車美仕 (KMX) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 FY '22 KMX Earnings Release Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to Stacy Frole. Thank you. Please go ahead.

Thank you, Shelby. Good morning. Thank you for joining fiscal -- our fiscal '22 first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO; Enrique Mayor-Mora, our Senior Vice President and CFO; and Jon Daniels, our Senior Vice President, CAF Operations.

Let me remind you our statements today 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 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 Form 8-K issued this morning and its annual report on Form 10-K for the fiscal year ended February 28, 2021, filed with the SEC. 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 one question and getting back in the queue for more follow-ups. Bill?

Great. Thank you, Stacy. Good morning, everyone, and thanks for joining us. As you read in our earnings release this morning, we delivered exceptional performance in the first quarter, with record results across all aspects of our business, retail, wholesale and auto finance, and a solid flow-through to EPS. Our success reflects the continued progress we are making in our digital transformation and online experience, along with solid execution, and our ongoing commitment to disciplined cost management. In addition, we benefited from the backdrop of a strong demand environment, enhanced by the impact of the most recent round of government stimulus payments.

For the first quarter of FY '22, our diversified business model delivered sales of $7.7 billion, up 138% compared with the first quarter of FY '21, and net earnings per diluted share of $2.63, up $2.60 from a year ago. This also represents increases of 43% and 65%, respectively, from the previous record set in the first quarter of FY '20.

Across our retail and wholesale channels, we sold approximately 452,000 cars, up 128% versus the first quarter last year and a 31% increase on a 2-year basis from the first quarter of FY '20. We also bought 236% more cars in the first quarter of this year versus last year and 77% more compared with 2 years ago.

As many of you know, for the past several years, our priorities and investments have focused on building an unmatched experience, with a leading e-commerce platform that integrates seamlessly with our best-in-class in-store experience. The result has been a massive organizational transformation that includes building a comprehensive set of digital and hybrid processes to accommodate our customers in whatever way they want to interact with us. Our progress in executing this strategy has given us a very solid start to FY '22, and we remain confident in our long-term targets announced at our recent analyst day of 2 million retail and wholesale combined units sold per year and $33 billion of revenue by FY '26.

In our retail business, total unit sales in the first quarter were up 101%, and used unit comps were up 99% versus the first quarter last year. Compared with the first quarter of FY '20, total retail unit sales were up 21%, and same-store comps were up 16%. In addition to strong unit sales, we reported $2,205 of retail gross profit per used unit for the quarter, up $268 versus a year ago and in line with the first quarter of FY '20. Given the strong demand environment for used autos and inventory constraints throughout the automotive industry, we pulled back on the expanded pricing test we introduced in the fourth quarter. We'll continue to monitor macro factors and pricing elasticity, and we'll adjust our pricing accordingly to maximize unit sales and profitability.

For wholesale, our units sold were up 187% compared with last year's first quarter and were up 50% when compared with the first quarter of FY '20. Wholesale gross profit per unit increased to $1,025 compared with $978 for the same period last year and was in line with the first quarter of FY '20. -- The strength in wholesale was primarily driven by the introduction of our instant online appraisal offering, which we rolled out nationwide on carmax.com in February after launching on Edmunds.com last year. We also benefited from significant appreciation of used autos in the broader market.

CarMax Auto Finance, or CAF, continued to deliver solid results, with income of $242 million. In addition, CAF and our partner lenders delivered strong conversion in all credit tiers. Jon will give you some more details on that coming up here shortly.

Overall, we're extremely pleased with our performance, but we know there are opportunities to be even better. For example, on the operational front, inventory available for sale was below targeted levels throughout the entire first quarter. These lower levels are the result of recent demand and the temporary COVID and weather-impacted production slowdown we experienced in the fourth quarter. Remember, the fourth quarter is the time when we are ramping production ahead of the peak demand tax refund season. Our teams have done an amazing job producing inventory in the first quarter, and we expect inventory to continue to increase as we add additional production capacity at existing locations.

Now I'll turn the call over to Enrique, who will provide more information on our first quarter financial performance, and then Jon will share additional detail around customer financing. So Enrique?

