카맥스(KMX) 2027 회계연도 2분기 실적 발표회: 매출 19% 증가, EPS 81% 상승

핵심 요약

• 카맥스는 2027 회계연도 2분기 매출이 전년 동기 대비 19% 증가한 79억 달러를 기록했다고 발표했습니다. 중고차 동일 매장 판매량은 13% 증가했으며, 총 소매 및 도매 차량 판매량은 약 388,000대로 15% 늘었습니다.
• 희석주당순이익(EPS)은 전년 동기 0.64달러에서 1.16달러로 81% 증가했습니다. 이러한 실적 개선은 판매량 증가, 보증 연장 상품(EPP) 마진 개선, 카맥스 오토 파이낸스(CAF) 기여도 확대, 판매관리비 레버리지 효과 등을 반영했습니다.
• 카맥스가 수요 유지를 위해 경쟁력 있는 가격 정책을 펼치면서 중고차 소매 대당 매출총이익은 111달러 감소한 2,105달러를 기록했습니다. 경영진은 연간 대당 이익 감소 폭이 기존 전망치인 200달러 미만이 될 것으로 예상하고 있습니다.
• 카맥스 오토 파이낸스(CAF) 이익은 대손충당금 2,900만 달러 감소와 매각 이익 1,700만 달러에 힘입어 32% 증가한 1억 3,600만 달러를 기록했습니다. 경영진은 티어 2 대출 확대로 인해 2027 회계연도 CAF 이익이 2026 회계연도보다 소폭 낮아질 것으로 전망합니다.
• 회사는 2027 회계연도 종료 시점 기준으로 연간 2억 달러 규모의 감축 목표를 차질 없이 달성하고 있습니다. 또한 잔여 승인액 13억 1,000만 달러를 바탕으로 회계연도 3분기에 완만한 속도로 자사주 매입을 재개할 계획입니다.
• 경영진은 동일 매장 판매실적 개선의 절반 정도는 가격 책정, 원가 절감, 고객 경험 개선 등 내부적 노력에 기인하고, 나머지 절반은 연방거래위원회(FTC)의 가격 규제 강화에 따른 수혜 덕분이라고 설명했습니다.

주요 재무 데이터

사업 및 영업 실적

카맥스는 이번 분기에 전년 동기 대비 6% 증가한 약 310,000대의 차량을 매입했습니다. 소비자를 통한 매입은 약 262,000대로 보합세를 보인 반면, 에드문즈(Edmunds) 영업팀을 통한 딜러 조달은 54% 급증한 약 48,000대를 기록했습니다.

회사는 상품화(상품 재가공) 및 매출원가 효율화 결실을 한층 경쟁력 있는 가격을 통해 고객에게 지속적으로 환원했습니다. 가격 책정 알고리즘 또한 더 세분화된 지역 시장 정보와 더 넓은 범위의 차량 비교 데이터를 반영해 업데이트되었습니다. 경영진은 이러한 조치가 판매 전환율을 높였다고 밝혔습니다.

보증 연장 상품(EPP) 마진은 2,700만 달러 증가했습니다. 상품 개편 및 휠·타이어·덴트 수리 옵션 도입에 힘입어 대당 마진이 46달러 상승했습니다. 정비 및 서비스 마진은 원가 절감 효과와 판매량 증가에 따른 레버리지 덕분에 2,200만 달러 증가했습니다.

카맥스는 디지털 및 옴니채널 역량도 강화했습니다. AI 음성 기술이 이제 지점 및 고객경험센터로 들어오는 모든 인바운드 전화에 적용됩니다. 차량 상세 페이지 업데이트를 통해 재고 가시성을 더욱 명확히 하고, 맞춤형 월 납입금 계산 및 한층 직관적인 구매 절차를 제공하게 되었습니다.

웹사이트 트래픽은 몇 퍼센트 감소했으나, 경영진은 판매 기회, 적극적인 고관여 고객, 그리고 이들 고객의 구매 전환율이 모두 증가했다고 밝혔습니다. 회사는 이를 유입량 자체의 성장보다는 트래픽 품질의 개선으로 정의했습니다.

카맥스 오토 파이낸스

CAF는 해당 분기 동안 23억 달러의 대출을 실행했습니다. 3일 이내 중도상환을 반영한 침투율은 전년 동기 42.6%에서 40.9%로 낮아졌습니다. 가중평균 고객 계약 금리는 60bp 상승한 11.8%를 기록했습니다.

CAF는 티어 2(중위 신용군) 대출 물량의 22%를 담당하며 1년 전 10%에서 비중을 확대해 카맥스 채널 내 최대 티어 2 대출 기관으로 자리매김했습니다. 경영진은 관측된 티어 2 신용 실적이 당초 예상치에 부합하는 수준을 유지했다고 밝혔습니다.

티어 1(우량 신용군) 침투율 감소로 인해 전체 CAF 침투율은 하락했습니다. 자금 조달 비용 상승으로 CAF가 티어 1 금리를 인상한 반면, 우량 고객들은 현금 결제나 신용조합 대출 등 대안적 금융 수단을 활용할 수 있었기 때문입니다.

총 대손충당금은 4억 9,700만 달러로, 투자 목적 보유 채권의 3.07% 수준이었습니다. 순이자마진(NIM)은 전년 동기와 동일한 6.6%를 유지했습니다.

