Q4 2020 Earnings Call
Ladies and gentlemen, this refi operator.
Today's conference is scheduled to begin momentarily until that time, Caroline what can be placed on musicals.
Thank you for your patience.
[music].
Good morning, My name is Carol and I Hope you're conference operator today.
At this time I would like to welcome everyone to the Carmax fiscal 2024th 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 answer session.
I would now like to turn the call over just do you see fairly vice President Investor Relations.
Thank you Carol good morning, Thank you for joining our fiscal 2024th quarter and yearend earnings Conference call I'm here today with Bill Nash, our President and CEO, Tom Reedy, Our executive Vice President Finance and regain their Mora, 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 provision of the private Securities Litigation Reform Act of 1995.
These statements are based on the 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.
And providing projections and other forward looking statements the company disclaims any intent or obligation to update them for additional information on important factors that could affect these expectations. Please see the company's form 8-K issued this morning and its annual report on form 10-K for the fiscal year ended February 28 2000.
He filed with the FCC.
[noise] should you have any follow up questions. After the call. Please feel free to contact our Investor Relations Department at eight the real for seven four sedan.
For two Q extension 76 five.
Lastly, let me. Thank you in advance for asking only one question and getting back in the queue for more follow ups built.
Thank you Stacy good morning, everyone and thanks for joining us.
As you read an earnings released this morning, we delivered record used vehicle sales as for both our fourth quarter and full year result, and we did this while maintaining attractive gpus and undergoing the largest transformation in our company's history.
Or calendar 2019, we also grew our call marketshare zero to 10 year old vehicles to 4.7%, which was an increase of 4.2%.
Well, we're extremely proud of this performance given the rapidly evolving in unprecedent on them. Currently we're in we're not going to repeat the earnings commentary included within this mornings release instead, we would like to take this time to focus on a current environment and answer any questions you may have.
First and foremost our thoughts or with our communities all of which had been affected by the grown a virus.
I also want to thank those who are battling this pandemic on a day to day basis.
Over the past few weeks, we put significant measures in place to reduce the risk of exposure and further spread of the virus in our communities.
Health and safety of our associates customers and our communities are very important to us.
We are following the mandate to public health officials and government agencies, including the implementation of enhanced cleaning measures social distancing guidelines and in many localities closing our stores.
Our team has also done a great job and mobilizing our associates a corporate locations to work remotely from home with only a critical few remaining in our offices.
During this challenging time, we remain committed to living our values.
We're currently providing pay and benefits for up to 14 days to our associates, who had been impacted by store closings or required to be quarantined.
In addition, we're assessing options for those to go beyond 14 days.
We also continue to get back to our communities by supporting our National partners and their response to the Corona bars.
Regarding our business approximately half of our stores are currently closed or running with limited operations.
We have a central response team in place developing and implementing plans for multiple scenarios and this is a dynamic situation with new store openings and closings daily.
Our goal is to keep our locations open as long as possible to support the essential needs of our customers, while also providing and come to our associates.
Throughout this time, we will constantly monitor and operate according to the requirement provided by these locality.
As noted in our news release, our omni channel experience was available to approximately 60% of our customers.
Four remaining markets, we're pivoting and implementing the most relevant part of the army experience such as online so progression and curbside or expressed pickup as quickly and broadly as possible given the current needs of our customers.
Well not our usual practice, we're providing insights into march sales to allow visibility into current conditions.
In all of my years at Carmax I've never experienced the month like we had in March which was the most volatile month I've ever seen.
The positive momentum experience this past year carried into the beginning of the month with robust comps through the first week of March.
Since then the Corona bar situation within the U.S. has rapidly escalating and our sales have dropped significantly.
Over the past few weeks approximately half of our source of close or running under limited operations and consumer demand has progressively deteriorated.
For wholesale approximately one third of our auction locations are closed due to state mandates and almost half of our wholesale vehicle sales are now taking place on line.
Advanced advancements in technology have enabled us to quickly move sales to an online platform and we will be moving all sales online in the coming weeks.
For both our retail and wholesale Gpus, we anticipate pressure for a period of time as we look to rightsize or inventory levels in light of the current environment.
At this time, we were unable to fully quantify that solves the impact as it largely depends on the duration of store closures, which is constantly changing consumer demand and how large the changes are and the underlying valuations.
We are the largest buyer and seller and used cars in the U.S. and we believe it is important we keep our appraisal and opened where possible so that customers, who want or need to sell their cars can.
We will continue to leverage our professional bars and proprietary algorithms to ensure we are offering our customers the right price at the right and this dynamic environment.
As we focus on managing our national inventory I want to emphasize our diverse business, our diversified business model with a powerful store footprint and sophisticated logistics network is a huge competitive advantage.