Thanks, Bill, and good morning, everyone. Together with the strong gross profit growth in retail and wholesale Bill just discussed, other gross profit increased to $142 million, up $111 million from last year's first quarter. This increase was driven by: EPP growth of $61 million or 83%, driven primarily by retail sales growth and a stable penetration rate above 60%; service growth of $42 million or 125%, driven by labor leverage due to our strong sales performance and prior year company support pay; and an improvement in third-party finance fees of $6 million or 57% due to our renegotiated fee structure and changes in tier penetration, partially offset by increased sales.

Relative to the first quarter of fiscal year 2020, other gross profit grew $22 million or 18%. This was primarily due to volume-related growth in EPP and the benefit from our renegotiated third-party finance fees partially offset by service deleverage.

On the SG&A front, expenses for the first quarter increased to $554 million, up 71% from our COVID-impacted quarter a year ago. Robust sales in the first quarter, along with disciplined cost management, delivered strong leverage, with SG&A as a percent of gross profit of 59.9%, down from 91.7% in the prior year's first quarter. The increase in SG&A dollars over the last year was primarily driven by a $108 million increase in compensation and benefits, which was primarily the result of comping over COVID-related payroll reductions last year, along with an increase in variable costs due to higher volume and in headcount as we continue to invest in our growth initiatives.

Compensation leveraged by 25.8 percentage points versus last year, a $38 million increase in advertising expense, driven by our previously communicated investment in advertising spend to amplify the CarMax brand, build awareness of our omnichannel offerings and drive customer acquisition. This year's increase was also impacted by reductions in last year's spend due to the pandemic, marketing leverage by 1.9 percentage points versus last year and a $79 million increase in other overhead due to comparing against the $40 million Takata settlement benefit recognized in last year's quarter, our continued investments to advance our technology platforms and strategic initiatives and comping over pandemic-related reductions last year. SG&A as a percent of gross profit was comparable with the first quarter of fiscal year 2020.

We remain committed to ensuring we are efficient in our spend, and we expect that targeted areas of focus will continue to deliver improvements over time. For example, our CECs are a significant differentiator for us and an area of opportunity. In the first quarter, our CECs continued their year-over-year gains in efficiency and effectiveness through automation, data-driven algorithms and smart routing that ensures customers get the right support.

We are very bullish about our future, given the strength and trajectory of our current business and the opportunities to expand into the broader used auto ecosystem. We recognize that we have an opportunity to capitalize on our leadership position to grow market share and deliver long-term shareholder value.

Our approach to capital allocation is aligned with this belief and is supported by the significant amount of cash our diversified business model generates. First, we continue to focus on our core business by aggressively investing in the digital capabilities required to enhance our omnichannel experience, vehicle and customer acquisition, and the strategic expansion of our store footprint. Of particular note this quarter was the very strong ROI we are experiencing in vehicle acquisition primarily through our instant online appraisal offerings.

Second, we will deploy capital to pursue new growth opportunities through investments, partnerships and acquisitions. On June 1, we completed our acquisition of Edmunds. We are confident this transaction will create significant shareholder value over time.

Additionally, of note on the P&L this quarter, other income increased $29 million when compared with the same period last year, primarily due to a $22 million unrealized gain on an investment. As we've noted in the past, we have a portfolio of relatively modest investments across the used auto ecosystem.

Finally, we will continue to return excess capital back to our shareholders. During the quarter, we repurchased approximately 1 million shares for $125 million. We have $1.21 billion remaining in current authorizations. Now I'd like to turn the call over to Jon.

Thanks, Enrique, and good morning, everybody. Once again, the finance business has delivered outstanding results. For the first quarter, CAF's penetration net of 3-day payoffs was 43.7% compared with 36.1% a year ago. Tier 2 decreased to 22.8% of used unit sales compared with 28.5% last year. Tier 3 accounted for 10% compared with 14.5% a year ago.

You will recall in the first quarter of FY '21, at the beginning of the pandemic, we leveraged our long-term relationships and routed a portion of CAF's Tier 1 volume and all of the allocated Tier 3 volume to our Tier 2 and Tier 3 partners, which explains much of this year-over-year shift in tier mix. Note, this was done as a temporary measure, which limited CAF's origination volume while preserving the high quality of the portfolio. By the end of the second quarter last year, we've returned to our normal routing procedures.

