A：CarMax's key priorities include focusing on price and selection, driving consumer awareness of their differentiated customer experience, delivering incremental reductions of at least $150 million in selling, general, and administrative (SG&A) expenses over the next 18 months, and generating additional profit through components of their diversified business.

A：The challenges that impacted CarMax's second quarter results include lower sales volume due to a sales uptick in March and April due to tariff speculation, which led to an inventory ramp and subsequently lower prices and sales in the second quarter; the intentional slowing of vehicle purchases to balance inventory with sales; and the reduction in the number of vehicles purchased through online instant appraisal experiences.

A：CarMax's new brand positioning campaign 'Want to DROPS' was launched with the goal of highlighting their unique omnichannel experience. The campaign resulted in a high Net Promoter Score, driven by satisfaction among customers purchasing online and using their omnichannel experience.

A：CarMax has made progress in driving selling, general, and administrative (SG&A) efficiencies, and they are on track to achieve at least an incremental $150 million in SG&A reductions over the next 18 months without impacting their growth strategy, as they will continue to invest in future initiatives.

A：Carmax Auto Finance originated over $2 billion in the second quarter, resulting in sales penetration that was 30 basis points above last year. The weighted average contract rate charged to new customers was down 3 basis points from the previous quarter, reflecting downward rate testing within the quarter.

A：The VEB transaction closed with a total notes issuance of $900 million, included the sale of most of the residual financial interest to third-party investors, and is expected to result in a gain on sale of approximately $25 million to $30 million in third-quarter income. Additionally, CarMax expects to receive approximately $40 million to $45 million in additional cap income related to servicing fees and the retained beneficial interest over the length of the transaction.

A：The decrease in retail gross profit was primarily due to lower volume and relatively stable per unit margins, with the retail gross profit margin per used unit being $2216, which was in line with historical averages.

A：The deployment of AI technology, particularly the AI-powered virtual assistant named Sky, has led to year-over-year double-digit percent improvements in containment rate, customer experience, consultants productivity, and web and phone response rate.

A：The company continued share repurchases at an accelerated pace, buying back approximately 2.9 million shares for a total expenditure of $180 million, with about $1.56 billion of repurchase authorization remaining.

A：The company is focused on enhancing the customer-centric car buying and selling experience, driving sales, advancing innovations for better customer and associate experiences, bolstering marketing efforts, increasing efficiencies, and expanding credit participation.

A：The pull-forward in demand into the first quarter was attributed to the combination of buying inventory up and then seeing depreciation, which had a significant impact on sales. This pull-forward created a weaker sales pattern throughout the second quarter, although sales in September and to date have shown strength compared to the second quarter, still being a bit soft from a year-over-year standpoint.

A：The company is focused on competitive pricing and aims to be nimble when responding to market changes. They quickly reacted to the $1000 depreciation over a month period in the quarter. The company's focus going forward is to remain nimble in response to an aggressive pricing environment.

A：The company experienced a larger provision impact this quarter and the previous earnings call was made just two months ago. There were expectations of increased year-over-year Cap income, but now there's a more dramatic change due to factors like a higher overall payment environment and the performance of the 22 and 23 vintages. The company had initially seen an increase in losses but made adjustments in Q1 and further significant adjustments in the current quarter to address the performance issues.

A：The company made sizable adjustments last quarter and has a better handle on where these extensions are going to land, having observed the extensions play through almost completely. They are two thirds of the way through the vintages with about a third left to play out, and they are extremely pleased with the 24 and 25 vintages.

A：The company is still making a lot of money, despite loss adjustments that have reduced profits by roughly a half a billion dollars. They expect to achieve even lifetime value across the Ly and ly betas.

A：The company's investments in technology systems and processes are allowing them to rationalize costs without impacting their growth strategy. They are focusing on retiring legacy systems, lowering licensing usage, and eliminating certain functionalities to become more efficient.

A：The company expects to achieve cost reductions of at least $150 million, which will be reinvested back into the business to drive top line sales. They anticipate that the savings will be a material tailwind to their earnings model.

A：The strategy is to be nimble and competitive by reinvesting a portion of the $150 million in cost savings directly into driving sales and by generating additional profit from other parts of the business for flexibility and further reinvestment.

A：When considering pricing strategies, the company looks at various factors such as variable expenses, the capacity of their operational workforce, ancillary profit attachments, performance in areas like Esp or finance, and competitor actions. These factors influence the price elasticity of demand and help to ensure the pricing strategy remains effective given market conditions.

A：The company expects to incur expenses of around $40 to $45 million related to the servicing fee. These costs will be embedded in the cost of the business and reported in the appropriate line item within the company's financial reporting. The additional value from the servicing side will also be included in the reported figures.

