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spk13: Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter fiscal year 2023 CarMax earnings release conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein. AVP Investor Relations. Please go ahead.
spk12: Thank you, Corliss. Good morning. Thank you for joining our fiscal 2023 fourth quarter earnings conference call. I'm here today with Bill Nash, our president and CEO, 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 that 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 804-747-0422, extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups.
spk03: Bill?
spk12: Great.
spk03: Thank you, David. Good morning, everyone, and thanks for joining us. The current challenges in the used auto industry are well documented, with affordability pressured by broad inflation, climbing interest rates, tightening lending standards, and prolonged low consumer confidence. We are continuing to leverage our strongest assets, our associates, our experience, and our culture to build momentum and manage through this cycle. While there are many macro factors that we cannot control, we have taken deliberate steps to support our business, both the near term and the long run. This quarter, we reduced SG&A further. We delivered strong retail GPU through our vehicle acquisition, reconditioning, and margin management strategies while continuing to test price elasticity. We adjusted offers to deliver strong wholesale GPU while increasing unit sales quarter over quarter. We aligned used saleable inventory units with market conditions while driving down total inventory dollars more than 25% year over year. And finally, we raised CAP's consumer rates to help offset rising cost of funds while still growing caps penetration. We are prioritizing initiatives that drive efficiency and improve experiences for our associates and customers. We believe these steps will enable us to come out of this cycle leaner and more effective while also positioning us for future growth. Reflecting on fiscal 23, we achieved a number of key milestones in each area of our diversified business model. We enabled online self-progression for all of our retail customers, enhanced our wholesale shopping experience, and completed the nationwide rollout of our finance-based shopping pre-qualification product. All of these accomplishments further positioned our business for growth as the most customer-centric experience in the industry. I'll talk more about these later in the call. And now into our results for the fourth quarter of FY23. Our diversified business model delivered total sales of $5.7 billion, down 26% compared to last year, driven by lower retail and wholesale volume and prices. In our retail business, total unit sales declined 12.6% and used unit comps were down 14.1%. Average selling prices declined approximately $2,700 per unit or 9% year over year. In addition to the macro factors I mentioned previously, we believed our performance continued to be impacted by transitory competitive responses to the current environment. Our market share data indicates that our nationwide share of zero to 10 year old vehicles remained at 4% for calendar year 2022. External title data shows that the market share gains we achieved during the first half of the year were offset by share losses during the second half of the year as we prioritized profitability over near-term market share. For context, we have lost some market share during prior down cycles. In those cases, we recovered the market share and then continued to grow it to new heights as economic conditions improved. We remain focused on achieving profitable market share gains that can be sustained for the long term and plan to continue running extensive price elasticity tests. The results from our most recent test confirmed that holding margins during the quarter was the right profitability play. Despite the decrease in average selling price, fourth quarter retail gross profit per used unit was $22.77, up $82 per unit year over year, demonstrating our ability to appropriately value vehicles and effectively manage margin inventory. Wholesale unit sales were down 19.3% versus the fourth quarter last year, but improved from the 36.7% decline during this year's third quarter, as our total buys from consumers and dealers improved sequentially. Wholesale average selling price declined approximately $3,200 per unit, or 28% year-over-year, though we saw some appreciation beginning in January. Wholesale gross profit per unit was $1,187, which is consistent with last year's fourth quarter, Margin benefited from the recent price appreciation I just mentioned and from strong dealer demand, particularly at the end of the quarter. We bought approximately 262,000 vehicles from consumers and dealers during the quarter, down 22% from last year's record, but a sequential improvement from the 40% decline during this year's third quarter. Our self-sufficiency remained above 70% during the quarter. We purchased approximately 247,000 cars from consumers in the quarter, with a little more than half of those buyers coming through our online instant appraisal experience. We sourced approximately 15,000 vehicles through dealers, up 4% from last year. In regard to our fourth quarter online metrics, approximately 14% of retail unit sales were online, up from 11% in the prior year. Approximately 52% of retail unit sales were omni sales this quarter, down from 55% in the prior year. Nearly all of our fourth quarter wholesale auctions in sales, which represents 18% of total revenue, remain virtual and are considered online transactions. We began a small wholesale auction simulcast test during the quarter to gauge dealer interest in resuming in-person attendance and will continue to test options for live attendance during FY24. Total revenue resulting from online transactions was approximately 30%, down slightly from last year. CarMax Auto Finance, or CAF, delivered income of $124 million, down from $194 million during the same period last year. John will provide more detail on customer financing, the loan loss provision, and CAF contribution in a few moments. At this point, I'd like to turn the call over to Enrique, who will provide more information on our fourth quarter financial performance. Enrique?