경영진 가이드언스

• 경영진은 2027 회계연도 중고차 소매 대당 매출총이익이 2026 회계연도 대비 200달러 미만으로 감소할 것으로 예상하고 있으며, 이는 이전 전망보다 개선된 수준입니다. 다만 회계연도 3분기와 4분기 모두 대당 매출총이익이 전년 동기 대비 감소세를 이어갈 것으로 보입니다.
• 카맥스는 연간 전체 기준으로 대당 약 35달러의 보증 연장 상품 추가 마진을 창출한다는 목표를 차질 없이 추진하고 있습니다.
• 회사는 2027 회계연도 종료 시점 기준으로 2억 달러의 비용 절감을 달성한다는 목표를 지속 추진 중입니다.
• 최근 진행된 기업 구조 효율화 작업으로 인해 회계연도 3분기 중 약 600만 달러의 퇴직금이 발생할 것으로 예상됩니다.
• 경영진은 회계연도 3분기와 4분기에 걸쳐 비슷한 규모로 약 5,000만 달러의 비현금성 일회성 연금 정산 비용이 발생할 것으로 예상합니다. 연금 신탁 자산이 해당 정산 부채를 전액 충당할 수 있을 것으로 보고 있습니다.
• 2027 회계연도 CAF 이익은 2026 회계연도보다 소폭 하락할 것으로 예상되는 반면, 티어 2 대출 실행액은 회계연도 말까지 10억 달러에 육박할 것으로 계획되어 있습니다.
• 자사주 매입은 매입 프로그램이 일시 중단되기 전의 분기 평균 속도보다는 낮은, 완만한 수준으로 회계연도 3분기에 재개될 예정입니다.

리스크 및 주시 사항

구매여력 악화와 고금리 기조가 핵심 우려 사항으로 남아 있습니다. 경영진은 모든 소득 계층에서 소비자의 회복력이 유지되고 있다고 설명하면서도, 월 납입금 부담 증가가 하위 신용군 소비자들에게 더 큰 압박을 가할 수 있음을 인정했습니다.

높아진 자금 조달 비용은 티어 1 고객층에서 CAF 침투율을 낮추는 원인이 되었습니다. 또한 향후 12~24개월 동안 온밸런스(재무제표 포함) 및 오프밸런스(재무제표 미포함) 금융 거래의 시기와 비중 조합에 따라 CAF 이익과 충당금 비용에 분기별 변동성이 발생할 수 있습니다.

소매 및 도매 대당 매출총이익이 모두 전년 동기 대비 감소했습니다. 카맥스는 상품화, 물류, 재고 및 기타 영업 효율화를 통해 향후 가격 경쟁력을 자체적으로 재원 조달한다는 구상이지만, 이러한 비용 절감 달성이 핵심 실행 과제로 남아 있습니다.

경영진은 디젤 연료비 및 운송비 상승도 언급했습니다. 회사는 이번 분기 동안 다른 부문의 효율화를 통해 이러한 비용 압박을 상쇄했습니다.

FTC 규제 강화에 따른 수혜 효과도 향후 기저효과를 받게 될 것입니다. 경영진은 모든 딜러에 즉각 적용되지는 않았으나 5월경부터 업계 전반의 준수 움직임이 가시화되기 시작했다고 밝혔습니다.

애널리스트 Q&A 하이라이트

경영진은 13%의 동일 매장 판매 증가율이 통제 가능한 자체 추진 과제와 FTC 규제 강화 수혜에 거의 대등하게 분배되어 있다고 언급했습니다. 내부 추진 요인에는 매출원가 절감, 가격 투자, 알고리즘 개선, 고객 경험 변화 등이 포함되었습니다.

점유율 확대의 지속 가능성에 대해 경영진은 '시프팅 기어스(Shifting Gears)' 전략이 향후 가격 경쟁력을 스스로 충당할 수 있도록 설계되었다고 말했습니다. 카맥스는 영업 효율화를 통해 대당 매출총이익을 방어하면서 지역 시장 및 차량 세그먼트별로 가격을 계속 정교화할 계획입니다.

재고 생산성 역시 또 다른 중점 분야입니다. 경영진은 빠른 재고 회전, 비효율적인 홀드(보유) 감소, 효율적인 차량 이동을 개선 기회로 꼽았습니다. 카맥스는 현재 연간 약 200만~250만 대의 차량을 수송/이동시키고 있습니다.

경영진에 따르면 딜러를 통한 재고 조달의 수익성은 소비자 직접 매입과 경매 매입의 중간 수준입니다. 소비자 직접 매입이 가장 수익성이 높은 조달처로 유지되고 있으며, 경매 매입은 수익성이 가장 낮습니다.

경영진은 티어 2 금융 제공이 차량 판매 자체를 크게 늘리는 요소는 아니라고 밝혔습니다. 이러한 확장은 주로 제3자 대출 파트너에게 넘어갈 수 있었던 금융 물량을 CAF가 자체적으로 유지할 수 있도록 해줍니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Fiscal Year 2027 CarMax Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, VP, Investor Relations. Please go ahead.

David Lowenstein

Good morning. Thank you for joining our Fiscal 2027 Second Quarter Earnings Conference Call. I'm here today with Keith Barr, President and CEO; Enrique Mayor-Mora, Executive Vice President and CFO; and and Jon Daniels, Executive Vice President, CarMax Auto Finance.

Let me remind you our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, 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. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations.

In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our annual report on Form 10-K for fiscal year 2026 and our quarterly report on Form 10-Q previously filed with the SEC.

Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation and both documents are available on the Investor Relations section of our website.

Our commentary today may include non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the investor presentation.

Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, Extension 7865.

Lastly, let me thank you in advance for asking only 1 question and getting back in the queue for more follow-ups. Keith?

Keith Barr

Thank you, David. Good morning, everyone, and thanks for joining us. As I reflect on my first 6 months at CarMax, I am proud of the progress we have made in strengthening the business. Last quarter, I introduced our strategy for growth built around 4 pillars that place the customer at the center of everything we do and that are designed to meaningfully improve how we operate at scale and support consistently strong performance. Our strong second quarter results reflect solid execution and the initial benefits we are seeing as we deliver on the strategy. Used unit comps grew 13%, driven largely by improved price competitiveness with total units across used and wholesale growing 15%. Earnings per share grew 81% year-over-year to $1.16, supported by robust comp growth other gross profit expansion through the performance of our extended protection plan products, an increase in CAF contribution and continued SG&A leverage.

I want to thank all of our associates for their hard work, which has underpinned these results. Enrique and Jon will speak to our second quarter performance in more detail in a few moments.

Our improving performance has been driven by the speed and focus our teams have put into delivering our strategy. We have named our strategy for growth Shifting Gears and have rolled it out across our corporate offices and entire field organization. Our associates are highly engaged with the steps we are taking to strengthen our core operations, which are designed to deliver robust financial results over the years to come.

