車美仕 (KMX) 2020 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the CarMax Fiscal 2020 First Quarter Earnings Conference Call.

(Operator Instructions) Thank you.

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

Good morning.

Thank you, Tiffany.

Thank you all for joining our fiscal 2020 first quarter earnings conference call.

I'm here, as usual, with Bill Nash, our President and Chief Executive Officer; and Tom Reedy, our Executive Vice President and CFO.

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, 2019, filed with the SEC.

(Operator Instructions)

Thank you.

Bill?

Thank you, Katharine.

Good morning, everyone, and thank you for joining us today.

Before I get started, I do want to take a moment to personally thank Katharine, who many of you know is retiring at the end of July, so this is her last call.

Katharine has run a very successful IR program for us over the past 13 years, and I'm sure that you all agree that she will be deeply missed.

Katharine, we wish you the best in your retirement.

I hope it exceeds your expectations.

I'd also like to introduce Stacy Frole, who similar to Katharine has a very strong IR background.

And as many of you already know, Katharine and Stacy have been working closely together over the last months to ensure a smooth transition in our investor relations' communications.

So welcome, Stacy, and again, congratulations, Katharine.

Thanks, Bill.

For today's call, I'll start with our first quarter highlights.

I will then turn the call over to Tom to discuss our financials in more detail before providing an update on our omnichannel rollout, which continues to perform very well.

Then we will open it up for your questions.

As you read in our earnings release this morning, we are pleased to announce a very strong start to fiscal 2020 with net earnings growth of 11.8% and EPS up 19.5%.

We achieved a 9.5% increase in used unit comps and a 13% increase in our total used units sold.

This strength in retail is the result of a combination of many factors, including our solid execution, which was supported by enhancements to the customer experience; a robust lending environment; and a delay of February tax refunds into our first quarter.

Conversion for the quarter increased year-over-year, while store traffic remained relatively unchanged.

Our website traffic grew 15% from a year ago.

Gross profit per unit for the quarter was consistent with prior year at $2,215.

We continue to drive efficiencies in our inventory management systems, allowing us to maintain margins while offering attractive prices.

In addition to strong retail sales in the first quarter, we reported higher wholesale units with volume up 6% for the quarter versus a year ago.

This was the result of an all-time record buy rate as well as the growth in our store base year-over-year.

Gross profit per wholesale unit was $1,043, an increase of 3.1% compared with last year.

This strong wholesale performance likely benefited from the delay in tax refunds as well.

As a percentage of sales, 0- to 4-year-old vehicles decreased less than 1% to 76% versus 77% in the first quarter of last year.

Total SUVs and trucks accounted for about 46% of our sales, up from 43% this time last year.

At this point, I'll turn it over to Tom.

Thanks, Bill, and good morning, everybody.

For the quarter, we saw strong performance in other gross profit, which increased 11.6%.

This was largely driven by an 11.2% increase in EPP net revenues, reflecting the combined effects of strong used volume growth along with increased penetration and margins, which were partially offset by an increase in the cancellation reserve.

Also remember, in last year's first quarter, EPP revenues included $4 million related to the adoption of the new revenue recognition standard.

On the SG&A front, expenses for the quarter increased 11.7% to $490 million.

Factors impacting our SG&A spend included the opening of 18 stores since the beginning of the first quarter last year, which represents a 10% growth in our store base; higher variable costs associated with our strong sales growth; a $14 million or $46 per unit increase in share-based compensation expense; as well as continued investment in technology platforms and digital initiatives.

SG&A per used unit was $2,183, a $26 decrease year-over-year.

We're pleased to show leverage in the midst of substantial investment and the $46 per unit increase in share-based compensation.

While the quarter did benefit from some timing differences, we were able to offset a portion of the growth in spend with efficiencies and will continue to focus our efforts on this.

Our provision for income taxes benefited from the impact of stock option settlements by $3.1 million.

This translates to an 89 basis point reduction in our effective tax rate for the quarter.

Now I'll turn to CAF and customer finance.

In the quarter, we saw higher application volume and strong performance across all credit tiers.

