CarMax Inc

Good day and welcome to the CARMAC second quarter fiscal year 2023 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Lowenstein. Please go ahead.

Thank you, Samara. Good morning. And thank you, everyone, for joining our fiscal 2023 second quarter earnings conference call. I'm here today with Bill Nash, our president and CEO of Enrique Mayor Moore, our Executive Vice President and CFO, and John Daniels, our Senior Vice President, CarMax Auto Finance Operations. Let me remind you, our statements today that are not statements of historical fact, including 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 that could affect these expectations, please see our Form 8-K filed with the SEC this morning and our annual report on Form 10-K for the fiscal year ended February 28, 2022, previously 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 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, David. Good morning, everyone, and thanks for joining us. Before I get started, I want to share that my thoughts are with our associates, their families, and communities that are being impacted by Hurricane Ian. We have a significant number of stores in the storm's path, And as always, the safety of our associates is our top priority. We've taken steps to support our associates and our communities, and we will continue to monitor the situation and take actions to provide assistance as needed. Now to our results. This quarter reflects widespread pressure the used car industry is facing. Macro factors including vehicle affordability that stem from persistent and broad inflation, climbing interest rates, and low consumer confidence all led to a market-wide decline in used auto sales. In addition, wholesale values were affected by steep depreciation in the quarter. Despite the impact of these factors on our results, we continued to grow market share. We also continue to make progress on the key initiatives that will further strengthen our competitive differentiation over time. We have weathered a number of difficult cycles in our history, and each time we have successfully managed through them and have leveraged key learnings to further strengthen our operating model. We remain on track to achieve our long-term strategy and goals. For the second quarter of FY23, our diversified business model delivered total sales of $8.1 billion, up 2% compared with last year's second quarter, driven by growth in average selling prices partially offset by lower retail and wholesale volume. In our retail business, total unit sales in the second quarter declined 6.4% and eugenic comps were down 8.3% versus the second quarter last year. Our performance was impacted by the macro factors that I mentioned previously. We believe industry sales were also impacted by a shift in consumer spending prioritization from large purchases to smaller discretionary items. In response to the current environment and consumer demand, we have continued to offer a higher mix of lower priced vehicles. We began the second quarter with a low single digit decline in comp sales during the June that reflected a continuation of softer, although improving sales, which we discussed on our last earnings call. Comps then fell sharply at the beginning of July with August ending in mid-teen decline. Last quarter, we reported market share data. We will do that again this quarter as the data provides additional context and highlights our performance relative to the industry. Based on external data, we continued to gain share through July, the latest period for which title data is available. We reported second quarter retail gross profit per use unit of $22.82, up $97 per unit versus the prior year period, a reflection of our ability to manage use margin in any environment. We continue to focus on striking the right balance between covering cost increases, managing margin, and passing along efficiencies to consumers to support vehicle affordability. Wholesale unit sales were down 15.1% versus the second quarter last year, partially as a result of our deliberate decision to reallocate some older vehicles from wholesale to retail to meet consumer demand for lower priced vehicles. We estimate that without this shift, our wholesale units would have been down less than 10%. Performance was also impacted by depreciation of about $2,500, and as we intentionally slowed buys in reaction to rapidly changing market conditions. Wholesale gross profit per unit was $881, down from $1,005 a year ago, and reflected softening market conditions as well as our decision to retail a higher mix of older used vehicles. Our ability to source these vehicles from consumers is a competitive advantage. But relative to younger vehicles, more of them fall out during the reconditioning process as they are not able to meet our standards for consumer sales. When that happens, we wholesale those vehicles, often at lower than normal margins. In the third quarter, we have been focused on aligning our offers to current conditions and adjusting inventory to more efficiently incorporate older vehicles. Buying vehicles at appropriate prices for market conditions is one of our core competencies. We bought approximately 343,000 vehicles from consumers and dealers during the second quarter. While down 8% versus last year's period, this was up approximately 50% from the second quarter of FY21 and reflects customers' responsiveness to both our nationwide online instant offer tool and our offers. We purchased approximately 323,000 cars from consumers in the quarter, down 11% versus last year's record results. We also sourced approximately 20,000 vehicles through MaxOffer, our digital appraisal product for dealers. This was up 130% versus last year's period and up 18% compared to this year's first quarter. Our self-sufficiency remained above 70% during the quarter. We remain focused on providing the most customer-centric experience in the industry with a leading e-commerce platform that integrates buying and selling cars with our best-in-class store experience. In regard to our second quarter online metrics, approximately 11% of retail unit sales were online, up from 9% in the prior year's quarter. Approximately 53% of retail unit sales were omni sales this quarter, down slightly from 55% in the prior year's quarter. Our wholesale auctions remain virtual, so 100% of wholesale sales, which represents 21% of total revenue, are considered online transactions. Total revenue resulting from online transactions was approximately 30%. This is up from 28% in last year's second quarter. CarMax Auto Financer CAF delivered income of 183 million down from 200 million during the same period last year. As a reminder, last year's quarter benefited from a reduced provision coming out of the pandemic. We will continue to provide strong credit offers to our customers as we move rates with the market. John will provide more detail on customer financing, the loan loss provision, and cap contributions in a few minutes. At this point, I'd like to turn the call over to Enrique, who will provide more information on our second quarter financial performance, as well as the steps we are taking to further align our expenses to the current sales environment. Enrique?