Carmax (KMX) Q2 2027 earnings call transcript

Good morning. Thank you for joining our fiscal 2027 Second Quarter Earnings Conference Call. I'm here today with Keith Barr, President and CEO, Enrique Mayor Mora, Executive Vice President and CFO. And John Daniels, Executive Vice President, Carmex Auto Finance. Let me remind you, our statements today that are not statements of historical fact, including, but not limited to, statements regarding the company's future business plans, prospects, and financial performance, are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are based on our current knowledge, expectations, and assumptions, and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations.

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

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

Our commentary today may include non-GAP financial measures, reconciliations of these measures to the comparable GAP measures are available in the Investor presentation.

Should you have any follow-up questions after the call, please feel free to contact our Investor Relations Department at 804-747-0422, extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups, Keith.

Thank you, David. Good morning, everyone, and thanks for joining us. As I reflect on my first six months at Karmats, out of the progress we have made in strengthening the business. Last quarter, I introduced our strategy for growth, built around four pillars to place the customer at the center of everything we do, and that are designed to meaningfully improve how we operate at scale and support consistently strong performance. Our strong second quarter results reflect solid execution and the initial benefits we are seeing as we deliver on the strategy.

Used unit comps grew 13%, driven largely through price competitiveness, with total units across used and wholesale growing 15%. Earnings per share grew 81% year over year to $1.16. Supported by robust comp growth, other growth profit expansion through the performance of our extended protection plan products, an increase in cap contribution, and continued SG&A leverage.

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

Our improving performance has been driven by the speed and focus our team to put into delivering our strategy. We have named our strategy for growth, shifted to gear, and have rolled it out across our corporate offices and entire field organization.

Our associates are highly engaged with the steps. We are taken to strengthen our co-operations, which are designed to deliver robust financial results over the years to come.

We have a lot to be proud of. And I want to highlight a few examples of the progress we made across each of our four pillars, this course.

While we speak to the pillars individually, like many aspects of our business, they are interconnected and many overlapping benefits exist. As a reminder, shifted to gear starts with a great offering. We will give customers every reason to choose car max by offering a great car at the right price.

During the second quarter, we further strengthened our price competitiveness to support retail sales growth. We did this by continuing to drive efficiencies and reconditioning, dynamically managing GPUs, and then passing savings onto customers.

In addition, we continue to improve our pricing algorithms to ensure we remain more competitive across demand cycles. We did this by incorporating local marketing sites more granularly, and by expanding comparison points across a broader set of vehicles.

These enhancements resulted in sharper pricing that resonated well with our customers and supported our sales. Our second pillar is easy experience. It will make it easy to do business with us, both online and in our stores. This quarter, we enhanced the customer experience to better support from digital to in-person. We scaled AI voice technology to 100% about inbound store and customer experience center calls, which enables customers to quickly resolve their increase through our authentic AI tools or directly connect the right associated for help.

Additionally, we improved our digital experience by redesigning our car detail page to make it easier for customers to find and buy the right car for them.

Recent updates include providing greater visibility into our inventory selection, incorporating personalized monthly payments and communicating next steps in the purchase process more clearly.

The enhancements we made this quarter supported sales conversion and we anticipate further gains over time. Our third pillar is add value. This pillar focused on growing profitability by maximizing value across all aspects of our business. This will be done by connecting customers with valuable offerings and by capturing a larger portion.

During the second quarter, we grew our extended protection plan unit margins materially year over year as we continued to launch our redesigned offer.

Additionally, we increased our tier two penetration and recorded a gain on the residual sale related to our 26B non-prime scalar.

We will unlock efficiencies to enable a great offering, meaningfully improve how we operate at scale and support strong returns for our share.

In the second quarter, as I noted earlier, we continued taking costs out of our reconditioning operations and maintained our approach of passing savings onto customers through more competitive pricing to drive sales. Also, from an SG&A perspective, we took additional steps this quarter to solidify achieving our commitment of $200 million in fiscal year 27 exit rate savings.

To support and advance shift into gear, we are strengthening our leadership team. Today, I am pleased to announce two key appointments that will help us build on the momentum we are seeing as we begin to deliver on our strategic plan.

First, effective October 5th, Elizabeth Durbins will join CARMAC's executive vice president, Chief Digital and Customer Officer. In this newly created role, Elizabeth will own and unify the end-to-end customer experience from customer acquisition through vehicle transaction.

In this capacity, she will oversee our marketing, product, and admin team. With more than two decades of digital product and customer experience leadership, Elizabeth comes to us from Volkswagen Financial Services, where she served as Chief Digital Officer for the North American region.

