Q2 2020 Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time in lines will again be placed musical. Thank you for your patience.

Good morning, My name is Amy and I will be your conference operator today.

This time I would like welcome everyone.

Fiscal 2000.

<unk> earnings Conference call.

All lines have been placed on mute to prevent any background.

After the speaker's remarks, there will be a question answer session.

I'd now like to extend the call overseas is probably vice President Investor Relations.

Thank you Amy.

Good morning, Thank you for joining our fiscal 2022nd quarter earnings Conference call I'm here today, with Bill Nash, our president and CEO and Tom Reedy, Our executive Vice President and CFO .

Let me remind you that are statements today regarding the company's future business plan prospects and financial performance are forward looking statements that we make pursuant to the safe Harbor provisions of the 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 to differ materially from our expectations and providing projections and other forward looking statements. The company disclaims any intent for obligation to update them.

Additional information on important factors that could affect these expectations. Please see the company of annual report on Form 10-K for the fiscal year ended February 28, 2019 filed with the FCC.

Lastly, let me. Thank you in advance for asking only one question and getting back into queue for more follow up Bill.

Great. Thank you Stacy good morning, everyone.

As you read an earnings release. This morning, we delivered another solid performance this quarter with revenues up 9.1% net earnings up 5.8% and he P.S. up 12.9%.

We achieved a 3.2% increased in used unit comps and a 6.2% increase in total use units sold.

The retail performance was driven by strong conversion and continued growth in web traffic.

In the second quarter, our website traffic grew 16% year over year, which was up slightly from our first quarter on average we saw more than 25 million visits per month.

Gross profit per used unit for the quarter was consistent with prior year at 20 183.

In addition, we reported higher wholesale units with volume up 4.7% versus the same quarter a year ago. This was primarily due to an increase in Bahrain gross profit for wholesale unit was $928, a 1% increase compared with last year.

As a percentage of sales zero to four year old vehicles increased to 78% versus 77% a year ago total actually these and trucks and accounted for about 47% of ourselves up from 44% last year.

This quarter. We also made significant progress on the rollout of our omni channel experience and remain confident that this is the future of car buying.

This experience, which allows customers to move seamlessly between online channels in physical locations is now offered to approximately one third of our customer base and we remain on track to reach the majority of our customers by the end of this fiscal year.

In addition, during the second quarter, we opened two customer experience centers or as we refer to them see season in Atlanta, and Kansas City.

These centers are a key component to our new customer driven buying experience providing help on demand as they serve customers nationwide.

Currently our Atlanta C. C is fully staffed and our Kansas City location continues to ramp as it begins to support more stores.

We also continued to be relentlessly focused on the customer experience and rolling out new capabilities on a regular basis during second quarter, we tested and launch new customer progression offerings and enhance selling tools for our associates.

These investments are essential to our vision for the future as they focus on providing a seamless transition between online and in store interactions enhancing the experience for both our associates and our customers.

At this point I'll turn the call, but it's Tom can you can provide some additional color on our second quarter financial performance [noise].

Thank you good morning, everyone [laughter] as Bill mentioned earlier, we posted solid second quarter results, including a double digit increase in earnings per share.

This reflects strength across our business, including growth in used wholesale caf operations, along with our ongoing share repurchases.

In the quarter other gross profit increased 8.2%.

This was largely driven by 15% increase in extended protection plan net revenues, reflecting the combined effects of our used unit growth increased margin and higher pending product penetration rates.

In addition, we recognize six and a half million of estimated ATP profit sharing revenue.

Last year in Q2, if you recall, we recognize four point fourmillion.

On the F G and H from expenses for the quarter increased 6% to 480.8 million, where a year over year decreased $4 per unit.

Factors impacting our SG nay spend included the opening of 18 stores since the beginning of the second quarter last year, which represented a 9% growth in our Storebrand base.

Higher costs associated with our sales growth.

And continued spending to advance our technology platforms and support our core an omni channel strategic initiatives.

