Q3 2020 Earnings Call
Good morning, My name is Carol and I will be your conference operator today.
At this time I would like to welcome everyone. The Carmax fiscal 2023rd quarter earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
Thank you.
Now I'd like to turn the call. We're just stacie Shirley Vice President Investor Relations.
Thank you Carol.
Good morning, Thank you for joining our fiscal 2023rd quarter earnings Conference call I'm here today with no Nash, our president and CEO , Tom Reedy, Our executive Vice President Finance, and Enrique Ma'am, or our senior Vice President and CFO .
Let me remind you are statements today regarding the company's future business plan prospects and financial performance are forward looking statements, we make pursuant to the safe Harbor provisions of private Securities Litigation Reform Act of 1995.
These statements are based on management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results could differ materially from our expectation.
In providing projections and other forward looking statements the company disclaims any intention or obligation to update them for additional information or on important factors that could affect these expectations. Please see the company's annual report on Form 10-K for the fiscal year ended February 28, 2019 filed with the FCC.
Should you have any follow up questions. After the call. Please feel free to contact our Investor Relations Department at 8047 470 for two to extension 76, five lastly, let me. Thank you in advance for asking only one question and getting back in the queue her more follow ups Phil.
Thank you Stacy and good morning, everyone.
Well, we get started I want to take a moment personally congratulate Enrique on his recent promotion to CFO .
The weekend I've worked together for many years and he has made a lot of great contributions during this time.
I also want to thank Tom for serving as our CFO for the past nine years I look forward to continuing to work with him as he shifts as focus to our strategic initiatives. In addition to continuing to oversee all the finance.
For today.
I'll start with our third quarter highlights before turning the call over to Enrique who will discuss our financials in more detail. Tom will then provide additional color around customer financing and I will wrap up with an update on omni channel experience before opening it up for your questions.
As you read an earnings release, we delivered a strong sales performance this quarter with revenues up 11.5% on a 7.5% increase and used unit comps at an 11% increase and total use unit so [noise].
Net income and he asked for the quarter were down 9% and 4.6, respectively. This is largely the result was significantly higher stock based compensation due to an increasing share price during the quarter combined with a planned increase in third quarter expense due to the timing of the advertising.
A reminder, volatility and stock based compensation expense is driven by restricted stock units that are awarded broadly toward nonexecutive associates.
Enrique will provide additional details on these items shortly.
Keep in mind. Despite these third quarter cost headwinds year today comps were up 6.7% bps is up 10.1% earnings are up 3.6% and while we have de Levered asked you know about $37 per units. This includes $42 per unit of stock based compensation.
We attribute our sales growth to a variety of factors, including solid execution at operations finance customer progression and marketing. In addition to an overall favorable used car sales environment.
Web traffic increased 15% year over year as we continue to benefit from our various marketing efforts.
During the third quarter, our markets offering an omni channel experience had slightly stronger comp sales in our non omni markets. The strong performance in both was supported by many of our omni related digital initiatives that had been rolled out nationally.
This includes improved customer lead management tools finance self service tolls and digital merchandising.
And we believe all stores benefited from our National marketing campaign land launched in October , which reinforces the strength of our brand.
For the quarter gross profit per unit was 20, 140, fives up slightly when compared with the prior year.
Our teams have done an exceptional job and continuing to drive efficiencies, allowing us to maintain margins while offering competitive prices.
Wholesale unit sales were also higher this quarter with volume up 3.3% year over year.
The increase in wholesale volume was slightly offset by small decrease in gross profit per wholesale unit due to heavier depreciation at auction since the beginning of the third quarter.
As a percentage of sales zero to four year old vehicles or 77% similar to last year.
Total issue these and trucks accounted for about 49% of sales up from 45% last year.
At this point I'll turn the call over to Enrique to provide more information on the third quarter financial performance.
Thanks, Bill and good morning, everyone.
For the quarter other gross profit decreased slightly.
Pp profits grew by $11 million was 13.3% due to the combined effects of strong use volume growth and increased margin.
Like the prior year, we did not recognize any additional ETP profit sharing revenue.
This increase was offset by an 11 million dollar decline in service department profits for the quarter versus a year ago.
The decrease in service profits was largely due to three factors first we increased our post sale warranty period from 30 to 90 days back in May.
We view this as an investment in providing a better customer experience.
Second we experienced near term inefficiencies due to a sharp ramp in technician hiring to support future sales growth.
