Title

Presentation

CarMax, Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.16.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year 2026 CarMax, Inc. 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. I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead.

David Lowenstein: Thank you, Nikki. Good morning, everyone, and thank you for joining our fiscal 2026 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 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. For additional information on important facts and risks that could affect these expectations, please see our Form 8-Ks filed with the SEC this morning and our annual report on Form 10-Ks for fiscal year 2025 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 (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: 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 gaining market share, expanding gross profit, managing CAF’s credit spectrum expansion, leveraging SG&A, and buying back shares. 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. We materially leveraged SG&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 $7.5 billion, up 6% compared to last year, reflecting higher volume partially offset by lower prices. In our retail business, total unit sales increased 9%, used unit comps were up 8.1%.

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 our 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. We purchased approximately 288,000 vehicles from consumers, with more than half of those buys coming through our online instant appraisal experience.

Enrique Mayor-Mora: With the support of our Edmund sales team, we sourced the remaining approximately 48,000 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. 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 omnichannel experience and our digital capabilities to the forefront for a broad set of consumers. And now I’ll turn the call over to Jon to provide more detail on CarMax Auto Finance. Jon?

Jon Daniels: Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2.3 billion, 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, higher Tier 3 penetration, both of which more than offset our expansion since Q4. Third-party Tier 2 penetration in the quarter was down 100 basis points year over year to 17.7% of sales, while third-party Tier 3 volume accounted for 8% of sales, up from 7.5% last year.

CAF income for the quarter was $142 million, which was down $5 million from FY ’25. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding costs. CAF’s loan loss provision of $102 million 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. Note that 2024 vintages remain largely in line with our original loss expectations. 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 million 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. 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, capital book any gain realized by selling the financial interest in the loans. Also, 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, allowing us to mitigate risk while focusing on our growth plan. Loan loss provision of $102 million results in a total reserve balance of $474 million or 2.76% of managed receivables exclusive of auto loans held for sale. Note there was a reduction on this quarter’s provisions stemming from $26 million 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. 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: Thanks, Jon, and good morning, everyone. 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 million, up 13% from last year’s first quarter. Used retail margin of $554 million increased by 12%, with higher volume and per unit margin. Retail gross profit per used unit was $2,407, up $60 from a year ago, and a record high. Wholesale vehicle margin of $157 million 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 $1,047, which was historically strong, though down slightly from a year ago. Other gross profit was $183 million, up 31% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $13 million or $9 per retail unit as we fully comped over margin increases taken in the prior year. Service recorded a $33 million margin, which was a $30 million improvement over last year’s first quarter. We achieved this performance improvement through cost coverage, volume-based leverage, and efficiencies. On the SG&A front, expenses for the first quarter were $660 million, up 3% or $21 million from the prior year. SG&A to gross profit leveraged by 180 basis points to 74%, driven by the growth in gross profit and our ongoing actions to improve expense efficiencies.

SG&A dollars for the first quarter versus last year was mainly impacted by compensation and benefits increase of $19 million. 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 2026 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 cost of selling and buying vehicles in our pre-Hyundai model to our cost now, which includes a new per unit commission as well as the cost of running our customer experience centers.

A key driver of these efficiency gains and experience enhancements has been our 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, 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 million shares for a total spend of $200 million. As of the end of the quarter, we had approximately $1.74 billion 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. Recall that the first quarter is typically the strongest for service margin due to higher seasonal sales volume. 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 Jon 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: Great. Thank you, Enrique and Jon. 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 positive retail unit comps and double-digit earnings per share growth. We grew both retail and wholesale unit volume. 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&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. 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 that 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. Thank you.

Operator: Thank you. And 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 by pressing star 2. Once again, to ask a question, please press star and 1 on your telephone keypad. And your first question comes from the line of Brian Nagel with Oppenheimer. Your line is open. You may now ask your question.

Brian Nagel: Nice quarter. Congratulations. Really nice quarter.

Bill Nash: Thank you, Brian. Thank you.

