車美仕 (KMX) 2019 Q2 法說會逐字稿

Good morning.

My name is Jamie, and I will be your conference operator today.

At this time, I would like to welcome everyone to the CarMax Fiscal 2019 Second Quarter Earnings Conference Call.

(Operator Instructions)

I would now like to turn the call over to Katharine Kenny, Vice President, Investor Relations.

Good morning, and thank you, Jamie.

Thank you all for joining our fiscal 2019 second quarter earnings conference call.

As always, I'm here with Bill Nash, our President and CEO; and Tom Reedy, our Executive Vice President and Chief Financial Officer.

Before we begin, let me mention that CarMax celebrated our actual 25th birthday last week.

Congratulations, again, to our associates, past and present, and our millions of customers who drove our success over the years.

Next, let me remind you that our statements today regarding the company's future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations.

In 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 annual report on Form 10-K for the fiscal year ended February 28, 2018, filed with the SEC.

(Operator Instructions) Now I'll turn the call over to Bill.

Thank you, Katharine, and good morning, everyone.

In the second quarter, we were pleased to return to positive comps.

Used unit comps grew by 2.1% compared to 5.3% in the prior year quarter and were driven by better conversion, partially offset by lower traffic.

Total used units grew by 5.8%.

Our industry continues to experience an unusual depreciation environment.

In this quarter, our mix adjusted vehicle acquisition cost remained high and were only somewhat lower than we experienced in the first quarter.

This contrasts with the prior year second quarter when our mix adjusted vehicle acquisition costs were significantly lower year-over-year.

Our website traffic grew in the second quarter by 19%, up from 17% in the previous year second quarter and 16% in the first quarter.

On average, we saw volume of more than 20 million visits per month.

Our retail gross profit per used unit remained stable at $2,179 compared to $2,178 last year.

We had a strong wholesale quarter with units up almost 15% year-over-year in the second quarter.

This was a result of higher appraisal traffic, the growth in our store base and an increase in our buy rate.

Our gross profit for wholesale unit decreased by about $30 to $919 in the second quarter compared to $950 in the prior year period.

Other gross profit increased by over 12%, driven by higher EPP revenue and improvement in third-party finance fees.

Like last quarter, EPP revenue grew with sales and benefited from provider cost decreases and approximately $4 million related to the acceleration of revenue recognition under the new accounting standard adopted at the beginning of this fiscal year.

These were partially offset by lower service profits.

Before I turn the call over to Tom, let me cover our sales mix and SG&A expense.

As a percentage of our sales, 0 to 4-year-old vehicles decreased to about 77% versus 80% in the second quarter of last year, but similar to the first quarter.

Large and medium SUV and truck sales were about 27%, almost exactly the same as the year ago and down slightly since the first quarter.

On SG&A, expenses for the quarter increased about 12% to $454 million or a year-over-year increase of $126 per unit.

Several factors impacted SG&A expense, including the opening of 18 stores since the beginning of the second quarter of last year, which represents a 10% growth on our base; a $7 million or 18% year-over-year increase in advertising expense, which is largely due to timing; an increase of $6.5 million or $28 per unit related to share-based compensation expense; and our continuing investment in technology platforms and digital initiatives.

Now I'll turn the call over to Tom.

Thanks, Bill.

Good morning, everyone.

Unlike the last 2 quarters, where we saw modest declines in the volume of credit applications, we experienced growth in applications across the credit spectrum in the second quarter.

During the quarter, we continued to see strong lender performance in Tier 2, which accounted for 17% of sales compared with 16% last year.

But we saw weaker performance in the third-party Tier 3 space, which represented 8.8% of used unit sales compared to 9.6% last year.

CAF penetration net of 3-day payoffs was modestly higher than last year second quarter at 43.9% compared to 43.5%.

Our net loans originated in the quarter grew by 8.8% to $1.7 billion due to our sales growth, an increase in the average amount financed and a slight increase in CAF penetration rate.

CAF income increased 1.6% to $110 million.

This was a result of the 8.6% growth in average managed receivables, partially offset by an increase in the provision for loan losses and the continued slight compression in portfolio interest margin.