We have a lot to be proud of, and I want to highlight a few examples of the progress we made across each of our 4 pillars this quarter. While we speak to the pillars individually, like many aspects of our business, they are interconnected and many overlapping benefits exist. As a reminder, Shifting Gears starts with a great offering. We will give customers every reason to choose CarMax by offering a great car at the right price. During the second quarter, we further strengthened our price competitiveness to support retail sales growth. We did this by continuing to drive efficiencies and reconditioning, dynamically managing GPUs and then passing savings on to customers.

In addition, we continue to improve our pricing algorithms to ensure we remain more competitive across demand cycles. We did this by incorporating local market insights more granularly and by expanding comparison points across a broader set of vehicles. These enhancements resulted in sharper pricing that resonate well with our customers and supported our sales.

Our second pillar is easy experience. We will make it easy to do business with us, both online and in our stores. This quarter, we enhanced the customer experience to better support the purchase journey from digital to in-person. We scaled AI voice technology to 100% of both inbound store and customer experience center calls which enables customers to quickly resolve their increase through our agent AI tools or directly connect to the right associate for help. Additionally, we improved our digital experience by redesigning our car detail page to make it easier for customers to find and buy the right car for them. Recent updates include providing greater visibility into our inventory selection, incorporating personalized monthly payments and communicating next steps in the purchase process more clearly. The enhancements we made this quarter supported sales conversion, and we anticipate further gains over time.

Our third pillar is add value. This pillar focuses on growing profitability by maximizing value across all aspects of our business. This will be done by connecting customers with valuable offerings and by capturing a larger portion of customer financing through CAF. During the second quarter, we grew our extended protection plan unit margins materially year-over-year as we continue to launch our redesigned offering. Additionally, we increased our Tier 2 penetration and recorded a gain on the residual sale related to our 26 nonprime securitization.

Our final pillar is run lean. We will unlock efficiencies to enable a great offering meaningfully improve how we operate at scale and support strong returns for our shareholders. During the second quarter, as I noted earlier, we continued taking costs out of our reconditioning operations and maintained our approach of passing savings on to customers to more competitive pricing to drive sales. Also, from an SG&A perspective, we took additional steps this quarter to solidify achieving our commitment of $200 million in fiscal year 2017 exit rate savings. To support advance shift into gear, we are strengthening our leadership team. Today, I am pleased to announce 2 key appointments that will help us build on the momentum we are seeing as we begin to deliver on our strategic plan. First, effective October 5, Elizabeth Bergens will join CarMax's Executive Vice President, Chief Digital and Customer Officer. In this newly created role, Elizabeth will own and unify the end-to-end customer experience from customer acquisition through vehicle transaction. In this capacity, she will oversee our marketing, product and Edmunds team.

With more than 2 decades of digital product and customer experience leadership, Elizabeth comes to us from Volkswagen Financial Services, where he served as Chief Digital Officer for the North American region. Second, Jeff Campbell, who has been with CarMax for over a decade, joined our senior leadership team in August as Senior Vice President, Strategy. Jeff is leading a newly centralized function designed to accelerate key decisions by bringing together all of our strategy, data science, AI and pricing teams. Jeff has held leadership roles at CarMax spanning Product, Strategy and Transformation. Elizabeth and Jeff both bring skills, experience and focus we need as we build a faster, more connected company that puts the customer at the center of everything we do. Both positions will report directly to me.

Our customer promise is to deliver a great car at the right price with an online and in-store experience that our customers love. All the steps we have been taking are in service of that promise and to create confidence for the road ahead for our associates, customers and investors. We have a clear strategy, a solid foundation and a team that is committed to delivering strong unit and earnings growth that enables us to consistently reward our shareholders.

Based on our second quarter performance, continued momentum and improving leverage, we intend to resume share repurchases at a modest level in the third quarter.

Now I'd like to turn the call over to Enrique to discuss our second quarter financial performance in more detail. Enrique?

Enrique Mayor-Mora

Thanks, Keith, and good morning, everyone. We are encouraged by the recent growth across the business as our Shift Into Gear strategy is yielding strong financial results, highlighted by the continued improvements in our year-over-year sales and earnings trends. During the second quarter, we delivered total sales of $7.9 billion, up 19% compared to last year. Across our retail and wholesale channels, we sold approximately 388,000 vehicles, up 15% versus the second quarter last year. In our retail business, used unit comps increased 13% and total used unit sales grew by 14%.

Sales performance this quarter was primarily supported by more competitive pricing. As Keith discussed, we continue to realize efficiency gains and cost of sales, and we dynamically manage GPUs, passing those benefits on to customers.

Together with the enhancements we are making to our pricing capabilities, these actions supported a significant improvement in our year-over-year sales trend.

In addition, we benefited from enhanced FTC regulatory focus that has brought greater transparency to advertise vehicle pricing industry-wide by requiring fees to be included. Given our long-standing commitment to transparent no haggle pricing, this brings more clarity to the strength of the CarMax consumer offer by enabling customers to make more direct price comparisons and is a tailwind to our business.

Average selling price was $27,623, a year-over-year increase of $1,630 per unit. Wholesale unit sales were up 16% versus last year's second quarter. Average wholesale selling price increased by $145 per unit to $8,036. We bought approximately 310,000 vehicles during the quarter, up 6% from last year. We purchased approximately 262,000 vehicles from consumers, relatively flat to last year's second quarter.

With the support of our Edmunds sales team, we source the remaining approximately 48,000 vehicles through dealers, which was up 54% from last year.

Second quarter net earnings per diluted share was $1.16 versus $0.64 last year, an 81% increase, a strong positive change in year-over-year trend relative to the preceding 4 quarters.

Total gross profit was $799 million, up 11% from last year's second quarter. Used retail margin of $479 million increased by 8%, driven by higher volume and partially offset by lower profit per used unit of $2,105, which was down $111 per unit from last year's second quarter.

In managing margins more dynamically, we lowered GPUs by less than the full year $200 per retail unit outlook we provided previously as we balance demand, margins and efficiency gains in our reconditioning processes to support sales.

We expect FY '27 full year retail margins will be down less than the $200 per unit as compared to FY '26.