In addition, we had been through challenging comps before and we know the experience of our associates and strength of our inventory management systems are instrumental as we need to quickly and efficiently move cars out of markets, where stores and auctions are closing.
We've always said that it's our associates culture financial stability and operational excellence and set us apart, allowing us to expand our market share in all economic cycles.
We believe the prep proactive steps, we're taking today will help us understand the current environment and emerge from this crisis at an even stronger company.
Now I'd like to turn the call over to Tom who will discuss our business continuity efforts as it relates to cap and he'll be followed by Enrique who will speak to our financial stability doll.
Thanks, Bill good morning, everybody.
Well the situation in the nation and our stores is unprecedented.
I will follow this over the years now that this team is dealt with similar circumstances in the capital markets.
Recent focus to cash in our consumer Finance group has been on our associates, our customers and our funding channels.
As Bill mentioned earlier, our teams have done an excellent job and mobilizing our associates to work remotely while responding to the increasing demands of our customers.
For the few whose work requires them to be in the office social distancing guidelines are emphasize checkout.
During these uncertain times, where endeavoring to do what is right for our customers in this environment, we understand some customers may need help.
We haven't placed a variety of measures a cast we believe will support our customers during difficult times.
While enhancing long term collectability for the portfolio.
This includes the spending repossessions.
Waving late fees for March and April and providing additional loan payment extensions when available upon request.
As one would anticipate.
Origination volume track with our sales performance during the month March starting out strong.
And then decreasing the stores closed and demand slowed.
At this point in time, we've curtailed our in house tier three lending.
But it may no changes to our core lending standards as if it's too early to identifying specific trends and customer demographics and credit mix.
However, we are watching it closely.
Not surprisingly in the second half in March we did experience an increase in delinquencies and a greater demand for payment extensions at this point, we're not able to predict the future impact on portfolio performance, but we'll continue to analyze the data as it becomes available.
In either case, we will continue to balance the needs of our customers, while maintaining quality portfolio.
Obviously, we'd expect some unfavorable loss experience as well, but similarly, it's much too early to determine the overall impact on quarter.
As we discussed our last call the new current expected credit loss accounting standard commonly referred to as seasonal.
Is effective for us as of March 1st.
The care that passed by Congress last week I, just temporary relief from applying the seasonal standards for some companies given the current environment. We're evaluating whether we are eligible for this relief and if we would elect to adopt it.
Just to defer art, Adam adoption of the standard.
Additional information will be available in our 10-K filed later this month.
We expect our customers will continue to have a variety of options to financer vehicles purchases through cast and our partner lenders lending partners have indicated they intend to confuse supporting the Carmax channel.
As I've mentioned many times over the years, our partners have historically told us they prioritize carmax business and capital allocation decisions.
Mostly because the experience superior performance from our superior origination channel, but also due to our long term focus on relationship.
We ended up why 21.3 billion of unused capacity our warehouse facilities.
In a mouse exit support cap activity for several months, particularly in the current sales environment.
And while the public ABS market is currently disrupted.
We see the Feds recent actions to bolster liquidity in the credit markets, including bringing back TALF.
As encouraging.
In any event, we are actively assessing alternatives similar to the creative solutions, we employed during the great recession.
Should the ABS market remain disrupted for an extended period of time.
We are fortunate to have finance seems to have navigated crises together in the past.
If we have the expertise resources and partners to help us work through this challenging and ever changing environment.
Now I'll turn it over the cauldron ready to discuss our financial strength and flexibility.
Thanks, Tom and good morning, everyone.
Carmax has competitive advantage lies in the combination of our focus on associates strength and diversity of our business model, our ability to manage through challenging times and our strong balance sheet.
Positions us well for when the economy rebounds, and should position us to further distance ourselves from our competitors.
At the end of year, Alright, adjusted debt to capital ratio was at the lower end of our targeted range of 35% to 45%.
Not being highly Levered provides us with flexibility that is beneficial to have in the current challenging environment.
We have always been focused on maintaining a solid balance sheet with a strong liquidity profile. We've done this to maintain flexibility in our capital structure and to help shield us from potentially difficult macroeconomic environments.
He gave you a current liquidity snapshot as to where we stood at the end of March.
As of March 31st we had approximately $700 million of cash and cash equivalents on hand.
More than $300 million have unused capacity under our revolving credit facility and more than two and a half billion dollars of inventory.
We also and the real estate and buildings and more than 140 of our locations across the country, but the net book value in excess of $1.8 billion.
From a debt perspective, we currently have approximately two and a half billion dollars have long term debt consisting of approximately $1.1 billion outstanding under our credit revolving credit facility.
$800 million of senior notes and term loans and approximately $535 million in financing obligations largely related to sale lease backs on select stores.
It's important to also note that we have no near term maturities as the earliest is in 2023.
As you can see we're in a solid financial position.