Total portfolio interest margin was 5.7% of average managed receivables compared to 5.8% in the second quarter of last year, but flat compared to the first quarter.

For loans originated during the quarter, the weighted average contract rate charged to customers increased to 8.5% compared to 7.6% a year ago and 8.4% in the first quarter.

The loan loss provision for Q2 is $40 million compared to $33 million in the prior year period.

This arose from the growth in the managed receivables as well as fluctuations that are often experienced with quarterly loss provisioning.

The ending allowance for loan losses was 1.13% of average managed receivables, flat sequentially from the first quarter and down from 1.15% in the second quarter of last year.

Moving to capital structure.

During the second quarter, we continued to return capital to shareholders and repurchased 2.3 million shares for $171 million.

Now I'll turn the call back to Bill.

Thank you, Tom.

During the second quarter, we opened 3 stores: 2 in existing markets, including Santa Fe, which we include in the Albuquerque market and Oklahoma City; and 1 in a new market, Macon, Georgia.

In the third quarter of fiscal 2019, we plan to open another 4 stores, all in new markets for us.

They include Wilmington, North Carolina, which will actually open today; Lafayette, Louisiana; Corpus Christi, Texas; and Shreveport, Louisiana.

As I've done before, let me update you with some of our individual product initiatives.

We recently rolled out our alternative vehicle delivery options to a second market.

These options will allow customers to complete most of the vehicle shopping and purchase process from their home, after which they can decide how they want to receive the car.

In addition to the Charlotte market, this is now available in all 3 stores in the Raleigh market.

It includes our expedited or express pickup service, which kicked off in Raleigh in August, and our home delivery service, which launched in early September.

In addition, we began testing an online appraisal estimator in 10 stores in August.

After entering just a few questions, the online estimator provides customers with the opportunity to quickly receive an approximate offer on their vehicle.

While the offer is an estimate, it is based on actual CarMax appraisal data.

Also we now have a customer experience center.

This call center provides customers and test markets with support at any point along the way throughout the progression of their shopping and purchase journey.

These consultants can work with the customers until they are ready to either go to the store for pickup or schedule home delivery.

Last quarter, I talked about how we are working to combine all of our online products together into one comprehensive offer.

We are building a full omnichannel experience that enables customers to seamlessly move across the online and in-store experience with ease.

Customers want the flexibility and independence to do much of their shopping and buying online.

Given the complexity of a vehicle purchase, they also often want the help and assistance of our expert store associates at various points along the journey.

We believe our ability to provide this integrated experience across both online and in-store is unique in the automotive industry.

Because of our skilled and knowledgeable associates, our national footprint, brand strength, infrastructure, inventory scale and continued investment in technology and digital capabilities, we believe we will have a clear competitive advantage to lead the industry in delivering this experience to our customers.

Later this year, we will bring this integrated omnichannel experience to a major market.

This will help us learn how to best operationalize all of our offerings and scale them across the entire organization.

We will provide you more information on this in the future.

Now we'll be happy to take your questions.

(Operator Instructions) Your first question comes from Scot Ciccarelli with RBC Capital Markets.

Bill, given the success of one of your online-only competitors out there, can you help us understand what the impediment has been to rolling out the alternative delivery and fully -- full digital capabilities maybe faster than what we've seen so far?

I know it's in the works, but just wondering if you can help us understand kind of the -- maybe what the process impediments have been to kind of rolling that out, thus far.

Well, Scot, it really goes back to this experience that I'm talking about, this omnichannel experience.

We want to make sure that we can connect all the different pieces.

And so for example, the alternative delivery, whether it's home delivery or express pickup, that's only one small piece of the whole equation.

We want to be able to combine that with all of the other tests that we're doing.

The other thing that we want to do is we want to make sure that our sales consultants are trained on how to continue to progress the customers in a different way than they do today.

So I'm actually -- I'm pleased with the progress that we've made over the last couple of years.

It's a big change for the organization.

There's a lot of technology involved, and I think we're on the right track.

So I'm excited about it.

Maybe if I were to rephrase the question a little bit then.