And finally, a portion of stock based compensation runs through the service Department.
On the SGN, a friend expenses for the quarter increased $75 million to $485 million SGN, a de leveraged by $157 per unit.
A material component of this growth and the resulting de leverage was driven by stock based compensation.
$11 million or 25% of the overall year over year growth in SGN, a on the quarter was due to the 17% increase in our share price for the quarter versus a 15% decrease in the prior year period.
This resulted in a $94 per unit de leveraged SGN, a and represents nine cents EPS.
We also had a planned increase a $14 million or 39% in advertising costs.
This is the result of the new AD campaign, and the rollout of our Omnichannel experience that Bill mentioned earlier.
This spend on the quarter brings our year to date advertising expense per unit to $225.
On a year to date basis. This is slightly higher than last year and consistent with our earlier communications that our intention is to spend slightly more per unit for the full year.
Other notable expense drivers included.
The opening of 19 stores since the beginning of the third quarter last year, which represents a 10% growth in our store base.
Higher variable costs associated with our strong sales growth.
And continued spending to advance our technology platforms digital initiatives and our Omnichannel rollout.
During this period of investment we continue to believe comps in the range of 5% to 8% will be needed to leverage SGN a on an annual basis.
As part of our expansion strategy, we opened four stores in the third quarter two in new markets Palm Springs, California.
And Gulfport, Mississippi.
And two in existing markets, Dallas and Atlanta.
Over the next 12 months, we anticipate opening 11 more stores.
Earlier. This month, we also opened our Phoenix customer experience center or CDC.
We continue to enhance shareholder returns through our repurchase program during the quarter, we repurchased approximately 1.3 million shares $415 million.
This program has contributed to our 10% year to date EPS growth that Bill mentioned earlier.
We have $1.67 billion remaining in our current authorizations.
Now I'll turn the call over to Tom to discuss customer financing.
Thank you Enrique and good morning, everybody.
Carmax auto finance and our partner lenders continue to deliver solid results with Caf income growth and strong conversion in tier two tier three.
During the quarter, we saw modest growth in application volume is strong performance across all credit tiers.
Tier two accounted for 20.4% could use unit sales compared with 18.3% last year.
Tier three was up slightly to 9.5% compared with 9.3% a year ago and captain titration negative three day payout was 43.3%.
This is 44.1% in last year's third quarter.
Year over year Caf net loans originated grew by 13% to 1.7 billion.
As the increase in used car sold and the average amount financed.
Was somewhat offset by the decrease in Caf net penetration rate.
For loans originated during the quarter the weighted average contract rate charts to customers was 8.1%.
Down from 8.5% a year ago, 8.6% in the second quarter.
Portfolio interest margin increased to 5.7% versus 5.6% in Q3 last year.
Caf income was up 3.9% to $114 million, primarily driven by the 7.5% growth in average managed receivables and a small increase in interest margin.
Offset by an increase in the loss provision is presented percentand beverage receivables.
The provision for loan losses was 49 million in Q3.
Versus 40.8 million in the prior year period.
The increase arises from portfolio growth.
In a modestly higher allowance based on loss experience, we began to see earlier this year.
At 153.6 million.
The allowance represents 1.15% of ending managed receivables.
Up slightly from 1.12% a year ago and comparable to the second quarter.
We remain well within a range of expectations, given our origination strategy and portfolio mix.
For this I turn the call over I will touch on the impending current expected credit loss accounting standard.
Which is commonly referred to as seasonal.
Cecil will be effective for us at the start of our fiscal 2021.
In the number of you've inquired about it.
This is a noncash accounting change and won't impact our previously disclosed cumulative net loss expectations.
Most significant element of the new standard is that it requires companies to reserve for the expected lifetime losses.
Were currently we reserved for the following 12 months.
As a result of the adoption.
We will increase our allowance for loan losses by $200 million to $250 million.
This is based on information as of November Thirtyth 2019.
And the adjustment will flow through retained earnings.
Post adoption Cecil could also create more volatility in the quarterly provision for loan losses as any true ups will be projected over the life of the portfolio versus the 12 months. We're currently estimating.
Now I'll turn the call back over to go.
Thanks, Tom Enrique now I'll provide an update on the rollout of our omni channel experience and how we're continuing to innovate and improve the business for the future.
First the numbers.