Tier 2 accounted for 20.3% of sales compared with 17% last year, while Tier 3 accounted for 11.5% versus 10.9% a year ago.

CAF penetration net of 3-day payoffs was 41.4% compared with 42.9% in last year's first quarter.

While we saw increased applications across the board, it was definitely more pronounced in the Tier 2 and Tier 3 space.

Year-over-year, CAF net loans originated grew by 9.7% to $1.8 billion as the increase in used cars sold was somewhat offset by the decrease in CAF net penetration rates.

For loans originated during the quarter, the weighted average contract rate charged to customers increased to 8.9% compared with 8.4% a year ago and 8.7% in the fourth quarter.

CAF income of $116 million was up just slightly compared to the first quarter last year.

The impact of growth in average managed receivables was offset by a $7 million increase in the provision for loan losses and a slight compression in portfolio interest margin.

This margin was 5.6% versus 5.7% a year ago and 5.5% in Q4.

The provision for loan losses was $38 million in Q1 versus $31 million in the prior year period.

The increase arises from portfolio growth along with some unfavorable loss experience versus our expectations, which translates into a related increase in the overall allowance for losses.

The allowance at $147 million represents 1.14% of ending managed receivables versus 1.13% in Q1 of last year and 1.10% in Q4.

While the allowance has increased a modest 4 basis points sequentially, it remains well within our range of expectations given our origination strategy and portfolio mix.

As we discussed last quarter, we are committed to enhancing shareholder value through continued investment in our associates, our business and our capital structure.

During the quarter, we opened 3 stores: 2 in new markets, Waco and McAllen, Texas; and our second store in Memphis, Tennessee.

Earlier in June, we opened our Atlanta customer experience center.

Over the next 12 months, we're anticipating opening 14 more stores and 2 customer experience centers.

During the first quarter, we repurchased approximately 3 million shares for $205 million.

Since starting the stock buyback program in 2012, we have returned more than $4.6 billion to shareholders and we have $1.9 billion remaining in current authorizations.

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

Thank you, Tom.

As we look towards the future, we continue to believe the unique and powerful integration of our in-store and online capabilities provides us with a significant competitive advantage.

And as consumers continue to do more online, it's important that we provide them with the ability to shop on their terms anywhere, anytime.

While we are still in the early stages, we are very pleased with the results in our Atlanta market.

The strong performance we saw last quarter carried over into the first quarter.

Once again, we saw double-digit comps, and the Atlanta market continues to outperform the overall company in both comp sales and appraisal buys.

Our finance penetration is similar to the rest of the company, while MaxCare penetration is slightly lower.

Home delivery continues to experience high conversion, although it remains a small percentage of our overall sales in Atlanta.

As I mentioned last quarter, we believe our unique omnichannel experience could be more efficient than our current model.

We do anticipate some inefficiencies in some of our operations in the near term, however, we know that we will be able to improve as omni markets mature and our customer experience centers become fully utilized.

We continue to enhance our omnichannel capabilities and experiences for both our associates and customers based on their feedback and reactions.

We remain confident that we are moving in the right direction and our omnichannel experience will be one of the key drivers of comp sales and market share growth going forward.

Here are some specific updates on the progress of our rollout.

The Atlanta customer experience center, or CEC, just opened this month, and we will be opening one in Kansas City in late July.

We are also in the process of working on a third location, which will open later this year.

Over time, the 3 large CECs will each staff more than 300 associates.

Having spent some time in our new Atlanta CEC, I'm convinced that this is the right solution for continuing to improve our customer experience.

The technology is state-of-the-art and integrates well with our store systems.

Our associates are excited and well positioned to focus on progressing the customer online and providing an exceptional experience.

With the opening of the Atlanta CEC, we rolled the omnichannel experience to the majority of our Florida stores earlier this month.

Later this quarter, we will continue the rollout to new markets, including those in North Carolina and Virginia.

We remain on track to provide our omnichannel experience to the majority of our customers by the end of fiscal year 2020.

As I've said on prior calls, to bring omni to life, we're leveraging the strength of the CarMax model that we've built over the past 25 years along with new technology and digital capabilities.

This is an experience that we can tailor to each individual customer.

This is the future of car buying.