However in the current environment. It's also important for us to manage costs in a shorter term for their reduce sales levels and limited visibility into the future environment.
Weve shown an ability in the past to make the prudent decisions to ensure the long term health of our business and to protect cash flows even in challenging times.
We intend not carrying the same approach to the current albeit unprecedented situation.
Accordingly, we have already begun taking measures to preserve cash, but specific steps that will best position us to emerge and strong financial health.
Over the past few weeks, we had been reducing inventory levels.
I think on most capital expenditures and aligning operating expenses to the state of the business.
At the same time, we're ensuring that we are building in sufficient flexibility. So we can capture the rebound in sales when it arrives.
Prior to the Corona virus. It was our intent to opened 13, new stores during fiscal year 21, and a similar number of stores in fiscal year 22.
We have paused on store expansion activity and I remodels until the situation stabilizes.
In addition, while we remain committed to returning capital to our shareholders. The current environment dictates that we held our share repurchase program.
I'll now turn the call back over to Bill.
Thank you Enrique Thank you Tom.
As you've heard us say numerous times today, the situation is dynamic and changing quickly sometimes body hour and by locality.
But our diverse business model in recession tested team has a long track record prudent decision, making to ensure the long term health of the business.
It will be difficult in the near term, but as Enrique mentioned, we are financially strong and we believe we're taking the appropriate measures to ensure we will withstand the current conditions being a favorable favorable position when the economy and consumer rebound.
In addition, we shouldn't overlook we came into this crisis with a rock solid foundation, we produced.
We produced record vehicle sales and he has an airport 20, and we did this while maintaining attractive gpus, expanding our market share and undergoing the largest transformation in our history.
That's why 20 was a great year and we look forward to building on this success in the future.
Now, we'll be happy to take your questions.
Thank you.
Her to ask your question. Please press Star then the number one on your telephone keypad.
To allow for his many questions as possible. We now see please limit yourself to your questions to one question with one related follow up you 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 hope everyone are doing well down there in Richmond and healthy at this point.
Bill I think everyone pretty much I understand that that the world change pretty significantly in early March and of course, you're dealing with half your stores being closed on top of what I would take is a pretty broad consumer paralysis for a big ticket purchases. So that being said I was hoping you might be able provide a little bit more color a quantification on what you've seen over the last.
Weeks as I think that context would probably be helpful for investors. Thanks.
Sure. Thank you Scott for the question Yeah, Let me give you a little color first of all in the store closure. So like I mentioned about half are closed on limited operations not currently and I say currently because it changes by the hour to very fluid situation. We have approximately 70 closed 70 stores that are completely closed.
We have another approximately 25 or so that our modified operations and so when you think about that think about modified operations is primarily its appointment only so the consumer can't just show up at the location.
All the rest of the locations are all impacted by this because of social decency guidelines, which are step like each each locality Super Suck for example in some stores you can't have more than 10 customers in the show room at any point in time.
As far as adding a little bit more color on the sales all of the open stores are substantially all on sales year over year over the last two weeks most of the stores that have been opened during that time, so for the last two weeks or selling 50% or less than 50% of what they sold last year now.
I don't think that should be a surprise to anyone because I think during that time buried pretty much 70, 70% to 80% of the U.S. has been told us to stay at home. So given that consumer demand has been a progressively going down.
Hopefully that.
Colorado, a little bit.
Yes, that's really helpful. In cat just clarify something that you brought up on the Gpus that gross profit per unit or pressure Cognex are we talking like a couple of hundred dollars, but you're still making a positive spread or is this more or like selling cost or even below cost could you just need to liquidate inventory and generate cash.
Yeah, Yeah, Scott I mean, it's really it's kinda too early really talking about the last.
Two weeks.
You know if I go back to the great. The great recession I think during that period, we had a couple of hundred dollars. This, albeit as a very different that's kind of unprecedented. So you know at this point, it's really hard to tell you other than I'm sure will come under under some some pressure.
Got it thanks, a lot guys. Good luck thanks Scott.
Our next question comes from Armintas think a vicious from Morgan Stanley. Please go ahead.
Great. Thank you for taking the question you know as I think about you know the World Creek Rona buyers in both Corona virus. We were thinking you know as she and I would be up year over year in fiscal 2001, albeit a lower magnitude than than fiscal 2020 because of the omni channel expansion now you you mentioned positive.
Capital expenditures and in store opening.
How should we be thinking about you know the expansion of omni channel and it's something that makes sense to to push with the expansion because you know customers aren't coming into the stores. It makes sense to try to reach them in other ways that that that you know they see fit but because if you could help us think through your your pace.
You've accelerated pause slowed down and the impact that she needs while that'd be helpful.
Okay sure. So look if we if we talk free Corona bars, as we were coming in for 21, I think what we said in the past 420, we need a five day percent comps and if we had come in tough why 21, just only focus to continue our focus on omni channel. We felt like we could actually do a little bit better than that assuming that we weren't doing some other initiatives.