Second, Jeff Campbell, who has been with CARMAC's for over a decade, joined our senior leadership team in August as senior vice president strategy.

Jeff is leading a newly centralized function designed to accelerate key decisions by bringing together all of our strategy, data science, AI, and pricing teams.

Jeff has had leadership roles at CARMAC's spanning product, strategy, and transformation. Elizabeth and Jeff both bring skills, experience, and focus we need as we build a faster, more connected company that puts the customer at the center of everything we do. Both positions deliver a great car at the right online and insert experience that are all the steps we have been taking are in service of that promise. I'm excited to throw the road ahead for our strong unit and earnings growth that enables us to contain our second quarter performance, continued momentum, and improving leverage.

We intend to resume, share, repurchase.

Good morning, everyone. We are encouraged by the recent growth across the business as our shift into gear strategy is yielding strong financial results highlighted by the continued improvements in our year over year sales and earnings trends.

During the second quarter, we delivered total sales of $7.9 billion up 19% compared to last year. Across our retail and wholesale channels, we sold approximately 388,000 vehicles, up 15% versus the second quarter last year. In our retail business, use unicomps increased 13% in total use unit sales grew by 14%. Sales performance this quarter was primarily supported by more competitive pricing.

As Keith discussed, we continue to realize efficiency gains in cost of sales and we dynamically manage GPUs, passing those benefits onto customers.

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

In addition, we benefited from enhanced FTC regulatory focus that has brought greater transparency to advertise vehicle pricing industry-wide by requiring fees to be included.

Given our longstanding commitment to transparent no-haggle pricing, this brings more clarity to the strength of the Carmex consumer offer by enabling customers to make more direct price comparisons and is a tailwind to our business.

Average selling price was $27,623 year over year increase of $1,630 per unit. Wholesale unit sales were up to 16% versus last year's second quarter. Average wholesale selling price increased by $145 per unit to $8,036.

We bought approximately 310,000 vehicles during the quarter, up 6% from last year. We purchased approximately 262,000 vehicles from consumers, relatively flat to last year's second quarter. With the support of our Edmund sales team, we sourced the remaining approximately 48,000 vehicles through dealers, which was up 54% from last year.

Second quarter net earnings per diluted share was $1.16 versus 64 cents last year, an 81% increase, a strong positive change in year over year trend relative to the preceding four quarters.

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

In managing margins more dynamically, we lowered GPUs by less than the full year $200 per retail unit outlook we provided previously. As we balanced demand margins and efficiency gains in our reconditioning processes to support sales, we expect FY27 full year retail margins will be down less than the $200 per unit as compared to FY26.

We'll see a vehicle margin of $138 million was flat to a year ago with higher volume offset by lower gross profit per unit of $858, which was down $135 per unit. Other gross profit was $183 million, an increase of $46 million with 33% from last year's second quarter.

EPP margin dollars were up $27 million driven by growth in both unit volume and unit margins, which are up $46 per unit in the second quarter. We have been encouraged with the impact from our EPP product redesign, focused on providing our customers with more affordable options and from our new wheel tire and dent product offering. We remain on track to drive approximately $35 per unit in incremental EPP margin for the full fiscal year.

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

Carmack's auto finance income of $136 million was up 32% year over year. John will provide detail on CAF in a few moments.

On the SDNA front, expenses for the second quarter were $629 million of 4.6% from the prior year. SDNA leveraged robustly by $157 per total unit or 9% to $1,621.

SDNA dollars for the second quarter versus last year were mainly impacted by the two factors. First, compensation and benefits, excluding share base compensation expense, increased by $11 million. This year over year comparison reflects materially lower corporate incentive compensation in the prior year and strong performance this year.

Excluding this impact, compensation and benefits would have decreased by over $14 million, primarily reflecting lower field and corporate payroll, partially offset by variable costs associated with higher sales.

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

Second, share base compensation increased by $7 million, driven by upward movement and our stock price. Regarding SDNA, we remain on track to deliver on our $200 million in identified savings as an FY27 exit rate target, and we continue to drive toward expense efficiencies. As part of these efforts, we recently took additional actions to further streamline our corporate cost structure, which we expect will result in approximately $6 million in severance expense in the third quarter.

Also worth noting in this quarter's P&L, other income increased by $15 million compared to the same period last year, primarily reflecting unrealized gains on a small number of equity investments.

As we've noted previously, we maintain a modest portfolio of investments across the used auto ecosystem. Separately, we are completing the termination of our legacy pension plan and expect it to be materially complete by the end of the fiscal year. As part of this process, we estimate approximately $50 million in total settlement related, non-cash, non-recurring charges will be recorded in other expense, relatively similar amounts expected to be recognized in the third and fourth quarters of this fiscal year.