We're off to a great start, and we're excited about the future.

And at this point, we'll be glad to take your questions.

(Operator Instructions) Your first question comes from the line of Scot Ciccarelli with RBC Capital.

So I guess I was hoping you might be able to shed a little bit more light just regarding the inflection that we happened to see this quarter.

I mean we had a couple of quarters that might've been -- I guess, a lot of people would term them as relatively underwhelming, 3Q, 4Q.

And obviously, we're still early in the Atlanta rollout, so you can't just point to omnichannel as what caused the inflection here.

So if you can provide any more color on that, I think that'll be fantastic for the group.

Sure, Scot.

So in my prepared remarks, I talked a little bit about tax refunds and the lending environment, but let me give you a little bit more color.

On the improved execution, we highlighted conversion.

The store did a phenomenal job not only on the face-to-face conversion, but getting folks on the website into the store.

So we had great conversion success.

Our buyers did a phenomenal job on vehicle acquisition this quarter.

Shipping, logistics, we had some efficiencies we picked up there.

And anytime -- as we've said in the past, when we pick up these efficiencies, we generally are passing them along in price reductions.

We had some improvements in the customer experience or our digital initiatives.

The main things there -- I don't know if you've noticed, we have a new website that we have rolled out everywhere nationally, and that's based off some feedback we've been learning in the omni markets.

We have some new -- a new search experience.

We have some new improvements on our search experience.

It's really focused on speed and navigation.

And then I think a couple of other factors that played into this.

We felt like the supply -- overall auction supply was up a little bit, which is a good thing for us.

And I think that was also reflected in a little bit of movement in the new/used car gap.

So it really is a whole host of different factors, none of which -- not any individual one was the majority of the lift.

So if I were to try and break out kind of like the tax refunds because that's obviously a temporary phenomenon, what was the -- how would you estimate the impact of the tax refund shift?

Yes.

Like last quarter, I mean, we thought we probably missed out on about a week's worth of tax refunds last quarter, so that's what we expected rolled into this quarter.

Your next question comes from the line of Brian Nagel with Oppenheimer.

Congratulations on a nice quarter.

Thank you, Brian.

So first off, Katharine, congrats on the retirement.

It's been -- definitely been a pleasure working with you all these years, so congratulations.

Thanks, Brian.

And Stacy, welcome.

Thank you.

So I want to -- my question -- my one question, I want to maybe follow up a bit on Scot's question.

But if you're looking at the significant inflection higher here in used car unit comps from Q4 to Q1, now you did talk about in the prepared comments some of the shifts in the credit metrics.

So the question I have is, to what extent -- as you look at the improvement in used car unit comps, to what extent did either a seemingly more engaged group of lending partners or what -- in what appears to be maybe a little more -- a little looser credit extension on the part of CAF help used car unit comps?

And then along those lines, I mean, to the extent CAF -- it was -- what we see in CAF, was that more of a conscious decision on the part of management?

Or was that just a reflection of what was happening in the marketplace?

Yes.

So Brian, I'll hit your questions.

One, the CAF has not changed its origination strategy material at all.

We're always testing, but as far as the quality and structure of the portfolio we are originating, it's been very consistent.

When you see shifts in the mix, particularly about where -- how much CAF penetration is, that's usually a -- it's generally a byproduct of the mix of customers coming in.

And as I mentioned in my prepared remarks, we did see application volume up for all credit qualities, but it's definitely more pronounced at the lower end.

And so in general, that's going to favor the Tier 2 and Tier 3 folks as far as their attach rate.

Now that said, we've seen very solid performance from our partners, both in the Tier 2 and Tier 3 space.

I wouldn't say it's any different from what we've seen in the last -- saw last quarter and maybe in the third quarter, but Tier 2 definitely improved over the back half of last year.

So on a year-over-year basis, we're seeing stronger conversion.

And Tier 3, if you remember, in the third quarter, we shifted some of the allocation of apps across our partners.

And so because of that, we're seeing conversion higher year-over-year.

But from a kind of sequential perspective, I think they all performed about the same as earlier this year and firing on all cylinders, and we're happy with their performance.

Did that hit everything, Brian, right?