And Oh to be Frank we were planning on doing some other initiatives and we would it still taking probably 5% to 8% comp to de lever track. Fortunately ones. Obviously, we're in a different world right now because Enrique talk about some of the things that we're doing I agree with you on the omni channel expansion, we're going to continue to push forward on that as I said, you know where.
We're going to focus on some of the things that are most relevant in this environment first and I think what might help a little bit explain how we've been doing a rollout and how it's going to change. So historically when we've been rolling out Omni channel has been very systematic we've got a great change management and process. We generally start the process six weeks beforehand. We go in we train demand.
It appears we train the associates.
And then it's a very systematic rod if we continue to ramp up our R.R.C. He sees our customer experience interested they can support those ways.
Obviously, the in store training is out the window or at this point, but the stores, obviously have less less volume. So we can focus more on on training, which is why we're gonna go as quickly as possible to make sure that we get first of all the customer self progression. So that's the hub online that really allows the customer to do the whole trends.
Action or as much of as they want to online ahead of time as well as the expressed pick up which in all cases, we're calling it the curbside pickup so but think about it is what we used to refer to express pick up where customer can do everything online. They can swing by the store and previously they take the car for the test drive the can come in and sign any any.
A few documents that remain.
We're now calling a curbside because literally they never have to come in the store. They can come to car can be waiting there for them really.
Touchless, we want to make sure we get that rolled out everywhere and then we'll continue to ramp up you make sure that the Ccs can support but in the interim you'll get some stores are gonna be doing what does he sees are doing until we get that ramp up so we'll get everyone. There our goal coming into this year was too just to finalize the rollout, we're just approaching a little bit little bit.
From a different way.
Okay, so you're not too much changing the pace of the rollout and sort of your end targets, you're more changing how you're approaching the process.
The pace, we are changing that we're gonna be putting out. These two features as quickly as possible. We want to have curbside pickup in all of our locations within the next week or so I'm. So we are pushing some pace on some of these things, but we're going to continue to roll omni I'm I'm really pleased with the fact that we started this investment and both in the technical.
Gene Hall omni experienced several years ago, I think given the current situation having these alternatives for customers, albeit the volume is down low it's gonna be really important and you know we see customers on a daily basis for a variety of different reasons and they need reliable transportation and we want to make sure that we give them an experience.
They feel safe and transacting with us.
Got it much appreciated.
Thank you.
Our next question comes from Sharon Zackfia from William Blair. Please go ahead.
Hi, good morning, I'm I'm working to get some more color on what you're seeing any asset backed market and.
Having lived through this before I guess 12 or 13 years ago. At this point, how would you compare and contrast, what you're seeing currently versus you know 2000, 18009, and how much liquidity do you think you have obviously sales are down so that kind of expand your runway.
Way, but no based on your current rate Upsells, how long can you kind of go before having to tap some sort of additional funding.
Yeah, Hey, Sharon as I mentioned in my prepared remarks, I think the you know the I guess she called a silver lining is at the reduced sales pace, that's a real governor on how much capital we need in order to keep keep keep finding caf and so as I mentioned I think we believe there are several months of runway there.
Before we need to access some additional type of funding.
Now that you know that said you asked about the ABS market currently its disrupted.
I do think that the government has taken action much quicker. This time, then last time around if you remember Oh wait and no nine.
We were.
Locked essentially locked out from the public ABS market for over a year and during that time, we were able to for the first year to cobbled together transactions with partners and lending banks to find the caf originations through.
Through all of 2008 foretell kicked in and we did a couple of Calvert deal. So I'm not I can't it's really hard to draw some conclusions on how this will compare to so that but I think we're hearing of activity in interesting in the market than the ABS markets I'm confident that you know we've we've been we've been here before the same teams working on this.
Well. These every every tool at or better.
At our fingertips to keep things going but you know we've got all the play but plays we did during the recession. We're looking at that all this type of activities hopefully doesn't come to that but I feel good about very good about us being able to continue to provide funding for our customers like we did during the great recession cross spec across the credit.
Sector.
Thank you share.
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Uh huh.
Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.
Hi, good morning double.
Good morning, Reaper first off I Hope you all well I'd also like you want to congratulate on a very nice though was quoted before all the smell started.
So I've got a couple of couple of questions I want to show them into one okay. So first off with regard to go you talked about some of the actions you're taking or you may have to take with regard to value in your inventory.
The question I have never is well make sure I ask this correctly.
It's it's more a function of as you look at Revaluating secretory potential new Barbie is it more a function of a county or is it to reprice. These cars to try to move down quicker in a very dampened sales environment. So how should we think about 30 to fall of those cars.
And then the second question. My guess is this is much what we're talking them on the Oh, the cap side and as a follow up some of the prior questions.