Our expectation is that the assets in our pension trust will fully fund the settlement of the pension liabilities. Further, the plant's termination will eliminate potential future corporate funding requirements.

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

As of the end of the quarter, we had $1.31 billion of repurchase authorization remaining. I will now turn the call over to John to provide more detail in CARMEX auto finance and our continuing focus on full credit spectrum expansion. John?

Thanks, Enrique, and good morning, everyone. During the second quarter, CARMEX auto finance originated $2.3 billion, resulting in sales penetration of 40.9% set up three-day payoffs versus 42.6% last year. The weighted average contract rate charged to new customers with 11.8% up 60 basis points from the prior year. Third-party tier two penetration was 15.9% versus 16.5% last year. And third-party tier three was 7.6% versus 7.3% a year ago.

We continue to make meaningful progress spanning across the credit spectrum. During the quarter, CAF was once again the largest tier two lender, but enhancing 22% of tier two volume as compared to 10% a year ago.

The observed credit performance in this space continues to be in line with our original expectations, reinforcing confidence in our decision to expand.

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

CAF income was $136 million. Up 32% from the prior year's second quarter, driven by a $29 million decrease in the loan loss provision to $113 million.

During the second quarter of the prior year, we recorded additional provision due to the worsening performance of older vintages at that time, whereas performance this year has been in line with expectations.

This was partially offset by provisioning related to tier two originations in the quarter from our full credit spectrum expansion.

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

Our total reserve balance at the end of the quarter was $497 million for 3.07% of receivables held for investment.

Net interest margin on the quarter with 6.6% consistent year-over-year. As we reflect on another solid quarter, our multifaceted strategy to enable CAF income growth is hitting the mark. First and foremost, credit losses were within our expectations across both the tier one and tier two portfolios.

Second, the refinement of our non-prime credit underwriting strategy continues to build momentum with origination volume up substantially compared to just a year ago. Third, we continue to benefit from flexibility in how we fund our receivables. Our ability to retain assets on our balance sheet when prioritizing attractive, longer-term economics is now well-complemented by our evolving method of utilizing off-balance sheet transactions for more quickly monetized cash flows and reduced future risk.

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

To provide a few into our near-term performance, we anticipate CAF's FY27 income will be slightly lower than FY26, all while planning to originate nearly $1 billion in tier two by year end. It is this disciplined scaling in tier two, along with an appropriately sized loss reserve that should lead to significant CAF income growth over time. We plan to share more details during our upcoming strategic update.

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

Thank you, Joan. Before we open the line for questions, let me leave you with a few final thoughts. We are encouraged by our performance this quarter and the progress we are making across the business. While we're so early in our journey, the results we are seeing reinforce our confidence and our strategy and the opportunity ahead.

Shifting the gear is focused on strengthening our core business and getting Carmack's back staying growth. We are steadfast in our focus on delivering the right cars at the right price, making it easier for our customers to do business with us, capturing more value from each transaction and operating more efficiently at scale.

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

We have a solid foundation, an exceptional team, and we are adding leadership in key areas to accelerate our progress.

I am confident in our ability to build on this early momentum, continue to improve our business and create long-term value for our shareholders.

None of this happens without our associates, and I'll ask them again for their hard work and embracing our new strategy.

I look forward to sharing more about our strategy, including key initiatives and milestones during our upcoming strategic update, which will take place virtually on November the 3rd. Thank you for your continued interest and comments.

We are ready to take questions.

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

Hey, good morning, Daniella. Yeah, we've been really pleased that we've been able to come in better than our previous outlook on GPU, certainly expecting the year to be. And we've done that while maintaining strong sales as we've effectively balanced demand marketplace for margins as three of those things come in better. If you specifically around cost efficiencies that we're seeing in the business, the teams have done tremendous work around ruling out different tools.

For our operators, we have a new part selection tool that's benefiting the organization. We switch as we've talked about before from a 90 day warranty to a 30 day warranty for our customers and actually given that back in terms of lower pricing for our customers as well, and that supported our sales. But overall, really pleased that the demand we're seeing in the marketplace and our ability to get in coming better in our journey.

Yeah, the FTC impact definitely is a tailwind. You know, when we take a look overall at like our comp performance right on the quarter, I would say it's evenly mixed between items we control directly. So cost efficiencies, the GPU decrease, pricing algorithm improvements, customers are very simple items that we control directly. We think it's about half of the comp performance. While the other half is really coming from what we think is the FTC enforcement benefits that we're seeing.

