release will drive even more efficiency and experience improvements. As Bill noted, we are committed to further reducing our SG&A by continuing to deliver efficiency gains across the business. The investments in technology, systems, and processes that we have made as part of our omni-transformation will allow us to substantially reduce spend through several key initiatives: modernizing and consolidating our technology infrastructure, automating manual processes, renegotiating and reducing third-party contracts, and eliminating redundancies across the organization. The goal of at least $150 million in SG&A reductions over the next 18 months represents a material improvement in our cost profile and reflects the execution on a plan that we have been developing with outside support.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

While we expect to realize some of these savings this fiscal year, we expect the vast majority will materialize in our exit rate by the end of fiscal 2027. In addition to offsetting inflationary pressures, these ongoing savings will provide additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our already robust earnings model of a high teens EPS growth CAGR when retail unit growth is in the mid-single digits. We will continue to provide updates on this initiative during future earnings calls. Looking forward, I'll cover a few items. Regarding marketing, we expect an increase in per total unit spend in the back half of the year, particularly in the third quarter, as we appropriately support our new brand positioning launch. We expect service margin to face pressure in the back half of the year due to seasonal sales volumes.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

For the full year, we still expect to deliver positive margin, which is a direct result of our efficiency improvements and cost coverage measures. Turning to capital allocation, 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. Now I'll turn the call back over to Bill.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Thank you, Enrique and Jon. Our customer-centric car buying and selling experience is a key differentiator in a very large and fragmented market and positions us well for the future. We are intently focused on driving this differentiated and best-in-class experience and doing so at greater efficiency. As you heard from us today, we're actively executing on our key priorities, which include driving sales, advancing innovations to improve customer and associate experiences, bolstering our marketing efforts, increasing company-wide efficiencies, and expanding CAF participation across the credit spectrum. All of these priorities will give us added flexibility and strengthen us for the future. With that, we will be happy to take your questions. Operator?

Operator

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question from the queue by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad. Your first question comes from the line of Brian William Nagel with Oppenheimer & Co. Inc. Please go ahead. Your line is open.

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

Hey, guys. Good morning.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Morning, Brian.

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

Morning. The first question I want to ask, just with regard to used unit sales. Bill, if I heard you correctly, it seemed like the most disruptive factor here in fiscal Q2 was a clearer pull forward in demand into the fiscal first quarter. The question I have is, are there numbers you can give us to size that better, that disruption? As we look through the quarter, I know you typically don't discuss sales trends of the quarter, but following that pull forward impact, has the business or have sales got back to a more normal run rate? What is that?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah. Brian, first of all, like I said, it's actually, we think, two factors. I would put the other factor probably first because it is hard to quantify exactly how much each one is. My commentary around buying inventory up and then seeing that depreciation happen, I would say that is probably the most impactful and then the pull forward. Again, it's hard to quantify exactly how much each of those are. For the quarter, each month was down year over year, and each month got a little weaker throughout the quarter. What I'll tell you for September and month to date is that it is stronger than the quarter and any of the months in the second quarter. When I look at it from a year over year, it's still a little soft from a year over year standpoint.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Certainly, we put ourselves in a better position with the start of this quarter, both on an inventory position as well as from a pricing standpoint.

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

That's helpful. Could I ask a follow-up?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Sure.

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

Just with regard to pricing, CarMax has for a long time talked about having attractive pricing within the market. It seems to me, listening to your comments, that you're focusing on this more now. Is that the case? The question I have is, are you seeing something in the marketplace or are other competitors getting more price aggressive that CarMax may have to change some of its stance here?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, I think the pricing commentary, first of all, is you're right. We're always focused on pricing. We want to be competitive. I think in the quarter, we fell into a spot where we weren't as competitive. I feel better about where we are now. The only other thing I would add to that is I think we just need to continue to be as nimble as possible when it comes to pricing. I mean, you saw in the quarter, we saw that $1,000 depreciation over a month period, and we started acting on it very quickly. There's a lot that goes into that decision, as far as what do you do with your prices when you see depreciation, that kind of thing. I think the takeaway that I want you to hear is that we're always focused on competitive pricing.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Certainly, the focus as we go forward is to continue to be as nimble as possible because it is an aggressive environment out there.

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

Right. I appreciate all the comments. Thanks.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Sure, Brian.