So if we look at this right now that you've mentioned that the the securitization market is disrupted so it has quarterbacks.
Hasn't so far skipped [noise].
What would have been a normal securitization and if you had you could you do a securitization right now potentially and potentially less favorable terms. Thanks.
Hi, Brian So first of all thank you for the comments on the fourth quarter I'd tell you had it for the team here. It feels like that was a year ago since the fourth quarter given everything that's happened, but I do appreciate the a the recognition as far as valuing the inventory I think at this point, Brian it's more about making sure that we had the cars priced appropriately to make sure that we're moving on versus accounting at this point.
I mean are auctions or our auctions are huge competitive advantage. We can say on top of kind of how things are being price what they're going for so as you know we always try to make sure. We continue to move our inventories that we can replace it with with cheaper vehicles, but keep in mind some of our stores right now are on locked down and so yeah. We had some inventory sitting on some store.
As we can't get access to all the that's even changing daily so it's more about making sure we get a price right and and moving it.
And then you want to talk on the CBS.
Yeah, Brian you know if you if you look at the cadence of how we've originated in the past you would you probably would have expected to be coming to market would deal sometime this month you know several weeks now obviously, we're keeping a close eye on the market not likely that we do do something in the next week or two.
But as I mentioned I think we've got a good amount of runway with our current facilities and you know there are number of alternatives. We have to make sure that we can keep finding customers keep credit available to them.
And.
When the markets do open up.
We can drop of dealing there.
Hey, Brian I think the other thing just going back on the inventory just for a second you know, we're really focused on all inventories and not just saleable, but raw and work in process getting the overall number down on not only to keep the inventory flowing it to get it today to the right level, but keep in mind, because we own all that inventory. That's also additional cash flow that comes in so I think that's an important piece to remember as well.
Okay. Thanks, guys appreciate the color. Thank you.
Our next question comes from John Murphy from Bank of America. Please go ahead.
Good morning, Good morning, guys. It's good morning, it's very good to hear from you guys. Thank you for all the very helpful. Disclosure, It's actually really helpful. I'm. Just a question as we think about yes market potentially thawing and just sort of your understanding of how to help 2.0 is going to work and how much you know that will.
Break the logjam, because it sounds like it's going to be very powerful and then sort of just the follow up to that ahead of time is when you think about the existing pools I'm out there for for cap how did the defaults, but more importantly, the waivers work on a monthly payments because I would imagine that might trigger something in there.
Good thing it yes called how is the are you getting waivers within inside those pools that you know to have you know consumers, giving payments I mean, how does that mechanically work and that could any issue for you.
Okay, I'll hit but both of those for you I will try.
Yes, you know as far as to how I'm, hoping that you were hopeful that that's not what it comes to.
That was the that was a great tool back in 2009 to free up market that had been seized up for a long time.
It's a you know frankly, a great deal for investors that are in good enough capital you can you can look at our works.
We don't know we've done all the details yet we'd expect to be very similar to.
What will roll downs kicked out right.
So it does it does create liquidity, but it is it is a cumbersome process process, both for investors and for for issuers. If it's not an easy easy transaction, but you know to the extent of the markets remain locked up it was something that definitely was was the remedy back in 2009.
Like I said that we're hopeful that we don't need to go there we have other alternatives that we can.
We can embrace.
As a bridge if we need to.
As far as the various pools and the activity with extension those pools really don't have you know, it's you know there nonrecourse deals and they're structured based on the cash flows of the of the various pools receivable.
And they pay down.
As receivables are paid off to the to the extent that we have extensions. What's that mean means is that you're going to have a delay in the pay down of alone, but the pools are structured so that they go lock step with with the actual amortization, there's no said amortization schedule on on the deal.
So from that perspective, the public deal you know.
They're they're out there we've got the initial capital invested in and obviously, we're very intent on making sure that we maximize the residual coming off of it because that represents caf GAAP income, but they're structured to stand on their own and and a.
Well of course is the cash was comment.
So there's no triggers or any risk whatsoever, if you have defaults or or or payments are away for a period of time at all I mean, the risk at the end of the day is there that we don't collect our residual cash flow to the extent, we yep usually a fan.
But.
There could potentially be some reputationally risk.
If you have pools that don't perform.
But as I mentioned earlier, it's non recourse and there's nothing.
That we'd have to come out of pocket or due to save them no now their reputation on risk I think is little bit no kind of move because.
Carmax will not be only person in this boat to the extent that automobile ABS deals start to get.
Compromised and if you remember back to the great recession, we saw significant step ups in losses.
And no we didn't see any deals.
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Okay, great. Thank you very much guys and good luck with everything going on here. Thank you.
Thanks, John.
Okay.
Our next question comes from Michael Montani from Evercore ISI. Please go ahead.