Wholesale vehicle margin of $138 million was flat to a year ago with higher volume offset by lower gross profit per unit of $858, which was down $135 per unit.

Other gross profit was $183 million, an increase of $46 million or 33% from last year's second quarter. EPP margin dollars were up $27 million, driven by growth in both unit volume and unit margins, which are up $46 per unit in the second quarter. We have been encouraged with the impact from our EPP product redesign, focused on providing our customers with more affordable options and from our new real tire and dent product offering.

We remain on track to drive approximately $35 per unit in incremental EPP margin for the full fiscal year.

Service margin increased by $22 million, driven primarily by efficiency gains and cost of sales and leverage from unit volume growth.

CarMax Auto finance income of $136 million was up 32% year-over-year. Jon will provide detail on CAF in a few moments.

On the SG&A front, expenses for the second quarter were $629 million, up 4.6% from the prior year. SG&A levered robustly by $157 per total unit or 9% to $1,621. SG&A dollars for the second quarter versus last year were mainly impacted by the 2 factors. First, compensation and benefits, excluding share-based compensation expense increased by $11 million. This year-over-year comparison reflects materially lower corporate incentive compensation in the prior year and strong performance this year. Excluding this impact, compensation and benefits would have decreased by over $14 million, primarily reflecting lower field and corporate payroll, partially offset by variable costs associated with higher sales.

We expect the year-over-year corporate incentive compensation dynamic to remain similar in the third quarter and to moderate in the fourth quarter.

Second, share-based compensation increased by $7 million, driven by upward movement in our stock price.

Regarding SG&A, we remain on track to deliver on our $200 million in identified savings as an FY '27 exit rate target, and we continue to drive toward expense efficiencies. As part of these efforts, we recently took additional actions to further streamline our corporate cost structure, which we expect will result in approximately $6 million in severance expense in the third quarter.

Also worth noting in this quarter's P&L, other income increased by $15 million compared to the same period last year, primarily reflecting unrealized gains on a small number of equity investments. As we have noted previously, we maintained a modest portfolio of investments across the used auto ecosystem. Separately, we are completing the termination of our legacy pension plan and expect it to be materially complete by the end of the fiscal year. As part of this process, we estimate approximately $50 million in total settlement-related noncash nonrecurring charges will be recorded in other expense with relatively similar amounts expected to be recognized in the third and fourth quarters of this fiscal year. Our expectation is that the assets in our pension trust will fully fund the settlement of the pension liabilities.

Further, the plan's termination will eliminate potential future corporate funding requirements.

Regarding capital structure, as Keith mentioned, with a strong second quarter, a positive outlook on the balance of the year and traction on our strategy, we intend to restart our share repurchase program in the third quarter. We expect to begin our buybacks at a modest pace, below the average quarterly pace prior to our pause. Our objective is to appropriately manage our net leverage to maintain financial flexibility and to efficiently access the capital markets for both CAF and CarMax as a whole, while also returning capital back to our shareholders.

As of the end of the quarter, we had $1.31 billion of repurchase authorization remaining.

I will now turn the call over to Jon to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion.

Jon?

Jon Daniels

Thanks, Enrique. Good morning, everyone. During the second quarter, CarMax Auto Finance originated $2.3 billion, resulting in sales penetration of 40.9% net of 3-day payoffs versus 42.6% last year. The weighted average contract rate charged to new customers was 11.8%, up 60 basis points from the prior year. Third-party Tier 2 penetration was 15.9% versus 16.5% last year. And third-party Tier 3 was 7.6% versus 7.3% a year ago.

We continue to make meaningful progress, expanding across the credit spectrum. During the quarter, CAF was once again the largest Tier 2 lender, financing 22% of Tier 2 volume as compared to 10% a year ago. The observed credit performance in this space continues to be in line with our original expectations, reinforcing confidence in our decision to expand.

Despite this growth in Tier 2, overall CAF penetration declined year-over-year, reflecting lower Tier 1 penetration. Increased funding costs driven by the interest rate environment resulted in CAF increasing rates in Tier 1 where customers have more funding alternatives, including cash or financing through credit unions. We view this as a normal response to the higher interest rate environment versus a structural change in behavior from CarMax customers.

CAF income was $136 million, up 32% from the prior year's second quarter, driven by a $29 million decrease in the loan loss provision to $113 million. During the second quarter of the prior year, we recorded additional provision due to the worsening performance of older vintages at that time, whereas performance this year has been in line with expectations. This was partially offset by provisioning related to Tier 2 originations in the quarter from our full credit spectrum expansion.

Additionally, CAF income benefited from a $17 million gain on sale recorded during the quarter and a $6 million increase in servicing fees year-over-year. This was partially offset by impacts from a $1.2 billion year-over-year reduction in outstanding receivables related to the combination of selling the residual interest for 2 nonprime securitization and lower sales during fiscal 2026. Please note, the timing of our receivable sale differs from last year when we recorded a $27 million gain on our 25B transaction during the third quarter.

Our total reserve balance at the end of the quarter was $497 million or 3.07% of receivables held for investment. Net interest margin on the quarter was 6.6% and consistent year-over-year. As we reflect on another solid quarter, our multifaceted strategy to enable CAF income growth is hitting the mark. First and foremost, credit losses were within our expectations across both the Tier 1 and Tier 2 portfolios. Second, the refinement of our nonprime credit underwriting strategy continues to build momentum with origination volume up substantially compared to just a year ago. Third, we continue to benefit from flexibility in how we fund our receivables. Our ability to retain assets on our balance sheet when prioritizing attractive longer-term economics is now well complemented by our evolving method of utilizing off-balance sheet transactions to more quickly monetize cash flows and reduce future risk. This funding flexibility is an important advantage as we continue to grow CAF.

The timing and mix of these transactions may create near-term variability in reported income and provision expense from quarter-to-quarter. However, as our evolving mix of funding strategies begins to mature and becomes more routine over the next 12 to 24 months, we would expect the variability to decrease.

To provide you into our near-term performance, we anticipate CAF's FY '27 income will be slightly lower than FY '26, all while planning to originate nearly $1 billion in Tier 2 by year-end. It is disciplined scaling in Tier 2, along with an appropriately sized loss reserve that should lead to significant CAF income growth over time. We plan to share more details during our upcoming strategic update.