If you roll it out to this major market that you're expecting in the back half and you like what you see, how quickly could it be rolled out from that point into other markets?

Yes.

We'll wait and see on that, Scot.

I mean, the plan would be once we get into market, we'll obviously want to iterate quickly on that.

And so that's what our focus will be.

So our first focus is to get in the market and the second one will be to iterate it quickly from there because, I think, what you'll see is the first version of it will not be the end state.

Your next question comes from Sharon Zackfia with William Blair.

I guess, a follow-up question on the omnichannel paradigm.

As you think about that going out forward, and I know you're still early, can you talk about what the targeted margin profile would be for a car that would be delivered versus picked up?

Are you looking into kind of maintain that gross profit per car?

How do you think about that?

And then secondarily, I don't think you've ever given any metrics in Charlotte about the number of customers that actually choose to get delivery or inquire about delivery.

Is there any metric you can give us on what you're seeing in Charlotte?

Okay.

On the first question, Sharon, it is a little early to talk about the cost profile and the structure.

We're still learning.

As I talked about, we've got a call center there opening up.

I think there's opportunity, and we're testing different opportunity on compensation structure.

So I think there's a lot of things that we're continuing to work through, so I can't really give you any guidance on that at this point.

As far as the number of customers, you're correct.

We haven't talked about that, but the majority of customers, by far, still want to interact with our expert sales consultant and still want to come into the store at some point.

The key is that we want to make sure that we individualize each customer's journey and help them at the points that they need help, so there's not one-size-fits-all.

Your next question comes from Matt Fassler with Goldman Sachs.

I'd like to ask a question on CAF.

So the interest spread, I think, essentially stabilized sequentially.

I know that the last securitization, I saw a little bit of a better spread than the prior one.

But generally speaking, the spread on your securitizations have been coming down as the pace of increasing your cost of funds has moved a little bit faster than the average rate you've been able to charge, given that, that's been moving higher.

How is it that, that spread was able to stabilize as you're still essentially mixing towards, I think, those lower spread securitizations?

Yes, Matt, it stabilized quarter-over-quarter, but it's still a little bit down versus last year.

In general, as I've talked about, we -- in reaction to interest rate increases immediately start testing.

So you're naturally going to see a little bit of a lag, I think.

It's in our ability to increase rates in response to benchmarks rising.

But if I look back at the -- our -- what benchmarks have done over the last year, they're up a little over 100 hundred basis points.

And if you look at our -- what we're charging customers in this quarter versus a year ago, it's up a little under 100 basis points.

So I think we've been successful in migrating rates up.

We've kept an eye on the 3-day payoffs, which have been very stable this year.

When we first started increasing rates, we saw a little bit of a tick-up in that, but I think it's normalized now.

And it -- the reality is it just takes some time to respond to rate increases.

We're not going to preemptively increase rates on the -- on a prediction that rates are going to go up.

So I think we've done a pretty good job of moving things up.

We are -- but in an increasing rate environment, you're naturally going to see a little bit of lag there.

Your next question comes from Brian Nagel with Oppenheimer.

My question centers on the used car business.

So clearly, the 2.1% comp, like you said, Bill, on your prepared comments, have returned to positive comps, but what's encouraging is that you're going to have stack base.

It's stronger on both 2 and 3 years.

I want to understand better, from your perspective, what's happening on the overall environment.

You talked a bit about used car pricing.

It sounds like that's still a headwind, so maybe elaborate further on that.

Then are there other factors out there that are helping you drive better sales?

And how do we think about sustainability of those factors through the back half of this year?

Yes, Brian.

It's -- I've been here a long time.

It's a very unusual market right now.

As I've said in my opening remarks, acquisition costs are still, when you look at a year-over-year basis, are much higher than they were 1 year ago.

And we had a little bit of an offset on acquisition prices because our inventory that we sold skewed to be a little bit older, but it wasn't enough to offset the increase in acquisition prices.

At the end of the first quarter, we were starting to see -- although your starting point of prices was higher, at the end of the first quarter, we are starting to see depreciation trends more normalized.

It really stopped after the end of the first quarter.