spk19: Thanks, Bill, and good morning, everyone. Our continued focus on managing what is in our control drove a sequential improvement from the third quarter across key financial metrics, including EPS, gross profit, and SG&A. Fourth quarter net earnings per diluted share was 44 cents, down from 98 cents a year ago. Total gross profit was $611 million, down 14% from last year's fourth quarter. Used retail margin of $387 million and wholesale vehicle margin of $143 million declined 9% and 20% respectively. The year-over-year decreases were driven by lower volume across used and wholesale. This was partially offset by strong margin per unit performance. Used unit margins increased from last year's fourth quarter and wholesale margins per unit were flat year-over-year. Other gross profit was $81 million, down 24% from last year's fourth quarter. This decrease was driven primarily by a decline in extended protection plan, or EPP, revenues. In addition to the impact of lower retail unit sales, profit sharing revenues from our partners decreased from $33 million in last year's fourth quarter to $16 million in this year's quarter. This was partially offset by stronger margins and a favorable year-over-year return reserve adjustment. Penetration was flat year-over-year at approximately 60%. Third-party finance fees were relatively flat over last year's fourth quarter, with lower volume in fee-generating Tier 2 offset by lower Tier 3 volume for which we pay a fee. Service was also relatively flat over last year's fourth quarter. reflecting sequential improvement in year-over-year performance. We have maintained our technician staffing levels and have put in place key efficiency and cost coverage goals for our teams. This supports our expectation of improved performance in FY24 compared to the full FY23 year. The extent of this improvement will also be governed by sales performance given the leveraged, deleveraged nature of service. On the SG&A front, expenses for the fourth quarter were $573 million, down 8% from the prior year's quarter and down 3% sequentially from this year's third quarter. SG&A as a percent of gross profit was higher than the fourth quarter last year due primarily to the 14% decrease in total gross profit dollars compared to last year's quarter. The change in SG&A dollars over last year was mainly due to the following factors. First, we reduced advertising by $34 million. Second, total compensation and benefits decreased $17 million, which included an $18 million increase in share-based compensation. Excluding the latter, compensation and benefits was down $35 million, of which $18 million was due to a lower corporate bonus accrual in the quarter. Third, other overhead increased by $6 million, The year-over-year increase in investments in our technology platforms and strategic growth initiatives was primarily the result of decisions made in prior quarters. This was partially offset by a favorable year-over-year comparison due to costs incurred in last year's fourth quarter associated with a significant ramp in staffing and favorability in a variety of other smaller costs this year. During the quarter, we continue to take steps to better align our expenses to our sales. This included further reducing staffing through attrition in our stores and CDCs, limiting hiring and contractor utilization in our corporate offices, and continuing to align our marketing spend to sales. While our advertising expense on the dollar and per unit basis was lower year over year on the quarter, our investment for the quarter and full year on a per unit basis remains aligned with last year's full year spend levels. For fiscal 24 in total, we anticipate maintaining per unit spend at a similar level to FY23, with per unit spend varying from quarter to quarter. We believe that at this point, we largely have the resources in place to meet our near-term omnichannel and other digital investment needs. Our expectation is that we will bend the expense growth curve on our omnichannel investments and our overall SG&A. In FY24, we expect to require low single-digit gross profit growth to lever SG&A, well below the levels we've guided to during the investment-heavy phases of our omni transformation. As a result, we expect to deliver a stronger flow-through of gross profit growth to profitability. While we expect that the front half of the year will benefit from the cost management actions we took in the back half of FY23, the magnitude of the