Yahoo Finance CarMax Inc (KMX) Q2 2025 Earnings Call Transcript Highlights: Strong Unit Sales and Margins ...
Total Sales: $7 billion, down 1% year-over-year.
Retail Unit Sales: Increased 5.1% year-over-year.
Used Unit Comps: Up 4.3% year-over-year.
Average Selling Price: Declined approximately $1,250 per unit or 5% year-over-year.
Retail Gross Profit Per Used Unit: $2,269, consistent with last year's $2,251.
Wholesale Gross Profit Per Unit: $975, in line with $963 a year ago.
Vehicles Purchased: Approximately 300,000, up 3% from last year.
Online Retail Unit Sales: Approximately 15%, up from 14% last year.
Omni-Channel Retail Sales: Approximately 57%, up from 55% last year.
CAF Income: $116 million, down 14% year-over-year.
Net Earnings Per Diluted Share: $0.85, up 13% year-over-year.
Total Gross Profit: $760 million, up 9% year-over-year.
Used Retail Margin: $479 million, increased by 6% year-over-year.
Wholesale Vehicle Margin: $138 million, grew by 1% year-over-year.
Other Gross Profit: $144 million, up 33% year-over-year.
SG&A Expenses: $611 million, up 4% year-over-year.
Shares Repurchased: Approximately 1.4 million shares for $106 million.
CAF Originations: Approximately $2.2 billion, sales penetration of 42%.
Weighted Average Contract Rate: 11.5%, up 40 basis points year-over-year.
Provision for Loan Losses: $113 million, reserve balance of $501 million.
Release Date: September 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
CarMax Inc (NYSE:KMX) achieved positive sales trends and strong margins in the second quarter.
Retail unit volume grew year-over-year, with total unit sales increasing by 5.1%.
The company delivered strong retail and wholesale gross profit per unit, maintaining stable margins.
CarMax Inc (NYSE:KMX) achieved double-digit EPS growth, with net earnings per diluted share up 13% year-over-year.
The company saw increased adoption of its omni-channel retail experience, with 57% of retail unit sales being omni sales.
Negative Points
Total sales were down 1% compared to last year, reflecting lower retail and wholesale prices.
CarMax Auto Finance (CAF) income was down 14% from the same period last year due to an uptick in loan losses.
The provision for loan losses increased significantly, impacting overall financial performance.
SG&A expenses rose by 4% year-over-year, driven by higher compensation and occupancy costs.
The company faces industry-wide credit challenges, with higher delinquency rates and increased loan loss provisions.
Q & A Highlights
Q: Can you give us an update on how unit comps are trending today? A: We're pleased with the sales progress. The comp cadence for the quarter sequentially improved. For September, we're trending positive for the quarter, in line with the second quarter, but a bit softer due to day-of-week headwinds.
Q: Does it make sense to push forward with full spectrum lending given the credit headwinds? A: We feel good about our current position and the tightening measures we've implemented. We're excited about the full spectrum lending initiative and will continue to learn and adjust prudently.
Q: How do we think about the profitability of CAF given higher losses and changing funding costs? A: We've managed net interest margin well despite the environment. The provision for loan losses was outsized this quarter, but we believe it adequately captures current performance. We expect future provisions to be more in line with historical levels.
Q: How do you gauge the trajectory of credit performance and potential future tightening? A: We feel good about our current tightening measures and the performance of our portfolio. We will continue to monitor closely but do not foresee significant additional tightening in the near term.
Q: What impact did the CDK issues have on your comps this quarter? A: The CDK issues did not have a material impact. Our comp cadence improved each month, indicating that the CDK issues were resolved without significant disruption.
Q: Can you elaborate on the improvements in your digital progression tools and their impact on conversion rates? A: We've rolled out our new order processing system nationwide, making the experience seamless for customers whether they start online or in-store. Early results show improved conversion rates in both CECs and stores.
Q: How should we think about the future of online sales as a percentage of total sales? A: While online sales have increased to 15%, we're more excited about the 2-point increase in omni-channel sales. We aim to provide the best experience across all customer preferences, whether online, in-store, or a combination of both.
Q: What are the constraints preventing you from achieving higher credit penetration rates similar to your peers? A: We aim to provide credit offers across the full spectrum, which involves multiple lending partners. While we see opportunities to increase penetration, we prioritize a balanced approach to ensure we offer competitive rates and terms to all customers.
Q: Are you planning any changes to your reconditioning operations to improve margins? A: Yes, we're focusing on multiple small improvements in reconditioning, such as better part utilization and capacity management. These efforts are expected to add up to significant cost savings and margin improvements over time.
Q: How do you view capital allocation in light of current credit quality trends? A: We remain committed to our share repurchase program and expect to continue at the pace we've communicated, despite the current credit environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