And just to build on that a little bit, I mean, I think there's, you know, two aspects is Enrique said, having a really clear strategy that focuses on the core of this business is gonna drive performance. And also really the strength of the Carmax brand transparency, which have been known for disproportionately benefits us now, going forward. So that FTC is focused on compliance to their guidelines.

We've always had more transparency and it's helping us with price competitiveness too. So it's execution of strategy and also the strength of the Carmax customer value proposition.

Sure. Yeah. I mean, we'll talk a little bit about AI. Again, we have an AI center of excellence here at Carmax, which basically makes sure we responsible use AI and look at all the different use cases here we implement. And so things like our Agentic Boys Call Center now handling 100% of stores and our customer experience center calls and helping to do that. Your question is related to search. And I think that AI is gonna be actually a real benefit to the consumer to be able to go out there and really understand different vehicles and how those vehicles meet their needs. In terms of actually getting them to transactions, I think that we're really difficult for the use car entry to be negatively impacted by it because every vehicle is an individual SKU.

You can see how Agentic AI e-commerce will impact more CPG faster. We think it's a real benefit to our business here to drive us to become more efficient and deliver better customer experiences.

Yes, thanks Rajat. I'll talk about the consumer. I mean, you know, affordability is on everyone's mind. It seems like every single discussion's around that. And I think it speaks to the strength of the car max France collectively in our focus on having incredibly competitive pricing. And the other word I would say about the consumer is resilient at the end of the day. Across all the different spectrums of the lower end consumer to the higher end consumer. We're definitely seeing resiliency there.

I mean, the broader industry is down 1% or flat to 1%, and we posted comms to 13%. So I think, you know, having great cars, great vehicles at great pricing and making it easy to work with will drive continued growth and performance in the business.

In terms of an outlook at the back after the year, look, you know, we captured it in our prepared remarks. As you can see it in our bullishness around the business, we're turning our share, we can go back on and we're seeing continued momentum into the business. So we're really pleased in terms of where we are and kind of what we're seeing in front of us.

Yeah, absolutely. I mean, again, if you think about our strategy, shifting the gear and running lean being that pillar and that running lean makes it so important we can have a great offering. And we've committed to saying we want to self-fund our price competitive from moving forward. So continue to find efficiencies in the business so that we can deliver great vehicles at exceptional prices, but not having the lower GPU move forward. So that's the focus of the business and I'm really confident in the team.

Yeah, and I would say certainly for FY28, that is the intent, right? For the self-fund, any kind of GPU investments and I think for this year, you know, for the guidance we've given here, the outlook, we do expect to be lower, less than $200 over a year in a reduction in GPU. You know, I would expect some decrease in the third quarter and in the fourth quarter, we'll be copying over a record 25 in terms of, you know, we are making some flexibility in the business business more dynamically and that includes some flexibility. So I would expect GPUs for this year.

Yeah, you know, we grew up in the EPP and the incremental margin we're seeing from product redesigns from our new product, wheel, tire and dent, all of that is in line with our expectations. And I would say our full year guidance of $35 and incremental EPP for the full year is pretty much in line. I would tell you with where we ended this quarter being at $46 a unit, recognizing that in the first quarter, we're still rolling out nationally. We had a lot less than that. So I would tell you it's very much in line with what we had expected and what we expect to be put here.

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

Yeah, no, thanks, Jeff. And, you know, everything about shifting to gears about making sure we have sustainable growth. And that's the complete focus of the team here right now is making sure that, again, we have the right level of saleable inventory. We can maintain competitive pricing. We can price dynamically depending on where demand is and by segments.

And we're continuing to evolve our pricing algorithms every single month, sharpening up, pulling in external data to make sure we have those local market pricing points too. So, you know, we have a lot of confidence that this should be a growth business. And we should show positive comps and help before the industry moving forward.

Thanks for taking my question, Keith. I'm wondering, could you provide examples of how you are taking friction out of the digital journey in order to impact conversion? Yeah, absolutely. Part of it is just really understanding what customers are looking for and making sure we're providing that information in the most easy way possible. And so, a couple examples we've used was like, car details page, sharpening up what consumers are doing in terms of search and making sure we're putting those pieces of information front and center, putting forward monthly payments, taking steps out of the purchase process and simplifying it. I think I mentioned previously we had our EPP. We had a super complex matrix. And now the way that we're serving it up to customers is really self-driven by them, putting in a bit of information and serving up the exact right offerings to them too.

So, it's really understanding everything from search all the way through transaction and then how we communicate with customers, just making it easier to do business with us. We're still early days. I'm part of the journey. There's things that we can continue to sharpen up. And I'm really excited about having Elizabeth Durgins join us as our new Chief Digital and Customer Officer. She's got 20 plus years in product, in financial services and in automotive. And so, she's the perfect person to join our team here and really own the customer journey we're looking forward.