Similar to the first quarter SGN, a would like due to timing of advertising expense, which we expect to step up in the back half of the year.

In Q3, we're launching a new marketing campaign reinforcing the strength of our brand and highlighting our differentiated omni channel experience.

Additionally, we expect omni channel investments in the second half will continue to increase as we open or CTC in Phoenix and rather than contact centers continue to ramp up.

As we mentioned in Q1, we believe it will take comps in the range of 5% to 8%.

The leverage SGT full year.

In the quarter, our provision for income taxes benefited from the impact of stock option settlements by $4.8 million.

Now I'll discuss customer financing caf.

We continue to be pleased with the performance of arch third party lenders tier two had strong conversion year over year accounting for 19.7% of used unit sales.

Paired with 17% last year.

Tier three was up slightly to 9.6%.

And Caf penetration net of three to pay offs was 42.2% compared with 43.9%.

And last year's second quarter.

Year over year Cafs net loans originated grew by 5.6% to 1.8 billion.

As the increasing used car sold and the average amount unfinanced was somewhat offset by the decrease some caf net penetration rate.

For loans originated during the quarter the weighted average contract rate charged to customers was 8.6% up slightly from 8.5% a year ago [noise].

Caf income for the quarter was $114 million up 4.1% versus last year.

Impact of our growth in average managed receivables was slightly offset by the increase in the provision for loan losses.

Portfolio interest margin for the quarter was 5.7% comparable with the same quarter a year ago.

The provision for loan losses was 45.5 million in Q2.

Versus 40 million in the prior year period.

The increase arises from portfolio growth at a modest increase in the allowance based on loss experience. The allowance at 150.4 million represents 1.15 years, ending managed receivables versus 1.14% in the first quarter and 1.13% year ago. This remains well within our range of experts.

Patients given the origination strategy in our portfolio mix.

To reiterate reiterate fields earlier comments, we remain committed to aggressively investing in our business to enhanced experience for our associates and customers and to expand or market share.

During Q2, we opened three stores one of the new market Lovett, Texas into an existing markets San Francisco, California in Phoenix, Arizona.

We also anticipate opening 13 more stores over the next 12 months.

Addition, we continue to enhance shareholder returns through our stock buyback program.

During the quarter, we repurchased approximately 4.5 million shares for $128 million.

And we have 1.8 billion remaining incur an authorizations from the board.

Now I'll turn the call back over to Bill.

Thank you Tom.

Summers continue to tell us say value, an omnichannel experience empowering them to shop on their terms whenever and wherever it is most convenient for them.

The unique and powerful integration of our in store and online capabilities provides us with a significant competitive advantage that no. Other used car retailer can offer at our size and scale.

As I mentioned earlier, our Ccs play a vital role in supporting our customers with the selection and purchase of their vehicle, we will be opening another CE CE in Phoenix in the fourth quarter.

As we transition our store he offices to a more centralized function at the C.C., we expect inefficiencies in the near term, but remain confident in our ability to optimize over time as omni markets mature and CE CE become fully utilized we continue to believe that this will be a more efficient model than our current.

When we launched the omni channel experience in a new market. The first four to six weeks, our focus on our operational capabilities and ensuring our exceptional customer experience is being fully delivered.

After operating capabilities are in place, we bring in marketing and promotional support for the new experience.

From that point, we allow a few weeks for leads to mature from these activities before performance measurements begin.

While we're pleased with the experiences our stores are providing in the new omni markets. It is too early to talk about their performance at this time.

We understand there has been an appreciation for Atlanta omni updates as it was the first market. The launch I'm pleased to say for the third consecutive quarter, we saw double digit comps and the market continues to outperform the overall company in both comp sales and appraisal boss.

This is the last quarter, we reported Atlanta on a standalone basis, it becomes increasingly more difficult compare Atlanta is performance with that of other markets as more stores begin their omni channel journey and new digital initiatives are introduced nationwide to support the Ami experience.

Going forward, we will talk about omni more holistically, rather than a market by market basis.