Now I'd like to turn the call back over to Keith. Keith?

Keith Barr

Thank you, Jon. Before we open the line for questions, let me leave you with a few final thoughts. We are encouraged by our performance this quarter and the progress we are making across the business. While we're still early in our journey, the results we are seeing reinforce our confidence in our strategy and the opportunity ahead. Shifting to gear is focused on strengthening our core business in getting CarMax back to sustained growth. We are steadfast in our focus on delivering the right cars at the right products, making it easier for our customers to do business with us, capturing more value from each transaction and operating more efficiently at scale.

This quarter's strong unit and earnings growth reflects solid execution against these priorities. What encourages me most is that we are delivering these results while much of the work across our 4 gear pillars is still ahead of us.

We have a solid foundation, an exceptional team, and we are adding leadership in key areas to accelerate our progress. I am confident in our ability to build on this early momentum, continue to improve our business and create long-term value for our shareholders.

None of this happens without our associates, and I want to thank them again for their hard work in embracing our new strategy to create a stronger CarMax. I look forward to sharing more about our strategy, including key initiatives and milestones during our upcoming strategic update, which will take place virtually on November 3.

Thank you for your continued interest in CarMax. Operator, we are ready to take questions.

Operator

[Operator Instructions] Your first question comes from the line of Daniela Haigian with Morgan Stanley.

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Daniela Haigian

So GPU, along with a lot of other areas of the business came in really strong this quarter and you're now trending better than that down $200 year-over-year full year guide. How would you characterize that strength? What was the impact from greater efficiencies in COGS per unit versus maybe some of this FTC uplift or retail wholesale spread?

Keith Barr

Daniella, thank you for being here. I'll let Enrique respond to that.

Enrique Mayor-Mora

Nil, we've been really pleased that we've been able to come in better than our previous outlook on GPU, certainly, now expecting the year to be below a $200 decrease year-over-year. And we've done that while maintaining strong sales as we've effectively balanced demand we're seeing in the marketplace for our cars, margins as well as efficiency gains. And it's really the balance of all 3 of those things that has allowed us to come in better, if you will, on our GPU. And specifically around cost efficiencies that we're seeing in the business, the teams have done tremendous work around rolling out different tools for our operators. We have a new part selection tool that's benefiting the organization. We switch, as we've talked about before, from a 90-day warranty to a 30-day warranty for our customers and actually given that back in terms of lower pricing for our customers as well, and that supported our sales. But overall, really pleased that the demand we're seeing in the marketplace and our ability to, again, come in better than our GPU previous outlook.

Daniela Haigian

And maybe the macro part, the impact of spreads or FTC?

Enrique Mayor-Mora

Yes. The FTC impact definitely is a tailwind. When we take a look overall, like our comp performance, right, on the quarter, I would say it's evenly mixed between items we control directly, so COGS efficiencies, the GPU decrease, pricing algorithm improvements, customer experience improvements. So those items that we control directly, we think is about half of the comp performance, while the other half is really coming from what we think is the SEC enforcement benefits that we're seeing.

Keith Barr

Yes. And just to build on that a little bit. I mean, I think there's 2 aspects as Enrique said, having a really clear strategy that focuses on the core of this business is going to drive performance. And also really the strength of the CarMax brand that price transparency, which have been known for disproportionately benefits us now going forward. So that FTC is focused on compliance to their guidelines, we've always had more transparency and it's helping us with price competitiveness too. So it's execution of strategy and also the strength of the CarMax customer value proposition.

Daniela Haigian

That's really helpful. And then maybe, Keith, just a broader question for you. I know it's early days here, but how do you think about CarMax's omnichannel architecture and brand positioning in this future of agentic AI, right? Where these agents are doing searching and comparing on the consumers behalf. Maybe more to hear on this in November, but curious to hear how you think about it.

Keith Barr

Sure. Yes. I mean we'll talk a little bit about AI. Again, we have an AI center of excellence here at CarMax, which basically makes sure we're responsibly use AI and look at all the different use cases here we implement. And so things like our agentic voice call center now handling 100% of stores and our customer experience under calls and helping to do that. Your question is related to search. And I think that AI is going to be actually a real benefit to the consumer to be able to go there and really understand different vehicles and how those vehicles meet their needs. In terms of actually getting them to transactions, I think that was really difficult for the used car industry to be negatively impacted by it because every vehicle is an individual SKU. You can see how agentic AI e-commerce will impact more CPG faster. And we think it's a real benefit to our business here to drive us and become more efficient and deliver better customer experiences.

Operator

Our next question comes from Rajat Gupta with JPMorgan.

Rajat Gupta

Congrats on the good execution here. I had a question on just comps for the rest of the year. If I look at normal seasonality in the business, based on the 13% comp in 2Q, normal seasonality would imply somewhere around mid-teens in the third quarter -- mid- to high teens in the third quarter? I'm curious like if you're seeing anything there in the macro or just a consumer backdrop that would deviate from that seasonality? That's question number one, and then I have a follow-up.

Keith Barr

Yes. Thanks, Rajat. I'll talk about the consumer. I mean, affordability is on everyone's mind. It sees like every single discussion around that. And I think it speaks to the strength of the CarMax brand effectively and our focus on having incredibly competitive pricing. And the other word I would say about the consumer is resilient at the end of the day. Across all the different spectrums of the lower end consumer to the higher-end consumer we're definitely seeing resiliency there. I mean the broader industry is down 1% or flat to 1%, and we posted comps of 13%. So I think having great cars, great vehicles at great pricing and making it easy to work with will drive continued growth and performance in the business.

Enrique Mayor-Mora

In terms of an outlook for the back half of the year, look, we captured it in our prepared remarks. And you can see it in our bullishness around the business. We're turning our share repo back on. we're seeing continued momentum into the business. And so we're really pleased in terms of where we are and kind of what we're seeing in front of us.