Operator

Thank you. Our next question comes from Rajat Gupta with JPMorgan Chase & Co. Please go ahead. Your line is open.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Great. Thanks for taking the question. I just got a couple. First one on CAF. Last quarter, you had mentioned that you expect CAF income to be up year over year for the full year. Could you give us an update on that and if it has changed? I'm just surprised by the magnitude of the provision pickup, because we had your last earnings call just two months ago. Curious how it could have changed so dramatically in such a short period of time. Any color there would be helpful. I have a quick follow-up on SG&A.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Sure, Rajat. Appreciate your question. First, let's touch on the CAF income. Obviously, as mentioned, there's a larger provision impact this quarter. Also, we mentioned we're excited about the $25 billion transaction, which will yield gain during Q3. You put all that together. We did highlight that we thought there would be an increase year over year in CAF income. I think we're going to be flat to down. Obviously, two more quarters to go, but flat to slightly down. I think there's some nice trade-offs that are occurring there. Obviously, all disclaimers with how does the consumer perform, how sales come in, because that would yield provision originations for us. Hopefully, that gives you a little flavor on the income cadence. Regarding provision, it's certainly a fair question. I'll give a little color on what we saw for the quarter beyond what I did in my prepared remark.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Let's highlight the 2022 and 2023 vintages. That customer, as I mentioned, high ASP, certainly a higher APR environment, higher overall payment they were seeing. They come into the purchasing cycle with excess cash from COVID, and they hadn't fully experienced inflation yet. We had a lot to learn about that customer. Initially, we saw some, and again, we're coming off of incredibly low trough loss rates of 2019, 2020, 2021 vintages. Hard to gauge how those 2022 and 2023 vintages were going to perform. We saw an increase in losses initially, but that's not surprising because it's coming off of trough lower vintages of those previous years. As we watched that customer perform, we saw it and thought maybe it was a pull forward in losses, ultimately, as we saw a little increase. Maybe a timing curve adjustment.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

We watched that customer begin to struggle and continue to struggle a little bit. We made some adjustments that we thought were very smart for the consumer and smart for us, and that has proven to be the case. That was we adjusted our extension policy in the fall. We saw more payments come in had we otherwise not done that. We were pleased to see that, but we had to watch that play through. We saw some of those customers coming back into delinquency and loss during Q1. It's obviously a tax time season as well, so it's a little muddied. We did make an adjustment in Q1, and we wanted to watch it all play through. We saw some good performance initially with, again, those extensions. We wanted to see how much was going to come back in delinquency.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Unfortunately, during the quarter, we saw more revert back to delinquency and loss. That being said, we've made a significant adjustment this quarter, as you see. We made what we would say a sizable adjustment last quarter. I think we have a much better handle on where these guys are going to land because we've watched these extensions play through almost completely at this point. Also, if you look at the totality of those vintages, you're about two-thirds of the way through those vintages. There's about a third left. It's really going to ultimately play through. There's more to come, but it really has played through. If you look at these 2024 and 2025 vintages, we are extremely pleased with those. We're watching those losses early on. We're now 12, 15 months through there, and that stuff is right on the mark from what we expected.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Hated to have to make an additional adjustment. I think there are a lot of confounding factors that had to play out. We feel like we have a much better understanding of them. I'll end with, and again, just as a reminder, these things are incredibly still profitable. $1,800 versus was maybe what we anticipated, $1,500 because of these loss adjustments. Roughly $0.5 billion we're going to achieve in lifetime value across the 2022 and 2023 vintages. A lot to say there because I wanted to explain what was going on there, but hopefully that answers your question.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

That's a helpful color. Getting to the SG&A, could you elaborate a little bit more on the areas of cost reduction? I'm curious because it seems to me that a lot of these might be tied to the omnichannel support function because you've already gained good productivity on your in-store salespeople. I'm curious, should investors be worried that these actions might hurt your ability to recover some of the share loss that you see? I'm curious, how do you balance those two?

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yeah, I'll lead.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

What's the offset from the pickup in advertising? Thanks.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yeah, no, absolutely, Rajat. I'll jump into it. We do not think it's going to impact our growth strategy. As I noted in my prepared remarks, our investments in technology, systems, and processes are really going to allow us to rationalize our costs. Very specifically, I'll give you some examples. We have a stronger ability to retire legacy systems. We have an ability to lower licensing usage as we either need less of them, or we can eliminate certain functionality as well, given our investments in technology such as chat due to investments in Sky. We'll become even more efficient in our call centers, and I've been talking about that for quite a few quarters at this point in time, able to automate manual processes and leverage AI to even more frequently review third-party contracts.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Those are just some of the examples that will help us take out that $150 million. If you'll note, those examples don't really impact our growth strategy. Part of our thinking as well is that there is a portion of these savings, and again, it's $150 million, at least $150 million that we do expect to direct back to investments that have a direct tie with sales. Such as an example this quarter would be marketing. We are going heavier up in marketing, appropriately so, toward our new brand positioning, and that'd be an example of something that we're going to go invest in. I do think it's important to remember, right, that we had been in investment mode as we transformed our company into an omni retailer. Once you're done with that, the next step really is to optimize and then rationalize that spend, and that's where we are.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

It's not a net $150 million reduction. Is there a net number that you can give us?