We not foresee he sees that we continue to staff Raleigh, Atlanta, Kansas City, and our newest in Phoenix, which opened earlier this month.
Approximately 40% of our customer base currently has access to our omni channel experience and we're on track to reach the majority of our customers by the end of this fiscal year in February we plan to complete the rollout in the next fiscal year.
DSP penetration and around the markets is slightly lower than our overall penetration, which is a little above 60%.
We have not seen a material change and finance penetration or mix with the rollout of omni.
We're pleased to achieve 7.5% comps while at the same time implementing the largest transformation in the company's history.
While we continue to run some inefficiencies in both our Ccs and stores, we're confident we will be able to improve productivity as we rollout and mature the new experience.
We also still believe our unique omnichannel experience will be more cost efficient than our current model, we've already begun to drop cost efficiencies in our Atlanta cc quarter over quarter.
We're also excited about the opportunities ahead, as we continued to improve our customer offerings.
Key areas, where we see opportunity our customer relationship customer relationship management, or CRM platform and our new delivery options.
Our CRM platform enhances the experience for both our customers and our associates.
It provides associates with valuable insights and data about our customers.
Just a better personalize their experience it provides customers with the access to our customer hub.
This makes it easier for customers and our sales associates to have full visibility to the status of their journey and to continue to progress further while either online or in store.
We also see tremendous opportunity with our express pickup and home delivery offerings. Our conversion rate on these sales is very hot in the customer experience. These delivery options is extremely well received.
While combined they still represent less than 10% of sales and eligible markets. These offerings steadily increase throughout the quarter.
Going forward, we expect more customers will take advantage of these delivery offers options as we expand our omnichannel experience into new markets and increase customer awareness awareness through various marketing channels.
Our associates are doing an amazing job and structuring and delivering a systematic get aggressive rollout of the new omni experience.
And experience a personalized each customer's journey whether in person online.
John or a seamless combination of channels.
Our ability to leverage the infrastructure analytics and processes. We have built over the last 26 years and continue to improve with state of the our technologies and new digital capabilities is a significant competitive advantage.
And advantage that when combined with our ongoing store expansion positions us well to continue to lead the industry profitably grow sales and gain market share.
I'm extremely proud of our associates and all of their accomplishments and we're all excited about the future.
With that we'll be glad to take your questions.
At this time, we will be conducting our question and answer session.
Order to ask your question. Please press Star then the number one on your telephone keypad.
To allow for as many questions as possible. We ask that you. Please limit your questions to one question with one related follow up you May then reenter the queue for any additional questions.
Our first question today comes from Scot Ciccarelli from RBC capital markets. Please go ahead.
Good morning, guys and happy holidays.
Good morning, Scott.
Can you talk about the change that you had in your service policy, specifically what caused you to make that changed the 30 to 90 days and was there any financial catch up in the quarter or is this more of a reset.
Continue for the next few quarters sure Scott So for the longest Tom we had a 30 day.
Limited warranty program and as Ray said, we change that over in May 290 days and we feel like that's best for the customer experience.
So what you're saying is a hits now that it's everywhere it's been in place since may it's this.
From a from an expense expense standpoint, it's a couple of $1 per unit that.
Little bit of additional headwinds.
And so we should expect let's call. It similar effects to that service Department revenue for the next three quarters of call. It well keep in mind when Enrique was talking about the service profits Theres really three different buckets that are going in there part of it was the shift.
From 30 days to 90 days and of that.
I would say that's about a third of the overall the overall change another third was was stock base.
Compensation.
And the other third.
The staffing inefficiencies that we see because we're ramping up our technicians and as we ramp up technicians until we get a critical mass it's hard to turn on new shifts. So each one of them make up about a third and on the 30 denied a warranty of that third about a half of it half of it is the little step up on a per unit basis of the expense we also.
So had in that third.
Mix shift, where we did more.
90 day warranty work and retail service work.
Got it and just for clarification purposes. The 90 days is that basically put you at par with the CPLP most PPL programs that are out there.
Im not sure about the CPM programs, Scott I would have to go and look at that I think that we feel like 90 days is certainly best in class for used cars.
Got it okay, all right. Thanks, guys.
Thank you that's a program that will anniversary itself in the first quarter fiscal year 21, as we rolled it out in may of this past year.
Thank you.
Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.
Good morning. Thank you for taking my question good morning, Brian .
First off regained Tom congratulations on your new roles.
Thank you.
So the question I want to asking.