Rajat Gupta

Got it. And then once you lap -- you're going to lap the price cuts here in December. Do you believe like the business has gotten to a place where there's enough efficiency you're able to drive to remain competitive on price to sustain the share gain? I'm curious how you feel about that based on what you've observed over the last 6 months.

Keith Barr

Yes, absolutely. I mean, again, when you think about our strategy, Shift into Gear and running lean being that pillar and that running lean make sure coal we can have a great offering. And we've committed to saying we want to self-fund our price competitive moving forward to continue to find efficiencies in the business so that we can deliver great vehicles at exceptional prices, but not having the lower GPU moving forward. So that's the focus of the business, and I'm really confident in the team.

Enrique Mayor-Mora

Yes. And I would say, certainly from FY '28, that is the intent, right, as we've talked about before, to sell fund any kind of GPU investments and lower price. Think for this year, for the guidance we've given here, the outlook, we do expect to be lower, less than $200 year-over-year in a reduction in GPU, and I would expect some decrease in the third quarter and in the fourth quarter as well. We'll be comping over a record quarter in FY '25 in terms of GPU. So we are maintaining some flexibility in the business. We're running the business more dynamically, and that includes some flexible. So I would expect GPUs for this year as a whole and by quarter to be down year-over-year in support of driving sales.

Operator

Our next question comes from Jeff Lick with Stephens.

Jeffrey Lick

Congrats on the great results. Enrique, maybe for you, the EPP gain was probably a little more than people were expecting. I was wondering if you could unpack that a little bit and just the dynamics of where that's coming from?

Enrique Mayor-Mora

Yes. I would say that we're very pleased on the execution as a pool in terms of EPP and the incremental margin we're seeing from product redesign from our new product, wheel, tire and dent, all that is in line with our expectations. And I would say our full year guidance of $35 an incremental EPP for the full year is pretty much in line, I would tell you with where we ended this quarter being at unit recognizing that in the first quarter, we are still rolling out nationally. We had a lot less than that. So I would tell you it's very much in line with what we had expected and where we expect to be for the year.

Jon Daniels

Yes, Jeff, this is Jon. I'll just add to that kind of qualitatively. Look, I think this is something we signaled. We knew that we could make progress here. We saw an opportunity to really refresh our product. We've gotten this in the stores. It will be naturally rolled out by end of the year just with getting in California. Our stores have done an outstanding job at selling this product. It's a more affordable product for our customers. We've tacked on what we think is a fantastic cosmetic protection product, wheel, tire and dent, like we saw it come in, we knew that we could deliver in the stores have done so...

Jeffrey Lick

And then just a quick 1 for Keith. Keith, on the last call, we talked about dynamic pricing that seems -- is it related to your previous career. And I'm just curious -- I mean, the big question as we get into the next year and we get through easy comps as people are going to look at, okay, can they comp positive and they continue to hold GPU. Just any high-level thoughts as you've kind of been observing the data in the business on how you might give investors comfort that this just isn't an easy comp phenomenon.

Keith Barr

Yes. No, thanks, Jeff. And that's everything about Shift into Gear is about making sure we have sustainable growth. And that's the complete focus of the team here right now is making sure that, again, we have the right level of saleable inventory, we can maintain competitive pricing so we can price dynamically depending upon where demand is and by segments, and we're continuing to evolve our pricing algorithms every single month, sharpening up, pulling in external data to make sure we have those local market pricing points, too. So we have a lot of confidence that this should be a growth business and we show positive comps and outperforming the industry moving forward.

Operator

Our next question comes from Craig Kennison with Baird.

Craig Kennison

Keith, I'm wondering, could you provide examples of how you are taking friction out of the digital journey in order to impact conversion?

Keith Barr

Yes, absolutely. Part of it is just really understanding what customers are looking for and making sure we're providing that information in the most easy way possible. And so a couple of examples we've used was like car details page, sharpening up like what consumers are doing in terms of search and making sure we're putting those pieces of information front and center, putting forward monthly payments, taking steps out of the purchase process and simplifying it. I think I mentioned previously, we had our EPP. We had a super complex matrix. And now the way that we're serving it up to customers, it's really self-driven by them, putting in a bit of information and serving up the exact right offerings to them too. So it's really understanding everything from search all the way through transaction and then how we communicate with customers, just make it easy to do business with us.

We're still early days in some parts of the journey. There's things that we can continue to sharpen up, but I'm really excited about having Elizabeth Bergens join us as our new Chief Digital and Customer Officer. She's got 20-plus years in product in financial services and in automotive. And so she's the perfect person to join our team here and really own the customer journey looking forward.

Operator

Our next question comes from David Bellinger with Mizuho.

David Bellinger

I have a couple of strategic ones. Following up on the GPU outlook being down less than $200 per unit for the year. That would put you at around $2,100 and still within, call it, the legacy guardrails that govern the business for a while. Why not be more aggressive there? Or is there some optionality to further push GPU down beyond this fiscal year if you are seeing the proper payoff in terms of unit growth?

Enrique Mayor-Mora

Yes. Look, I think we -- as we've talked about, we can largely self-fund those movements, right? So shifting to focus, focus on sustainable comp sustainable EPS growth. And we recognize at the same time, we need to self-fund and find efficiencies in the system. We believe those efficiencies to be had in the system where we don't necessarily need to go down that route as the first selection, if you will. And we're going to focus on driving efficiencies in COGS and logistics business and so on and so forth in order to actually not have to go with margins lower than our initial guidance.

Keith Barr

And I think, in our November strategic update, we'll be walking through each one of the pillars of the strategy. and understanding really the run lean piece and the great offering piece, how interconnect those are and talk about the initiatives we have that will deliver the self-funding, which would deliver the price competitive and protect GPU moving forward.

David Bellinger

Got it. I also want to touch on inventory levels. CarMax has been operating pretty consistently with about 80,000 to 90,000 vehicles in any given week. Is there an opportunity to compress that number and get some more efficiency on the inventory base, maybe add another source of GPU upside, if you can bypass some of that natural depreciation from holding on to vehicles?