Hello, I think we, as we've talked about, we recognize that in November's strategic update, we're looking through each one of the pillars of the strategy and understanding really the run lean piece and the great offering piece, how interconnected those are and talk about the initiatives we have that would deliver the self-funding, which would deliver the price competitiveness and protect GPU moving forward.

Yeah, so that is the definite area of focus. Things like that. How does impacts the consumer? So understanding if we handle holds, slowing down our inventory, we transfer over 2 million plus 2.5 million vehicles a year. How do we make those transfers more productive? And have fewer. So it's really understanding, again, how does it transfers impact sales but also impact inventory productivity?

And we get a lot of work underway there right now as part of our strategy.

I mean, I'll talk about consumers because we look at our consumers by different cohorts effectively on income levels. And again, resiliency is the word I would use. Even at our lowest income cohort, we basically had the same number of customers year over year. And as you move up the income cohorts, we had those growing year over year too, which is how our inventory developed during the year as well too. So we sold more newer vehicles, higher price vehicles in this quarter because of the strength of that cohort.

Again, that was just for this quarter and that could change in future quarters. And we can manage our inventory dynamically based upon where we're seeing demand come from too. So again, across all the different spectrums, we saw basically either the same number of customers or a growing number of customers in a tougher macro environment. And again, I think our price transparency and our price competitiveness is a real, real strength of car max.

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

So you broke up a little bit. Is you asked what's driving them?

Yeah, so consistent strategy this year, right? Which we've communicated in support of sales. We are lowering our GPUs for the year, right? In support of sales performance, we're driving efficiencies in the business. And as we talked about, we also have a tailwind from FTT. You mix all those things together, I believe, very effectively by its very consistent with what we've said. I think the benefit that we haven't had to lower our margins for because of that mix of benefits.

Yeah, absolutely. So we've been really pleased. Salesforce out there, continued testament to the fact that we have out there. We'll say in terms of profitability, the most profitable buy that we'll have is direct.

In between there, I tell you kind of midway between buying car from car. So definitely accretive.

As we've talked about this quarter, we've, you know, the teams have done a great job in driving efficiencies. How'd that impact that if a lot?

I would say that opportunities being up are engaged customers being up in our conversion of those things. So what we're seeing is better quality, if you will, web traffic down, but overall.

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

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

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

And so you probably think about it ramped up into May. So that's probably going to sometime. And I think the FDC sent out like 97 letters to different companies. And back in March telling that we're going to, again, these aren't new guidelines. These guidelines have existed. This was basically saying they were going to enforce and so majority of the industry is headed in that direction, again, which is just a tailwind for Carmax. Because we've already spent more transparent.

And just to follow up on that, what impact do you think that has on pricing longer term as dealers moved to include the doxies into a sort of all and more transparent price? What impact do you think that has on stock?

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

I mean, again, we don't really talk about it in that level of detail. I mean, what you think about is our research is that 90 plus percent of customers start their search for a vehicle online. I'd have to believe it's probably almost 100% in reality.

And again, they're going to search at multiple sites. They're going to come to Carmax. com. And they're going to look at third party sites. They're going to really understand kind of what vehicles are out there. And then, again, our marketing team does an exceptional job through SEO and GEO to be able to attract the right customers to our site and then convert them through the final tune. So again, it's making sure that you are priced competitively and that you're showing up at all the right channels. And that's how you maximize, again, customer acquisition to customer conversion.

Sure, yeah, I'll kind of initially answer that question. You know, when I think about it from the credit lens, you know, I think the consumer, you're certainly going to have, it'll be bifurcated, the higher end prime consumer, right? They have options. They're going to go to cash. They, you know, credit unions just have obviously an advantage there where they can keep rates low.

So, you know, for car max in particular cash, you know, you're going to see probably some leakage from using the internal financing to those channels. Now, you know, cash in particular, we have options there, right? We can choose, and that's the benefit of a captive. We can choose at any given point to keep the rate low or raise the rate as, again, to protect our finance margin.

So, happens this quarter, we chose to raise rates. And, yeah, we saw great comps that were coming in place. So, that's an option we have at any given quarter. But I think overall, in the prime consumer, they're just going to switch to a different financing mechanism. As you get further down the credit spectrum, that's where, can that payment of all be 12, 15 bucks? That might mean a lot. You know, terms are already extended. Can they find a way to fit that into their budget? There can be a challenge there. Our goal here is to make sure that we have a great competitive front-lock price, provide great credit offerings, and make it as affordable for them as possible, even in the face of macroeconomic changes.

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