During this first quarter, CAF's net loans originated was $2.5 billion, marking the largest single origination quarter in CAF's history and the first quarter above $2 billion. The weighted average contract rate charged to new customers was 9%, up from 8.4% a year ago and 8.5% in the fourth quarter. Similar to the fourth quarter, this year-over-year difference in APR is a result of the credit mix of customers rather than an increase in the rate charged.

Regarding the portfolio, the overall interest margin increased to 6.9% versus 5.9% in the same period last year as the strength of our ABS program continues to yield significant benefits in the form of lower funding costs. CAF income for the quarter was $242 million, up from $51 million a year ago. This significant year-over-year increase comes as a result of a substantial improvement in the required provision for loan losses, stronger net interest margin and higher receivables.

Total interest margin in the quarter increased by $47 million or 24% driven by the growth in originations and lower cost of funds. With respect to our provision for loan losses, in the first quarter, we experienced $7.2 million in net credit loss or 21 basis points of average managed receivables. As a percentage of the portfolio, this is the lowest reported loss we have experienced in over 20 years.

The resulting favorability versus our expectations, coupled with the corresponding adjustment in our outlook for future losses, resulted in $24 million of income related to the provision in the first quarter. This is compared to a $122 million provision expense in the same period last year. This release of reserves resulted in an ending reserve balance of $380 million for the first quarter or 2.62% of managed receivables, which is a decrease from the 2.97% and at the end of the fourth quarter.

Our reserve as a percentage of managed receivables has continued to trend downward towards more historical levels as our customers remain persistent in their willingness and ability to make their auto payment despite the uncertain environment. We believe this current adjustment effectively captures the positive loss performance we have seen over the past 4 quarters and is appropriate for the current macroeconomic environment.

Finally, as previously mentioned, CAF increased as a percent of Tier 3 volume to 10% by the end of the first quarter. This adjustment had a minimal impact on the reserve within the quarter. But as the higher volume continues to flow into the portfolio over subsequent quarters, we expect income and the provision to increase accordingly.

With regard to where CAF will participate in the credit spectrum in the future, as always, we will continue to evaluate the lending environment and will consider future adjustments if and when we believe those changes are sustainable and in the best interest of our long-term business goals. Now I'll turn the call back over to Bill.

Great. Thank you, Jon and Enrique. As I said at our analyst day in May, we are proud of the work our teams have done to put CarMax in the excellent position we're in today, and we are really excited about the tremendous opportunities ahead of us. Our multiyear investment in omnichannel experience has further enhanced our offering, which is the most customer-centric experience within the used auto industry. We are agnostic about how our customers shop and buy because we are positioned to give every customer a world-class buying experience regardless of how they shop with us. In turn, this gives us access to the largest addressable market within the states.

In the first quarter, approximately 8% of our retail unit sales were online. As a reminder, when a customer completes all 4 of the major transactional activities remotely, so that's: reserving the vehicle; financing the vehicle, if that's needed; trading in or opting out of a trade-in; and creating a sales order, we consider this an online retail sale. Because all our wholesale auctions were made virtual this quarter, 100% of wholesale sales, which represents 18% of total revenue, are considered online transactions. As a result, total revenue coming from online transactions was 24% in the first quarter.

Omni sales represented approximately 56% of retail unit sales, up from 51% last quarter. As a reminder, omni sales are retail sales where customers complete at least one of those major transactional activities remotely. While all of our customers can buy a car online with assistance, we have been focused on providing a 100% self-service experience. Today, 40% of our retail customers can independently complete an online sale, up from 25% at the end of the fourth quarter. We expect to have this capability available to most customers by the end of the second quarter.

We continue to leverage digital innovations to drive growth with our online instant appraisal offerings where customers can receive an online offer on their car in less than 2 minutes and have payment in hand the same day. In the first quarter, we bought approximately 163,000 vehicles through these online offerings, which represents 48% of our total buys from consumers. And since rolling out nationwide at the end of last quarter, we believe we have become the largest online buyer of used autos from the consumers in the U.S. This is a significant competitive advantage that allows us to efficiently source vehicles, especially during periods of high demand, enabling us to remain competitively priced while producing attractive GPUs.