Second quarter, we've seen unusual depreciation curves.

In other words, normally you see a continued depreciation during this time of year, and we just didn't really see that.

It's a -- it's very different than in past years.

It's been very flat.

I think there's probably -- and this is just my belief.

Some of what's driving that maybe anticipation of tariffs on new cars and people speculating and trying to buy up used cars.

But to be honest with you, I don't really know why that is.

New car prices are obviously still as high as ever, and they continue to go up.

So as far as the outlook going forward, I would think, at some point, we would start to see depreciation trends more normalized, even if your cost is at a higher starting price.

So I think that we'd start to see it more normalize, especially as continued inventory comes in off of the lease increases that we've seen over the last few years.

And just on that, so with the hurricanes we were -- or the hurricane, [they’re quite] that we recently saw in the East Coast, could that further exacerbate the pricing dynamic within the used market?

Yes, it's hard to tell.

I mean, I think the industry, so far, is saying that this is not from a destruction of automobiles.

This is not to the magnitude of, say, a Harvey was.

I think I saw some estimates of maybe 20,000 vehicles or so.

So I don't think we're going to see to the magnitude that we did 1 year ago.

Your next question comes from Seth Basham with Wedbush Securities.

My question is on the hurricane impacts on sales.

Last year, I think you had some negative impact on your sales right at the end of the second quarter and some positive impacts on the third.

How do we think about that from a year-on-year perspective this year, considering hurricane flow?

Can you give us some color there, please?

Yes.

So as far as the hurricanes last year, you're right.

It really impact us only the last week of the quarter.

And so the real impact is next quarter.

As far as flow goes, we'll talk more about that because it happened in the third quarter.

But I will tell you, we did have a period of time where we had several stores shut down.

But we, as an organization, fared very well from a property standpoint.

The stores and the inventory, we did not see some of the impacts that we saw last year.

Keep in mind, we have these weather events.

Generally, it's a timing, and then we'll get the sales back afterwards.

And did you pull forward the opening on Wilmington store to capitalize potentially demand in that market?

Actually, we delayed the Wilmington because it was supposed to open up pretty much right in the mix of the hurricane prep, so we delayed it, which is why it's opening today.

Your next question comes from Armintas Sinkevicius with Morgan Stanley.

I can appreciate, having been down in Virginia, the capabilities that you have in-house and continue to develop and that you can transport cars the same way as Carvana can.

But I'm curious, what do you think it will take for the market to realize that your capabilities are similar?

Do you think it'll be the launch of the bundle offers?

Or just curious on your thoughts there.

Yes.

I don't know.

I mean, we're focused on making sure that we deliver this omnichannel.

We understand that customers want to do more online.

And like I said earlier, the complexity of this involved with the used cars, we feel like there's points in that process where the customers want -- wants assistance, so that's where our focus.

Our focus on -- is on right now delivering the omnichannel, and we'll see how the market responds after that.

And then have you -- what are your market shares in the Carvana markets?

And how has that changed?

Yes.

We don't speak specifically to individual competitors.

We view our competitive set as much broader than, say, digital-type players.

And again, we're focused on all competitors.

And just like we don't talk about geographic differences, we won't speak to competitor differences.

Your next question comes from Craig Kennison with Baird.

Bill, you mentioned rolling out the online appraisal tool in more markets.

I'm curious, in those pilots, how accurate have those online appraisals proven to be?

Yes.

Actually, Craig, let me clarify a little bit.

So what I talked about in opening remarks was an estimator.

That's a different tool than what we're testing.

We have several tests going on.

One is the estimator, which is the new one, which is just a series of simple questions customer can fill out.

We give them an estimate.

In the markets where we're doing online appraisals, we have several different versions of that, that we're testing as well.

And what we found is that we can be very accurate on the online appraisal offers.

What we're really trying to figure out is what's the best delivery mechanism for those, what's the best process for individual customers and how we communicate those offers.

And with some customers, depending on the vehicles, there's different -- there may be different solutions.

So that's why we've been testing several different things and continue to test several different things.

And could you just remind me the difference between an estimate and an appraisal?

Sure.