I guess my first question really just bigger picture perspective clearly.
Businesses turned much healthier here lately with used car unit comps through this quarter tracking to oversee over 7%.
As we look at this is we'd look at the proof trajectory had used for your comps how should we think about or maybe you could help us understand better.
The split sort of say between data. We're looking at suggests the overall environment has gotten better maybe with some help from used car pricing. Other factors, but you also clearly have a number of initiatives taking place at Carmax lobbies tied the omnichannel. So how how much of this strengthen did used car unit comps is internal versus external if you look at.
Your journal side, which we think is the kind of the bigger drivers with all that you're doing.
Yes, that's a great question, Brian she has been.
As I noted earlier you know it is part of great execution. It's also the some favorable environment I think about the favorable environment obviously.
Favorable access to credit.
New car prices at an absolute level are still high although in the quarter, we seem to see a little bit of narrowing of the new to used car gap at the absolute prices of new cars is to you've got low unemployment you've got goods consumer confidence inventory of element I said that you've got those external factors, but I also salute.
Lot of the internal factors, especially from an execution standpoint, when you look at buying acquiring the right car at the right price up, especially at a time, where we saw we sell depreciation that we would normally see in this time here. Our operations teams continue to find efficiencies in ways that we can pass along to the customers the customer progress.
In both in store and online we've made great great strides there moving customers along online and our Ccs, We've got new tools that we started to roll out to help our new associates, there caf executed well supporting sales driving cap margins and still offering great customer offer.
We've got the marketing campaign that launch and as we look at it there is no one factor that the majority of that that comp growth I really do feel we really believe that it's a combination of of all those factors.
Got it gets very very helpful. Then my follow up quite my related follow up question just with regard to the the market. You expect you called out your Q3 s, which was somewhat of a headwind earnings how how is the new marketing campaign or how should we look at the new marketing campaign.
But to what you changes you've already made to market over the past few quarters.
Yes, I think periodically we rework our marketing.
This was a big change we have a new outside agency between the outside agency or internal team I think they've done a great job really bringing to life not only our brand but also.
The omni channel experience and those and those market so.
As you've seen in the past we go with the new marketing campaign. If you look at the last one with Andy Daily we run that for a while we build off that I would think that this mark this market campaign. The same type thing, we'll continue to build off into the strength of this and as we go forward. You'll just continue to see this new campaign versus running ads on on.
All campaigns in the third quarter.
I have talked about this on previous calls in the first and second we knew that we were going to be heavy on the on the back side of the year. We ran light on advertising as matter of fact through the second quarter year to date on a per unit basis, we are spending less than what we spent last year on an annual basis, and I've said, all along I spend a little bit more.
To also helped market our omnichannel experience and I think as you look at where we are now year to date.
Enrique cited earlier, we're about to 25 per unit slightly above last year, and I think thats a good proxy will be slightly above where we finished the year last year, we still expect that's where we'll comment on a per unit basis.
Got it thank you and happy holidays, everyone. Thank you to Brian .
Our next question comes from Sharon Zackfia from William Blair. Please go ahead.
Good morning.
Question on as you know, there's obviously a lot of moving parts and there this quarter and I appreciate the commentary on the five to eight.
Leverage comp I guess going forward can you talk about whether that five to eight would be applicable for the fourth quarter and then as we go into fiscal 21.
I know, there's still continued investments in omnichannel, but does that start to abate somewhat in terms of the incremental spending and inefficiencies that you're seeing.
Yes, let in retail take the first I'll take the second part.
Yeah, you know on a quarterly basis, assuming as they can be so much variability that.
When we refer to the five day, that's on the longer annual basis.
If you take a look at this quarter between stock based comp in between the advertising timing that alone caused us to deleverage so within any particular quarter, it's difficult to say, but certainly on an annual basis that is our expectation.
Yes, and sharing on the second part of your question about what we would you should expect to see in the new year I've said earlier.
In previous calls.
Last year was a step up year, we expected this year to be another step up here next year, we expect it to be a continued step up year, but less to a degree than what you've seen from a a growth percent.
Less so than what you saw this year or last year and of course will provide some some more direction in our fourth quarter call.
When we're back here then.
Okay. Thank you.
Thank you.
Our next question comes from John Murphy from Bank of America. Please go ahead.
Good morning, guys I just wanted to focus on one of the comments you made on the call.