I think you had three.

Yes.

No, that definitely helps.

So I guess to sum it up, though, I mean, as we look at -- and again, as we all try to make sense of what is clearly a significant acceleration in comps in just over the last few months, credit was not -- any shifts in credit would not -- what you're saying is that there's -- nothing dramatic happened at the credit side to help that?

Yes.

The only thing I would say is the strength of Tier 2s would definitely be a help on -- vis-à-vis last year because, as you would imagine, as you go down the credit spectrum, a customer who gets a CAF offer is much more likely to convert to a sale than a customer who gets a Tier 2 offer, and that's more likely to convert than a customer who gets a Tier 3 offer.

So they're -- with the fact that Tier 2 is seeing more volume and there's -- they're incrementally a little bit stronger year-over-year, you would expect that some of those that they approve that would've gone down to Tier 3 probably wouldn't have turned into sales.

But you can't -- there's so many moving parts that you really can't quantify it.

Yes.

Brian, and I would just reiterate, if you think about all the different factors, there was no one factor that was the majority of the lift.

Got you.

So let me just -- and sorry to belabor this.

But okay, on the Tier 2 piece then, so is there -- can we get any more color on what changed there?

And then how -- as we think about now the balance of fiscal '19, how should we view or think about the sustainability of that?

I think what I just said a little earlier, over the back half of last year, we saw our lender performance -- so we define lender performance by what percent of applications that they see convert into a sale.

So we saw that conversion increase over the back half of last year and it's remained stable since.

And obviously, also, there's more customer volume in that space, which favors them as well.

That, we don't control.

Your next question comes from the line of Armintas Sinkevicius with Morgan Stanley.

When I think about the commentary around Atlanta, double-digit comps again, back-to-back quarters now, and you continue to roll out the initiative, how should I think about how that compares versus a -- the traditional model?

In other words, as you roll out these stores, how should we be thinking about the lift that you would get from the omnichannel initiative using Atlanta as the template?

Yes.

I guess the only thing I can confidently tell you is that every time we go into a new market, the lift is going to be different.

And remember, when we rolled out Atlanta, we -- it wasn't only the new experience and the new alternative delivery methods, but we had some new advertising, we had some expanded free transfers, we had some pricing tests, so a whole bunch of things.

As we roll out into future market, the only thing I would tell you that will be consistent among future markets is that we'll offer the new experience, the new website experience, the new alternative delivery methods, and we'll absolutely step up in advertising.

But beyond that, we'll be looking at each individual market and deciding what's best at the time.

So it's really hard to take one market and kind of extrapolate that over all future markets.

Okay.

And then just one other one on the SG&A side.

How should we think about the timing of the SG&A spend here in the second and third quarter?

You're opening up customer experience centers.

How much of that is you're starting to see efficiencies at your store level?

Or are we opening the customer experience centers first and then there will be some natural attrition at the store level, and also the cost of the grand openings there?

Just any way we can contextualize the SG&A, that would be helpful.

Yes.

So first of all, for this quarter, as Tom talked about earlier, we had some leverage.

Now there was a little bit of timing in the advertising spend that we would expect to pick up, but as far as the CECs are concerned, we're still ramping them up.

We -- I wouldn't say we've really realized much in the way of efficiencies between our CECs and our staffing and the store because we're going through a transition period where we're getting the staffing in the store lined up appropriately as we ramp up the CECs.

So I think the optimization from the CECs, we have yet to see that.

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

And I just want to say, it's nice to see Katharine go out on a nice high comp there.

So have a good retirement, Katharine.

Thanks.

Yes.

I guess the question around the CECs, kind of following up.

When you presumably roll out omnichannel across the whole country -- and I'd be interested in what the timing is on that.

I know you said the majority of markets by next February, but kind of what the plan is for the rest?

I mean how do you visualize how many CECs are necessary across the country to deliver this experience?

And then when we think about those startup inefficiencies, is it really just the labor of those 300 folks at the CECs that's causing kind of that 3- or 4-month inefficiency that I think you've alluded to in the past?

Yes.

So Sharon, we think -- we believe at this point -- I talked about the 3 big ones.