Enrique Mayor-Mora

Yes. So that is a definite area of focus that we have. So like I was just talking about in terms of efficiencies in our COGS, and our logistics. An area of focus for the teams are basically inventory, right? And how can we turn our inventory faster, how do we have less unproductive transfers, unproductive holds, things like that, that will slow down your [indiscernible] that will actually drive slowing down returns. Those are items that we think are ahead of us in terms of opportunity and are definitely part of the purview of Shift into Gear. So absolutely on our list of opportunities.

Keith Barr

And we're regularly testing, understanding how this impacts the consumer. So understanding if we -- how we handle holds, is that driving sales, but slowing down our inventory turns? Transfers. We transfer over 2 million, close to 2.5 million vehicles a year. How do we make those tranches more productive and have fewer of them over time? So it's really understanding again, have a decision to make on holds and transfers impact sales, but also impact inventory productivity. And we got a lot of work underway there right now as part of our strategy.

Operator

Our next question comes from Joe Spak with UBS.

Joseph Spak

I know you mentioned you're seeing resiliency across consumers of all income, but I was wondering if you could provide any detail if you had in terms of your traffic or conversion however you sort of tier your customers, whether it's deciles or quintiles. And I guess just if rates stay high, some other macro pressures persist, I know the goal is eventually to sort of get to self-funding that growth. But in a tougher macro environment, sort of how do you think about the strategic plan? Is GPU still a driver to help drive that growth in a tougher macro?

Keith Barr

Yes. I mean, I'll talk about consumers because we look at our consumers by different cohorts, effectively on income levels. And again, resilient is the word I would use. So even at our lowest income cohort, we basically have the same number of customers year-over-year. And then as you move up the income cohorts, we had those growing year-over-year, too, which is how our inventory developed during the quarter as well, too. So we sold more newer vehicles, higher-priced vehicles in this quarter because of the strength of that cohort. Again, that was just for this quarter, and that could change in future quarters, and we can manage our inventory dynamically based upon where we're seeing demand come from too.

So again, across all the different spectrums, we saw basically either the same number of customers or a growing number of customers in a tougher macro environment. And again, I think our price transparency and our price competitiveness is a real, real strength of CarMax.

In terms of GPU moving forward, we believe we can find the efficiencies in the business to make sure we can protect our GPU. Again, it will go down a bit in Q3 and a bit in Q4 as we've already signaled. But going forward, in the future fiscal years, we'll fund the GPU savings that we need to find in this business.

Operator

Our next question comes from John Babcock with Barclays.

John Babcock

Just quickly on that last comment about the GPUs being down in 3Q and 4Q. And I know you also mentioned that earlier. Can you just talk about what's driving that?

Enrique Mayor-Mora

So you broke up a little bit. Did you ask what's driving them?

John Babcock

Yes,Yes. So why are you expecting GPUs to be down in 3Q and 4Q?

Enrique Mayor-Mora

Yes. So consistent strategy this year, right, which we've communicated like in support of sales we are lowering our GPUs for the year, right, in order to support our sales performance. We're driving efficiencies in the business. And as we talked about, we also have a tailwind from FTC, mix all those things together, and we're, I believe, very effectively balancing demand, efficiencies and in order to support sales. So I mean that's why it's very consistent with what we've said. I think the benefit has been really that we haven't had to lower our margins by as much we initially provided an outlook for because of that mix of benefits that we're actually seeing.

John Babcock

Got you. And then next question, I noticed in going back and looking at some of the historical data that the percentage of vehicles you've been buying from dealers has trended higher over the last couple of years, and you obviously had a pretty sizable increase this quarter. Just kind of curious, like, is that availability driving that? Or is there something else? And then also, can you talk about the profitability on those vehicles that you're buying directly from dealers versus if you buy a vehicle from customers?

Enrique Mayor-Mora

Yes, absolutely. So we've been really pleased, really since inception of our acquisition of Edmunds, and they have a sales force out there that partner with our organization, and they've been driving our Max offer, buying cars from dealers for a few years now. This quarter is just continued testament to the strength of that product that we have out there, where you saw a 54% growth year-over-year in the quarter.

Now I will say in terms of profitability, the most profitable buy that we'll have is directly from a customer, right? That is the most profitable buy, as we've always talked about. The least profitable is going to an auction house and buying a car in axon house, all you know there is that you paid more than anybody else for the car, but you got the car. And in between there, I'd tell you is buying a far from a dealer. So kind of midway between buying a car from a customer and going to an auction. So definitely accretive to the organization is another contributor to that allows us to be more competitive on our pricing as well. So very pleased with our performance this quarter.

John Babcock

Okay. And then just my last question. Obviously, we've seen diesel and transportation costs rise up pretty sharply. I'm just kind of curious if you could talk a bit more about how that's impacting your business, how you're managing through that?

Enrique Mayor-Mora

Yes. It's another component within our cost of sales. And -- but as we talked about this quarter, we've -- effectively, the teams have done a great job in driving efficiencies outside of that impact that have allowed us to be even more price competitive moving forward here, certainly in the quarter and our outlook moving forward. So we've been able to absorb it, the increase in price and diesel. But definitely, it's impacted our costs. But again, our efficiencies elsewhere have allowed us to offset it.

Operator

We'll go next to Scot Ciccarelli with Truist.

Scot Ciccarelli

So I know you've put up a few different ways. But when you look at the sharply improved sales rate, can you help us better understand how much of it was driven more by what you guys have historically called top of the funnel, more people coming into your stores and digital channels versus how much was driven by better conversion rates?

Enrique Mayor-Mora

Yes. I would say that overall in the quarter, our web traffic actually was down by a couple of points. So -- but what we absolutely saw was our sales opportunities being up and our engaged customers being up and our conversion of those engaged customers being up as well. So what we're seeing is better quality customers coming through, if you will, right? So web traffic down, but overall kind of quality customers coming through the digital door and the physical door is up and our conversion of those customers are up as well.

Keith Barr

Yes. I think our marketing team has done an exceptional job of really driving efficiencies in the marketing funnel. And so even though that the web traffic is down a bit, again, the quality of that traffic is significantly improved, which led to all of those factors as Enrique just pointed out to. So again, a great job by the marketing team.

