CarMax(US:KMX)2023-09-28 17:40Financial Data and Key Metrics Changes - Total sales for the second quarter of FY '24 were $7.1 billion, down 13% year-over-year, attributed to lower retail and wholesale volume and prices [1] - Net earnings per diluted share decreased to $0.75 from $0.79 a year ago [8] - Total gross profit was $697 million, down 5% from the previous year [8] - SG&A expenses were $586 million, down 12% year-over-year, reflecting cost management efforts [9] Business Line Data and Key Metrics Changes - Retail unit sales declined by 7.4%, with used unit comps down 9%, although there was sequential improvement [1] - Wholesale unit sales decreased by 11.2% compared to the same quarter last year [2] - Retail gross profit per used unit was $2,251, similar to last year's record high of $2,282 [2] - Wholesale gross profit per unit increased to $963 from $881 a year ago [3] Market Data and Key Metrics Changes - Approximately 14% of retail unit sales were online, up from 11% last year [5] - Total revenue from online transactions was approximately 31%, slightly up from 30% last year [5] - The weighted average contract rate charged to new customers was 11.1%, an increase of 170 basis points year-over-year [17] Company Strategy and Development Direction - The company aims to enhance customer experience through operational efficiencies and a seamless omni-channel experience [22] - New capabilities are being rolled out to improve digital shopping experiences and customer service [23][24] - The company is focusing on maintaining a high self-sufficiency rate in vehicle sourcing, which remained above 70% [4][95] Management's Comments on Operating Environment and Future Outlook - Management noted that trade-in cycles are elongating due to affordability issues, particularly among lower credit customers [39] - There is an expectation of continued demand for older vehicles, with sales of cars over six years old increasing [47] - The company is closely monitoring the impact of UAW strikes on vehicle supply and pricing [107] Other Important Information - CarMax Auto Finance (CAF) income decreased to $135 million from $183 million year-over-year, primarily due to increased interest expenses [18] - The company plans to restart its share repurchase program at a modest pace, initially targeting approximately $50 million per quarter [14][44] Q&A Session Summary Question: Trade-in cycles and customer reluctance - Management acknowledged that trade-in cycles are longer as customers are hesitant to give up lower rates locked in during the pandemic [39] Question: Share buyback decision - The decision to restart buybacks is part of a capital allocation strategy to balance business investment and shareholder returns, starting modestly at about $50 million per quarter [44][46] Question: Demand trends and vehicle sales - Management noted improved demand for older vehicles, particularly those over six years old, despite challenges in converting interest into sales due to affordability issues [47][39] Question: Impact of UAW strikes - Management is monitoring the situation closely, noting that the impact on vehicle supply and pricing will depend on the duration of the strikes [107] Question: Financing rates and customer affordability - The flat weighted average contract rate indicates that customers may be reaching their limit on affordability, with management carefully testing rates to optimize overall value [152]