Q1 2022 Carmax Inc Earnings Call
Ladies and gentlemen, and thank you for standing by and welcome to the Q1 FY 'twenty to Cam X earnings release Conference call. At this time, all participants are in a listen only mode at.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to Stacey Rowley. Thank you. Please go ahead.
Thank you Shelby good morning, Thank you for joining fiscal our fiscal 'twenty 'twenty 2 first quarter earnings conference call I'm here today with Bill Nash, our president and CEO and regain ma'am aura, our senior Vice President and CFO and John Daniel <unk>, Our senior Vice President calf operations.
Let me remind you our statements today regarding the company's future business plans and prospects and financial performance are forward looking statements, we make pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 of 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 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 at the annual report on form 10-K for the fiscal year ended February 28th 'twenty 'twenty, 1 filed with the SEC.
Should you have any follow up questions. After the call. Please feel free to contact our Investor Relations Department at 8047, and 470422 extension and 76.5.
Lastly, let me. Thank you in advance for asking only 1 question and getting back in the queue for more follow ups Bill.
Great. Thank you Stacey and good morning, everyone and thanks for joining us.
And you read and our earnings release. This morning, we delivered exceptional performance and the first quarter with record results across all aspects of our business retail wholesale and auto finance and a solid flow through to EPS.
Our success reflects the continued progress, we're making and our digital transformation and online experience along with solid execution and our ongoing commitment to disciplined cost management. In addition, we benefited from the backdrop of of strong demand environment enhanced by the impact of the most recent round of government stimulus payments.
For the first quarter of FY 'twenty to our diversified business model delivered sales of $7.7 billion up of 138% compared with the first quarter of FY 'twenty, 1 and net earnings per diluted share of $2.63.
Of $2.60 from a year ago.
This also represents increases of 43% and 65% respectively from the previous record set in the first quarter of FY 'twenty.
Across our retail and wholesale channels, we sold approximately 452000 cars up of 128% versus the first quarter of last year and of 31% increase on a 2 year basis from the first quarter of FY 'twenty.
We also bought 236% more cars and the first quarter this year versus last year, and 77% more compared with 2 years ago.
As many of you know for the past several years, our priorities and investments are focused on building and unmatched experience with a leading e-commerce platform that integrates seamlessly with our best in class and store experience.
The result has been a massive organizational transformation that includes building a comprehensive set of digital and hybrid processes to accommodate our customers and whatever way they want to interact with us.
Our progress and executing the strategy has given us a very solid start to FY 'twenty, 2 and we remain confident and our long term targets announced at our recent analyst day of 2 million retail and wholesale combined units sold per year at $33 billion of revenue by FY 'twenty 6.
And our retail business total unit sales and the first quarter were up 101% and used unit comps were up 99% versus the first quarter last year.
Paired with the first quarter of FY 'twenty total retail unit sales were up 21% and same store comps were up 16%.
In addition to strong unit sales, we reported 2000 and $205 of retail gross profit per used unit for the quarter up $268 versus a year ago and in line with the first quarter of FY 'twenty.
Given the strong demand environment for used autos and inventory constraints throughout the automotive industry, we pulled back on the expanded pricing test, we introduced and the fourth quarter.
We'll continue to monitor and macro factors and pricing elasticity and will adjust our pricing accordingly to maximize unit sales and profitability.
For wholesale and our units sold 187% compared with last year's first quarter and were up 50% when compared with the first quarter of FY 'twenty.
Wholesale gross profit per unit increased to $1025 compared with $978 for the same period last year and was in line with the first quarter of FY 'twenty the.
The strength and wholesale was primarily driven by the introduction of our instant online appraisal offering, which we rolled out nationwide on Carmax dot com and February after launching on Edmunds Dot Com last year. We also benefited from significant appreciation of used autos and the broader market.
Yeah.
Carmax auto finance of cash continued to deliver solid results with income of $242 million and addition, caf and our partner lenders delivered strong conversion and all credit tiers, John will give you some more details on that are coming up here shortly.
Overall, we're extremely pleased with our performance, but we know there are opportunities to be even better for example, and the operational front inventory available for sale was below targeted levels throughout the entire first quarter. These lower levels are the result of recent demand and the temporary COVID-19 and weather impacted production slowdown we experienced in the fourth quarter.
Remember the fourth quarter at a time when we are ramping production ahead of the peak demand tax refund season, our teams have done an amazing job producing inventory and the first quarter and we expect inventory to continue to increase as we add additional production capacity at existing locations.