The estimate is just what I said.

It's a -- it's an estimate offer that still has to be brought to the store or leveraged through our online appraisal offer.

The online appraisal offers one that we will back assuming that the condition was called -- assuming that the customer didn't oversee some type of condition that impacts the vehicle.

Your next question comes from Michael Montani with MoffettNathanson.

Just wanted to ask, Bill, for your thoughts around potential impacts from tariffs to the extent that we were to see those happen.

Just how do you see that playing out for your business and the industry a little bit more broadly?

Yes.

I think we'll have to wait and see.

But obviously, the tariffs on new cars would certainly cause the new car prices to go up.

And then you'd have to look at what that did to the gap between new cars and late-model used cars.

I would think that, that would widen, which I think would be helpful for our business.

The other thing that we'd have to stay tuned on is really the parts and things that we use in our reconditioning process.

So we're staying close to it, and we'll continue to monitor it as it progresses.

Your next question comes from James Albertine with Consumer Edge.

Wanted to ask on the EPP side, if possible.

I know there's some cost benefit that you alluded to in the press release.

And there's accounting adjustment there, a benefit.

But wanted to get the sense on the unit side given the 0 to 4-year-old mix fell, are you seeing attachment actually increase because I would imagine that would be a factor of driving monthly payments higher and so making sure that the comp performance look even better in that regard?

Jamie, we've seen real -- pretty darn consistent ESP attach rates over the years.

It's -- as we -- and that was part of the reason we were able to take a little bit more margin with the cost reductions from our competitors, in lieu of passing on to the customers in the form of lower prices earlier this year because we've seen that in elasticity and it's come true.

We haven't seen a reduction in our attach rate at all.

With regard to the accounting standard, that's something that's going to be -- we have to look at every quarter now.

We've got -- we have to put a receivable on the books for those retro payments that we're entitled to based on the contracts.

And every quarter, we'll look at it and we'll make an estimation of what our -- what we believe has changed in what we expect to collect on those plans.

One thing that I think might be helpful to point out, though, is the methodology that we use to predict that receivable includes some seasoning of the plans before they're going to be -- get put into consideration set, so that every quarter, we'll be looking at additional plans that have seasoned to the point where they're worth looking at and making assessments based on that.

So the thing could move either direction.

But one dynamic that, I think, is important to know is there are new plans being put into the considerations set every quarter.

And in recent years, as I've talked about last quarter, we've seen overperformance for the vendors in those plans, and we've been having -- expecting to get the payback.

So just a point of clarification then.

You'd expect, with older vehicles, the attachment rate would fall, I would imagine.

And so if we were to, say, see a surge in 0 to 4-year-old vehicle demand in the coming quarters being flat now, arguably, you might even see an uptick from here.

Is that fair?

I mean, we don't have -- I don't have the data in front of me.

But I would think the opposite would be off the top of my head, true.

The newer vehicles still have some of their manufacturers warranty left on them.

And frankly, the older vehicles, the ESPs have better value proposition for the customer because this can protect them when they don't have a warranty.

Your next question comes from John Murphy with Bank of America.

Just a question as we think about sort of the competitive dynamics in the market.

And you've kind of talked about this a little bit, but I kind of wanted to put it all together.

I mean, are there any specific markets where competition is being disruptive or any markets you can point to that you're being disruptive?

And really, what I'm trying to get at here is there's an increasing focus by the new vehicle dealers.

There's obviously some digital competitors that are out there.

But at the same time, as you launch your omnichannel efforts and kind of really coalesce what you're doing online and within home delivery, you might be disruptive.

Just trying to understand the competitive dynamics and if you can give us any examples in markets where you see market share shifts or opportunities.

It just seems there's like -- there's a lot going on right now.

And you're probably going to be one of the big winners, but I think there's a lot of concern out there.

Yes, John.

So you're right.

I mean, the competition is robust from a lot of different angles, whether it's digital players, whether it's brick-and-mortar players, standalone players, that kind of thing, and we're focused on all of them.

I'm not going to talk specifically about any particular markets because I could tell you, it's a very complicated analysis when you just try to dial in to an individual market, looking at all the different competitive sets that are there, what are those competitors doing, what are we doing differently.