On the retail side, we're making our online experience faster by improving our finance approval and flow process. We're making it easier by enabling customers to request card transfers and then manage and track them all online. And we're empowering our customers by providing them with financing information across our entire inventory as the first step in their shopping journey. This gives our customers greater confidence they can afford the vehicle they select.

As we expand access and further enhance digital aspects of our experience, we need to reinforce awareness of CarMax' new capabilities and their values to customers. Since launching our new brand campaign and Love Your Car Guarantee offerings at the end of last year, we've seen strong growth in the awareness of our omnichannel experience, with both web traffic and Google search volumes continuing to increase.

As digital adoption by consumers and dealers continues to grow, we'll keep building on our investments in omni, our proprietary technology stack and our strong brand reputation to maximize growth in our core businesses. We're also pursuing additional growth opportunities in the broader trillion-dollar-plus used auto ecosystem that leverage our capabilities and strengths in the industry.

As Enrique mentioned, we recently completed the acquisition of Edmunds, one of the most well-established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations. Edmunds brings us closer to a broader set of consumers and brings us closer to dealers. Our teams are super excited and are continuing to collaborate on new products that will support Edmunds dealers, partners and consumers. We see tremendous opportunity and will provide updates as we launch new offerings more broadly.

In summary, this was truly an exceptional quarter, and we are absolutely excited for the future. Our results reflect strong and disciplined execution across our diversified business model and further validate our strategies to enable sustainable growth and meaningful long-term shareholder value creation. We remain focused on enhancing our online capabilities to deliver the most customer-centric offering in the market. We will continue to accelerate our growth and market share gains while also laying the groundwork for future initiatives and growth opportunities. Now we'll be happy to take your questions. Shelby?

(Operator Instructions) Your first question is from Craig Kennison of Baird.

Congratulations on the wholesale momentum. My question goes to the GPU. You mentioned that you pulled back on the GPU experiment in the hot market. Will you go back to experimentation once the market normalizes?

Yes. Great question. So yes, we did suspend it. And if you remember last quarter, in the fourth quarter, I talked about we're going to continue, but we'd be monitoring those macro factors. And as we monitored the macro factors, especially like the inventory constraints and the elasticity, it didn't make sense to continue to do that. As I said in my opening remarks, we will continue to monitor those macro factors, and we're very open to continuing to do some different things with pricing. I would tell you like right now, I probably would say we wouldn't do it, but we'll reserve the right just as the quarter progresses. But either way, we'll be able to provide great GPUs above $2,000.

Your next question is from Sharon Zackfia of William Blair.

Sorry if I missed this, but did you talk about what your customer sourcing ratio was in terms of the retail business for the quarter? And then as you're looking at the online purchases, which obviously have ramped really quickly, how are those -- how is the GPU on the online appraisals kind of comparing to the in-person appraisals? Are you seeing those kind of be relatively similar? Or is there a variance that can narrow over time?

Great question. So when I think about the total buys that we bought from consumers, it's about a 50-50 split between retail and wholesale. And that's both as you think about traditionally customers coming into the store and doing the appraisal, but that also is very similar to the online purchases.

As far as the productivity of the online purchase versus the traditional in-store appraisals, they're both great. They're very similar so -- which, again, is a huge benefit as we think about inventory sourcing and being able to manage GPUs, pricing, that kind of thing.

Your next question is from John Murphy of Bank of America.

Just maybe a follow-up actually on the question of supply, Bill. I mean you bought 341,000 vehicles from consumers in the quarter. I mean that's as much -- I think you had one quarter in history of 345,000 in total vehicles. So I mean you bought almost as many vehicles as you ever peaked out on selling. So I'm just curious, what's going on there on your ability to buy directly from the consumer?

And then also, if you think on the supply side, both from the consumer and then even at auctions, when do you think supply more naturally eases up? I mean there's crazy things going on like Avis and Hertz buying cars in auctions and traditionally, they're sources and sellers, right? So I mean there's some wacky stuff going on in the supply side. I mean how much wood can you chop on buying from consumers? How important is that going to be going forward? And then when does supply, which is totally wacky at the moment, normalize on the flow and supply?