Now I'll turn the call over to Enrique who will provide more information on our first quarter financial performance and then John will share additional detail around customer financing so enrico.
Thanks, Bill and good morning, everyone.
Together with the strong gross profit growth and retail and wholesale Bill just discussed other gross profit increased to $142 million up $111 million from last year's first quarter.
This increase was driven by E. P P growth of $61 million or 83% driven primarily by retail sales growth and a stable penetration rate above 60%.
Service growth of $42 million or 125% driven by labor leverage due to our strong sales performance and prior year company support pay.
And and improvement in third party finance fees of $6 million or 57% due to our renegotiated fee structure and changes and tier penetration, partially offset by increased sales.
Relative to the first quarter of fiscal year, 2020 other gross profit grew $22 million or 18%.
This was primarily due to volume related growth and E. P. P and the benefit from a renegotiated third party finance fees, partially offset by service deleverage.
On the SG&A front expenses for the first quarter increased to $554 million up 71% from our COVID-19 impacted quarter of year ago.
Robust sales and the first quarter, along with disciplined cost management delivered strong leverage with SG&A as a percent of gross profit of 59, 9% down from 91, 7% and the prior year's first quarter.
The increase in SG&A dollars over the last year was primarily driven by <unk>.
$108 million increase and compensation and benefits, which was primarily the result of comping over COVID-19 related payroll reductions last year.
Along with an increase and variable cost due to higher volume and and head count as we continue to invest in our gross initiatives.
Compensation and leveraged by 25.8 percentage points versus last year.
At $38 million increase and advertising expense driven by our previously communicated investment and advertising spend to amplify the carmax brand and build awareness of our omnichannel offerings and drive customer acquisition.
This year. The increase was also impacted by reductions and last year's spend due to the pandemic.
Marketing leveraged by 1.9 percentage points versus last year.
And of $79 million increase and other overhead.
Judah comparing against the $40 million Takata settlement benefit recognized in last year's quarter.
Our continued investments to advance our technology platforms, and strategic initiatives and copying over pandemic related reductions last year.
SG&A as a percentage of gross profit was comparable with the first quarter of fiscal year 2020.
We remain committed to ensuring we are efficient and our spend and we expect that targeted areas of focus will continue to deliver improvements over time.
For example, our C D. CS are of significant differentiator for us and and area of opportunity.
And the first quarter, our CEC is continue their year over year gains and efficiency and effectiveness through automation and data driven algorithms and smart routing that ensure that insurers customers get the right support.
We are very bullish about our future given the strength and trajectory of our current business and the opportunities to expand into the broader used auto ecosystem.
We recognize that we have an opportunity to capitalize on our leadership position to grow market share and deliver long term shareholder value.
Our approach to capital allocation is aligned with this belief and is supported by the significant amount of cash our diversified business model generates.
First we continue to focus on our core business by aggressively investing and the digital capabilities required to enhance our omnichannel experience.
And customer acquisition.
And the strategic expansion of our store footprint.
Of particular note. This quarter was the very strong ROI, we are experiencing and vehicle acquisition, primarily through our instant online appraisal offerings.
Second we will deploy capital to pursue new growth opportunities through investments partnerships and acquisitions on June 1st we completed our acquisition of Edmunds and we're confident this transaction will create significant shareholder value over time.
Yeah.
Additionally of note on the P&L this quarter other income increased $29 million when compared with the same period last year, primarily due to a $22 million unrealized gain on and investment.
As we've noted in the past we have a portfolio of relatively modest investments across the used auto ecosystem.
Finally, we will continue to return excess capital back to our shareholders.
During the quarter, we repurchased approximately 1 million shares for $125 million.
We have 1 point to $1 billion remaining and current authorizations.
Now I'd like to turn the call over to John.
Thanks, Enrique and good morning, everybody.
Once again, the finance businesses delivered outstanding results.
For the first quarter Caf penetration net of 3 day payoffs was 43, 7% compared with 36, 1% a year ago.
Tier 2 decreased to 22, 8% of used unit sales compared with 28, 5% last year.
Tier 3 accounted for 10% compared with 14, 5% year ago.
You will recall and the first quarter of FY 'twenty 1 at the beginning of the pandemic, we leveraged our long term relationships and router and a portion of cash tier 1 volume and all of the allocated tier 3 volume to our tier 2 and tier 3 partners, which explains much of this year over year shift and tier mix.
No. This was done as a temporary measure, which limited cash origination volume, while preserving the high quality of the portfolio.