You have to take into consideration the age of our stores.

There's a whole bunch of things that you have to look at.

What I would just tell you is that we're really positioning ourselves to be that solution for the customers, allowing the customer to really drive the transaction on their terms, individualize every single customer interaction.

That's what our focus is on and less so about, okay, what's this one player doing.

We think that this omnichannel solution is going to be the future where customers want to go.

And maybe just a really quick follow-up.

I mean, when you think about that competition and sort of the ramp-up on the focus on this specific channel in the market or used vehicles in the market, I mean, is the upward pressure on pricing because of that?

Or is it because of the end market consumer?

Meaning, is there an increasing acceptance that maybe lower grosses by this increasing competition might be what's driving up this -- the used vehicle pricing in a way?

That just seems very counterintuitive to supply and demand and normal depreciation curves.

Yes.

The way I think about it, John, is, look, I feel very good about our pricing and the competitiveness of our pricing.

As you know, we look at it all the time.

We test it all the time.

I think what happens is because there's a focus from a lot of different areas, there is -- in any given market, there's probably some confusion out there because a lot of different competitors are advertising.

So I think there's some confusion there.

But I'm less worried about the pricing at this point because there's a lot of different things that we can do to improve our price without, say, changing what our gross profit per unit is.

So I think more, right now, is there's just a lot of awareness out there or confusion out there by a bunch of different competitors.

Your next question comes from Rick Nelson with Stephens.

Nick Zangler in for Rick here.

More of a strategic question.

From your early findings, can you talk about the importance for a customer to physically see a vehicle in person before they commit to a purchase?

And what's your view there?

And then related, I think the value of delivery, in general, could be debated, but do you foresee a capability that allows a customer to conduct virtually the entire vehicle transaction online and simply come into the store, verify the vehicle condition and pick it up there?

Does the consumer desire that capability as well?

Okay.

So on your first question, do they want to see the car?

Absolutely.

The majority of our customers want to see the car.

On your second question, the value of delivery, listen, that's -- what you described is what we're talking about when we say expedited or express delivery.

That's our first attempt into that foray, where the customer can do most everything online and then they come in the store just to test drive it if they want to test drive it, understand what the options are.

Again, the customer will determine how much time they want to be in the store.

If they want to be in and out 15 minutes, they can be out in 15 minutes.

If they want to take it for a test drive, obviously, they'll be a little bit longer than that.

But most of what we see on the customer side is that they still want to see and, in a lot of cases, test drive the vehicle.

Your next question comes from Matthew Paige with Gabelli.

I wanted to ask potentially a longer-term question.

Obviously, full EVs are small, but growing piece of the U.S. market.

But have you learned any lessons or had to make any changes to your CarMax appraisal system to deal with those kinds of vehicles that might have a potentially different depreciation schedule?

I'm not exactly sure what you're asking, Matthew.

EVs don't have a -- like a historical basis for how your appraisal system likely does other kinds of cars.

How have you dealt with new entries into the market?

Yes.

So if you're talking specifically, let's say, EV, it's obviously -- I think the industry, as a whole, would have thought that EV sales would have been a bigger percentage as compared to where it is today.

That being said, we do get EVs through the appraisal lane.

We buy them off site.

Because of our dataset, because we look at so many cars, both in the appraisal lane and off site, we've honed that muscle as well just as like with the traditional car.

So far, even though it's a small subset, we feel very comfortable in being able to price that type of vehicle.

And again, because of the data that we have and the number of vehicles that we look at on a weekly basis, we learn very quickly and then we can react to those learnings.

Your next question comes from David Whiston with Morningstar.

My question is on the digital omnichannel and the whole e-commerce platform that you've been working on.

Have there been some real big challenges in states where the laws are really behind the times tech-wise?

And do you think those issues are resolved?

And if you can just talk about those issues a bit.

Yes.

I think, from a regulatory standpoint, there's a couple of different things.

Some states still require that vehicle sales occur at the dealership physical location and that the customer has to actually visit the dealership, and we call that darkening the door.

