CarMax(US:KMX)2023-06-23 16:09Financial Data and Key Metrics Changes - For the first quarter of FY'24, total sales were $7.7 billion, down 17% year-over-year, driven by lower retail and wholesale volume and prices [79] - Net earnings per diluted share were $1.44, down from $1.56 a year ago, with total gross profit at $817 million, down 7% from the previous year [82][84] - Average selling price declined approximately $1,600 per unit or 5% year-over-year, while retail gross profit per used unit was $2,361, consistent with the previous year [60][82] Business Line Data and Key Metrics Changes - Used retail margin was $515 million, down 9% year-over-year, while wholesale vehicle margin was $168 million, down 12% [64] - CarMax Auto Finance (CAF) income for the quarter was $137 million, down from $204 million in the same period last year, primarily due to an increase in loss provision and interest expense [21][62] - Retail unit sales declined 9.6%, with used unit comps down 11.4%, reflecting an improvement from previous quarters [79] Market Data and Key Metrics Changes - Wholesale unit sales were down 13.6% compared to the first quarter last year, but this was an improvement from the declines seen in the previous year [53] - Approximately 14% of retail unit sales were online, up from 11% last year, while omni sales remained consistent at 54% [54] - The company sourced approximately 20,000 vehicles through dealers, up 20% from last year [53] Company Strategy and Development Direction - The company is focused on enhancing its omni-channel platform to deliver a customer-centric experience, integrating digital and physical transactions [26][28] - Continued investment in technology, such as the Sky virtual assistant, aims to improve operational efficiency and customer service [28][110] - The company plans to roll out additional functionalities to Sky throughout fiscal 2024, enhancing customer interactions and reducing operational costs [30][112] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the trajectory of the business, noting improvements in sequential growth despite year-over-year declines [6][78] - The company anticipates that the steps taken will enable it to emerge stronger from the current environment, with a focus on driving robust growth as the market improves [33] - Management acknowledged ongoing affordability issues but noted a shift in vehicle mix towards more affordable options [121][124] Other Important Information - SG&A expenses for the first quarter were $560 million, down 15% from the prior year, reflecting cost management efforts [84] - The company has paused share buybacks in the first quarter, maintaining a $2.45 billion authorization for future capital returns [70] - The existing Tier 1 portfolio continues to trend within the targeted 2% to 2.5% cumulative net credit loss range, with expectations for a reduction in loss rates for future originations [22] Q&A Session All Questions and Answers Question: What is the market share dynamic observed early in the year? - Management noted that they believed they had bottomed out in December, with title data through April confirming this [37] Question: Can you discuss the impact of student loan payments on demand? - Management indicated that most retail customers are likely outside the student loan period, suggesting limited impact on demand [12][14] Question: How is the company managing SG&A costs? - Management highlighted a focus on operational changes and staffing adjustments to drive improvements in SG&A [38][66] Question: What are the expectations for gross profit margins moving forward? - Management expects margins to be similar to last year, with a target range of $2,100 to $2,200 for the full year [60][104] Question: How is the company addressing inventory mix and affordability? - Management noted a shift towards older vehicles and increased availability of cars under $20,000 to enhance affordability [122][124]