Brian Nagel: So I guess the question I want to ask, we’ve seen a nice acceleration here in your used car business. I know you don’t typically talk much about intra-quarter trends or into the following quarter. But I would love to the question I ask is, I mean, how are you viewing sustainability here? You look at this, is it the business coming back? Is there anything unique to this reacceleration? And then a, you know, follow-up to that is, and you showed again in this quarter nice SG&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: Sure, Brian. I’ll take the first one. Then Enrique, you want to talk about the expenses. As far as, you know, acceleration, look, Brian, we feel really good. I mean, first of just back up a second. We’re really pleased that this is the fourth consecutive quarter of comp growth. Obviously, this quarter, we’re pleased with the comps. Especially, you know, all three months were positive. As I think about the acceleration and we talked a little bit about this last quarter. I know, I think this month’s quarter’s performance is driven some by the macro factors, but I also think it’s driven some by what we have control. And I would go back to some remarks I made in the last quarterly call, which is, you know, 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 latter part of March, and then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But 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 done, you know, internally, whether it’s the inventory management, it’s our pricing, it’s our savings, it’s the omnichannel experience, continue to make that better. So I think this performance is both part market-driven. I think it’s also driven by us. So, you know, we feel great about the rest of the year. As I said, at the beginning of the end of last year, that we expect to grow sales and gain share this year, and there’s nothing that’s changed that outlook.

Enrique?

Enrique Mayor-Mora: Yeah. For SG&A, you know, Brian, we spent the past couple of years being able to lever SG&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 do think this quarter is really illustrative of the power of the model that we built. So strong comps, and we levered SG&A almost 700 basis points this quarter. And when you look at the increase in SG&A for this quarter, primarily, it was driven by variable cost. But, again, with those variable costs, we were able to lever again, by almost 700 basis points, taking us to the mid-70% in the first quarter. So, you know, we’re committed to continue doing that, and you can see the power of the model here.

Bill Nash: Yeah. And, Brian, the only thing I would add to that is that’s a big focus for us is continuing that leverage and just 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&A out. And we just think there’s a lot of opportunities still there.

Brian Nagel: Thanks, guys. Again, congrats.

Enrique Mayor-Mora: Thanks, Brian.

Bill Nash: Thank you.

Operator: Our next question comes from Scot Ciccarelli with Charisse. Please go ahead. Your line is open. Scot, your line is open.

Scot Ciccarelli: Good morning, guys.

Bill Nash: I apologize. Good morning. 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 that 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 from a broader perspective, like, how should we be thinking about this? Comp growth for the balance of the year?

Bill Nash: Yeah. I’ll tie it back a little bit to what 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 100% on that because there’s lots of dynamics that happen over the years. And you know, as far as the outlook for the rest of the year, look, we feel like we put ourselves in a good position. And as I said in 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 and nothing has changed that outlook. So okay.

Scot Ciccarelli: 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 million provision. But you don’t have to count it because it’s now being held for sale. Was that correct interpretation?

Bill Nash: Sure. Yeah. I can take that question, Scot. So first, overarching, let’s just talk about the Help Yourself transaction. Broader picture, like, are super excited about our full spectrum strategy. 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 future cash flows. 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. So those $630 million we’re 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. 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. On top of that, you’re gonna capture the gain when this sale closes. Know when the sale will close, but you can imagine it’s probably not in Q2, but sometime after that. Which is gonna 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, So, again, you had your origination volume, We signaled about a $100 million provision, at the 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. 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, wanna lay out the entire transaction. How it plays out, and how the provision was impacted by that. So, hopefully, that’s clear.

Bill Nash: I think, Scot, you know, 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 cap income growth mitigating risk. So it’s a tool that we’re excited about. As Jon had mentioned in his remarks, we’re also looking at other ops balance sheet potential funding vehicles as well. To further accelerate and help us grow our full spectrum strategy.

Scot Ciccarelli: Okay. Super helpful. Thanks, guys.

Enrique Mayor-Mora: Yep.

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

Michael Montani: Yes. Hey, guys. Good morning.

Bill Nash: Thank you.

Michael Montani: 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, can you share some basic levels of awareness kind of prior to that campaign and what exactly it is you’re doing differently there.