By the end of the second quarter last year, we had returned to a normal routing procedures.
During this first quarter cash net loans originated was 2.5 billion.
Mark and the largest single origination quarter in cash history, and the first quarter above 2 billion.
The weighted average contract rate charged to new customers was 9% up from 8.4% year ago, and 8.5% and the fourth quarter.
Similar to the fourth quarter this year over year difference and APR as a result of the credit mix of customers rather than an increase and the rate charged.
Regarding the portfolio. The overall interest margin increased to 6.9% versus 5.9% and the same period last year as the strength of our ABS program continues to yield significant benefits and the form of lower funding costs.
Caf income for the quarter was $242 million up from $51 million a year ago. The significant year over year increase comes as a result of a substantial improvement and the required provision for loan losses stronger net interest margin and higher receivables.
Total interest margin and the quarter increased by $47 million or 24% driven by the growth and originations and lower cost of funds.
With respect to our provision for loan losses, and the first quarter, we experienced $7.2 million and net credit loss or <unk> 21 basis points of average managed receivables.
As a percentage of the portfolio. This is the lowest reported loss, we have experienced and over 20 years.
The resulting favorability versus our expectations, coupled with the corresponding adjustment and our outlook for future losses resulted in $24 million of income related to the provision and the first quarter.
This is compared to a $122 million provision expense and the same period last year.
This release of reserves resulted in and ending reserve balance of $380 million for the first quarter were 262% of managed receivables, which is a decrease from the $2, 97% at the end of the fourth quarter.
Our reserve as a percentage of managed receivables has continued to trend downward towards more historical levels as our customers remain persistent and their willingness and ability to make their auto payments. Despite the uncertain environment.
We believe this current adjustment of effectively captures the positive loss performance, we have seen over the past 4 quarters and as appropriate for the current macroeconomic environment.
Finally, as previously mentioned cash increased as a percentage of tier 3 volume to 210% by the end of the first quarter.
This adjustment had a minimal impact on the reserve within the quarter, but at the higher volume continues to flow into the portfolio over subsequent quarters, we expect income and the provision to increase accordingly.
With regard to where capital participate and the credit spectrum and the future as always we will continue to evaluate the lending environment and will consider future adjustments if and when we believe those changes are sustainable and and the best interest of our long term business goals.
Now I will turn the call back over to Bill Great. Thank you John and Enrique.
As I said at analyst day in May we are proud of the work our teams have done to put carmax and the excellent position. We're in today and we are really excited about the tremendous opportunities ahead of us our multi year investment and Omnichannel experience has further enhanced our offering which is the most customer centric experience within the used auto industry. We.
And we're agnostic about how our customer shop and buy because we are positioned to give every customer of a world class buying experience, regardless of how they shop with us and turn this gives us access to the largest addressable market within the space.
And the first quarter of approximately 8% of our retail unit sales were online at.
As a reminder, when a customer completes all 4 of the major transactional activities remotely. So that's reserving the vehicle financing the vehicle if that's needed trading in for opting out of a trade in and.
And creating a sales order we considered this and online retail sales.
Because all our wholesale auctions remade virtual this quarter of 100% of wholesale sales, which represents 18% of total revenue are considered online transactions as a result total revenue coming from online transactions was 24% and the first quarter.
Omni sales represented approximately 56% of retail unit sales up from 51% last quarter as a reminder, omni sales our retail sales where customer is complete at least 1 of those major transactional activities remotely.
While all of our customers can buy a car online with assistance, we have been focused on providing a 100% self service experience.
Today, 40% of our retail customers can independently complete and online sale up from 25% at the end of the fourth quarter.
We expect to have this capability available to most customers by the end of the second quarter.
We continue to leverage digital innovations to drive growth with our online instant appraisal offerings, where customers can receive and online offer on their car and less than 2 minutes and have payment and hand, the same day and.
And the first quarter, we bought approximately 163000 vehicles through these online and offering which represents 48% of our total buys from consumers.
And since rolling out nationwide at the end of last quarter. We believe we have become the largest online buyer of used autos from the consumers and the U S.
This is of significant competitive advantage that allows us to efficiently source vehicles, especially during periods of high demand, enabling us to remain competitively priced while producing attractive gpus.
On the retail side, we're making our online experience faster by improving our finance approval and flow process, we're making it easier by enabling customers to request car transfers and then manage and track them all online and we're empowering our customers by providing them with financing information across our entire inventory as the first step and their shops.
Journey.