Yes. So John, obviously, the buying directly from consumers has been a big focus. I've talked about us putting investments in that area. And I think what you're seeing is it really coming to fruition. I mean you think about it, more than 340,000 cars that we bought from consumers, it's up 236%. It's up 77% versus FY '20. It's just truly -- it's truly remarkable. A big piece of that, obviously, is just having easier access for consumers with our online offering. But we're also encouraged just by the traditional, with customers coming in the store and doing appraisals that way. So we feel good about both of those.

The supply piece is interesting. There's some abnormal things that you mentioned there. But I'll go back to what I said in the fourth quarter, supply has not been an issue for us. While our saleable inventory is certainly lower than where we want it to be right now, the supply, if you look at total inventory, we're very much in line with where we were in FY '20. It's really more a matter of production. And I think with the online offering, in addition to the traditional appraisal lane, that also just diminishes our need for external supply, going through those other sources.

And more general to your question of how long -- absolutely, there's some supply constraints out there because you've got some different folks doing different things. You also have the demand for maybe some new car customers moving into used cars. I think it will -- time will tell. I think the new car isn't going to work itself out in the next quarter or 2. I think we're probably looking more towards the latter part of the year. So I don't see a lot changing in supply over the next couple of quarters. But again, the supply is not an issue. There's still a lot of cars that are changing hands out there. You may -- if you're buying off-site, you have to work a little bit harder. But we feel great about where we are from a total inventory standpoint.

Yes. And John, what I would say is the 163,000 cars that we bought through our instant online offers really exceeded our expectations. That has been extremely well received by customers. And I think it's a really good example of the investments we've been making in innovation to make sure we're at the forefront of the consumer's mind. And again, that's 163,000 cars through our online offer. And really, we just stood up that product a quarter ago. So we're really, really pleased with that performance.

Can that ever significantly drive the consumer-sourced vehicles way above 50%? I mean is that the direction you're heading? I'm just curious what that target might be.

Yes. Look, we want to drive that target as high as possible. We've historically -- the last several years, we've been in this range of 35% to 45%. We're already above that range for this quarter. We're between 45% and 50% for this quarter. And I think, again, our goal is to drive that as high as possible. And what we're seeing, we're very, very encouraged by that.

Your next question is from Michael Montani of Evercore.

I wanted to ask about any thoughts you all may have on the pricing environment, both in terms of the wholesale side as well as the retail side, and what you might be seeing recently in our discussions with Manheim. It sounds like they might have just seen an inflection point where the pricing is at least starting to moderate. So I'd just love to get some incremental thoughts that you all may have. And then secondly, what does that mean for the business? If we do see some moderation, what does that mean for retail and wholesale?

Yes. Yes, it's a great question. You've been following us long enough to know that this pricing environment has really -- it's really unprecedented. If you think about from January until now, the $5,000 to $6,000 worth of appreciation that we've seen, it's truly remarkable. Our average selling prices were up a couple of thousand dollars. From an acquisition standpoint, they're actually up a little bit more than that, but it was a little bit offset based off of mix and age.

I do think we're reaching an inflection point. If you look at the consumer price index and the difference between new cars and late-model used cars, that gap has definitely narrowed. While new cars are going up, they have not gone up at the pace of used cars. And that's fairly self-correcting. You get to a point where, okay, it's -- late-model used cars is bumping up against the new car. And I think we are getting close to that inflection point. And I think that's great because obviously, when the gap narrows, it's a headwind for used car purchases. When the gap widens, the gap between used and new, that's a great thing for used car sales. So I think that's a positive thing.

Your next question is from Brian Nagel of Oppenheimer.

Nice quarter, congratulations. So my question is very much a follow-up to that prior question, just with regard to pricing, Bill. So we've all talked -- we've all heard and read about this unprecedented, if you will, price environment in used cars. So I guess the question I have, as we look at these results in the various facets across the business, was the pricing environment a tailwind or headwind for CarMax? And then again -- this is again a follow-up. And how should we think about this going forward as we look towards the balance of the year?

Yes. Normally, that pricing environment would be a headwind to just the used car industry in general. I think the difference this quarter was that because there was a lack of new car availability, I think it pushed customers down into the used car market, which helped to raise the price of used cars. So it's really -- it's hard to kind of pull that apart. It's -- there's a lot of different factors going on there because you got not only new customers coming in there. You have the stimulus that's out there that's driving up demand. So I think the normal -- what you would normally see from really high price increases on used cars, it's hard -- I don't think it was the same -- it had the same elasticity effect that you would normally see.