Enrique Mayor-Mora: And then I guess the follow-up was just also related to credit, which was, you know, does this signal that you’ll be kind of increasing subprime penetration as a percentage of the loans that you’re issuing as well?

Michael Montani: And just how should we think about that?

Bill Nash: Yeah. Great. I’ll hit the marketing, then I’ll pass it to Jon to talk about the subprime question. As far as the marketing goes in kind of awareness there, like, 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 marketing campaigns in the past. I think 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 Cox information, and I did that purposeful because if you look at how customers want to buy, they intend to buy omni. But if you look at how the vast majority of them still buy today, it’s all in-store.

And I think what happens is consumers they want to buy a certain way, but then they settle. They go into a dealership and they’re forced to buy a certain way. And what we want to 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 settle. Like, you know, CarMax has the best no matter how you want to buy. And I think that is really gonna start to resonate folks as they’re looking for options in the future. Jon, I’ll turn over to you on the subprime.

Jon Daniels: Yeah, Michael. I’ll take that take your question on the subprime growth. And yeah. Fair question. Short answer is absolutely, we are looking to grow. We’ve signaled that very clearly. We made adjustments at the beginning of Q1 taking volume back. We signaled 100 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 are 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 this hub for sale supports that. So if I were signaling, you know, a level to you of penetration, because, again, we’re at 42, 43% historically, We said we want to grow that.

I put the a great first step for us at 50%. We’re not gonna get there this year. We will tell you as we grow that. But, yeah, that is our plan, and we’re really excited about it. A tremendous amount of value as we grow this in the quarters and upcoming years. Thank you.

Operator: Our next question comes from Chris Bottiglieri with BNP Paribas.

Chris Bottiglieri: Hey, guys. Thanks for taking the question. So first off, congrats on the mental agility around the subprime funding. I think it’s an interesting structure. Just have one clarifying question on that, but just a broader question on credit. What percentage of new originations were classified as held for sale? Were those part of the $26 million you cited or would that be incremental? And then my broader question is just, obviously, you elaborate on the, you know, the allowance stepping up and some of the factors that drove that. Much of this is, like, 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: Sure. Yeah. Appreciate the questions, Chris. Sorry. Take them in order. So, you know, how do we think about the provision takedown from the held for sale? How much was it? From new originations versus the fourth quarter or previous originations we had on the books? 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 it 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%. What we’re seeing in performance and as it relates to student loans. Yeah. As I said in the prepared remarks, I think, you know, the twenty-two and twenty-three vintages certainly were, ones that performed more unfavorably in the quarter.

We think we have appropriately reserved and adjusted accordingly. I did say in our prepared remarks, actually, 2024, we feel real good about. We’re kind of on the mark there, you know, a year in on that stuff. A year plus in on that stuff. Regarding student loans, you know, let’s give you some statistics there. In the cap portfolio, about 30% of that we can see the credit bureaus. 30% of our customers have student loans. We’ve been watching them as you might imagine, for, you know, for years now. With the thought of our payment’s gonna be made, what forgiveness is done for those perform 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: 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, the kind of the economic factors as you lean forward, not immaterial, but I want to make sure everybody understands it’s more of the ’22, ’23s that are driving that. And even with that, they’re still very, very profitable.

Jon Daniels: Yeah. And to clarify that, last thing I’ll tackle on there is unemployment rates, the big one that’s driving that. Yeah. Again, not insignificant contributor.

Chris Bottiglieri: But not the majority of it. On the economic factors? Correct. Yes.

Bill Nash: Helpful. Thank you.

Jon Daniels: Yep. Thank you.

Operator: Thank you. Our next question comes from Sharon Zackfia with William Blair.

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

Jon Daniels: Yeah. Sure. Appreciate the question, Sharon. So let’s just break down penetration as it typically sits. You know, CAF has been historically sitting in where it’s originally where it’s normally originated at 42 to 43%. We’ve cited our tier two and tier three players taking combined cost 26% of volume. As we grow, is definitely where we’re looking to grow. So, we’re looking to penetrate that. We think about I think really, yeah, since your question is, you know, how fast will we grow, where, you know, that’s really where we’re looking to grow down there. I think key for us will be we’ve got discretizations in play. Looking for the help for Sam transaction that we need to close. That’s gotta happen. Just coming up anniversarying all our models.