Hey, good morning, Thanks for taking the question just wanted to ask first off if you can remind US you know back in 2008 nine you know how how high did bad debt expense get in relation to the overall size of the book, maybe if you could remind us of that and then the follow on was just for you know capex as well as.
You know fixed versus variable when asked you in a so what should we look out for Capex. This year, assuming you can't just go to zero because probably some has already committed and then secondly fixed versus variable Onest your day.
You know how much you know potential reduction could you do and and whats the timeline could do those kind of reductions given the unprecedented environment.
Hi, Good morning says Enrique So let me start with the Capex question. So historically you know we spent about 350 million in capex annually and given the current environment. You know, we're not prepared or in a position really to give guidance, but I can give you. Some color. So a couple of things we've put a pause on the majority of our capital.
Expenditures from new stores, Weve pause, our new store expansion.
Remodels and we're really Paas work that is not currently a essential from a capex standpoint. So it's essential we're doing it if it's not where that were on pause currently so in terms of providing guidance I Capex a went on to position currently to do that given the limited visibility as visibility grows and it will be in a better position to do that.
In terms of expenses I you know, we really are managing to the current to the current state of business. So for example, we have a hiring freeze in place between cutting advertising. We're adjusting labor hours were really at this point when evaluating every and all expensed spend in terms.
ER fixed versus variable yeah. The way, we look at our business historically has been about 75% fixed 25% variable. However, what I'd say is that in this current state.
Everything is on the table. So you can take a look at the fixed bucket and say well, we're looking at that as well. So let me give you some color around that so marketing historically has been viewed as a fixed costs well. We're currently taking a look at the spend there to make sure we're matching the current business environment as well.
And Michael the only thing for let's talk about baby that's on the Capex. If you go back to wait no none.
I believe.
We ran about 20 million on kind of maintenance capital. So obviously, we had less stores down there, but that kind of gives you an idea that we can take that number down substantially although to Enrique point, we're not going to really provide guidance at this point.
And then you repeat your question.
Were you asking about what how the losses trended in in the pools during the great recession [laughter], Yeah, I'm, sorry, if I'm missing this but but you guys I know had done a change in the accounting from kind of gain on sale and I just wanted to make sure kind of we all had the benefit of incremental color around you know how the book performed during that time in particular with losses.
Sure Yeah, if you look at the beep.
The pools originated right leading up to the great recession, we saw losses, roughly double from where they you know we tend to target, we typically targeted to the quarter to 2.5% loss experience over the lifetime loans.
We saw some of those pools roughly doubled during the great recession as I mentioned, all the deals remains intact and everyone.
Cash including ourselves.
Throughout throughout that period.
Yeah. The other thing I guess I'd point out is immediately following that period and I'm, not making any predictions now or how long a period might be the pools that we originated immediately following that disruption where some of the best performing from a loss perspective, that's that we've had.
Okay. Thank you.
Our next question comes from Seth Basham, but from my push Securities. Please go ahead.
Thanks, a lot and good morning. My first question is just in terms of the warehouse availability today 91.3 going to end of February, but where are you stay on it.
Oh, we're a couple of weeks lower than that but as I said I think we're still comfortable there we have.
Good runway on it as I mentioned several months.
Got it unless you were trying to part of that as I mentioned.
Okay, and if you were to sell a alone today in the marketplace in some sort of other transaction beside the S market do you think you'd be able to sell those at a premium.
That would be speculation, but my gut it would be they that yes, I think when I look at those kind of the cast.
Of characters are things that we we did back when capital is constrained during the recession all of them are less attractive than arc, then our plan, a which is you know originating and going to the ABS market in keeping all of it you upside anytime you start getting into whole loan sale or partner type of transaction people want us there's people want to share of.
Of the of the returns so there's going to be a little bit less attractive economically.
But you know that's something we'll consider as we as we balance or options going forward.
Got it and then my follow up is just around the cash burn today, if you could give us a sense more qualitatively about how much cash you're burning a on a weekly basis that would be really helpful.
Yeah, you know.
We are on as we said in our and our prepared remarks, we're in a financially strong footing. We have a very strong balance sheet, we have solid liquidity and we feel confident that we are actually taking the necessary steps in this kind of environment to it in terms of pulling out cash pulling out costs.
Oh, we're not exactly sure how long the current situation well last we are striving to put ourselves in a position to come out of this in a financially healthy environment.
Hi situation sorry.
Very good. Thank you good luck.
Thanks.
Our next next question comes from Craig Craig Kennison from Baird. Please go ahead.
Hey, good morning, and thanks for taking my question as well many had been addressed already but could you. Please characterize used car prices since the outbreak and then as an unrelated question just comment on the strategy behind the Edmunds investment I know, it's not a virus topic, but still curious about that.