Now I think going forward, not having some of that stimulus out there, I think the normal elasticity in pricing, I think, will start to return. And I think back to Michael's point, if we've seen this inflection point starts to go down, I think that's a good thing.

Yes. I think the other thing as well is that the diversity of our business model really allows us to perform in any kind of environment. So while pricing may be a headwind in some sense, it's a tailwind to other parts of our business. And you see that in our results, and you see that kind of from quarter-to-quarter in our results, just that diversity that is unparalleled in the industry.

Yes. And I think the other thing at play here is, look, we've been doing this long enough that whether you see rapid appreciation or rapid depreciation, I think the way that we manage our inventory, how we buy the data that we leverage and the technology that we leverage, I think it's certainly a competitive advantage.

Your next question is from Rick Nelson of Stephens.

So we saw the reserve reversal this quarter. Allowance now sits at 2.62% of receivables. Historically, I believe that number has been more in the 2% to 2.5% range for Tier 1. I guess how should we think about that allowance account and potential for more reserve reversals?

Yes. Appreciate the question, Rick. Yes, right on the mark, 2.62% is our reserve as a percentage of receivables right now. And yes, correct, historically, we have stated that 2% to 2.5% is our targeted range for our Tier 1 portfolio. Now bear in mind that 2.62% incorporates both Tier 1 and Tier 3 included in there. So if you were to back that out, you can see that we really are in the operating range that we've previously stated. And we've trended downward nicely since that. I think it's a pretty substantial move we've made since the end of Q4 to now. And obviously, that's a reflection of the great performance that we saw in the quarter. So going forward, we think 2.62% is a really solid number for us across both the Tier 1 and Tier 3 portfolio, and we'll see how the customer performs in the future.

Your next question is from John Healy of Northcoast.

I wanted to ask a little bit about the SG&A levels. I know you've talked about variety of investments. And clearly, those are paying off right now. But I wanted to get your view on kind of these traditional ad campaigns that you've launched. I know you've done the things with the NBA and some new television and, I think, radio ads. How do you feel about that spend? Is it still as effective as it once was? Are you happy with it right now? And do you see that continuing to be a big part of the SG&A as we go into next year? Or maybe should we expect some recalibration on that front?

Yes, John. So let me talk first just about the productivity of the ad spend. First of all, we're thrilled with it. If you look at the advertising spend for the quarter, it's actually below the guidance we've kind of given for this year. And I would just think about that as that's just a timing. We're committed to continuing to advertise in a thoughtful ROI way.

I would tell you, looking at what we've been doing, we had a record hit. Our average number of hits to our website for this quarter was 34.5 million, which is up significantly from any prior record. We're seeing web visits up roughly 60% year-over-year, 40% if you compare back to FY '20. Google searches are up double digits. So we feel very, very good about the new programs that we're doing and how we're really kind of going out there and spreading the omnichannel experience to consumers.

But I'll tell you, this isn't -- it's not a one quarter thing. We need to continue to be at this, and we're committed to continuing to spend. And Enrique, I don't know if you have any other thoughts as it relates to the SG&A.

Yes. Absolutely. If you take a look at advertising, we communicated last quarter and in our analyst day that we intend on spending more. And what we said was we're going to spend this year on a per unit basis, pretty much what we spent in the back half of last year, which was a ramp-up in expense.

And so if you take a look at that and you compare it to 2 years ago, in FY '20, certainly a more normalized year, we're looking at an increase of over 40% on a per unit basis in our advertising costs, which is consistent with what we've communicated. But just to give you some context and perspective on how we think of the importance and more importantly, of the returns that we're getting from our advertising spend.

(Operator Instructions) Your next question is from Rajat Gupta of JPMorgan.

Congrats on the strong trend. I just had a question on -- you mentioned earlier about how the pricing is reaching a level where it's probably starting to maybe impact demand to some extent. Could you give us some color on like how the progression was through the quarter, like this March, April, May, on the pound versus 2019 level. And if you could give us any color on how the first 3 or 4 weeks of June have trended there, that would be helpful.