We put in place a 100 to a 150 basis points of growth at the beginning of the quarter. Now as we stated, tariffs really threw a bit of a snafu in that in showing that growth that we realized. But we have made move we have we have made progress as sort of that volume normalizes because so much of it came with none you know, it’s coming up with our own financing. As that normalizes, you’re gonna see that we have made progress on that. Again, we’re gonna look to grow that. We will signal when that when that happens. But I think you’re gonna see material growth. We would expect in the not gonna get there this year, Sharon, at that 50% number I labeled, but you’re gonna see hopefully, material growth in the quarters to come.

Bill Nash: Sharon, the only other thing I you know, when you think about the penetration speed, there’s really two governors on that. One is having your funding available and that’s certainly taken care of. The other one to to Jon’s point, is is 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 full spectrum credit model in there, which we’re still testing. I mean, Jon, how long has that been in play that, you know?

Jon Daniels: Yeah. August, we launched it. Yeah. So it just takes time to make sure your model is exactly the way. So those are the two governors.

Sharon Zackfia: Thank you.

Enrique Mayor-Mora: Sure. Thank you.

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

David Bellinger: 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 Omnicost neutrality that you mentioned in the prepared remarks? And suggested that CarMax is now ready to flow more digitally initiated volumes in a more profitable way going forward. We’re just trying to gauge whether you’re seeing a step change within the digital economics of the business and or opting to put more marketing dollars behind that now.

Enrique Mayor-Mora: Yeah. I mean, that definitely enables, you know, 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 makes us feel a lot better. About going out there and advertising and letting letting our customers know incredible experience and highly differentiated experience that they’re gonna get through CarMax.

Bill Nash: Yeah. I think, you know, David, the way I think about it too is, you know, FY twenty-five was a big year for most from an experience standpoint and really closing some of the last big gaps, you know, with the rollout of order processing and shopping cart. And so we feel like we’re at a point where you’re gonna go out and celebrate this and really point direct, you know, customer 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. 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. 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: Great. Thank you both.

Bill Nash: Thank you.

Operator: Thank you. Our next question comes from Rajat Gupta with JPMorgan.

Rajat Gupta: Great. Thanks for taking the questions. Just had, like, a couple of clarifications. Clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started? We were anecdotes just your broader macro around, you know, some meaningful pullback from, like, just the pre-buy ahead of tariffs. Curious if your business has sold any of that here in June, any color you could give on there? And then just on CAF, I mean, obviously, a lot of discussion there. 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? You know, that would be helpful. Thanks.

Bill Nash: 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 you know, remember, or you may not know this, but the second quarter, we do lose a Saturday and it 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 Saturday up until the rest of the year. Jon, I’ll toss you on the provision.

Jon Daniels: Sure. Yeah. Yeah. For 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. We feel good about the twenty-fours. Obviously, notwithstanding the consumer and all that could happen in the future. But, again, we feel good about our reserve. Ideally, this just beer provisioning for new originations. The only thing that could throw that is what is our growth plan. Obviously, if we grow, you’re gonna have to add provision accordingly for that non-prime space, but we’ll signal that when we’re gonna do any material more growth there. So

Bill Nash: Yeah. 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 where we’re well on our way there. Just got a little bit masked this quarter.

Rajat Gupta: Understood. Great. Thanks for the color. Thank you. Thank you.

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

Craig Kennison: 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%. That was down from 82% in the February. So I think you lost a point in Omni and a point in online. Know you’re really focused on the omnichannel, 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: Yeah. I think I think part of it is just is just seasonally. Craig. I mean, I don’t really I mean, I think may I think Omni is actually up point and maybe online’s flat or or or you know, maybe down point. But, I mean, I think it’s more seasonally driven. I think the more interesting and the more relevant point is that we continue in the omni bucket. 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 continuing to increase.