The development of the CRM system in making it more advanced so there's more data available to your sales team and I'm just curious.
It is their intention to maybe go more proactively in more acute sales directly to individual consumers to drive same store sales as you're developing that CRM system or is this more just as people come in and inquire about vehicles you just have more information how about the process. It just seems like there maybe a an.
Opportunity here to get more directed advertising going.
Yes, I think.
When I think about the CRM that the CRM is more of a tool to help our associates, whether they're in the customer experience in or in the store I think the beauty of the CRM as we collect data and we can analyze data we can do what we call smart routing to make sure that we handle those leads how we handle those lead and who handles as leads were.
Becoming much more savvy at that which is one of the areas that I am excited about as we can afford continue into to pickup efficiencies as far as being able to directly target more.
More customers.
We've already shifted that way you know when you think about our total advertising spend probably half of it is more on a digital advertising, which is much more pinpointed and what I would call traditional advertising, which is more of the broadcast TV.
Radio type of stuff I do think that the data that we're collecting from the CRM can assist us and helping to target future customers, but I kind of think about and different buckets, if that makes sense.
Okay, and then just one follow up on the express pick up in home delivery, you said little bit less than 10% in yellow market. So it sounds like it's somewhere between.
5% to 10% I mean would you call those folks that are doing express pick up an in home delivery incremental.
Consumers are buyers in your stores or is there some kind of cannibalization is trying to understand whats incremental whats cannibalized, yes. At this point I would say, it's probably both and when I look at those two.
We are doing more express pickups, and we are home deliveries at this point, it's interesting because sometimes we'll have customers and think that they want to be home delivery and then they start working through the process and they really you know I'd like to Covenant test drop a couple of cars and so they convert over 10 store on the express pickup just as a reminder, that allows the customer really do everything online.
Still come into the store get their Keith if they want to take the car for test drive maybe learn about the options. We can have amount and less than 30 minutes. So I see both as as I said earlier actually both those is continuing to grow as we mature the experience and also as we highlight the mix experience in our marketing efforts.
Great. Thank you very much.
Thank you John .
Our next question comes from are meant to think admissions from Morgan Stanley . Please go ahead.
Great. Thank you for taking the question.
7.5% or same store sales growth year over year that quite a strong number.
How do we think about how much of that comes from a favorable used car sales environment versus how much of that comes from from the omni channel.
Rollout in any way you can help us contextualize that that would be very much a helpful.
Yeah, just said earlier Theres a lot of different factors I don't think any one of those factors is the majority. So I don't think necessarily that the favorable environment as the majority when you add all those things I talked about earlier I think a lot of these execution things that we highlighted I.
I think the.
Especially the digital initiatives improvements that we've made as part of omni and rolled that out to.
The other.
Patients that don't have omni.
I don't think we don't believe any one of them lines up and has the majority of that lift its really a combination of of all of them.
Okay, and when you talk about lift does that mean.
Versus a versus the comp a year ago or just the seven and a half present number itself to seven and when I think about that 7.5% number and what contributes to that performance.
That's where I'm, saying I don't think.
We don't believe any one of those items is the majority of that have that 7.5%.
Okay. Okay much appreciate it.
Thank you.
Our next question comes from Craig Kennison from Robert W. Baird. Please go ahead.
Hey, good morning, Thanks for taking my question.
I guess first I want to tell you that my daughter contributed to your comp this quarter, we had a great experience. So thank you for that Oh thats great. Thank you Greg Yeah. It was a good experience we didn't get do the internet.
How many channel experience, yet, but I'm sure that will come.
The question I had was on your recon business or your recon work you always seem to drive cost out of the reconditioning process has that trend continued and as a follow up is it still your policy, mostly to return that to the consumer rather than traps some of that.
The gross profit line.
Yes, Craig.
To answer your question on giving it back customer yet at this point, we like passing that along to the customer helps make the prices as competitive as as possible. The reconditioning. We continue to look for efficiencies. There I would say the area that were seeing a little bit more improvement on as more of the procurements or think about parks that kind of thing weve equipped our associates and.
The field with certain tools that allow them to buy the right part at the right Tom at the right expense.
I would also tell you picking up some inefficient some efficiencies and our transportation as we move more vehicles with our internal and dedicated fleets.
That helps as well.
And then of course.
I always put an emphasis on our buying because that's really when you think about price competitiveness. It really starts with where you purchased the cars and I think.
The by ourselves have helped to.