This gives our customer greater confidence they can afford the vehicle they select.
As we expand access and further enhanced digital aspects of our experience we need to reinforce awareness of Carmax is new capabilities and their values to customers since launching our new brand campaign and love your car guarantee offerings at the end of last year, we've seen strong growth and the awareness of our omnichannel experience with both web <unk>.
<unk> and Google search volumes continuing to increase.
As digital adoption by consumers and dealers continues to grow we will keep building on our investments in omni and our proprietary technology stack and our strong brand reputation to maximize growth and our core businesses.
We're also pursuing additional growth opportunities and the broader trillion plus used auto ecosystem that leverage our capabilities and strengths and the industry.
As Enrique mentioned, we recently completed the acquisition of Edmunds and 1 of the most well established and trusted online gods for automotive information and a recognized leader in digital car shopping innovations at.
Edmonds brings us closer to a broader set of consumers and brings us closer to dealers.
Our teams are Super excited and are continuing to collaborate on new products that will support edmunds dealers partners and consumers.
We see tremendous opportunity and we'll provide updates as we launched new offerings more broadly.
In summary, this was truly an exceptional quarter and we are absolutely excited for the future our results reflect strong and disciplined execution across our diversified business model and further validate our strategy is to enable sustainable growth and meaningful long term shareholder value creation.
We remain focused on enhancing our online capabilities to deliver the most customer centric offering and the market.
We will continue to accelerate our growth and market share gains while also laying the groundwork for future initiatives and growth opportunities now we'll be happy to take your questions Shelby.
Yeah.
Ladies and gentlemen, and as a reminder, if you would like to ask a question you may do so by pressing Star then the number 1 on your telephone keypad again that is star 1 of you would like to ask a question.
Your first question is from Craig Kennison of Baird.
Hey, good morning, Thanks for taking my question and congratulations on the wholesale momentum My question goes to the GPU you mentioned that you pulled back and.
And a GPU experiment and the hot market will you go back to experimentation once the market normalizes yeah. Good morning, Craig Great question. So, yes, we did suspend at and if you remember last quarter and the fourth quarter I talked about we're going to continue but we've been monitoring those macro factors and you know as we monitor macro factors, especially like the inventory constraint and the <unk>.
<unk> at it didn't make sense to AR to continue to do that.
As I said in my opening remarks, we will continue to monitor those macro factors and we're very open to continuing to do some different things with pricing I would tell you like right now I, probably would say we wouldn't do it but we will reserve the right at the quarter progresses, but either way, we will we'll be able to provide great GPU.
It was above $2000.
Thank you sure.
Your next question is from Sharon Zackfia of William Blair.
Hi, good morning, I'm, sorry, if I missed this but did you talk about what your customer sourcing ratio wise and in terms of the retail business for the quarter and then as Youre looking at the online purchases, which obviously of ramped really quickly how are those and how does the GPU on the online appraisals.
Of comparing to the end person appraisals are you seeing those kind of be relatively similar or is there a variance that can narrow overtime and good morning, great question. So when I think about the total buys and we bought from consumers. It's about it's about a 50.50 split between retail and wholesale and that's both as you think about traditionally customers coming in.
The store and doing the appraisal, but that also is very similar to the online purchases as far as the productivity of the online purchase versus the traditional in store appraisals, they're both they're both great and Theyre very similar so which again is a huge benefit as we think about inventory sourcing and be able to manage gpus pricing that kind of thing.
Thank you.
Sure.
Your next question is from John Murphy of Bank of America.
Good morning, Bill and good morning, everybody just maybe at a follow up actually on the on the question of sort of supply Bill.
And you bought 341000 vehicles for consumers in the quarter I mean, that's as much I think you had 1 quarter and history of 345000 and total vehicles. I mean, you bought almost as many vehicles as you've ever peak out on selling so I'm just curious what's going on there on your ability to buy directly from.
And from the consumer and then also if you think on the supply side.
And both from a consumer and then even at auctions and when do you think supply you more naturally eases up I mean, it's crazy things going on like Avis, and Hertz buying cars and auctions and traditionally their sources and sellers rights of near some wacky stuff going on and the supply side.
And how much would you travel and buying from consumers how important is that going to be going forward and then 1 day supply, which is totally wacky at the moment I'd normalize for the flow of supply.
Yeah, So John obviously, the buying directly from consumers has been a big focus I've talked about is putting investments in that area and I think what youre seeing is it really coming to fruition I mean, you think about it.