Sure. So on the the first question on a kind of the depreciation you know it's interesting. If you. If you look at some of the interplay data. It was fairly is you know the from January through February was fairly strong more prominent appreciate and appreciation standpoint. So we saw vehicles normally rising it at this time.
Sure and it was though it was fairly strong you get into the middle of March and what we saw was a a very sharp decline and you know backing away and.
None we saw a very big decline throughout that whole year with there was a concentrated decrease from like August two to November of away I think this what we've seen in the beginning of February the middle of February and later has been a very precipitous decline like that now we don't know how long it'll go on and again as I said earlier depends on store closure.
As yours and that kind of thing but.
It has it wasn't start a sharp decline starting from without the middle of the month.
As far as Edmonds goes you know that we've been focused for the whole omni channel being focused on engaging our customers shopping language shop online.
And really giving them more control and independent and part of that is making sure. We have expert advice and guidance and Edmond is a very trusted unbiased resource they have lots of Ah extensive automobile automotive editorial and and research data.
And they've also been investing a lot over the last couple of years and digital innovations and aligns with our continued focus on enhancing the customer experience online. So we feel like there's lots of synergies between the two companies, we've already tapped into and working with them on on some content and putting that on our Carlo.
Landing pages, but we think there's lots of M&A opportunities that will benefit both companies and as we progress in the up in the partnership will have more to talk about at a future point.
Thank you.
Thank you.
Our next question comes from Rick Nelson from Stephens. Please go ahead.
[laughter], so I'm curious.
<unk> push on one yeah, curbside pickup there I'm kind of stores over the near term Oh, well that allow you to open a those stores that are currently close and Uh huh.
So Macquarie.
Quicker pace.
Yeah. It's a good question Rick So what we're seeing currently generally what happens is a mandate will come down everyone needs to close and we immediately we closed because a lot of time the mandate aren't exactly clear as it pertains to us.
Most localities a close have carved out.
Service automotive service and sales, but many of them have stipulation. So for example, you can open you should be open but you should only allow appointment only we do think that with the the curb side and the push the online it's going to make it very much easier to work the appointment.
Only type of locality. So we're encouraged I'm encouraged by that into your point, Yeah. If you can get those locations up in at least somewhat productive it helps from an inventory standpoint.
Hey.
Chose a follow up time wholesale belt the auction hi, you push.
Virtual do you think those are terms that are close can open up.
Yes. So there's there's there again just like the stores you have a couple of different situations you have some auction all locations like the stores that are completely closed down and I'm. The localities haven't even made it available to to get the inventory out you have other locations, where you can get the inventory out and when and when we're able to we do that will do.
The two another location, where we will do.
And online sales. So I think that's one of the reasons why we're pushing you know we talked about in the past testing simulcast testing online and this is just position us very well to move very quickly on this to make sure that we can continue to talk to liquidate inventory as well as I understand what's going on in the marketplace. So the online will help us.
To get those vehicles sold even if the store locations are closed.
Hi.
Thanks, Rick.
Our next question comes from Derek Glynn from consumer Edge Research. Please go ahead.
Yes, hi, good morning, and hope you all are well.
Good morning Derek.
How do you think they used to new value equation will evolve for the consumer in the context. This economic shock and also in an ultimate recovery would you expect to see a notable shift in demand from new to use similar to what we've seen in past downturns or do you feel this is completely different type of downturn that they threw off that relationship we've seen historically.
Yeah, Derek I tell you. It's it's a it's a it's a tough question you know coming in from the fourth quarter. What we saw was the new to use spread wide. So I think that was a little bit of a a tailwind for late model used vehicles I think in this current environment you know I've seen some numbers projections on Sars, it's going to be down dramatically.
I think for for this year given some of the numbers that are coming out from from the manufacturers I think part of its going to depend on what the manufacturers do from an incentive standpoint.
As the as the consumer start to two rebound, but as I've always said you know this market. The wholesale market is very quick to self adjust so if used car prices come down because of incentives you know an increase in incentive that we'll rebuild ripple into the wholesale market in the wholesale markets will just quickly which is another reason why you want to manager.
Inventory very quickly.
Okay got it and then apologies, but Mrs. But can you remind us of any relevant covenants, we should keep in mind, particularly around maximum leverage ratios and how you're thinking about that.
Yeah, we have two main covenants, we have a leverage ratio covenant and we have a fixed charge coverage covenant and those are calculated on a 12 month look back basis. So as you know from our year end report, we had a very strong as 12 months. So we have a lot of cushion. There are in fact, we can doubled or performance.
Others to ratios and still be well within the question.
[laughter].
Got it. Thank you guys best of luck.
Thank you there.
Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.
Hi, Thanks for taking my follow up questions.
So I just wonder understand for your discussion again, they maybe just the flow of inventory here.
As far as acquisition goes is or the auctions open now it is carmax in those auctions.