Other states, you have to have a physical location, but you don't necessarily have to have the customer come in and do the transaction in the store.

And then other states, obviously, are more liberal, and you don't have to have either one of those requirements.

So as we continue to work through this, we'll obviously make sure that we follow any applicable laws.

And again, our goal is to meet the customer on their terms, and we'll do that in a legal way.

Your next question comes from Jacob Moser with Wolfe Research.

This is Chris Bottiglieri at Wolfe Research.

I had a couple of questions.

Well, one follow-up by Katharine's rules.

Given the store traffic was challenged, we saw higher appraisal traffic.

Can you maybe just connect the 2?

Are you starting to see this potentially improve?

Or are some of your digital efforts driving like an increased appraisal traffic?

Can you talk about that?

Yes, I think the appraisal traffic is probably a combination of things, whether it's some of the stuff that we're doing marketing, online.

I also think it's a very favorable pricing environment where, as I talked about earlier, acquisition prices are higher.

We can put more of the money on people's vehicles.

And when you can do that, that certainly helps your buy rate.

On the opposite side, if there's a depreciating market, that generally hurts your buy rate a little bit.

So I think a lot of it is based off the environment that we're in, in addition to a lot of other things that we're working on.

Got you.

Then -- but really, a follow-up, I assume it's connected.

But can you just give us an update on your self-sufficiency ratio and kind of how that's been trending more recently?

Sure.

Self-sufficiency, we typically talk about the range, 40% to 50%.

And right now, we're in the lower end of that range.

Your next question comes from Sharon Zackfia with William Blair.

Just a follow-up question.

I guess, I know market share data is hard to get until you get to an annual basis.

But how do you feel like you're likely to shape up this year?

I mean, do you feel like you are continuing to gain share in the marketplace?

And then secondarily, there's been a lot of discussion about disruption in the marketplace.

And you've been a disrupter over the years, as well.

I guess, I'm curious if you've seen anything, particularly in Atlanta, which is where Carvana's oldest market is.

Okay.

So you're going to be disappointed, Sharon, because on both of your questions, the first one on the market share, to your point, when you look at it on the short term, it's not as valid, which is why we look at it on the annual basis.

As you probably recall, the last time we reported on that was last year's calendar year, which we saw our -- one of our biggest market -- comp market share gains that we've seen in a while.

So I don't have any updates on that front at this point.

The other thing, as far as disruption in a specific market, again, I really don't want to get into talking about any individual markets or, for that fact, any individual competitor.

Our competitor set is huge, and that's where we're focused.

We're focused over -- on overall competition.

So I know neither of those answers are satisfying to you, but that's what I've got for you.

Your next question comes from Michael Montani with MoffettNathanson.

Just wanted to follow up on maybe an alternative revenue channel and just get your thoughts here.

But when you think about the growth and maturation we're seeing from like an Uber and Lyft and then some of the partners they have, like a hire car or a fare, I'm just wondering if you can provide any updates or thinking about the potential growth opportunity in that channel just because it would seem potentially to be substantial.

Yes, Mike.

What I'd say is, look, I think that this is an exciting time to be in the automotive industry just outright because there's so many different things that are changing.

I think there's lots of opportunities for CarMax.

I would tell you, I wouldn't take anything off the plate at this point.

And we're constantly looking at the business and how we can continue to improve as well as make sure that we plan for the future as the business changes.

So I would just tell you, we're pretty much open to a lot of different options.

And we're working with some different strategic partners, trying to do different things.

And when we have something material to talk about, we'll talk about it at that point.

Your next question comes from Matt Fassler with Goldman Sachs.

And I have a couple of follow-ups on the numbers.

The first relates to ASP.

Your new car ASPs -- or I'm sorry, your used ASPs were up slightly year-on-year and that would be consistent presumably with what we saw in the market broadly.

Your wholesale ASPs, I guess, were under a tad of pressure, not pressure per se, but just down a little bit.

What was going on the wholesale ASP realm in terms of mix that was different from what was transpiring in the market more broadly?

Yes.

If you mix adjust the wholesale, our prices -- because it is a stronger market, our prices actually went up.