A：The company has been cautious and prudent regarding their push into the subprime market, focusing on the top half of what is considered tier 2. They acknowledge there is a level of penetration and potential for profit but are being very cautious about how they approach it. They are not characterizing it as deep subprime and believe they are learning how to service and price these loans correctly.

A：The expected impact of the 5% retention on future income is that it will continue to contribute positively to the overall income, and the company is pleased with this part of their strategy and the execution.

A：The income is expected to come from a mix of beneficial interest and servicing fees.

A：The projected timeline for positive unit comps was not explicitly provided in the transcript; the focus was on maintaining an aggressive approach and not backing off from the strategy of gaining market share.

A：The used car market is not deteriorating, but there is a macroeconomic concern as some consumers, particularly those with mid to high FICO scores, are sitting on the sidelines. This is indicated by a decrease in app volume, which is a measure of consumer activity. Factors contributing to any changes include consumer sentiment, inflation, and a potential overconfident consumer entering the market with the assumption they have plenty of cash, only to be hit with inflation.

A：The company's stance is that it plans to continue to gain market share for the full year, despite a tough comparison in June, July, and August due to the previous year's Cdk outage. The company has not backed off from its strategy of pursuing market share and does not foresee any reason to change course.

A：The company views consumer behavior as being particularly cautious in 2022-23, with consumers appearing more stressed. However, as prices have come down and interest rates have declined, typically customers in a more stressed environment perform better. The company has carefully watched the performance of this cohort and expects it to improve over time.

A：The decrease in unit sales despite increased web traffic is attributed to the fact that not all website visitors are creating selling opportunities. While some of this can be controlled by improving how the website presents vehicles and making it more engaging, some visitors are not ready to buy or are just looking, which is out of the company's control. Additionally, the conversion rates vary significantly depending on the quality of the visitor, with high-quality and high-end vehicles experiencing lower conversion rates.

A：The impact of reserve inventory on sales is that it can restrict the number of vehicles that are immediately available for sale and potentially restrict sales to other interested parties. Reserve inventory is generally for customers who are interested in specific vehicles. The company is active in managing how long a consumer can hold a car or reserve one, and if a sale is not completed, the inventory returns to view for the next potential buyer. However, inventory that cannot be transferred due to title issues in certain states is not available for sale. The company does not disclose the amount of sales or the percentage of people who reserve versus those who do not complete a purchase.

A：On the reserved inventory, consumers can still express interest, and cars are not held for reserve over three days. A third of the company's sales go through the process of transfers and sales through the reserved inventory.

A：There is a seasonality trend in delinquency rates with a ramp up after tax time in Q2 and a typical decline through delinquency time. Overall delinquency rates are assessed by vintage and while the newer and older, more seasoned inventory continued to be in line, the delinquency trends on the newer stuff are a concern. The company feels positive about continued lower risk tightened sales that will perform well. The provision for originations this quarter and the true up are indicative of expectations for the third quarter.

A：Delinquency rates exhibit seasonality, ramping up in Q2 and typically declining thereafter. The overall delinquency rates are closely watched by vintage, and while some vintages have adjusted, the delinquency trends on newer and older inventory have remained in line. The company feels positive about the lower risk tightened sales performance. Provisions for new originations and true ups are reflective of the company's expectations for the third quarter.

A：The company has identified cost savings of $150 million which could translate into around $200 per car. There are separate initiatives for cost savings, with COG savings ahead of schedule. The company is going after another $125 million in COG savings this year. They are focused on maintaining competitiveness, and while some savings will be reinvested in pricing and COGS, the company doesn't foresee the need to reinvest all the savings. They are committed to continuing to be price competitive.

A：Pricing is being reset in light of performance and market conditions, with year-over-year retail GPU expected to be similar. However, the conversation around pricing suggests that investors should modestly lower their expectations for GPU growth. For the third quarter, both retail and wholesale GPU targets are expected to decrease from last year's record high, with wholesale following suit due to its historical performance in the third quarter.

A：The company experienced a depreciation event in 2023 and 2024, which caused significant depreciation but was managed by holding onto margins. In contrast, the current event is expected to be less severe, with a focus on navigating through seasonal depreciation. The company will adjust as needed, considering elasticity and margins. There is a pull forward effect on income due to the timing of the depreciation event, impacting the overall NIM. However, new higher NIM receivables will aid in regaining NIM by the fourth quarter. Factors like servicing income and retention also provide a tailwind to forecasts.

A：Older vehicles have performed better than new ones in the market, with a barbell effect where vehicles under $25,000 and 40,000 plus are doing well, while others are flat or down. Sales of older vehicles have increased, reflecting a trend in consumer preferences. The company has been merchandising to meet these preferences, with an eye on balancing the older inventory with a good selection of later-model used cars to satisfy the core customer demographic. This balance is crucial as having too many older, high-mileage vehicles may offset the benefits of having the desired models for the core customer base.