Finally, we continue to focus on leveraging our data to improve our execution and our experiences for example, this quarter, we focused on vehicle recommendations, both online and in store to help our customers make the right buying decisions.

Remember on an annual basis, we have more than 250 million digital interactions, we processed more than 1 million credit applications, we value more than 6 million cars transport more than 2 million and recondition more than 750000. This generates a significant amount of data available only to us a competitor.

The advantage, we will continue to leverage.

While we are excited about our ongoing initiatives the key to our success will ultimately come from our interactions and feedback from our customers. Let me share a recent example.

This customer list about 60 miles outside of Atlanta, and has a newborn daughter, she didn't want to waste time traveling with a baby into the city to shop. She is a perfect example of a customer who needed the option to shop on her terms.

She started with one of our competitors, but said she wasn't getting the helps you needed.

And she tried carmax dot com and completed an online finance application.

A consultant that RCC immediately reached out to her and on that very same day, we delivered the car to her drop away with a surprise guiffre newborn she was blown away and so it was the best customer service she's ever seat not the best car buying experience USAT, but the best experience ever that is exactly what we're going after the omni channel.

It's our ability to personalized each customer's journey, whether in person online by phone or combination of channels that provide a truly unique retail experience.

We've always been about an exceptional customer experience and I'm proud, we're continuing to evolve to exceed our customers' needs.

With that we'll be glad to take your questions.

Thank you at this time conducting our question and answer session.

Ask your question. Please press Star then the number one on your telephone keypad to allow for his many questions as possible. We ask that you. Please limit your questions to one question with one related follow up. Your first question comes from the line of John Murphy with Bank of America. John Your line is open.

Good morning, guys.

And thank you are much for the detail.

You are about the omni channel efforts and that's kind of what I wanted to focus on.

He was that one example of a customer 15 miles away from your store, but just trying to gauge. If there is I know you're you're going to be short on details here, but any way for us to gauge or the potential productively uplift from stores you could give us any metrics around that or maybe similar maybe simply talking about sort of that customer was 50.

Miles away from your store what is the far this customer that youve reach with these omni channel efforts and how far is that right. I mean, you how far do your typical sort of in store customers typically drives trying to gauge sort of the conference and potentially provide productivity uplift.

Sure John first of on the mile radius early on and as we set a limit on 60 miles no more than 60 miles from from any given store obviously as we continue to expand the experience stores will start to overlap within 60 miles of each other so the 60 miles becomes less relevant, but that's kind of where we started with as far as.

Giving more detail at this point like I said it is it is really early if you think about it.

Although we progressed it to make it available experience available to the third of our customers.

Only a third of those those market have any type of advertising at this point and the other ones are the do have advertising has been very short lived.

The other thing that I would tell you is that the connection over to our CE seeds.

There is there are some inefficiencies there if you think about it the first see either we turn on with Atlanta. The most tenured associates that we have and they're taking calls.

First our taking calls in June so it's a little early for to talk about any any specific results, but as I said, we plan to continue to update as we go forth.

And maybe if I could follow baby, so thats 60 mile radius any what is the typical distance that somebody would drive in in store without sort of that defined.

New area that you're looking at their there isn't a there isn't a typical I mean, we'll have folks that are leveraging test drives it or very close to the store and then we'll have some that are that are further out it's kind of all over it we look at end markets and penetration we look at five mile bands with of the store that as you would imagine.

The penetration is significantly higher the closer yard at the store some a lot of its within a 10 mile band, but we do have customers as Bill said that will you know you won't drive that far for service, but you'll drive to get the car you want the price.

But as I as I said, it's just a lot less further out you get the center the penetration get.

Got you saw it almost seems like you're looking at something like a 10 mile opportunity to go into a 60 mile opportunity.

Just seems like I mean, it seems like Thats generally way, where your thought process I'd maybe.

Number two thats my reading, yeah, well, we we don't really put them all as bands. We think omni can help us reach we've put 60, but we think it it's going to help help us reach a lot of other customers that maybe we weren't a viable option for them before.

Okay, great. Thank you very much thank you.