Craig Kennison: And then just to follow-up on 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: Yeah. Well, I think, you know, I think the big new buzzword is GEO instead of SEO. And, you know, it’s that generative engine optimization. That’s what it’s all about. It’s like, how do you show up well? So it’s critical. I think if you’re only focused on SEO, you’re gonna miss the boat. SEO is still super important. You still gotta focus that. But now you have to kind of also be really good at GEOs. So it’ll play a big role in the marketing campaign. And I just think in marketing in general, I think, you know, generative AI there’s just a lot of potential there.

Craig Kennison: Thank you.

Bill Nash: Thank you.

Operator: Our next question comes from Jeff Lick with Stephens Inc.

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

Bill Nash: Yeah. 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? Know? We’re really pleased with it. And I think the credit expansion look. It’s the next step. We’ve been working through that. It didn’t we didn’t contemplate the provision of the fourth quarter, but it’s something we’ve been working on. So we’re excited about that. I think you brought up an interesting point on just the age, you know. We did sell if I look at our let’s call it, ten plus year old cars, you know, we increased we probably sold roughly 25,000 more of those cars. When I say it’s like think about the ten-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 wanna buy. But even, like, this past quarter where we saw this higher no finance, those are folks that have higher credit, 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 was kind of bar 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 gonna be critical. And that’s an area that we’ll continue to focus on without sacrificing the quality standards of CarMax. But that is a work track that we’re definitely focused on.

Enrique Mayor-Mora: 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 just collar certain cars or older cars and 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, so focus on affordability ability to meet the customer where they wanna be met. Met.

Jeff Lick: Great. I’ll get back in the queue. Let someone else ask a question. Congrats again.

Bill Nash: Thank you.

Enrique Mayor-Mora: Thank you.

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

David Whiston: Thanks. Good morning. 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: Yeah. On the share buyback, you know, what I’d tell you is our intent entering this year was to modest accelerate the pace of our buybacks as compared to last year. 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, you know, we’ll have the same considerations. Evaluation, cash flow dynamics, as well as the broader macro backdrop.

Bill Nash: Yeah. And I think as far as the consumers you know, how stressed that look. I wouldn’t categorize it as way more stressed than the last, but I certainly wouldn’t say they’re less stressed. And I think what you’re seeing is some of the consumers are you know obviously, 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. But I think there’s also a little bit of kind of weight and see on tariffs, you know. While tariffs have impacted some prices, I think there’s a lot of stuff was already a lot of things were already in the US before tariffs kicked in. So I think really, we’ll you just need to watch going forward as prices go up on for everyday consumables, how that might push them.

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

David Whiston: Thank you.

Operator: And once again, that is star and one on your telephone keypad if you would like to join the queue. We will move next with Chris Pierce with Needham. Please go ahead. Your line is open.

Chris Pierce: Hey. Good morning, everyone. You just walk me through cost avoidance and other cost of sales? I just I’m not sure what the model going forward. It was down $33 million 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: Well, I’m sorry. Which line are you talking about? $7 million in other cost of sales versus 40,000,000 year over year?

Enrique Mayor-Mora: Other I’d I know you’re talking about service. We had an improvement of $30 million 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. 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 million improvement in the service.

Chris Pierce: 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: Yeah. Other gross margin is certainly in line when when I talked about our our earnings model and our focus on being able to deliver high teen EPS growth over time and on know, mid single digit comps. That is something that we’re focused on is continuing to grow that that margin, that other margin and key components in other margin are gonna be service like I just talked about, And the other component is our EPP products. Right? We saw our EPP margin go up again this quarter. I talked last quarter about we’re we’re undergoing some tests. In terms of product enhancements in our 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.

And then with the full financial impact or more full financial impact as we head into FY twenty-seven. You know, we are laser focused on other gross profit as a as a vehicle for growth. In terms of fueling our EPS growth.

Bill Nash: Yeah. I think, Chris, for your for your modeling standpoint, I think it goes to some comments earlier because a lot of that’s being driven by service. And you know, the the the service in the first quarter is always the strongest we would expect, as we said last quarter, to 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: 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. And that’s what you’ve seen now for the past couple of years.