To make sure that we're buying them at the right price and the right Tom.
I think I'll, just say is that.
Not only does that help us be competitive on price is all those savings, but it also helps us manage our margin and keep that staple as well.
Great. Thank you. Thank you.
Our next question comes from Rick Nelson from Stephens. Please go ahead.
Right.
Okay, maybe for Cara Vince.
Pointed to a higher rejection rate.
Auto loans.
Curios, if you see any made for a tightening cow.
Notably shelf.
Toward that peer to peer three.
Thats promoters away from Carol.
Rick could you repeat the first part of your question. Please Sir how it would put me or kind of pad. This we pay a report out that pointed to a higher rejection rate auto loan.
And carry of Q.
Type.
Yeah.
I think as I mentioned.
We've seen real strong performance from both our partner lenders who are.
Originating in our system.
Which is as bill mentioned, providing a little bit of a lift year over year end cap.
We saw losses tick up a little bit earlier in the year and our increased provision this quarter kind of reflects that's just going at that run rate that we've been experiencing all year versus a little bit.
More favorable environment last year, but we see no need to suggest our credit.
Appetite, we are still generating portfolio that we're very comfortable with and and happy with the business.
Okay.
I'm going to you from.
No no good solid quarter, you talked about gaining leverage from omni channel.
Your parents.
Okay.
Perhaps those.
On to the customer.
Drive more volume or.
Good.
Yeah, right right now the leverage that I referred to on the call was we started to see one of our the oldest.
Customer experience in Atlanta customer experience, we started to see some some cost leverage there and that would really show up more in the SGN Avon versus the GCU or passing along to the customer and the former the price so you'll see that show up in SGN AG savings.
Okay.
Good luck.
Thank you Rick.
Our next question comes from direct Glynn from Q consumer Edge Research. Please go ahead.
Good morning, Thanks for taking our question we had a follow up on the home delivery attach rate at a little less than 10% of sales and Omnichannel markets, where do you think that steady state number is.
What percent of your overall sales do you think home delivery can be in the long run.
Just for clarification, Derek the 10% I cited as both home delivery and express pick up.
And express pickup is home delivery, so is higher than home delivery. So.
Both are still if you take each one individually very small percent of our overall sales.
But as far as where I think it can go to balance we I don't I don't know but to be honest.
Doesn't really matter to us because we're there to support the customer and give them the experience. They want so more onetime delivery grain, we'll be able to satisfy that if they want to come into the store.
Satisfy that so I don't know where it's going to go we did see.
Throughout the quarter, we saw more people leveraging expressed pickup and home delivery, but but I don't know what the top end that could be.
Got it great and interest as Bob I mean, as we think about your as you've used truck mix I would think that follows the pattern unfolding in the new market, where the mix of those vehicles is much higher to what extent the view that as it is a tailwind to your ASP is and is there any opportunity or appetite to date to take more price drive higher Gpus.
Remember when we look at GP is just not driven by the expense of the car.
We don't make necessarily more money on a more expensive.
Vehicle.
As far as.
How do we see this going forward the truck mix I think I'd have to go back and come from short, but the truck mix has been ticking up a little bit and that is more representative of whats coming into the marketplace either through our appraisal plan or through the through the all side auction. So I would continue to see that that pattern exists in the upcoming quarters.
Okay. Thanks, guys. Thank you.
Our next question comes from David Whiston from Morningstar. Please go ahead.
Thanks, Good morning, my questions on new vehicle leasing as a substitute to buying a used car from carmax.
I think leasing has very much peak for the cycle that it's in the past there's been some very attractive offers for the consumer. So do you see new vehicle leasing is less of a substitute threat than say 12 months ago or is that about the same or.
Well I think the industry data would say that this year, probably the office leasing vehicles will peak.
Between his current year and last year, though there will be at a peak level.
As far as where we think leases might go next year again, it would be a shot in the dark so not a leasing expert but.
Wherever it goes whether leases continue to.
Persist in the next quarter or if they drop off a little bit in the next quarter.
Inventory availability for us will still be will still be in good shape as far as acquiring inventory and its as leases.
The peak of off leases come down there will be something else that that fills in that that spot I mean, we've seen this cycle run many times over the years that we've been in business.
Okay. Thank you. Thank you.
Our next question comes from Chris Bottiglieri from Wolfe Research. Please go ahead.
Everybody.