We just opened up the first of the 3 big ones.

We have 2 more that we're going to be opening up this year.

We're going to -- I think we feel really good about those 3 handling the bulk of the country.

There will be some probably one-off small locations due to state regulations, i.e., if you have to be in the state to do a selling activity.

The CEC is considered selling activity, so you would have to have a location in those states.

But I would think about those 3 as being the major ones that will lift the omni.

As far as efficiency, like I said last time, we would expect to take at least one person out of the store for every person that we add in the CEC.

Now we've chosen to do that just through normal attrition.

So there will be some inefficiencies by design in the early couple of few months rolling it out because the day we turn on omnichannel, our stores are overstaffed because they no longer have to staff to handle e-Office leads and calls and progressing customers that way.

So -- but I think for the most part, in most locations, we can work through that over like a 2- or 3-month period.

And we're making sure that we take care of our associates during that time period.

Your next question comes from the line of Craig Kennison with Baird.

Katharine, you will be missed.

Thank you.

So lots of focus on the omnichannel and disruption in the retail channel.

And that makes sense to me, good reason for those questions, but there's also disruption unfolding in the wholesale channel.

We've got more dealer-to-dealer digital platforms that are emerging there.

How are you thinking strategically about the wholesale market, and whether there's an opportunity to be as disruptive there?

Yes.

It's a great question, Craig.

And I think a lot of times people overlook the wholesale, but it's a huge business for us.

And I think it's a huge competitive advantage.

Just like with our retail customers, we want to make sure we give our wholesale dealers a great experience as well, and so we're testing different things.

For example, we've tested some online selling.

Keep in mind, though, our average vehicle is still 10 years old, over 100,000 miles.

There are a lot of dealers that still want to come and look at that, but I think we're in a great position to continue to move and make changes in that space just like we are at retail.

So it's one that we haven't really focused on in this call here, but it's another one of the initiatives.

We have several things that we're working on to improve that part of the business as well.

Your next question comes from the line of Rick Nelson with Stephens Inc.

This is Nick Zangler on for Rick.

Congratulations to Katharine.

Rick definitely sends his best in that regard.

I wanted to just dig in a little bit on the Atlanta market quickly.

The unit sales performance, obviously, double digits again.

I'm curious if you'd be willing to share whether the spread or the lift, I guess, was maintained in this quarter versus last.

Obviously, last quarter, you implied double-digit comps.

The total company did a 2.8%.

Was that spread that we saw -- I mean, obviously, 9.5% this quarter.

Was the spread maintained within that market?

Yes.

Nick, what I would tell you is we talked about the double-digit comps last quarter, we have them again this quarter.

They did increase a little bit even over last quarter.

So we feel really good about that.

Okay.

Great.

And just your general thoughts on tariff implications on demand for used vehicle unit sales.

Do you believe that this could potentially be even a tailwind as used vehicles are perceived to be more affordable going forward?

Yes.

It's hard to tell at this point, Nick.

You probably know as much as we do.

That's one that we'll stay close to.

Obviously, we're a little bit less reliant on anything coming in from outside of the states.

So theoretically, you would think that's a good thing, but it's too early.

I don't know.

I don't know the answer to that.

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

Congrats, Katharine.

We look forward to staying in touch.

Just -- maybe just one question, and it's kind of got slightly 2 parts.

But if we think about what's going on with the CECs and your omnichannel efforts here, Bill, it appears that the business will get more asset-light over time and you might need less stores to cover areas and your current stores might become that much more productive.

As you think about sort of the future, I mean, not just this quarter but the future, I mean, how far do you think you can go with these CECs into new markets without maybe a physical presence or a physical presence that may be significantly lower than it has been in the past?

And then also, when you think about GPUs in this new world order, can GPUs maybe be significantly lower because the asset intensity might be that much lower and you may still put up the same returns or even much better returns over time?

Yes.

So John, the way I think about it, first of all, we feel like -- and I said this in my earlier remarks, we feel like we have a huge competitive advantage with the infrastructure that we've built over the last 25 years.

We think our stores are a huge benefit that will allow us to do this omnichannel experience.

Now to your question, how do we think about the future and how do we think about physical store growth in the future?