Yes, Rajat. So we're pleased with the whole entire quarter. I mean when we talk about looking back to FY '20, don't forget the first quarter in FY '20 was a 9.5% comp, and we're comping 16% on top of that. And we saw strong growth in every month of the quarter. And I've talked about it on the last call, how March was a new record month for us. April was also a record month as it relates to April. May was also a record month as it relates to May. So we're very pleased with the strong performance throughout there. And we're very pleased with the performance as we enter into the new quarter.

I'll tell you, I'll be excited to get to the second quarter because if you remember last year, we had a positive comp in the second quarter. And I'm going to knock on wood that we don't have to keep talking back to FY '20 because it's a lot of numbers to remember. But we'll certainly at the end of the second quarter talk more about that quarter, but we feel great how the quarter started.

Your next question is from Scot Ciccarelli of RBC Capital Markets.

Scot Ciccarelli. So given the dynamics that we're seeing in the used vehicle market, obviously, the category is very hot and your more aggressive posture in vehicle purchasing activity, can you shorten your reconditioning process further to improve throughput or maybe add more bay capacity? Because, Bill, when I'm listening to you, it sounds like your own production capabilities may have limited some of your inventory offerings and, thus, your sales performance.

Yes. No, Scot, you're absolutely right. I mean our inventory level right now, if I think -- obviously, we're below target the whole quarter. We're probably 40% lower than where we would like to be. And in a normal environment, if you have that much less inventory, it certainly is a headwind. I think it was a headwind. I don't think it was to the normal elasticity that you would see just given what was going on in the rest of the marketplace.

But it really is about production. And we normally build ahead of time to get ready. We weren't able to do that. Our operations team is doing a phenomenal job. We're adding additional capacity in those existing facilities. So I would expect that to continue to go up.

One of the areas I've talked about from an efficiency standpoint in the past, as we look to take waste out of the system, one of the areas that we've been focused on is our flow production. And we've actually now finished rolling out kind of the next version of that. And we would expect to get more throughput through existing facilities and resources. So we're excited about that, and that will continue to help us. And then, of course, to meet our long-term goals, we'll be adding additional capacity as we go forward.

But yes, I think it's absolutely fair to say that the inventory was a headwind for us. And it's not the supply side, it's more of the production side. And again, I can't give enough shout-outs to our operations team because not only have they been meeting that demand, but they're drilling on it. If you've watched our inventory recently, you've seen that we're starting to ramp it back up.

So how long does it take to recondition, let's call it, an average car today? And where could that potentially go? Like can you knock off a significant amount of time? Or are you kind of -- you're pretty close to where you're optimized.

No. I think we can optimize more and -- to save a traditional car. Remember, it also depends on the mix of vehicles. Your older vehicles take a little bit longer than your newer vehicles. I think we're probably -- if I think about the whole -- what you're really asking about is cycle time. Cycle time, and keep in mind, that's the time that the car is ready to be worked on. You got to wait for parts and all that kind of stuff. You think about that cycle time, it's probably -- it's somewhere in between the 5 and 10 days, and that depends on the vehicle.

Now certainly, some vehicles take a lot less than that. And we have obviously phases in our production that are -- we measure by minutes. But I do think this is an area of opportunity. I think this is one that we're already -- with our new flow production system, I think we're already starting to realize more throughput, which is great.

Your next question is from Chris Bottiglieri of Exane BNP Paribas.

Strong quarter. I had a quick question on the GPU. So it sounds like you pulled back on the price investments. The customer sourcing mix is as high as I've ever seen it. It sounds like used pricing was a tailwind to GPUs. I don't know if that's true or not, if you can confirm that. But were there any offsets? Like is it just costing work to recondition cars in this environment? Or like anything that would mitigate some of these tailwinds on GPU that you could speak to?

Well, first of all, for us, the used car pricing isn't necessarily a tailwind to GPU. We don't manage our margin according to how expensive a vehicle is. We have a lot of other factors. So that's not necessarily a tailwind for us like it might be some of the other folks.

I think as we look forward, having -- driving a higher self-sufficiency is certainly going to be a tailwind for us. And I've always said that we've -- our prices are very competitive. And I'd tell you, I think our prices are as competitive as ever right now.