Your next question comes from the line of Sharon Zackfia with William Blair. Sir Your line is open.

Hi, good morning.

Good morning, Sharon.

Right.

I guess just a follow up question on bad I mean, as she has been rolling out Omnichannel.

What what is the most surprising future I mean, it seems as if you're really just striving to kind of I'd say to more frictionless environment. So oh the options for the consumer wherever you seemed like the biggest.

Uptake in that.

And that is an online appraisals or financing or the delivery and then.

Corollary to that when you think about Atlanta.

Is that comp driven by increased traffic because people are.

Your your kind of lowering the detailed Patrick as people know, what they're going to get when they come in.

Or is that increase conversion, just curious where you're really seeing that complements come from.

Okay, Sharon so first of all.

On what's kind of been the biggest I don't know if I'd necessarily call. It a surprise, but as far as what the customers seem to appreciate a lot I think it really is.

As we roll omni and we had these new the new customer hub out that allows the customer to progress on their terms. So they can now once they decided in the car that they're interested in.

Generates and put them into the customer hub at which point they can do pretty much anything that they want to do and be able to do that on their own speed.

They also are assisted at any point in the transaction by our customer experience consultants. So I think that has been very well received obviously with the the test drives delivered to their to folks home. That's a new feature customers are that utilize that are highly engaged really appreciate it keep in mind, it's still a very very small.

All per cent of overall sales as far as the Atlanta comps.

Keep in mind, when we rolled it into Atlanta It was.

A pure market with very good controls because when we wrote in there there was nothing on the anywhere else in the a and the U.S. So you know not only do we you know we put the new omni experience in there. We just traditional advertising we opened up some transfers we continue to do pricing test and I think the comps are being generated by all the.

That now from that point, we've taken pieces of this and I talked about this in the first quarter. We've taken components of omni. So for example, the new website, we move that into the rest of the the country in the first quarter. Some of the new technology improvements that we've made to the web site. The rest of the country has been able to to get to that benefit so.

Some of the new Mark Vince the reason why as we go forward it gets harder and harder to compare Atlanta took control because there really is no country no control anymore.

Okay. Thank you sure.

Your next question comes from the line Scot Ciccarelli with RBC capital markets. Your line is hoping.

Good morning, guys Frank.

Hi, can we talk about a loan origination distribution I guess the way we're looking at it seems like comps that were originated through cats were actually down low single digit slid over 100% your growth coming from your tier two and tier three lenders can you just help us understand especially with the <unk> I know early but rollout of omni channel like.

Growth appears to be negative through the the cap channel and maybe what's changed with your financing partners to accelerate growth. There, yes got I don't know about.

Comp growth, but if we look at specific units financed by cap, it's actually up year over year, even though it's down as a percentage of the the mix.

So does it a lot of we used to accounts just going to be.

Product.

Credit quality the application volume.

So I wouldn't read anything into omni at this point because it's only in.

Limited markets.

As far as tier two in tier three we did see strong performance from them.

I don't think it has anything to do with with.

Amit as much as is the lenders and some factors going on there in tier two we observed improved conversion from them, which is permit I read. The reminder, that's how we evaluate our third part pretty lenders as of the applications that they see how many convert to a sale. It over the course of last year, particularly in the back half the year we.

Tier two conversion improved significantly and it's helped held strong ended this year. So we're we're looking at it kind of a year over year more aggressive lending.

Practice in tier two.

Tier three.

If you recall in Q3 last year, we made the deliberate activity to switch application volume away from an underperforming lender and more towards a better performing lender.

And so that's that's benefiting us as far as tier three volume.

This year, but we'll probably an anniversary that in the upcoming quarter.

The common in the tier two is there anything that was there. In addition of new lenders to that program or is it just kind of across the board that that group of lenders that you use there they are becoming more aggressive in terms of seeking to provide financing for you that yes, I would say that across the board is not a fair characterization. The reason we are maintaining.

Portfolio lenders that because their behavior has changed.