No more than 340000 cars that we bought from consumers, it's up 236%, it's up 77% versus FY 'twenty at.
And just truly it's truly remarkable a big piece of that obviously, just having easier access for consumers with our online offering but we're also encouraged by the traditional with customers coming in the store and doing appraisals that way. So we feel good about both of those you know the supply of pieces interesting you know theres some abnormal things that you mentioned there but.
And I'll go back to what I said and the fourth quarter supply has not been an issue for US you know, while our saleable inventory at certainly lower than then where we want it to be right now the supply.
If we look at total inventory, we're very much in line with where we were in FY <unk> FY 'twenty and it's really more of a matter of production and I think with the online offering and addition to the traditional appraisal lane that also just diminishes our need for external supply going through those 3 of those other sources and more general to your question of how long you know absolutely there is some <unk>.
Supply constraints out there because you've got some different folks doing different things you also have the demand for maybe some new car customers moving into used cars.
Time will tell I think the new car isn't going to work itself out and the next quarter or 2 I think we're probably looking more towards the latter part of of of the of the year. So you know.
I don't see a lot of changing and supply over the next couple of quarters, but again the supply is not an issue. There is still of lot of cars that are changing hands out. There you may if you if you're buying off site and have to work a little bit harder, but we feel great about where we are from a total inventory standpoint, yeah, and you know John what I would say is the the 163000 cars that we bought through our <unk>.
And online.
Offers really exceeded our expectations that has been extremely well received by customers and I think it's a really good example of the investments we've been making and innovation to make sure. We're at the forefront of the consumer's mind and again, that's 163000 cars through our online offer and really we just set up that that product a quarter ago.
So we're really really pleased with that performance.
And so what can that ever significantly drive the consumer sourced vehicles way above 50% I mean is that the direction you're heading I'm just curious what that target might be yes look we want to drive that target is as high as possible. You know we've historically you know the last several years, we've been in this range of 35% to 45% we're already above that range for this quarter.
And we're between 45 and 50% for this quarter and I think again, our goal is to drive that as high as possible and you know what we're seeing we're very very encouraged by that.
Thank you very much sure. Thank you John.
Your next question is from Michael Montana of Evercore.
Hey.
Good morning, Thanks for taking the question.
Wanted to ask about any thoughts you all may have on the pricing environment. Both in terms of the wholesale side as well as the retail side and what you might be seeing recently.
And our discussions with them.
With Mannheim it sounds like they might have just seen an inflection point, where the pricing is at least starting to moderate so.
And just love to get some incremental thoughts that you all may have and and then secondly, what does that mean for the business. If we do see some moderation and what does that mean for retail and wholesale.
Yeah.
And Michael Yeah, It's a great question.
You've been following us long enough to know that this pricing environment has really it's really unprecedented if you think about from January till now the 5 to $6000 worth of appreciation that we've seen it's truly remarkable you know our average selling prices were up.
A couple of thousand dollars from an acquisition standpoint, they were actually up a little bit more than that but it was a little bit offset based off of mix and and age I do think we're reaching an inflection point. If you look at the consumer price index and the difference between new cars and and late model used cars.
That GAAP is definitely narrowed while new cars are going up they have not gone up at the pace of used cars and thats fairly self correct and get to a point where okay. It's at.
And the late late model used cars is bumping up against the new car and and I think we are at getting close to that and at that inflection point and I think that's I think that's great because obviously when the GAAP narrows, it's a headwind for used car purchases when the gap widens the.
The GAAP between used and new that's of Great thing for used car sales. So I think that that's a positive thing.
Great. Thank you very much thanks, Michael.
Yeah.
Your next question is from Brian Nagel Oppenheimer.
Alright, Thank you good morning.
Nice quarter, congratulations and thank you.
My question is very much of a follow up at up to the prior question just with regard to price and Bill sales.
Well, we've all talked about and we've all heard and read about this number.
No precedent, if you will price scribe and used cars. So I guess the question I have is as we look at these results.
Gary just assets across the business.
It was the pricing environment of tailwind or headwind for Carmax.
And then again I guess, we get and follow up and up and how should we think about this going forward as we look towards the balance of the year.
Yeah, you know normally that pricing environment would be of headwind to just the used car industry and in general I think the difference this quarter was that because there was a lack of new car availability I think at push customers down into the used car market, which helped too.
Raised the price of used cars. So it's really it's hard to to kind of pull that that of parts.
