CarMax, Inc. Q3 FY2026 earnings call

• Leadership Changes: Board is searching for a permanent CEO with urgency, with David McCraight as interim president and CEO. Tom Folliard is focused on supporting the team. - Pricing and Market Focus: Average selling prices drifted upward and are being adjusted to be more attractive, with margin reductions supported by marketing spend. - Digital Experience: Need to improve digital selling voice and streamline the digital shopping experience. - SG&A Reduction: On track to achieve at least $150 million in SG&A savings by fiscal year 2027, with a 30% reduction in CEC workforce this quarter. - Profitability: Focus on enhancing profitability through selling experience, CAF, and ancillary products. - Culture: Reignite entrepreneurial spirit, move faster, and operate leaner while taking smart risks.

Retail Business: Total sales were $5.8 billion, down 6.9% year-over-year. Unit sales declined 8%, used unit comps down 9%. Average selling price was $26,400, up $230 year-over-year. Older, higher mileage vehicles represented over 40% of sales. Wholesale Business: Unit sales down 6.2% year-over-year, average wholesale selling price declined by $40 to $8,100. CarMax Auto Finance (CAF): Income was $175 million, up 9% over last year. CAF originated $1.8 billion with 42.6% sales penetration net of three-day payoffs.

• Expect marketing spend on a total unit basis to be up year-over-year in the fourth quarter but to a lesser degree than the third quarter. - Anticipate pressure on service margins in the fourth quarter due to seasonal sales and annualizing last year's cost coverage leverage. - Aim to achieve at least $150 million in SG&A savings by the end of fiscal year 2027.

• Execution risks where current actions may not yield expected results in the near term. - Market uncertainties that could impact the effectiveness of pricing and marketing adjustments. - Risks associated with achieving SG&A reduction targets as sales performance may affect deleveraging.

Q: Give color on the magnitude of the margin reset and customer cohorts where CarMax has become less competitive.

A: Enrique Mayor-Mora said margin reductions will be supported by acquisition spend and marketing to narrow the gap with the marketplace, and they are optimistic about improving retail sales trends. Jon Daniels noted looking at higher FICO segments as a spot to recapture growth.

Q: Historic GPU reset attempts, what's different this time?

A: Enrique Mayor-Mora said the difference is having strong levers like SG&A reduction, COGS focus, EPP growth, and CAF full spectrum income growth to support the business holistically, unlike past attempts where the equation didn't always offset lower margins with increased sales.

Q: On SG&A baseline for $150 million cut?

A: Enrique Mayor-Mora said the baseline is around $2.5 billion SG&A, aiming for an exit run rate reduction of $150 million by fiscal year 2027.

Q: Early read on margin versus same store expectation?

A: Enrique Mayor-Mora said price changes were just rolled out, too early to provide insight, and changes will be communicated in the Q4 call.

Q: Historic pricing tests, what's different this time?

A: Enrique Mayor-Mora said the difference is having strong levers like SG&A reduction, COGS focus, EPP growth, and CAF full spectrum income growth to support the business holistically, unlike past attempts where the equation didn't always offset lower margins with increased sales.

Q: Digital platform redefinition, what needs to change?

A: David McCraight said need to streamline the digital shopping experience to make it easier, working holistically with the organization and field to figure out best options, with changes expected in the next month or two.

Q: Board looking for in next CEO and timing?

A: Tom Folliard said board is looking for someone who led a complex business with diverse assets, understands culture, and is moving as quickly as possible, but no update on timing.

Q: Omnichannel business strategy?

A: Tom Folliard said it's all of the above, with significant improvements needed on the digital side while valuing physical stores, and David McCraight said streamlining and optimizing omnichannel capabilities.