We did see one in particular get a little bit weaker, but a few of them got more aggressive over the course of the year and net net the conversion in tier two is up significantly versus last year.

Got it thanks, guys, yes. Thank you.

Your next question comes from the line of Armintas the condition with Morgan Stanley I missed your line is open.

Great much appreciated.

You mentioned.

That.

To leverage as DNA, you need to grow same store sales about 5% to 8% that's different than the previous mid single digit growth.

But it does seem like the filings call out this year in particular, so can you talk to me about how.

The plan to leverage SGN, a beyond 2020.

Yes, So I think first of all the five day percent, we've been talking about that the.

The last couple of quarters, certainly last quarter and again this quarter, we came in a little bit favorable to Tom's point earlier in his opening remarks.

We have advertising spend slated for the second half year, so you'll see that that jump up.

The way to think about advertising, we think about it on a whole year, because it gets a little dicey from quarter to quarter, depending on timing, but as a whole year, we would expect to see advertising on a per car basis be a little bit higher as we support our our omni rollout as we go forward, we think theres lots of the upturn.

Thank you to leverage and one of the things we havent talked about.

So little bit Leverages period, some of that is coming from initiatives that we've done in house to make sure. We're managing control optimizing our staffing eliminating waste. So for example in our merchandising department make sure we're leveraging our buyers in different ways than we had before same thing with sales managers in the store. So what you're seeing a sum is some goodness is coming from that.

That's offsetting some of the incremental expense or that we're investing in the business I think as we go forward through the next year.

I think we have a lot of opportunities still leverage our ctcs because again, they're just they're just ramping up I see that as an area of opportunity because I don't think we'll need to grow the seeds as quickly as we would for.

Sales consultants in stores, if we continued the the growth by having a staff the offices, which we won't we won't continue to do so I think theres still a lot of good things that are.

Our our head to head in store for us.

Okay. So would you expect to get back to that mid single digit same store sales growth the leverage SGN a going forward then or is five date, the new norm well I think what we said five date is what you should expect this year next year next year I think you can expect a little bit of us step up in investment, but not as big a step up as this year or the last.

Here, So I would expect to get a little bit better next year, and then I think what you'll see as it will assuming that we don't have new initiatives, you'll see it start to plateau off plateau, and then maybe even come down a little bit.

Okay much appreciated short.

Your next question comes from the line of Seth Sigman with Credit Suisse. Your line is open.

Hey, guys. Good morning, I just wanted to follow up on a couple of those last points. So just in terms of the timing of the advertising expense are you guys able to quantify how much actually shifted out of this quarter into Q3 Q4.

Against that I would think about it more on a on an annual basis.

If you if you look at what we spend on a on an annual basis on a per unit I would expect it to be up a little bit over what it was last year. So I think last year was one at around 220, all in per unit and I would expect to be above that at the end of this year.

Got it Okay and then just two related follow ups here just in terms of the initial inefficiencies as you're rolling out the Ccs obviously, it's very early but just curious your thoughts on maybe how long does it take to ramp up when do you start to see it breakeven from a cost perspective, as you reallocate that labor and experience I think you've talked about store attrition and waiting for that.

To happen.

And then just related to that up can you just talk about your ability to preserve that top experience that you provide consumers in the store wall that labor is being reallocated just remind us how that all is playing out as it reallocate that labor to see you see thanks, Okay on the on the first part of the question about the inefficiencies. So a couple areas that we see an.

Efficiencies right now.

When we convert over a new market keep in mind, our stores or staff currently to handle E office shifts. So when we turn on omni they no longer have to do he office so were overstaffed.

We are subsidizing our associates to make sure that we can.

Hold them hall, with an opportunity to make more as we allow normal attrition to work through and get us to the right staffing level.

Each store in each market is gonna be a little different depending on what they go into beyond the rollout where they are from a staffing standpoint, but I would think within a few months the staffing should be rightsized in those stores, if you're looking for a timeframe as far as CE CE again I go back sometimes said earlier, our most tenure.