But we did have a mix shift where we had more older cars, which, generally, we'll bring the price down as well as the mix.

We had some more compacts come through, which we'll change the pricing as well.

So you had -- you have different factors going in different directions.

And then on the used side, again, acquisition price was higher, which was -- and it was partially offset by the shift into older vehicles.

Understood.

And then the follow-up relates to your other overhead spending.

There's been a lot of talk in this call about innovation and presumably -- and a lot of things you're doing presumably the way that manifest in the P&L in any given quarters, the other overhead line, and I think you alluded to that in the press release.

So that spend is up 24%, which is as big as it's been since late '16 and about as big an increase as you've typically had.

I know you don't guide on a go-forward basis, but should we expect that this line item remains a big focus for you as you potentially accelerate some of the innovation on your end?

Well, keep in mind, so there are couple of things.

On the total SG&A, was up -- part of that was because of the advertising and the timing of the advertising.

In the other category, where we do have some investments in our strategic initiatives, look, I've said all along this year that we're continuing to invest and put back into the business.

And I think some of the increase that you saw there, there's some consulting, there's some contracting, there's Software as a Service.

Some of those things will stick around.

Some of those things will go away, though, as certain projects get -- come to completion, that kind of thing.

So I think there's some timing in there.

But again, this is a year that I've said all along that we're going to continue to invest in the organization.

Your next question comes from Scot Ciccarelli with RBC Capital Markets.

I don't think you had enough CAF questions just yet, so I had one.

I think during Tom's brief remarks earlier, he referenced weaker performance in the Tier 3 space.

I guess, I was wondering, is that just referencing the mix being down a touch?

Or did you actually see tighter lending standards there?

No.

I guess, I wasn't clear enough.

As I mentioned in my prepared comments, we saw application volume up pretty much across the spectrum in all credit grades.

It may have been a little more robust in the middle space, where the Tier 2 is, but it was up across the board.

The degradation in Tier 3 resulted -- there's the combination of increased volume, but a decrease in the performance, by the lender.

And so we've seen conversion in the Tier 3 space over the course of the quarter, actually, deteriorate.

And that...

So if it deteriorated during the quarter, does that suggest maybe that will continue as we kind of roll into third quarter then?

Well, we'll see how that progresses.

We've talked about -- we've got a number of lenders in there.

It's one in particular.

We're looking at our alternatives.

And as the third quarter materializes, we'll tell you how it went.

But obviously, we're looking at it carefully.

(Operator Instructions) And your next question comes from Seth Basham with Wedbush Securities.

I also have a question on CAF for you as it relates to the lending outlook, the tightening that we've seen in the subprime level.

Do you think that's indicative of something we might see on a wider basis going forward?

And as it relates to your CAF portfolio loss rate performance specifically, how would you characterize that right now?

We're seeing a tick-up a little bit more than historical seasonal averages.

Would you expect it to maintain the current level?

Or do you expect it to increase a little bit going forward?

I'll start your second question, Seth.

There's -- we're not seeing anything in that -- in our Tier 3 lending that is surprising us.

So it's -- obviously, it's a different animal than what we do in the prime space and a different customer relationship, different expected losses.

But we haven't seen anything there that has given us any pause.

As I mentioned, it's really performance by one lender.

So I can't speculate on whether it's something that could be global in the future.

But that's why we have multiple partners because different institutions have different credit committees.

They get different leadership at different points in their evolution.

And they can change their mind about how they want to behave.

There are no further questions.

At this time, I will turn the call back over to Mr. Nash for closing remarks.

Thank you, Jamie, and thank you all for joining the call today.

As Katharine mentioned, when she first started out, it was our 25th anniversary as a company last week, and that truly is a testament to our associates.

I'm once again reminded why our associates are a differentiator for CarMax, and it's because of the way they live our values with each other, our customers and the communities.

I want to thank them all for everything they do.

They have absolutely been the key to our success in the past.

And they will continue to be the key to our success in the future.

Thanks for your time and interest in CarMax, and we will talk to you again next quarter.

This concludes today's conference call, you may now disconnect.