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yeah, so it's going to be net of any ongoing SG&A expenses to accomplish that number, but it's not net of any kind of one-time charges that we may end up having to incur. It is net of ongoing expenses to realize those savings.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

That is net of investment in other areas like advertising and other sales initiatives.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Like I said, there will be part of those dollars that will be reinvested back into the business to drive top-line sales. However, that being said, we do expect just the SG&A savings to be a material tailwind to our already robust earnings model.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Understood. Great. Thanks for the color and good luck.

Operator

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

Sharon Zackfia
Group Head–Consumer at William Blair & Company, L.L.C

Hi, good morning. I wanted to go back to Brian's question on price. As you think about it, and I know you're talking about reinvesting in some of the SG&A savings, back in 2019, which seems like forever ago, you had talked about kind of maybe targeting some lower GPU to drive incremental sales. Putting that all together, is there a thought process or a strategy about taking the bulk of the $150 million and really reinvesting it to the consumer and price your selection to drive the top line? It does feel like the consistent market share story that we had had in the past has kind of become much more volatile, you know, post-pandemic.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, Sharon, I think you're thinking about it the right way, but I would expand on it a little bit. I mean, the $150 million in SG&A reductions, as Enrique pointed out, some of that we will reinvest directly back into things of driving sales. The other piece I would tell you, which is another reason why we're focused on it, the key priority is just being able to generate additional profit from other parts of the business because that also gives you flexibility and allows you to reinvest some of that in pricing. I think it goes back to Brian's initial questions that we want to be as nimble as possible, make sure that we're as competitive as possible, and we feel like we're going to have several levers to be able to do that.

Sharon Zackfia
Group Head–Consumer at William Blair & Company, L.L.C

Bill, can I just follow up? Do you think there's price elasticity of demand that if you were more aggressive on price, you could stimulate sales in a profit or creative way?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, look, there's always elasticity when it comes in. We've talked about this before. We know pretty much because we're constantly testing, when you take prices down a certain dollar amount, we know what you get for that. What you have to think, the way we think about it is that when you look at the price elasticity, there's a lot of things that go into that equation. For example, your variable expenses. The better that you're doing in your variable expenses, it makes that equation easier. The capacity of your operational workforce, are they at the capacity? Are they not at the capacity? Are you having to pay people for unproductive time? Your ancillary profit attachment, how well we're doing on things like ESP or finance. There's a lot of things that we look at to decide, okay, does this make sense?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

That equation changes depending on the market factors. I mean, even without taking some of those things in, the elasticity will change just given what competitors are doing. We will continue to be nimble. We will continue to make improvements in some of these other factors because, again, that makes the elasticity pay off.

Sharon Zackfia
Group Head–Consumer at William Blair & Company, L.L.C

Okay, thank you.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Sure, thank you.

Operator

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

Chris Bottiglieri
Chris Bottiglieri
Senior Equity Research Analyst at BNP Paribas

Hey, guys. Two questions on credit for me. The first one is, could you elaborate on the servicing fee of $40, $45 million? I would think there's probably some servicing costs to achieve that servicing revenue. I was wondering if you'd help us think through the costs since the receivables won't be on the balance sheet, but the expenses will be. Bigger picture question on credit. You guys are normally really conservative, you know, really prudent guys historically. You're kind of pushing into deep subprime now. The market's, you know, I think beyond your control is getting a little bit weaker. I just want to kind of test your resolve. How committed are you to pushing into subprime right now, just given the macro backdrop?