Person in a in the the Atlanta, It's easy has only been taking calls since June .

That is a little bit of a headwind for US right now because there are some stores, where they're very effective in their ERP shifts well, you're not going to be as effective day, one as you well be day, 30, or 60 or one year. So I think the offices. They continue to ramp up as we continue to train those folks and get more reps that we'll continue to provide goodness.

Overtime and one of the learnings that we've had coming out of this is we've revamped arch are our training program for the Ccs and made it even more robust and then what it's been in the past.

And what was the second part of your question.

Yes.

So with it is about the customer experience in the store yeah, that's where we're talking about or just your ability to preserve that experienced in the store as consumers still come in but I think you sort of address that yes, we put a lot of focus not only were trying to see that we go into an omni market. We work with the stores for six to eight weeks before we roll omni because.

One of the big things is that we want to make sure. This is a seamless integration for the customer so as they do more online when they come to the store. They don't want to have to repeat that they want the credit what they've done previously so leveraging the new technology stack that we have the integrates into our CRM system has been critical and so it's about making sure that our floor sales consoles that are in.

Tracking with the customers face to face.

Take the value out of the system and make sure they understand how far the customers progressed and give them credit for what they've already done.

Got it alright, thanks, Bill appreciate it thank you Sir.

Your next question comes from the line of Derek Glynn with consumer Edge research Sir Your line is open.

Good morning, Thanks for taking my question just as it relates to the reaching higher initiative for auto Texan Detailers can you provide an update how that's going in do you think there is ample supply in the labor pool right now to fill all those openings or are you, perhaps being a technician shortage in the industry is similar to what some of your franchise dealer peers have discussed over the last year. So.

No I think it's absolutely a there is absolutely a shortage of technicians when I think about the challenging positions that we hire for right now I would say technicians and fleet drivers are probably at the top.

But I tell you for us.

One our employment brand and being the fact, we've been on the 100 Best places to work for 15 years, certainly helps we've got great working conditions, we got great benefit. So it's a great place for technicians to Tom work. In addition to that with our whole flow operations, we can grow a print as tax all the way through the cycle and so we.

We're starting to grow our own technicians. So we don't have to rely solely on what's coming out of trade schools that kind of thing. So we feel good about where we are we do have a push right now to make sure that we can meet growth as whether that be additional stores or growth that we would expect to see from from omni channel.

Got it that's helpful and if I could just squeeze one more and just quickly any impact to call either late in the second quarter or here early in the third quarter from recent weather events, such as Dorian or more recently in Texas.

Yes, so dorian.

Did impact.

The obviously, our east coast stores, because it hung out there for a while we had or towards the end of the quarter.

And one point, Tom I think we had about 14 stores that were closed and it kind of very there for over a week period at the number of stores, we close it as a threatened north of Florida started out okay. It's come to Florida than you know how when so we did have an impact, but what I would tell you.

What we believe and what we've seen an asset although that straddled the quarter. It had a small impact on the quarter results, we would expect to get that back.

In the third quarter as far as a imelda.

We closed some stores for Houston for a partial day, but it really that was less significant than than Dorian.

Understood. Thank you.

Sure.

Your next question.

Rick Nelson from Stephens Rick.

[noise] you talking about.

Who use and internal mark.

But quite yet.

How that compares to non Omnichannel markets I know you've talked about some pricing.

And of markets.

Sure Rick.

First of all in general I view, omni and GPU is two separate decisions that we make they're not necessarily dependent on each other.

Weaken rollout omni and not.

I have to do anything with GPU as far as it relates to Atlanta.

Like I said in the past with Atlanta, We did open up some more free transfers we did some pricing test. So there was a little bit of pressure on gpus in that market, but we.

We pulled back on some of those things and truthfully as we go forward and omni we're gonna be pulling different lever levers for different markets. So again I feel good about where we arent GPU, a and I do think about him as separate decisions.

Okay, Great and good luck thanks, Rick.

Your next question comes from the line Seth Basham with Wedbush Securities.

Thanks, a lot and good morning.