A lot of different factors going on there because you've got and only new customers coming and there you had the stimulus is out there that's driving up demand. So I think the normal what you would normally see from a really high price increases on used cars. It's hard I don't think at was the same at had the same elasticity effect that you would normally see now I think going forward not having some of that stemmed.
<unk> are out there I think.
The normal activity and pricing I think we will start to return and I think back to Michael's point, if we've seen this inflection point and starts to go down and I think that's a that's a good thing yes, I think the other thing as well as at the diversity of our business model really allows us to perform and any kind of environment. So while pricing may be a headwind and some sense. It's a tailwind to other parts of our business and you see.
And our results and you see that kind of from quarter to quarter and our results just that diversity that is unparalleled and the industry, yeah and I.
I think the other thing at play here is look we've been doing this long enough debt.
Whether you see rapid appreciation of rapid depreciation I think the way that we manage our inventory how we buy the data that we leverage and the technology that we leverage I think it's certainly a competitive advantage.
Got it very helpful. Thank you. Thank you Brian.
Your next question is from Rick Nelson of Stephens.
Thanks.
Good morning suite at all.
Okay.
Sure.
Reversal this quarter allowance now.
6.2.
At this time.
Favorable historically I believe that number has been more of them at 2 to 2 and a half range for pier 1.
How should we think about.
That allowance accounts.
Times hope for more of ours.
Reversals.
I appreciate the question Rick.
And right on the Mark at 262% is our reserve as a percentage of receivables right now and you got correct and historically, we have stayed at that 2 to 2.5% is our targeted range for our tier 1 portfolio now bear in mind the $2.6 2 incorporates both tier 1 and tier 3 included in there. So if you were to back that out you can see that we really are and the opera.
<unk> range that we've previously stated and.
And we've trended downward nicely since that I think it is pretty substantial move we've made since the end of Q4 to now and obviously, that's a reflection of the great performance that we saw in the quarter. So going forward. We think 2 <unk>, a really solid number for us across both of tier 1 and tier 3 portfolio and we'll see how the customer performs and the future.
Great.
Thanks.
Thank you Rick.
Your next question is from John Healy of Northcoast.
Thank you I wanted to ask a little bit about the SG&A levels I know you've talked about variety of investments and clearly those are paying off right now but wanted to get your view of kind of the traditional AD campaigns that your cash I know you've done the things with the NBA and some.
And you know new new TV, and I think radio ads.
How do you feel about that spend is.
Is it bill as effective as.
At once was or.
Are you happy with it right now and do you see that continuing to.
B of a big part of the SG&A as we go into the next year or maybe should we expect some recalibration on that front.
Yes, John So let me talk first just about the productivity of the AD spend and first of all we're thrilled with it you know if you look at the advertising spend for the for the quarter, it's actually below the guidance, we've kind of given for this year and I would just think about that and that's just the timing.
We're committed to continuing to advertise in a thoughtful of.
Roy way and I would tell you looking at what we've been doing we had a record hit our average number of hits to our website for this quarter was $34.5 million, which is up significantly from any prior record. We're seeing web visits up you know roughly 60% year over year, 40%, if you compare back to FY <unk>.
Ah 20, Google searches are up.
Double digits. So we feel very very good about the new programs that we're doing and how we're really kind of going out there and spreading the.
Omnichannel experience to consumers, but I'll tell you. This is and it's not a 1 quarter thing we need to continue to be at this and we're at we're committed to.
And to continuing to spend and not and Rick I don't know if you of any other thoughts as it relates to the SG&A, yeah, absolutely and if you take a look at advertising, we communicated last quarter and at our analyst day that we intend on spending more and what we said was we're going to spend this year on a per unit basis pretty much of what we spend and the back half of last year, which was of ramp up ramp up and expense.
And so if you take a look at that and you compare it to 2 years ago and FY 'twenty is certainly a more normalized year.
We're looking at and increase of over 40% on a per unit basis, and our advertising cost, which is consistent with what we've communicated but just to give you some context and perspective on how we think of the importance and and more importantly of the returns that we're getting from our advertising spend.
Thank you.
Thanks, Sean.
As a reminder, if you would like to ask a question. Please press star 1 that at.
At Star 1 if you would like to ask a question.
Your next question is from Rajat Gupta of JP Morgan.
Oh, Hey, good morning, Congrats congrats on the strong trend.
And just I just had.
A question and.
You mentioned earlier Hi, Brian.
The pricing is reaching a level, where you know its probably starting to maybe impact demand because of the mix.
And.
Can you give us some color on like how the projection and walk through the quarter.