Scot Ciccarelli

SP30463510 That's helpful. And then I know it's a little difficult to tease out, and there's obviously some substitutability. But do you think your Tier 2 penetration were all incremental sales? Just trying to figure out there's a sales impact, if any, as you guys have moved a little bit lower into the credit pool on a direct basis.

Keith Barr

Yes, I appreciate the question. Yes, the short answer is no. I would say it is not all incremental sales. There's always going to be some incrementality. I think we've provided an outstanding offer out there. But no, this is really about us being opportunistic and moving down to the volume where, again, our credit partners are great. They have always provided great offers to our customers. just taking the opportunity to take some of that volume for ourselves, that's above and beyond what they would typically pay us. So no, not incremental largely at all.

Operator

[Operator Instructions] We'll move next to Alex Perry with Bank of America.

Alexander Perry

I just wanted to get your thoughts on how the FTC regulation could affect the GPU profile longer term? Do you think that dealers start to alter their prices with now having to include the dock fees? And then how long should we expect the FTC tailwind to last for you? And what are you seeing sort of in terms of compliance in the overall market?

Keith Barr

Sure. I mean, I can give you an example of the FTC benefit for CarMax. And I can't comment on specific to what other companies are going to do with their pricing. But when you think about our competitive pricing overall versus the broader industry, the percentage of vehicles rated great deals on cars.com for CarMax more than doubled this quarter compared to Q2 the previous year. So that's just significant, right? And so customers out there digitally shopping for vehicles and seeing the fact that, again, the number of great deals on third-party sites like cars.com, we've doubled there. So that's going to be a great, great tailwind for us for the remainder of this year. Compliance really started kind of in the May time frame. And so you probably think about it ramped up into May. So that's probably going to last that sometime...

Enrique Mayor-Mora

Yes, there was a bleed in actually, not everybody complied certainly right away, and there's still some migrates, I'm sure. But really May is when we saw actually a movement there. So again, we have until May and then certainly thereafter the benefit...

Keith Barr

And I think the FCC sent out like 97 letters to different companies. And back in March, telling that we're going to -- again, these aren't new guidelines. These guidelines have existed. This is basically saying they were going to enforce compliance. And so the vast majority of the industry is headed in that direction, again, which is a tailwind for CarMax because we've already spent more transparent.

Alexander Perry

And just a follow-up on that. What impact do you think that has on pricing longer term as dealers move to include just the dock fees into a sort of all-in more transparent pricing? What impact do you think that has on sort of GPUs and the overall pricing environment?

Keith Barr

I think it's just going to continue to show how price competitive we are. I think Interestingly, the noncompliance by the broader industry actually was a disadvantage for CarMax. Our customer value proposition being no haggle and being transparent to customers, again, it was exactly the right thing for CarMax to do in terms of building this brand. Now that people have to comply with this, it basically shows again how price competitive we're going to be in being able to maintain our pricing and our GPUs moving forward, and we'll see again how other people choose to price.

Operator

Our next question comes from Chris Pierce with Needham.

Christopher Pierce

You kind of just hit on it. I really wanted to get a sense of these third-party sites, if we assume a lot of people start there. I'm just kind of curious the tie-in between marketing and pricing? And does it really just come down to price? And I kind of love to get your thoughts on what you're seeing from those sites and the conversion of customers you're seeing from those sites that I just have 1 of the consumer?

Keith Barr

Mean again, we don't really talk about it in that level of detail. I mean what we think about is our research is that 90-plus percent of customers start their search for a vehicle online. I have to believe it's probably almost 100% in reality. And again, they're going to be searching at multiple sites. They're going to come to carmax.com, and they're going to the. There going to look at third-party sites. They're going to really understand kind of what vehicles are out there. And then, again, our marketing team does an exceptional job through SEO and GEO to be able to attract the right customers to our site and then convert them through the funnel too. So again, it's making sure that you are priced competitively and that you're showing up in all the right channels and that's how you maximize again the customer acquisition, the customer conversion.

Christopher Pierce

Okay. Perfect. And I think you talked about rates up 60 bps on average maybe across the quarter and probably gone up through September here. I mean, how should we really think about the consumer being impacted here because it's just like you've got consumers dropping down from new corn to use that are better credit quality because the new car prices like a 1% move in rates, I think is like cost is like $12 to $15 in monthly payments like. Is this something investors are sort of overreacting to? Or what's sort of the right reaction or what level of rates is something that changes the dynamic for you guys? I just want to sort of kind of level set how investors -- how we should think about this?

Jon Daniels

Sure. Yes. I'll kind of initially answer that question. When I think about it from the credit lens, I think the consumer -- you're certainly going to have -- it will be bifurcated the higher-end prime consumer, right? They have options. They're going to go to cash. The credit unions just have obviously an advantage there where they can keep rates low. So for CarMax in particular, CAF, you're going to see probably some leakage from using the internal financing to those channels. Now CAF in particular, we have options there, right? We can choose, and that's the benefit of a captive. We can choose at any given point to keep the rate low or raise the rate as -- and protect our finance margin. So it happened this quarter, we chose to raise rates, and we saw great comps that were coming in place. So that's an option we have in any given quarter. But I think overall, in the prime consumer, they're just going to switch to a different financing mechanism.

As you get further down the credit spectrum, that's where can that payment will be $12, $15, that might mean a lot. Terms are already extended. Can they find a way to fit that into their budget, there can be a challenge there. Our goal here is to make sure that we have a great competitive front lot price, provide great credit offerings and make it as affordable for them as possible even in the face of macroeconomic changes.

Operator

We'll now take a follow-up from John Babcock with Barclays.

John Babcock

Sorry for the follow-up here. Just wanted a clarification though, on the GPUs because you said down 3Q and 4Q. Is that sequentially or that's year-over-year?

Keith Barr

Year-over-year.

Operator

We don't have any further questions at this time. I'll hand the call back to Keith for any closing remarks.

Keith Barr

Thank you, operator, and thanks, everyone, for joining the call today. And I appreciate all your questions and all your support. And we look forward to talking to you next quarter and seeing you in November.

Operator

Thank you. Ladies and gentlemen, that concludes the Second Quarter Fiscal Year 2027 CarMax Earnings Release Conference Call. You may now disconnect.