Actions around trends it I'm gel markets as well you I appreciate the fact that you're not going speak to performance in our retail markets outside of Atlanta, We look at Atlanta is really strong results today, where are your projections for the rest the omni channel markets what type of lift do you expect to rolling out an omni channel outside of Atlanta.

Yes that fits it.

Look as I've been saying every market is going to be a little bit different as far as what we expect and left we absolutely expect a lift do I expect to get double digit comps in every single market No I don't expect the do I expect to be getting that in the early stages of these markets absolutely not for all the reason that Todd cited.

Previously but.

It's really it's too early to tell exactly where we think we're going on land ultimately, but as we progressed through the next few quarters, we'll be able to talk about it more holistically and what we're saying.

Okay, and I have a follow up as relates to tier two and tier three penetration you spoke to the fact that you'll be cannot be annualizing. Some the strength in tier three and the upcoming quarters care too as well you'll be annualizing. Some of that improve conversion you saw there in the second half I would you expect to see more limited comp contribution.

From tier two going forward as a result.

I can't predict what the lenders will will do over the course of the next year.

So it's.

It's hard to say what will happen going forward, but as I mentioned, we did see improvement over the course, mostly the back half of last year.

And it was it was more of a trend unlike tier three which was a step function because we changed our.

Allocation.

Understood. Thank you very much okay.

And begin.

Good question.

Then there number one on your telephone keypad. Your next question comes from line as Chris Bottiglieri with walking.

Your line is open.

Hi, Thanks for taking my question.

Let's talk about like the supply environment.

Wondering if you're funding obviously controversy stronger announced it up in some cases, but wondering it makes sense for what you're seeing in terms of into <unk> availability.

You had a more difficult time, yet sourcing.

Productive units that fit your standards and then to how do you think about that backdrop given off lease growth beginning to decelerate in the back half of them Kinda plateauing into the next couple of years. Thank you.

Sure Chris.

As far as auction supply, we think there's a good supply I cited that is the strength in Q1 I think the supply is is still good.

We don't see an issue there when I look at the comps from Q1, two now obviously in Q1, there are a lot of different factors that I cited yet the tax refunds you had the the lending environment could be a great execution, we've rolled out from a digital things that we had gone from omni thing. It was interesting about Q1 was not only do we feel good supply.

But the acquisition price for the for the first time was fairly flat year over year, and we hadnt seen that probably in a year and a half or more when I go to the comps. This quarter. There certainly was a headwind because our acquisition price actually went up a few hundred bucks over last year, which was already up four to $500. So that.

Was.

That was a.

And one that headwind that we work through.

As far as to the question on the lease yet I think the leases from every measure that you look at and what I read it sounds like the leases make peak this year and then start to decline, but truthfully, we've seen this cycle before where leases makeup.

A decent share of what's being sold and then it gets pulled back and generally what happens is there something up that helps it feels that fills that that void. So maybe dealer consignment will go up the Saar staying relatively flat, which means instead of leases people are buying cars. So we'll just keep those vehicles through through other channels. We've we've been able to to work through that historically and I thought.

Inc., we're in a great position because we have done it before that that this this time will be no different.

That's helpful. Then a follow up.

What do think about like the strength of your model I think one of the underappreciated assets, it's kind of.

Thank you you know your Cat book, and then like your lending partners I have historically observed that when like the auto environment credit conditions tight in your comps accelerate.

Yes, Hey, do you see this in your own data then be how would you characterize the overall auto lending environment currently thank you.

Yes, we haven't looked at whether how our comps trend with the overall auto lending environment, but.

And we we really concerned ourselves with with our ourselves and our and our partners and what they're doing.

We work really hard to maintain a book of business Thats highly financeable that the book the securitization market will appreciate and.

And we Linda the standards that allow that to that allow that to happen.

We haven't seen anything in the current environment, that's made us want to tighten their standards no red flags at this point, so I feel good about that so great about our tier two partners and their performance over the past year. It's why we have a portfolio of them and you know in.