And like just marching to me on the comp.
2019 level and then if you could give us any color on how.
And maybe the first 3 or 4 weeks and Jude had trended there.
But that would be helpful. Thank you yeah. So we're pleased with the whole entire quarter I mean, when we talk about looking back at FY 'twenty don't forget the first quarter of FY 'twenty was at 9.5% comp and work comp and 16% on top of that and we saw strong growth and every month of the of the quarter.
<unk> talked about at on the last call how March was a new record month for us.
April was also a record month as it relates to April and May was also a record month as it relates to me. So we're very pleased with the strong performance throughout there and we're very pleased with the performance as we enter into the new quarter I'd tell you I'll be excited to get to the second quarter. Because if you remember last year, we had a positive comp and the second quarter and I'm going to knock on wood that we don't have to keep talk.
And back to FY 'twenty. So there's a lot of numbers too to remember, but we will certainly at the end of the second quarter talk more about that quarter, but we feel great how the quarter started.
Got it that's helpful. Thank you I'll get back in queue. Thank you.
Your next question is from Scot Ciccarelli of RBC capital markets.
Good morning, guys Scot Ciccarelli.
So given the dynamics that we're seeing and the vehicle market and obviously the category is very hot and you were more aggressive posture and vehicle purchasing activity can you shortening of our reconditioning process further to improve throughput or maybe add more capacity.
So when at what I'm listening to you it sounds like your own.
Production capabilities may of limit some of your inventory offerings and that's your sales performance.
I know Scott, you're absolutely right I mean, our.
Tori level right now if I think of you know obviously, we are below target the whole quarter, we're probably.
40% lower than where we'd like to be and you know and a normal environment. If you have that much less inventory certainly is a headwind I think it was a headwind I don't think it was to the normal activity that you would see just given what was going on and the and the rest of the marketplace, but it really is about production and you know we normally build ahead of time to get ready, we werent able to do that our operations team is doing at <unk>.
The nominal job, we're adding additional capacity in those existing.
<unk> facility. So I would expect that to continue to go up 1 of the areas I've talked about from an efficiency standpoint in the past and as we look to take waste out of the system..1 of the areas that we've been we've been focused on is our flow production and we've actually now finished rolling out kind of the next version of that and we'd expect to get more throughput through.
<unk> existing facilities and resources and we're excited about that and that will continue to to help us and then of course to meet our long term goals, we will be adding additional capacity.
And as we go forward, but yeah, I think it's absolutely fair to say that you know the inventory was a headwind for us and it's not the supply side. It's more of the production side and you know again I can't give enough shut out store operations team because not only they've been.
Meeting that demand, but they'll building on and if you watch your inventory recently, you've seen and we're starting to to ramp it back up.
So how how long does it take to recondition and let's call. It at an average car today and you know we're at.
Or could that potentially go like okay can you knock off significantly and at a time or you just kind of you're at your Youre pretty close to where where are you at your optimized.
I think we can we can optimize more and units to say.
<unk> I remember at it also depends on the mix of vehicles you of older vehicles take a little bit longer than your than your your newer vehicles.
I think we're probably if I think about the whole what you're really asking about is cycle time.
And.
And keep in mind and that's the time that the car is is ready to be worked on and got to wait for parts and all of that kind of stuff you think about that cycle time, it's probably at somewhere in between the 5 and 10 days and that depends on the the vehicle now certainly some vehicles take a lot less and that and we have obviously.
Phases, and our and our production that or we measure by minutes, but I do think this is an area of opportunity and I think this is 1 that we're already with our new flow production system I think we're already starting to realize more throughput which is great.
Got it okay. Thanks, a lot guys. Thanks, Scott and thank you.
Your next question is from Chris thought of Leery of Exane BNP parable.
Yeah.
Hi, Thanks for taking the question and strong quarter.
I had a quick question on the Gpus and so it sounds like you've pulled back and the price investments.
Customer sourcing mixes as high as I've ever seen it.
It sounds like used pricing was a tailwind to Gpus I don't know if that's true and I can confirm that but were there any offsets like you just like it at just costing more to recondition cars as environment or like anything that would mitigate some of these tailwind zone on GPU that can speak to.
Well first of all for us they used car pricing isn't necessarily a tailwind of GPU.
We don't we don't manage our margin.
According to how expensive of a vehicle as we have a lot of other factors. So that's not necessarily a tailwind for us like it might be some of the the.