By cars that it's it sounds like from your prepared comments, you're still where where possible taking trades.
Right. So the biggest <unk> Big question. There is this the auction then it's the second question I have I guess is more of a touchy feely type question, but.
Given that Carmax is now.
Much more digitally focused much more omni channel you have a better reading your customers is there any way to look out there and say it makes a ton of stands right now, but the consumers mysterious they stay to paralysis, but is there still is or where does your car. The underlying the true underlying demand for cars are consumers still looking for card to maybe help us gauge how to bad will work once this hopefully temporary shock.
Houses.
Okay, Brian So first question or the auctions still open right now a you know you the two major auction players it doesn't matter ADESA is closed right now.
For the time being so there are no sales happening there Mannheim is still open but everything is virtual your question are we still out there buying yes were soft, thereby albeit at a very reduced rate obviously because of consumer demand. Yes, we still have our appraisal lane or open in the stores that are open for the reasons that I said.
Earlier their customers just need to get caching and get out of their out of their car. So we want to make sure that were there for that as far as the army focus in kind of consumer demand.
You know every day I'm in touch with the stores and every day I hear stories about you know who's coming into the stores right now and so the folks that are coming into the stores and buying cars today are the ones that absolutely have to have cars.
You know just to bring it to life a little bit you have you know medical providers that need to make sure that thinking they can get to work we've seen customers come in who have lost their jobs and need to downsize their car and so they're selling a car and then downsizing apart or they're just selling their car to get cash you see customers that have relied on ride sharing.
That no longer feel comfortable there and they want to buy vehicle. So the consumers that are in there today are ones that need a vehicle you are not having consumers come in who would like to have the vehicle at this point and I think that's similar to what we saw Bakken and Oh eight or nine.
I think as far as the demand going forward. It really is going to depend on a couple of things I think one how quickly the country. How we can get our arms around the virus is the first and foremost and then even after that I'm sure you've seen some unemployment numbers consumer confidence is going to is obviously, it's taking a hit with so many folks that are unemployed. So it's really.
The hard to understand what the demand is gonna be once we come out of this and how long will take for business to get back to normal.
Again, it's just the reason why I'm really glad that we have invested into technology. We have invested the army's grants to make sure that the customers that are out there that are looking for vehicle. We can meet them on their terms and give them the experiences that they're looking for which I think that will help us to continue to gain market share regardless of the economic cycle.
Thanks, Bill Thanks, one color again.
Sure.
Our next question comes from Michael Montani from Evercore ISI. Please go ahead.
Thanks for taking the follow up just wanted to ask about some of the initial experiences from the C. He sees what you all have been able to learn there how that process is going and then related question is on remote appraisals kind of where we stand in that process I'm just trying to look ahead here and see if there's some things that you're doing now that.
You know incrementally would benefit you on the other side of all this.
Yeah, absolutely I think both of those are.
Oh, we're going to continue making progress on both those as far as the Ccs. We're very pleased with the fact that we now have five customer experience centers are there they're they're stood up at this point there are helping a the stores through this it still remains one of those things that we feel like there is a lot of upside as we continue to train.
Those associates as we continue to leverage technology, they're getting better and better at what they do so we think we'll continue to make sure. We work on the effectiveness you know up to this point, it's really been about kind of a rollout and stabilization of the Ccs now, we're really moving into the phase of optimization of the Ccs and and really.
Leveraging them to to make this a better cost alternative and even the traditional format as far as the remote appraisals.
Obviously as we as we roll on the everywhere you will have the option to have a an appraisal done online. We at this point have pulled just the appraisal only pieces that are in non omni markets, but it's one that we continue.
Well continue to work on and ER that will be a solution that will have in all markets, whether you buy a car from us or not but it is one that we're continuing to define too.
Yes.
This concludes our question answer session for today I have one I'll turn the call back until much for any closing remarks.
Well listen thank you all for your questions today and your can see your continued support of Carmax I do have just a couple of thoughts before we before we leave you know one I want to reiterate that similar to other challenging times it will be difficult in the short term.
We have the expertise we had the resources the liquidity the financial stability and the partners in place to withstand the current environment and be well positioned for when the economy and the consumer rebound.
As I think about the the leadership and the associates, who we have in the field.
This is a crisis tested team and I'd, rather not have anybody else then the team that we have today to work through that so I'm very encouraged by that and I can say enough about how appreciative and for everything that our associates are going to take care of themselves take care of the customers in the communities.
Into our associates I would just you know I want to tell them that the concerning to you demonstrate each other and our customers.
That's core to our values and I'm incredibly proud to be a part of this team I know, it's not easy I know, it's a challenging time for all of US. It's a challenging time for the nation, but I also know we're gonna come through this better and stronger than ever. So again. Thank you for your time today I hope everyone stays healthy and we'll talk again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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