We haven't had a tight lending environment in awhile, but when we did in that.

Ongoing basis, we heard from our partners that they prefer the business coming out of our system than other places and actually tick.

You know volume down in other places in and in order to keep doing carmax business. So.

We continue to focus on those partnerships and hopefully it pays off in the long run. They can has in the past Chris only the thing I would add to that is it.

It really is about affordability so as prices go up.

You know customers are focused on their monthly payment so.

Changes in.

Interest rate and acquisition prices all that kind of place you got I don't think it's one versus the other so.

New cars are going up faster than used cars and even if the the the financing environment isn't as tight.

Customers are focused on that monthly payment and what does that equate to too from a monthly payments standpoint.

Yeah. So that's really helpful. Thank you the context.

Sure.

Your next question comes from the line of Stevenson with Morningstar. Your line is open.

Thanks. Good morning can you talk at all in terms of your self sufficiency ratio is there anything on the digital on the technology front that might help you guys meaningfully increase that ratio over time.

Sure. So we've talked about our self sufficiency ratio is usually in the 40% to 50% were a little bit little bit less than that for this quarter that certainly is a is a focus area. We continue to advanced some of our test with online appraisals online estimates trying to figure out what resonates best.

The company's but it certainly is a large focus and we will continue to buy as much as we can.

Through outside channels other than the auctions.

Okay, and I'm on the Caf penetration being down <unk> percent for the year about 230, Bips that Tom is that primarily the more aggressive lending from the their channels. They were talking about early or is there another factor driving that no as as you guys probably know we get first look at all of the loans so cash.

Runs its business as it seems a bit to try to optimize its profits and carb excess profits.

So it changed.

Our third party lender behavior would not impact our book at all its really as a matter what kind of cut customer application credit mix is coming through the door and our ability to convert those folks and actually we are doing good job on a year over year basis of converting them. There's just no matter whats come through the door.

Okay for the web I'm sorry.

Antiquated myself here.

Right.

Your next question comes from the line of Scot Ciccarelli with RBC capital markets.

Hi, guys just a quick follow up on the financing side here is is there any kind of difference in the distribution that you're seeing from the omni channel than the stores on the financing like is Caf I.

I don't know because I'm not actually in the car next door. For example, maybe I'm you know choosing a bigger bank or lender that maybe a more familiar with.

Yeah, I think Scott at this point, we've seen similar whether it's in the store through omni channel, we've seen a kind of a similar credit make up.

Really the only difference that we've seen is when you start doing online finance I think the folks that that utilize on finance is as is more skewed towards lower credit customers, but outside of that it's it's pretty similar to the stores.

But bill does that mean that as we expand the omni channel more people are using the wed to do their credit apps, because that's obviously a growing trend you would naturally tier more shift more towards those kind of second in your tier two in tier three lenders rather than caf.

Scott I think what bill trying to articulate as people that are leading with the credit app as their first entered interaction with us that volume is significantly lower credit than our overall transactions and omni. If you look at that people, who transact with us an omni it's similar to that so the mix that we see in the rest of the system I think it's just.

The folks that have good credit.

Don't lead with that because they know it's not an issue and they'll feel that later in the process by online financing has been available for quite awhile when even before before on me. My point was just more specific of the folks that use that feature six generally lower credit.

Okay got it all right. Thanks, guys.

Thank you.

This concludes our question answer session I will now turn the call back over.

Closing remarks.

Thank you listen we're excited about the future were 26 year old comedy. We just had 5 billion in revenue for the second quarter in a row revenues are up 9% Dps is up almost 13 comps are north of 3%.

We're investing heavily in the business for the future we're buying back stock. We're managing costs were very excited about where we are today, we're excited about the future but.

It all goes you know to our associates, they're the ones that are enabling this none of this would be possible without their dedication and drops.

They're delivering that exceptional customer service and living our values day in day to day out. They are the ones that are driving with possible for us I want to thank them.

For everyone else Mccall I want to thank you for your continued support of Carmax and we look forward to talking with you again next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.