CarMax, Inc. Q4 FY2026 earnings call

• Tom provided brief commentary on quarter performance, introduced Keith as new president and CEO. - Keith discussed his priorities: make CarMax the obvious and easy choice by delivering competitive price, broad selection, and great experience; use technology to drive differentiated experiences and efficiencies; act with more urgency and intention with organizational alignment. - Enrique discussed fourth quarter financial performance, SG&A reduction goal, EPP product redesign and rollout, capital expenditures plan, and SG&A efficiency metric transition. - John provided detail on CarMax Auto Finance, including origination, sales penetration, loan loss provision, and funding strategy.

During the fourth quarter, total sales were $5.9 billion, down 1% compared to last year. Retail business: total unit sales declined 0.8%, used unit comps were down 1.9%, average selling price was $26,019, a year-over-year decrease of $114 per unit. Wholesale business: unit sales up 3% versus the fourth quarter last year, average wholesale selling price declined by $268 per unit to $7,776. Used retail margin was $383 million, decreased by 10%, driven primarily by lower profit per used unit. Wholesale vehicle margin was $115 million, decreased by 7% from a year ago. Other gross profit was $107 million, down 11% from a year ago, driven primarily by service. RMAC's auto finance income was $144 million, down 10% year over year. SG&A expenses for the fourth quarter were $611 million, when excluding restructuring cost, SG&A was $577 million, down 5% from the prior year. FY27 exit rate reductions for SG&A are expected to be $200 million, an increase over previous guidance of $150 million.

• Expect use margins for full year FY27 to decline at a rate broadly in line with fourth quarter year-over-year trend, first quarter to reflect largest year-over-year decline at closer to $300 per unit. - EPP product redesign and testing completed, national rollout begun, expected to drive approximately $35 per unit in margins in FY27. - SG&A FY27 exit rate reductions of $200 million, but in-year savings offset by factors like reduced corporate bonus and share-based compensation in FY26, inflationary pressures, etc. - Anticipate approximately $400 million of CapEx spend in FY27, down from past two years. - Paused share buybacks with $1.1 billion authorization remaining.

Q: Congratulations on the new role. What are your general observations after the first few weeks and thoughts on streamlining click-through experience?

A: Keith said it's great to get to know the team, caliber of associates and culture are notable. Focus on sharper execution on fundamentals, reducing friction in customer experience both online and in-store.

Q: Looking at this quarter, discuss price investment, elasticity and demand as adjusted prices, and how to think about price investments going forward?

A: Brian, prices taken down, acquisition marketing spend increased, online selling capabilities improved. Pricing had biggest impact, results in line with expectations, levers in place moving forward.

Q: How much of the $200 million SG&A exit rate do you expect to hit this year's P&L?

A: FY26 exiting with about $100 million in savings, FY27 has line of sight to another $100 million exit rate, but in-year savings offset by factors, full realization in FY28.

Q: As you think about improving affordability, are you considering relaxing standards?

A: Increased mix of value max cars, will consider other levers but will not change overall quality standards.

Q: First on sales, if price reductions and GPU drop accelerate comps to positive, would expect to push further or floor on GPU? Second on SG&A, reconciling improving customer experience with cutting OpEx and CapEx?

A: On sales, need to balance cost and growth goals. On SG&A, balance costs and growth ambitions, reallocate resources as part of strategic deliberations.

Q: In first 90-100 days, specific changes or low hanging fruit to simplify digital experience and improve conversion?

A: Focus on connecting digital innovation with physical retail, reducing friction, but metrics aligned to long-term strategy, signals in June, fuller view thereafter.

Q: Assess level and quality of traffic to site/app and benchmark against sector on conversion; opportunity to operate with less inventory while giving breadth and depth?

A: Web traffic up, selling opportunities relatively flat, need to balance inventory amount, age, and price points.

Q: Any granularity on dropping prices, where elasticity, cohorts, age of car?

A: Lowering price changed sales trajectory, analytical about price drop, focus on profitable business, will assess right level of inventory, age, and price points.

Q: Unpack trends on credit side with respect to roll rates and delinquencies, especially with more operative tier two?

A: Customers feeling stress, delinquencies and roll rates higher, CarMax providing support, reserving accordingly, growing in Tier 2, penetration accelerating in FY27.

Q: In capital spending, color on where reducing spending; impact of Middle East tensions on growth trends?

A: Reducing spending on new stores, off-site reconditioning and auction real estate, and store maintenance. Middle East tensions watched, industry healthy in March, focus on controlling what can be controlled.

Q: View on financing business, liking approach to reach deeper in category; view on capital structure and flooring inventory?

A: CAF critical for profit growth, will be part of broader strategy. On capital structure, revolver is most efficient for cap business, exploring alternative funding vehicles like residual sale and co-loan sales.