We want to continue to grow sales and we want to continue to gain market share, and I think it's going to be a combination of adding some additional stores, but it's also going to be leveraging our existing footprint and reaching customers in ways that we haven't been able to reach in the past.

And if that means that we get really good at servicing customers that we couldn't service before and it ends up -- if you look at the runway of stores, we have plenty of growth for physical stores.

But if you -- if a few stores at the end of that runway get lopped off because we're reaching more customers out of the existing infrastructure, we'd be thrilled with that.

So -- but I do think it's still going to be a combination of the two.

As far as the GPU goes, for us, omni rollout and the omni experience is a separate, distinct decision versus GPU and what we charge customers.

We don't think that the 2 are necessarily related.

And at this point, we would -- we don't think that there's any reason why we can't continue to progress the omni experience and still maintain our GPUs, but those are 2 different decision points.

But there's no early read of saying, hey, maybe this that Atlanta rollout that we've seen so far and what's going on in Florida, we might be able to reach 10%, 20%, 30%, 40%, 50% more customers because of this omnichannel approach.

And I would certainly never suggest that you're existing stores are stranded assets, that's -- I think that's silly.

I think they're still going to be very productive.

But I mean as you go forward, could you -- I mean, would you think about opening materially less stores?

I mean it just seems like that's a real opportunity here that you will still use your physical footprint but you may be able to be much more efficient.

Is there any early read in what that might be?

Yes.

No, it's way too early to know what kind of lift we can get out of our existing infrastructure.

But keep in mind, we only have 206 stores at this point.

They're all strategically located.

We have some areas where we have holes, it would be beneficial to have stores.

So again, I go back to it's going to be a combination, and we'll see how much of a lift we can get by being able to continue to improve the omni experience.

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

Congrats, Katharine, we'll miss you.

My question is around free transfers.

You talked about that being a driver of improved sales in Atlanta.

Can you talk about how many free transfers increased in the quarter on a year-over-year basis, for example, and whether or not you're rolling out additional free transfers to other markets?

Yes.

Free transfers, while we opened it up, it's just not that significant of a factor.

And as we roll forward in new markets, we'll make a decision within each market that we roll out.

It's not necessarily a play that we'll do every single place.

Got it.

And then as a follow-up, thinking about the very wide new-to-used car spread that we're seeing right now, how much do you think that boosted comps?

And do you think it's sustainable?

Well, our data shows -- I think you said very wide.

I mean, it's improving.

I think we saw some improvement in the latter part of the fourth quarter.

I think that improvement has continued.

But I would say it certainly isn't at places where it's been in the past.

So while I think the trend is good, it's just -- I cited it as a thing because I do think it's improving, but again, I don't -- it's just one of the many factors.

Your next question comes from the line of Chris Bottiglieri with Wolfe research.

It's actually Jake Moser on for Chris.

So I know you said it's a low percentage today, but I'm curious for more color on the uptake of home delivery in Atlanta and how that is trending and where you're think it might get to over time.

And then for your recent launches in Florida, are you using the same home delivery process where you have effectively a mobile office with 2 employees?

Yes.

So as far as home delivery, Jake, it's too early to tell where we think that can go over time.

We'll continue to monitor that, but we really don't have any detail update at this point.

As far as the home delivery process, the one difference in Florida versus the Atlanta, in Atlanta, we went in with a separate home delivery team.

In Florida, we're leveraging -- and as we roll forward, we're going to leverage the existing store associates.

We have a new position in the stores, and they'll be responsible for home deliveries as well as express pickups.

And just as a reminder, express pickup allows a customer to do everything online, essentially, but still come into the store, take a test drive, learn about the options, that kind of thing.

We've done some of those in less than 30 minutes, especially when the customer doesn't really want to do the test drive but just learn about the options.

And so those folks will be the ones that handle that.

As far as going out, yes, at this point, we still have 2 associates that will go out.

One has the mobile appraisal office -- I mean, the mobile business office, the other will take the inventory unit that the customer is interested in.

Your next question comes from the line of David Whiston with Morningstar.