Chris Pierce: Okay. And then just lastly, going back to the first question, SG&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. I just kinda wanna get a sense of where we are in fully levering, you know, Omnicost and how should you think about this kind of going forward?

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

Enrique Mayor-Mora: 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&A. As a percent of gross profit. Whether comps were positive or whether comps were negative. We’ve been able to successfully lever our SG&A, and we intend on continuing to do that.

Chris Pierce: Okay. Thank you.

Bill Nash: Thank you.

Enrique Mayor-Mora: Thank you.

Operator: Our next question comes from it’s actually a follow-up from Rajat Gupta with JPMorgan.

Rajat Gupta: Great. Yeah. Sorry for the I just wanted to follow-up on the new off-balance sheet approach. And is it fair to assume that a lot of the incremental penetration that you see in the CAF of, 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 gonna be what you are targeting in terms of on versus off-balance sheet forecast.

Operator: Thanks.

Jon Daniels: Yeah. 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. You know, it’s it’s obviously, we have our prime our higher prime deals. We don’t think it’s necessarily set up for this approach. Less volatility there, less risk in those customers. And the non-prime approach is especially as we grow from 42 to 50%, which you’ve which you cited and I think it really does set itself up to at some points in time, maybe we do wanna retain that risk and all the additional cash flows that come with it because there is additional value there. We’re willing to to offload some of that risk take the cash upfront, And, again, maybe there’s a little bit of a haircut there. But it I think it’s an opportunistic play as we’re gonna see. So maybe it’s once a year. We’ll see how it plays out, but I wouldn’t think about it as an all or nothing play here at

Bill Nash: 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 that. I mean, that 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, wanna carry you know. And so to Jon’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.

Jon Daniels: 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, this 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, yeah, you know, that’s how I think about it.

Rajat Gupta: Understood. That makes a lot of sense. And thanks for taking the question.

Jon Daniels: Sure. Thank you.

Operator: We have another follow-up from Jeff Lick with Stephens Inc. Please go ahead.

Jeff Lick: 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 twenty-four zero seven. First time we’ve seen that 2,400. You know, last quarter, you 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 standalone recon centers to 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 could just kinda talk about the improvements you’re seeing there and where the trajectory might be?

Bill Nash: Alright, Jeff. I’m gonna try to hit it. There’s a lot in that question. I’m gonna try to hit it all, but you can keep me honest at the end. So then yeah. We’re pleased with the retail GPUs. And I think the big the big thing there you should be thinking about and I talked a little bit about this last quarter. Because someone asked, hey. How do you think about reteach GPUs? And 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 the reason I said that is you gotta look at the factors in the quarter. And you know, sometimes it’s you know, if you think about all the different things 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?

And this is one of those quarters. Like, look. We’re gonna we’re gonna take some of those savings you’re talking about from the reconditioning and logistics, and we’re gonna just flow them through 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 just want to remind everybody, we’ve had large reconditioning centers all up until now. Because if you think about it, we have 250 plus stores, but we only have a little over a 100 places where we produce cars. We’re seeing the benefits across the board. And it’s so early on the reconditioning side. You know, 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, you know, less out of market and being able to put them right there in the market.

They’re not they’re not I think we’ve got one that’s probably fully ramped to capacity. I would expect to continue to get synergies outside of those, but you know, we’re getting synergies across the board when you think about the reconditioning, and I would expect to continue to do that as we go forward. Did I miss anything? Okay. Oh, yeah. I did. I did. You asked about the six ten-year-old cars. Yeah. I yeah. The ten-year-old cars. I mean, hey, know, historically, we’ve talked about older cars. You bring them up to CarMax. Standard. They’re generally a little bit of a unicorn. 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: Great. Well, nice progress there.

Bill Nash: Thank you, Jeff.

Jeff Lick: Thank you.

Operator: We don’t have any further questions at this time. I will hand the call back to Bill for any closing remarks.

Bill Nash: Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support and as always, I 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 2026 CarMax, Inc. earnings release conference call. You may now disconnect.