Chris Bottiglieri
Chris Bottiglieri
Senior Equity Research Analyst at BNP Paribas

Is it something you're going to pull forward into regardless, or if macro keeps worsening, are you going to maybe hit the brakes for a little bit?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, I'll start off and then I'll pass it over to Jon. I just want to clarify something on deep subprime. Jon in his comments talked about going in really the top half of what we call the Tier 2. We're not talking about deep, deep subprime. I just want to have some clarification there. Jon, I'll let you add just to that end to the first part of the question.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yeah, Bill kicking me under the table because he wanted that one. Yeah, I mean, we want to make that very clear. I mean, it is not deep, it is not deep subprime at all. Again, we have been in Tier 3 space and we have experience there and all that. We are trying to be very prudent to your point, Chris, of how we go down when we go down. Make no mistake, there is money to be made there. We have partners that make tremendous profits there. You need to price it right, provision correctly, service it correct. We believe, you know, we're learning how to do that. Yeah, I wouldn't characterize it as deep subprime. There's a lot of penetration to be gained as we inch our way down there, no doubt about it.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

To your first question on the expenses, just to step back because I'll take the opportunity to speak to the overall program. Again, we are super excited because it ties to the first question, the full spectrum nature. We have laid out a plan and I think we have gone after that plan. First, it was, hey, we're going to bifurcate our securitization program. We've done that. We've executed multiple deals now there. We said we were going to recapture volume in Tier 1 and expand it into Tier 2. Again, we're being very prudent about that. We announced that we plan to do a deal where we're actually going to sell the future residual interest in that deal, and we've done that very, very successfully. We are super pleased.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

This was supposed to give us flexibility, obviously, give us insight into what a deal like this looks like, and we've, I think, hit on all of those. That being said, we've enjoyed the game. We'll enjoy the gain that we're going to see at $25 to $30 million, and you highlight. We also referenced the additional value to be gained on the servicing side. Again, future interest there. On the expense there, yeah, there is a little additional volume to be gained from the servicing side. There is a cost to us, but yes, we will make additional value there. Enrique, anything you want to add?

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yeah, and Chris, you'll see the servicing income. It'll be broken out in the CAF contribution line. You'll get a good view of that kind of on go forward reporting. Meanwhile, the servicing costs will be embedded in kind of your cost of your business, right? That's how it'll be reported, and you'll see that moving forward.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

The $40 to $45 also includes retained.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yes, also the income from the 5% retention as well, the 5 and 5. We expect that'll continue as well. All in all, like Jon mentioned, we're really pleased with the deal and the execution of the deal out there and really proud of the teams in getting that done. As Jon mentioned, this just fits our overall strategy, and we are executing on that strategy.

Chris Bottiglieri
Chris Bottiglieri
Senior Equity Research Analyst at BNP Paribas

Gotcha. Okay. Is most of the income coming from the beneficial interest or from the servicing fees? Would you like to mention that a bit at all?

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yeah, it's coming from kind of a mix.

Chris Bottiglieri
Chris Bottiglieri
Senior Equity Research Analyst at BNP Paribas

It is.

Chris Bottiglieri
Chris Bottiglieri
Senior Equity Research Analyst at BNP Paribas

Okay. Thanks for clarifying the subprime. You did say that prepared market, so I probably misspoke there. Thanks for clarifying that.

Operator

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

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Hey, good morning. Thanks for the question. Can you help us walk down the path back to positive unit comps and what the timeline could be there? Bill, you mentioned the aggressive environment. If we take this up to the industry level, is the used car market just getting materially worse in your view? Are there some macro cracks forming with these CAF adjustments or any other signals of a more strained consumer? Do you think this is more of a competitive element here in Q2 versus other players in the sector and something that you guys have to invest against going forward? Just help us piece all that together.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, so when I say aggressive environment, I wouldn't say it's necessarily more aggressive than last quarter. It's been aggressive for a while. On the strained consumer, look, I think we are seeing where consumers, especially your mid to high FICO customers, they seem to be sitting on the sidelines a little bit. We just measure that by just pure app volume. I think we're seeing that with, you know, it's a little bit of a headwind in September, but that's not unique to us. We've talked with our finance partners and they're seeing something similar. Again, I think consumers have been distressed for a little while. I think there's some angst. The consumer sentiment isn't great. Again, I think we've put ourselves in good shape, and I think the priorities that we're focused on will continue to pay dividends.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

As I think about the full year, we set out this year to gain market share. Through the first half of the year, we feel good about it. Through the calendar June, which is where we have data through, I would just caution people when you're looking at June, July, and August, it's tough on a year-over-year comparison just because of the CDK outage last year. We're not backing off of our stance of like we've started this year going after market share, and at this point, I don't see any reason why we would back off that. We expect to gain market share for the full year. Hopefully that adds a little color.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yeah, David, I'd love to just jump in on the consumer just to highlight a few things. Again, the cracks, as you said. Look, I think there's something incredibly unique about the 2022 to 2023 consumer, and it is an industry issue. You look at other lenders out there, they would tell you those are some tough vintages. It's kind of the perfect storm of high ASP and probably an overconfident consumer coming in with, they think they have plenty of cash. They get hit with inflation. If you look at the 2024 and 2025 consumer, they're just more eyes wide open walking in the door. Prices have come down a little bit. Their interest rates have come down a little bit. Typically, people that buy in a more stressed environment perform usually better. Now, again, we think we have reserved.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

