CarMax(KMX) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for the third quarter were $5.8 billion, down 6.9% year-over-year, reflecting lower volume [12] - Retail unit sales declined by 8%, with used unit comps down 9% [12] - Average selling price increased to $26,400, a year-over-year increase of $230 per unit [13] - Net earnings per diluted share were $0.43, down from $0.81 a year ago, impacted by $0.08 of restructuring expenses [14] - Total gross profit was $590 million, down 13% from the previous year [15] - SG&A expenses were $581 million, up 1% from the prior year, driven by marketing investments and restructuring expenses [15] Business Line Data and Key Metrics Changes - Used retail margin decreased by 11% to $379 million, with profit per used unit at $2,235, down approximately $70 from last year's record high [15] - Wholesale vehicle margin decreased by 17% to $115 million, with gross profit per unit declining by approximately $120 year-over-year [15] - CarMax Auto Finance income increased by 9% to $175 million, supported by underwriting and pricing adjustments [19] Market Data and Key Metrics Changes - The company purchased approximately 238,000 vehicles during the quarter, down 12% from last year [14] - The average wholesale selling price declined by $40 per unit to $8,100 [13] Company Strategy and Development Direction - The company is focused on narrowing the price gap between its offerings and the marketplace, lowering margins, and increasing marketing spend [8][10] - A renewed emphasis on customer experience and digital selling capabilities is being prioritized to drive conversion and improve customer satisfaction [9][10] - The company aims to reduce SG&A expenses by at least $150 million by the end of fiscal year 2027 [16] - The board is actively searching for a permanent CEO who can drive sales and strengthen the brand [5][6] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that recent results have been unacceptable and emphasized the need for immediate change [4][5] - There is optimism that immediate pricing and marketing actions will improve sales performance, although they may pressure earnings in the near term [11] - The company believes it has the necessary attributes for a successful turnaround and is committed to strengthening performance [11][23] Other Important Information - The company is undergoing leadership changes, with an interim CEO and chair in place while searching for a permanent CEO [4][5] - The company is committed to transparency about its progress and performance [23] Q&A Session Summary Question: What is the magnitude of the GPU reset expected in the February quarter? - Management indicated that margin reductions will be meaningful and are optimistic about improving retail sales trends [28][29] Question: Are there specific customer cohorts where CarMax has become less competitive? - Management noted a loss of volume in the higher FICO segments and is focused on recapturing those customers [30][31] Question: Will CarMax adjust interest rates to be more competitive? - Management stated they monitor market rates and will adjust accordingly, focusing on the overall offering rather than just interest rates [32][33] Question: What is the baseline SG&A from which the company expects to cut $150 million? - The baseline SG&A is approximately $2.5 billion, with reductions compared to last year [46][47] Question: What is the strategy for reducing COGS? - The company is focused on COGS reduction through initiatives like regional reconditioning centers and improved parts selection tools [78][79] Question: How is the board approaching the search for a new CEO? - The board is looking for a leader with experience in complex businesses and digital transformation, with urgency in the search process [96]