The other the other folks I think and now as we look forward, having you know driving higher self sufficiency is certainly going to be a tailwind for us and you know I've always said that our prices are very competitive and I'd tell you is I think our prices are as competitive as ever right now so I feel great about the direction, we're going and I feel great.
At our prices and I feel great about the flexibility that we have to not only provide.
World Class GPU per car per retail car, but also be able to do it in a way that our prices are very very competitive.
And again, if you would like to ask a question. Please press star 1.
At Star 1 to ask a question.
Your next question is from Seth Basham of Wedbush.
Thanks, a lot and good morning. My question is on the mix of sales that were purchased online 8% this quarter versus 5% last quarter is that solely due to the increased alert the eligibility of customers being able to buy entirely online or are there other factors and as you get to <unk>.
Hundred percent rollout of eligibility and you expect that metric to move up closer to 20%.
Yeah, so the 5% to 8% was driven by geographic expansion and some additional capabilities I would expect that number to.
And to continue to go up as I said, we've made some good.
Good progress and actually I'm, sorry, you were asking about the total online and not just of self serve so of self serve and online went from 25% to 40%.
And I would expect that number to continue to go up as we add additional capabilities as we go forward and.
The areas that we're focused on and I think primarily what is going to continue to drive the adoption will be again, adding some of the self service features.
And so when I think about the areas. We're focused on is to make it a little bit more simple and seamless on transfers as well as trade ins.
So we certainly expect that percentage of sales and percentage of revenues from online to go up but at the same time you know the beauty of our of our business model is that it's really up to the consumer and of omni right. So to the degree of the consumer wants to buy online and they can do that and more and more so to the degree of they want and come into the store and shop that way they can do that as well.
And we expect of numbers to go up but again, it's really going to be driven by the consumers and how they want to interact with us whether it's in store or online.
Got it and the all in gross profit per unit of vehicle purchased at entirely online versus through.
The stores how is that comparing these days.
And there are about similar at about similar yep.
Thank you.
Thank you.
Your final question is from David Whiston of Morningstar.
Yes.
Thanks, Good morning.
And to go back to the Edmunds acquisitions, and honestly I'm still not totally clear on the on the rationale for rents and I get there's vertical integration benefits price I think of procuring and retailing, but at the same time there are carmax competitors enter.
<unk> for their lead generation and so how are you of ensuring that they still get a fair shake because otherwise, they're not going and do business with them and the Carmax is getting all of the preferences can you just connect some dots for me yeah. So again, we're thrilled to complete the acquisition as are the teams on both sides sort of monitor they are there.
Premium brand for automotive research and we're going to continue to operate them as a separate brand and a separate company and and we're excited to work with them to continue to continue to drive more of the services for their consumers and their dealers and their OEM partners.
We're going to invest and their brand.
But we're also excited about the teams continuing to continuing to collaborate and progress on our programs that help both companies and a great example of that is of that is the instant offers you know we we developed that with them initially rolled it out on Edmunds and then we have at on Carmax Dotcom, and we think Theres a lot of opportunity there with the sale and we think theres a lot of opportunity at <unk>.
And so you know.
I think it's very important that we keep the company separate and we keep make sure that they are continuing to add value.
To their individual customers and I think we can do both.
And then as we continue to develop things a.
Jointly together that benefit both companies will continue to to highlight those and the future.
Okay and can you disclose what the equity investment and wasn't 1 of the gain on.
Net no we don't really talk about it we have as I mentioned, we have a portfolio of relatively modest investments and cross they used auto ecosystem, primarily strategic to make sure that we understand and we know what's going on in that space and so we just had an outsized gain this quarter on 1 of those investments, but we don't really disclose which companies.
We're investing and.
And there are no other questions in queue I'd like to turn the call back to bill for any closing remarks great.
Great. Thank you Shelby.
Hopefully you guys can tell from our comments that we're extremely pleased with first quarter results and that we are very excited about the future and it's not just about the opportunities that come with having this largest total addressable market and the used at retail, but it's also the opportunities exist and our other core businesses. So if you think wholesale do you think cash and then even go on.
Beyond that and to this larger auto eco system.
And all of it is supported by the tremendous transformation, whether it's our omnichannel experiences whether it's our proprietary tech stack, it's data or some of the other offerings that we highlighted on today's call I want to thank you for your questions today I want to thank you for your continued support and as always I want to thank our associates for their continued dedication.
And of living our values taken care of each other and taking care of our customers and communities. They are truly the success of Carmax. So we look forward to talking again next quarter. Thank you for your time.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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