We watch very carefully how those guys are performing, and we know they might perform worse than maybe pre-COVID. I think that 2024, 2025 consumer is going to just be a better one.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, I think to your point, David, the second quarter kind of event, that would be a second quarter event. Truing that up, we feel good about where we stand on that. We know that that's getting to be less and less of a population. As Jon said, the extensions are kind of back in, and that's really what this was to clean up on. We feel good about where we are there.

David Bellinger
David Bellinger
Director & Senior Analyst at Mizuho Financial Group

Great, very helpful. Thank you. Thank you, guys. Thank you.

Operator

Thank you. Our next question comes from Scot Ciccarelli with Truist Securities. Please go ahead. Your line is open.

Josh Young
Josh Young
Equity Research Senior Associate at Truist Securities

Good morning, guys. This is Josh Young on for Scott. As we think about the slowdown in sales here, is it a function of you just aren't getting people into the top of the funnel, or is it more you get them in there, but then they're kind of falling out of the bottom? Any color on how you guys are thinking about that would be helpful.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, no, look, our web traffic is up year over year. Our conversion, as you go down the funnel, is actually improving. I would say the biggest opportunity, and some of it I think we can control, and some of it we can't control, is really kind of web traffic to what we call a selling opportunity. Does the customer do something that we can then, you know, kind of start the process versus just folks that have come to the website that are just viewing cars? Some of it is going to be that we can't control because there's going to be some folks that are just window shopping. Others, I think we can control in just how we do in the presentation on that first initial glance, how we make the website stickier up at that top of the funnel.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

I think it's a little bit kind of macro, but I think there's absolutely some improvements we can make.

Josh Young
Josh Young
Equity Research Senior Associate at Truist Securities

Gotcha. Yeah, that's helpful. Thanks.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Sure.

Operator

Thank you. We will move next with David Lowenstein with Morningstar. Please go ahead. Your line is open.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Thanks. Good morning. I was kind of saying on that question, maybe help me fill in some blanks here because it sounds like at the beginning of the quarter you wanted to, the tariff juicing of demand didn't really happen on the quarter. You were trying to clear them and try to get rid of that depreciation. You're saying web traffic was up, your conversions improving, yet your unit volumes were still down over 5%. Used prices have been elevated for a long time now. Is the consumer just staying away, or is it that they're still having sticker shock despite this many quarters of elevated pricing?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, David, just for clarification, the web traffic is up. What's down for us would be what I would call selling opportunities. Once we have a selling opportunity, the conversion, we're actually seeing some good improvement in conversion just down through the rest of the funnel. The opportunity really is when a customer hits our website, actually getting them to do something on the website. Some of that I think is in our control. Some of it is not in our control. You're just going to have folks that are coming in there and realize, you know, either they're just looking or they're not ready to buy. That's kind of the clarification of your question between, your traffic's up, your conversion up, why aren't you seeing more sales? That's why.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

I would say not all traffic is considered the same. A 780 comes through the door versus a 580 comes through the door. They convert at tremendously different rates.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Yeah.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

High quality is down even at the very high end of prime, right?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

What we're seeing is that the higher FICO customers, the app volume is down. That, you know, that's a core customer of ours. You're seeing that kind of, and Jon, keep me honest on that, you're probably seeing it probably 600 and above is probably down. Certainly, at the high end, I think the one area that's maybe not down is probably low FICO 550 and below.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Right. I think, again, I don't think we're alone there. We can talk to other lenders, other dealers. You can see it in the credit bureaus. It's apparent.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Okay, thanks, guys.

Operator

Thank you. Our next question comes from Jeffrey Francis Lick with Stephens Inc. Please go ahead. Your line is open.