I know we had a really awesome quarter here, so I actually want to look at it the other way and just say what, as a management team, are you guys maybe not satisfied with?

Or what are you pushing people internally when you address people at the store level or the corporate level?

What could you guys actually be doing better right now?

Yes.

Well, first of all, the store team is doing a phenomenal job.

If you think about all the change that we're going through as an organization, it really does impact every single associate, and the store teams have risen to the occasion.

They're excited about it.

They're glad that we're continuing to evolve.

They're glad we're continuing to meet the business.

And so we feel really good about that.

Now I think we have lots of opportunity as we continue to roll this out.

We still have a lot of inefficiencies here, and we've talked about that in the past, some of them are by design and some of them are just because we've opened up new capabilities.

And so what we're excited about, our first push is really get this omni experience out to our consumers.

But equally important is it's got to be a great experience for the customers, it's got to be a great experience for our associates.

We want to make it as profitable as possible.

We want to have the most efficient system available.

So there's lots of things that we're focused on with the overall long-term growth to continue to grow sales and market share.

So to be honest with you, I feel great about where we are and I feel great about the opportunities that we have to continue to improve it.

And just one follow-up there on your comment.

When you said a lot of inefficiencies, were you referring to the whole enterprise or the omnichannel rollout?

Well, I think the efficiencies that -- the inefficiencies I talked to are specifically about omnichannel.

But I think we have opportunities to continue to look for waste in other parts of the organization.

We're never content to kind of be settled with where we are.

We continue to push on SG&A, looking for efficiencies there.

We continue to look for efficiencies in our reconditioning process.

We look for efficiencies in buying, logistics.

So I think there's opportunity throughout the whole organization, but I was speaking earlier specifically to the inefficiencies in omni.

Okay.

Katharine, congratulations.

Thank you.

(Operator Instructions) Your next question comes from the line of Scot Ciccarelli with RBC Capital.

Just following Katharine's rule about one question here, so back in the queue.

Will, we know there was some debate in the marketplace last quarter regarding what the 2-year stack was in Atlanta.

So I guess I was hoping now that we're back in a public forum, if you can help us understand what you've seen on a 2-year stack basis in Atlanta, specifically where you have the omnichannel rollout, of course, both last quarter and then in this quarter?

Yes.

Scot, first of all, thank you for getting back in the queue.

You just made Katharine smile on her last earnings call that you actually followed the rules.

Yes, so this quarter, positive 2-year stank -- 2-year stacks just like last quarter.

I don't think we talked about it last quarter, but we had positive 2-year stacks last quarter as well.

Can you tell us whether this quarter was higher or lower than what you saw in 4Q?

This quarter was higher.

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

One follow-up question for me.

It's just around CAF.

Obviously, you experienced some higher-than-expected loan losses in the quarter.

We've noticed some deterioration in trends for some of the more recent securitizations.

In response to that trend, do you plan on tightening terms for any of your loans?

Did you do that this quarter with the lower penetration rate?

Or how are you thinking about that going forward?

Yes, Seth.

The penetration rate this quarter was purely a result of the mix coming through the door.

And as I mentioned, the allowance, as it is, is a quite comfortable spot.

Obviously, it represents our best estimate of what the future losses will be.

And so losses trend to that rate.

We're very comfortable that we're still originating a highly financeable, highly profitable portfolio, so I wouldn't foresee any changes.

Obviously, caveat that with the future is the future and we'll continue to monitor it and adjust as appropriate to the extent it is.

But at this point, we're very comfortable.

There are no further questions in queue at this time.

I turn the conference back over to our presenters.

Thank you, Tiffany.

Listen, I'm sure you can tell from our comments today we're proud of our results and what we're working on.

We're excited about the future.

The results we discussed today, and this goes back to one of the questions that was asked, the results of today are really the product of our associates.

It's their hard work, dedication to an exceptional customer experience, desire to innovate and their unwavering commitment to our values, that's the reason we're successful.

And so to all of our associates, thank you for what you do every day.

It's absolutely an honor to work side-by-side with you.

And for those of you on the call, thank you for your interest.

Thank you for your continued support of CarMax, and we will talk again next quarter.

This concludes today's conference call.

You may now disconnect.