So I feel great about the direction we're going. I feel great about our prices. I feel great about the flexibility that we have to not only provide world-class GPU per car -- per retail car, but also be able to do it in a way that our prices are very, very competitive.

(Operator Instructions) Your next question is from Seth Basham of Wedbush.

My question is on the mix of sales that were purchased online, 8% this quarter versus 5% last quarter. Is that solely due to the increased eligibility of customers being able to buy entirely online? Or are there other factors? And as you get to 100% rollout of eligibility, would you expect that metric to move up closer to 20%?

Yes. So the 5% to 8% was driven by geographic expansion and some additional capabilities. I would expect that number to continue to go up. As I said, we made some good progress. And actually, I'm sorry, you're asking about the total online, not just the self-serve. So self-serve -- I mean, online went from 25% to 40%. And I would expect that number to continue to go up as we add additional capabilities as we go forward.

And the areas that we're focused on, I think primarily, what's going to continue to drive the adoption will be, again, adding some of the self-service features. And so when I think about that, the areas we're focused on is to make it a little bit more simple and seamless on transfers as well as trade-ins.

And we certainly expect that percent of sales and percent of revenues from online to go up. But at the same time, the beauty of our business model is that it's really up to the consumer and of omni, right? So to the degree the consumer wants to buy online, they can do that to -- and more and more so. To the degree they want to come into the store and shop that way, they can do that as well. But we expect the numbers to go up. But again, it's really going to be driven by the consumers and how they want to interact with us, whether it's in-store or online.

Got it. And the all-in gross profit per unit -- per vehicle purchased entirely online versus through the stores, how is that comparing these days?

They're about similar. They're about similar.

Yes.

Your final question is from David Whiston of Morningstar.

I wanted to go back to the Edmunds acquisition because honestly, I'm still not totally clear on the rationale for it. I get there's vertical integration benefits, I think, procuring and retailing. But at the same time, there are CarMax competitors that are paying them for their lead generation. So how are you ensuring that they still get a fair shake because otherwise, they're not going to want to do business with Edmunds if CarMax is getting all the preferences. Can you just connect some dots for me?

Yes. So again, we're thrilled to complete the acquisition as are the teams on both sides. As a reminder, they are that premium brand for automotive research. We're going to continue to operate them as a separate brand and a separate company. And we're excited to work with them to continue to drive more of the services for their consumers and their dealers and their OEM partners. We're going to invest in their brand.

But we're also excited about the teams continuing to collaborate and progress on programs that help both companies. And a great example of that is the instant offers. We developed that with them, initially rolled it out on Edmunds, and then we have it on carmax.com. And we think there's a lot of opportunity there still, and we think there's a lot of opportunity on content.

So I think it's very important that we keep the company separate and we keep making sure that they're continuing to add value to their individual customers. And I think we can do both. And then as we continue to develop things jointly together that benefit both companies, we'll continue to highlight those in the future.

Okay. And can you disclose what the equity investment was that you had the gain on?

No. We don't really talk about it. We have -- as I mentioned, we have a portfolio of relatively modest investments across the used auto ecosystem, primarily strategic, to make sure that we understand and we know what's going on in that space. And so we just had an outsized gain this quarter on one of those investments, but we don't really disclose which companies we're investing in.

And there are no other questions in queue. I'd like to turn the call back to Bill for any closing remarks.

Great. Thank you, Shelby. Well, hopefully, you guys can tell from our comments that we're extremely pleased with the first quarter results and that we are very excited about the future. And it's not just about the opportunities that come with having this largest total addressable market in the used auto retail, but it's also the opportunities that exist in our other core businesses. So if you think wholesale, if you think CAF, and then even going beyond that into this larger auto ecosystem. And all of it is supported by the tremendous transformation, whether it's our omnichannel experiences, whether it's our proprietary tech stack, it's data or some of the other offerings that we highlighted on today's call.

I want to thank you for your questions today. I want to thank you for your continued support. And as always, I want to thank our associates for their continued dedication of living our values, taking care of each other, taking care of our customers and communities. They are truly the success of CarMax. So we look forward to talking again next quarter. Thank you for your time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.