Jeff Lick
Jeff Lick
Managing Director at Stephens Inc

Good morning. Thanks for taking my question. Bill, I was wondering if we could talk about the concept of the reserved inventory that you guys do. My understanding is it's any, it's at the most seven days. It's usually around seven, but not always seven. Our records or just our analysis shows that roughly about 40% of your inventory at any given time online is reserved. It appears that, let's just take a unit that was probably attractive because someone's reserving it. Someone else who wants it doesn't see it, or it's at the back of the queue. I'm wondering your thoughts there in terms of how that's affecting sales and if that's a policy you're looking at changing.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, no, look, I think there's both reserve inventory and there's inventory that can't be transferred. I think the reserve inventory generally is inventory that has a customer that's basically interested in that inventory. You know, that's obviously, when you've got a customer in Richmond that's interested in a car in Pennsylvania, we think that's a huge benefit that that customer can actually get that car. That plays into our transfers. I think the only thing that we'd be looking at there from a reserved inventory standpoint is just to make sure that we're being active on how long a consumer can actually hold the car or reserve the car and that the transaction is progressing. On the vehicles that are labeled not transferred, the only reason they're not transferred at that time is because it's generally related to title issues. In some states, you can sell them.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

You'll see it on our website, hey, this can't be transferred because you can sell that car without a title in that state. There's other states you cannot sell a car without the title. We're not going to transfer that car in that case. Once the title becomes available, it certainly can be open for transfer if it's still around. Those are the two buckets we think about that would bring just kind of your overall available inventory down.

Jeff Lick
Jeff Lick
Managing Director at Stephens Inc

I'm assuming you won't disclose this, but in terms of the amount of sales, the percentage of people that are reserving, I'm wondering what % actually buy versus it goes back in. How much of the inventory actually kind of sits out of view of the next potential buyer for seven days?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, I mean, we haven't gone into the specifics, but obviously, we look at the economics of that. The other thing I'd let you know is even on the reserved inventory, consumers can still express interest for it and say, hey, please let me know if this does not actually pan out with that customer. Keep in mind, when you think about the reserved inventory, a third of our sales are through transfers, and they go through the reserved inventory process. You're absolutely right. We go through an economic decision, and where we are with that is we feel really good about it. Can we add a little extra friction just to make sure that cars aren't held for reserve over three days? Sure, but that's a small enhancement.

Jeff Lick
Jeff Lick
Managing Director at Stephens Inc

Okay, great. Thanks for taking my question. Best of luck. Thank you.

Operator

Thank you. Our next question comes from Michael David Montani with Evercore ISI. Please go ahead.

Michael Montani
Michael Montani
Managing Director at Evercore

Yes, hi. Just had two questions. The first question was really around the credit trends. Can you just give us some more color in terms of the progression that you saw playing out throughout the quarter? You know, when you think about kind of delinquency rates and then how we should be thinking, you know, for provisions into the third quarter. The other question, let's do that and hopefully get to the other one.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Sure. Yeah, I appreciate the question. If you look at delinquency rates for the quarter, there's definitely a seasonality trend that you're always going to have to observe there. You're coming out of tax time into Q2. It ramps up delinquency rates, will ramp up through the rest of the calendar year and then back down through delinquency time typically. All in all, if you look at overall delinquency rates, we're really looking at it by vintage. We're looking at it, are they as expected? They're often not the best indicator of ultimate loss, timing of loss, what have you. If I think broadly, through the quarter, aside from those vintages that we've adjusted on, as you can imagine, the delinquency trends on the newer stuff and even the older stuff that's more seasoned continue to be in line.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yeah, again, we feel very positive as we continue to put on that lower risk, tightened stuff that'll perform well. Hopefully that addresses your question.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Mike, I think part of your question too was just on the kind of provision as we go forward. I think the way to think about that, I mean, you saw what our provision was for our originations this quarter. You saw what we're calling the true-up is. I think the way you should think about it is the provision this quarter for the new originations, I think that's pretty representative. Just with the stuff that we're going into, it might be a little bit higher, but we feel good about the true-up. The provisions, Jon, and you certainly speak up, but we would expect it to be more.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yes, you saw the $71 million this quarter. Again, you can go back and look at where we didn't have outside strips where it was probably lean a little higher, considering that we are, again, going after a little bit lower in the credit spectrum. That is going to require a higher upfront provision. Yeah, hopefully the true-ups are going to be minimal. That is our goal through this. We feel like that older stuff is rolling off. I would think you'd see more in that $70-80 million, certainly south of $100 million range from a provision standpoint.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Like Jon said, what we're seeing in the 2024 and 2025 vintages is they are just simply meeting our expectations in terms of what the loss trends are. What we're really talking about here, and we've taken a material hit to our provision this quarter, is the provision for new originations that Jon and Bill just spoke to.