First question is on the advertising to step up was most of this incremental spend distributed nationally or was it more targeted to where you have omnichannel markets.
To like a big sorry.
I'm sorry go attention question.
Yeah. Then it was just look like kind of the related to that was kind of like.
As you, but push for online have you resort like with the right advertising budget is like maybe that advertising more makes more sense I'm curious how you think about that.
Yes, the majority of the spend on the quarter was actually the national spend.
On the market's been.
Got you. Okay. That's helpful. And then wanted to talk more about the wholesale business.
You talked about like the web traffic looks great you talked about lower.
Like your unit growth was great, but they talked about lower appraisal traffic at wholesale.
So even in this sense for you to drove that is the competitive environment for trade is getting more difficult just given where are the cycle competitive threats.
And then two can you talk about the supply of eight to 10 year old vehicles that should be increasing as that manifest the way. They thought it would have earlier in the cycle.
Yes, so soccer's I mean, I think that it's been a there's been robust competition for what we would consider ailing vehicles in a lot of different dealers are focused on trying to buy more outside the auction, but that's that's nothing new.
The comments I made earlier about GP wholesale was more around GPU and and with that the Jeep you went down a little but that's more of a function of what we saw in the marketplace from a depreciation standpoint.
Vehicles depreciate, we put less on the offer which also has an impact on on fire rate and volume. So we had a little bit about pressure on borrowings still.
Still up around 30% will over 30%. So we're still pleased with that but anytime you have a depreciate market. It puts a little headwind on your offers which then puts a little headwind on your on your volume.
Yes that makes sense. It did the number of wholesale locations change this quarter. It looks like you've closed a couple that might just be that we already in the schedule.
We did not we did not close any any auctions.
Sure.
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Our next question comes from Seth Fischer from Wedbush Securities. Please go ahead.
Thanks, a lot and good morning.
Stock based comp was a big headwind this quarter you mentioned.
Some additional stock compensation to seriously associates, which isn't capture nastiness, but.
Are you also giving more stock based comp to associate that would be captured in that has seen a.
Yes stock based compensation. The majority is going to be in SGN, a but there is also components in service profits as we mentioned related to service Associates is also a component related to cap as well, but by far the largest component is within a as DNA. It's also just important too.
To emphasize again this is our broad based equity program.
Targeted at non executive management settled in cash and runs through the PNM and said just to also clarify where we didnt increase that program. It's not like they were more shares or anything out there.
Just the market volatility the change from quarter over quarter.
Got it.
Thank you for that clarification, and then secondly, as it relates to the performance of your comparable store sales overall relative to your Ami town markets. You mentioned, the omni channel is slightly better that sounds.
Little bit different than what you're describing the omni channel outperformance in prior quarters on is that a correct in b is that surprising and he is it.
Still a good investment if you're not getting a big lift on those omni channel sales.
Well, there's a lot theres a lot of lot of different questions in that one question.
I'll try to do my best remember all of them yet have keep me honest, but.
As it surprising where we are absolutely not I mean, if you're comparing it to what we have seen in the Atlanta market. It is different than that but I said all along look every market is going to be a little bit different we're going to have different levers that we Paul I actually feeling really good about where we are with the omni rollout and the comp contribution to that because right now we have.
We have a headwind when in our omni markets as it relates to our customer experience centers. If you think about it when a market rolls onto the omni.
The army experienced the day it rolls on we turn the offices is often the stores while the offices had been manned by associates that had been around a long time, they know what theyre doing when it comes to progressing customers. We've now turn them onto the customer experience centers and I would just remind you that our customer experience centers. The most tenured associates that we have.
Working with customers has only been doing it for about six months. So as we continue to roll out and we continue to stand up and open these new customer experience centers.
The Kansas City, one the Phoenix, one you have a lot less tenured associates that are handling the customer progression I think it's a great opportunity for us and it's one of the things that I think about when we think about efficiencies going forward and productivity gains, but I feel good about where we are given that our omni markets actually have a headwind working against them.
Understood. Thank you very much happy holidays, guys you too.
This concludes our question and answer session I'll turn the call back over to fill match for closing remarks.
Great. Thank you Carol I want to thank all of you for your interest in Carmax and for joining US today as always our success is because of our associates in the culture that Theyve created I want to thank them for what they do everyday for driving what's possible for each other from our customers and for our communities I want to wish all of them and all of you all happy holiday and we will talk.
And next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.