Michael Montani
Michael Montani
Managing Director at Evercore

Okay, the follow-up question that's helpful was just around some of the cost savings. You had called out $150 million, which could work out to somewhere around $200 a car here potentially as reinvestment fuel if you decided to do it. On the COGS front, I believe you've said in the past that there could be another $100 or $200 there as well. I just wanted to understand, is that separate and distinct? Am I kind of in the ballpark there in terms of some of the COGS opportunity? Bottom line, if it does require several hundred dollars of reinvestment into sharper pricing, is that something that you all are committed to doing in order to reinvigorate the top line?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, okay, a lot in that question. Let me tackle the COGS and the SG&A. You're thinking about that the right way. They're separate, separate initiatives. On the COGS side, if you recall last year, we were going after, over a couple of years, we were going after $200 in COGS savings. Last year, we actually got $125. At the beginning of this year, we actually talked about going after another $125 for this year. We're ahead of where we thought we'd be from a $200 goal. I will tell you we're still on track for that $125 for this year, partway through the year. That is a separate and distinct initiative versus the SG&A savings. We don't want to get those two muddied up.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

To your question about, hey, if, you know, would you be willing to reinvest all of that back in to be, you know, to make sure that you're competitive? What I would tell you is yes, but I would also tell you I don't think that's necessary. I think that we'll be able to take some to the bottom line, absolutely, but we'll invest some of them back in an appropriate amount. As I sit here right now, I don't, I can't see a scenario where you'd have to take all that savings and put it back into price. Again, I also want you to know that we're going to continue to be price competitive.

Michael Montani
Michael Montani
Managing Director at Evercore

Thank you. Thanks, Mike.

Operator

Thank you. Our next question comes from Christopher Alan Pierce with Needham & Company. Please go ahead. Your line is open.

Chris Pierce
Chris Pierce
Senior Analyst at Needham & Company

Hey, good morning. Just kind of following up on that question, I guess. We've talked a lot about pricing in the quarter, pricing going forward. Is this something that, you know, should we reset our, because you guys have sort of reset GPU expectations kind of higher with your performance. Does this conversation around pricing mean that investors should maybe reset GPU expectations modestly lower, or is it too soon to tell, or how kind of intertwined would those be?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, no, Chris, that's a great question. What I had said at the beginning of the year is, from a modeling standpoint, you can kind of think about year over year on a retail GPU will be similar. I also said, hey, any given quarter, there's going to be some puts and takes, and I think that's what you're seeing here. I think we still feel comfortable for the year as a whole to use that kind of retail GPU target. What I will tell you is, if you think about the third quarter, if you look at last year's third quarter, it was a record high. I would expect us to certainly come off of that from last year and be more kind of in the historical range.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

I think you didn't ask it, but I think you can think about wholesale being the same way on a year over year. I think you can keep that target that we talked about being very, very similar. Similar to retail, last year's third quarter wholesale was one of the strongest, probably the top two or three GPUs that we had in wholesale for a third quarter. I would expect to come down and be more in line with kind of historical averages on that one for the quarter.

Chris Pierce
Chris Pierce
Senior Analyst at Needham & Company

Okay. Thank you for that. I might get my years wrong here, but at the end of 2022, I believe it was calendar 2022, when you guys had too much inventory at that period in time and dealers were being more aggressive on pricing. It kind of took you longer to work through because you wanted to hold margin versus pricing, and there was sort of a longer reset to your inventory level. I just want to confirm that's sort of not what we're talking about here because of your commentary about September and this being more one-time. I guess I'd just love to hear you talk through that, and apologies if I got the dates wrong, given your being so much in line up with quarters.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

You actually did get the date wrong. It was really, which I think what you're referring to is the big depreciation events, which we saw in calendar 2023 and 2024. I believe there was one in the end of 2023, and there were two in 2024 that we worked through. Just to remind everyone, on those events, it was about, for each of them, it was about $3,000 in each of the events over a few months. The degree of it was different back then than it is here. This event, a couple of different things. One, it was $1,000 over about a month period, and then you saw some stabilization. We're also going into a period where, you know, you're going to see generally seasonal depreciation. We wanted to make sure we got through that.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Those events that you were talking about, basically at those times, you know, you look at that elasticity with all the things that we talked about earlier that go into that equation. You know, we held our margins a little bit more because at the time that made sense. This one actually made sense. Let's get this stuff through. Again, we'll tackle these things as they come up.

Chris Pierce
Chris Pierce
Senior Analyst at Needham & Company

Okay, thank you and good luck. Thank you.

Operator

Thank you. As a reminder, it is Star and One on your telephone keypad if you would like to join the queue. We have a follow-up from Rajat Gupta with JPMorgan Chase & Co. Please go ahead.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Oh, hi. Thanks. Just wanted to follow up on CAF. You know, just going back to the commentary on still expecting flat to slightly down. Could you help us a little bit more on the third quarter? You know, you're going to get the gain on sale from the $900 million, but you're also going to lose like a quarter of net interest income on that $900 million. It almost feels like a wash. Is that the right way to think about it? If you could give us a little more color on how you get to, you know, still flat income, even if you have like $80 million provisions in the third quarter and maybe in the fourth quarter. It's just hard to bridge that.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Sure. Yeah, I think you've got a couple of things going on there. First, yes, you've got the income, but you're going to realize that all up front, whereas again, the receivables you're going to no longer have there. You were going to gain that income over time. That's a bit of a pull forward. Your overall NIM will be impacted. There's no doubt about that, Rajat. You're correct. Obviously, when we look at the provision going out, that's a key piece of it. Again, you're bringing on higher NIM receivables as well. I think that's helping benefit you to bring that NIM back up in the probably by the fourth quarter off of where you are in the third quarter. I think all that's playing together.

Enrique Mayor-Mora
Enrique Mayor-Mora
EVP & CFO at CarMax

Yeah, I think you got servicing income. You have the 5% retention. Right. There are things that, you know, should provide a tailwind.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

Yeah, I'd probably say it's more slightly down. A lot plays into what's the origination provision, where's the NIM, where the losses go ultimately. I'd say probably slightly down more than flat.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

For the full year.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

For the full year.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Not necessarily for the third quarter.

Jon Daniels
Jon Daniels
EVP - CarMax Auto Finance at CarMax

No, for the full year. Take last fiscal year, this fiscal year, that's what I'd refer to.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Understood. Great. Okay, thanks for the color.

Operator

Thank you. We do have another follow-up from Brian William Nagel with Oppenheimer & Co. Inc. Please go ahead. Your line is open.

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

Thanks for slipping me back in here. My follow-up question, and I think we've discussed this in the past, did you notice anything with regard to, I'm looking at used car unit demand, anything notable with regard to the different type of vehicles? Was there a stronger trend, high-end, low-end, that type of, and has anything shifted as we pushed here through the fiscal year?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, I think a couple observations. I mean, I feel just the industry as a total, you're seeing older vehicles, like if you look at older vehicle registration, older vehicles being, you know, older than 10 years old, that market segment is doing better than the 0 to 10. In the first quarter, I think we kind of had a barbell effect where your under $25,000 cars were up year over year, but so were like your $40,000 plus. This quarter, pretty much everything was down. The under $25,000 was, you know, the % of sales was up a little bit over last year. As far as the other ones, they were either down or a little bit flat. You still picked up some more as a % of sale in the under $25,000 car.

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

Bill, to that end, I know you've been merchandising different, so to say, to reflect the consumer preferences. As you look forward, are you pushing further into that older inventory within the system?

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Yeah, look, we've obviously run and focused on this. I think if we look at what we call that value max sale, let's call it six years and older or more than 60,000 miles, we had a bump up in sales in that. We're up, if you look year over year, we had a nice little tick up, which means we had more of that available. I think our goal will be to continue to have more of that available, but I also think that we have to make sure that there's also a good selection of later model used cars as well because that appeals to a lot of CarMax customers also.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

You can't go to, at some point, you have the benefit that you get of having older, higher mileage will be offset because you don't have some of the vehicles that the core CarMax customer is looking for. We'll walk that, we'll walk that line.

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

I appreciate it. Thanks.

Bill Nash
Bill Nash
President, CEO & Director at CarMax

Sure.

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
Bill Nash
President, CEO & Director at CarMax

Great. Thank you, Nikki. Thank you for joining the call today and for your questions and your support. As always, I just want to thank our associates for everything they do to take care of each other and the customers in our communities. We will talk again next quarter.

Operator

Thank you, ladies and gentlemen. That concludes the second quarter fiscal year 2026 CarMax earnings release conference call. You may now disconnect.

Executives
Analysts
    • Brian Nagel
      MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.
    • Rajat Gupta
      Executive Director - Autos at JP Morgan Chase & Co
    • Sharon Zackfia
      Group Head–Consumer at William Blair & Company, L.L.C
    • Chris Bottiglieri
      Senior Equity Research Analyst at BNP Paribas
    • David Bellinger
      Director & Senior Analyst at Mizuho Financial Group
    • Josh Young
      Equity Research Senior Associate at Truist Securities
    • David Whiston
      Senior Analyst - U.S. Autos at Morningstar
    • Jeff Lick
      Managing Director at Stephens Inc
    • Michael Montani
      Managing Director at Evercore
    • Chris Pierce
      Senior Analyst at Needham & Company
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