year-over-year benefit relative to the 8% decrease we experienced in Q4 may be muted, particularly in Q1. This dynamic stems from rolling over a more comparable period for advertising and the corporate bonus accrual in Q1 than the fourth quarter declines that I noted earlier. While not providing specific guidance beyond FY24, we expect that this bending of the SG&A growth curve will carry over beyond this year. This will support our pathway back to a lower SG&A leverage ratio with the initial goal of returning to the mid-70% range over time. Hitting this range will also require healthier consumer demand. Regarding capital structure, our first priority remains to fund the business. Given recent performance and ongoing market uncertainty, we continue to take a conservative approach to our capital structure. While our adjusted net debt-to-capital ratio was slightly below our 35% to 45% targeted range, we are managing our net leverage to maintain the flexibility that allows us to efficiently access the capital markets for both CAF and CarMax as a whole. In keeping with this goal of maintaining flexibility, we continue to pause our share buybacks. Our $2.45 billion authorization remains in place, as does our commitment to return capital to shareholders over time. For capital expenditures, we anticipate approximately $450 million in FY24, similar to our FY23 level. This spend is primarily being driven by investments in land and the build-out of facilities related to long-term growth capacity for production and auctions. New store development is also contributing to CapEx, albeit at a lower level, as we have slowed the pace of openings in FY24. In FY24, we plan to open five new locations, including two more stores in the New York City metro market, as well as our first off-site production location in the Atlanta metro market. Our extensive nationwide footprint and logistics network continues to be a competitive advantage for CarMax. Our liquidity remains very strong, and we ended the quarter with approximately $350 million in cash on the balance sheet and no draw on our $2 billion revolver. Now I'd like to turn the call over to John.
spk18: Thanks, Enrique. Good morning, everyone. During the fourth quarter, CarMax Auto Finance originated $1.9 billion, resulting in penetration of 44.7% net of three-day payoffs, up from the 41% seen in the same quarter last year and in line with Q3. The weighted average contract rate charged to new customers at 10.9% was up 110 basis points from Q3 and 270 basis points from the same period last year. We were pleased with our ability to increase consumer rates within the quarter while maintaining a consistent share of finance contracts sequentially and growing our share of finance contracts substantially on a year-over-year basis. Tier 2 penetration in the quarter was 19.4%, lower than typical seasonal levels. Tier 3 penetration was flat to last year at 6.9%. While our long-term lending partners continue to complement each other in providing strong credit offers to our customers, we did observe year-over-year tightening as both rising interest rates and delinquencies likely led to these adjustments. Of note, CAF has also adjusted its underwriting standards in reaction to the current environment, including towards the end of Q4, reducing its targeted percentage of Tier 3 volume from 10% to 5%. CAF income for the quarter was $124 million, down from $194 million in the same period last year. The $70 million year-over-year decrease is primarily driven by a $44 million increase in loan loss provision, as well as a $61 million increase in interest expense, partially offset by growth in interest and fee income. Within the quarter, total interest margin decreased to $262 million, down $22 million from the same quarter last year. The corresponding margin to receivables rate of 6.3% is down approximately 100 basis points year over year and 125 basis points from the near 10-year peak seen in this year's first quarter, driven mostly by the significant interest rate jumps absorbed during the past year. In response, we have made numerous pricing moves over the last 12 months, including in the fourth quarter, that should cause the reduction in margin to slow and allow this portfolio rate to level off in fiscal year 2024. The loan loss provision in Q4 of $98 million results in an ending reserve balance of $507 million, or 3.02% of ending receivables. This is compared to a reserve of $491 million last quarter, which was 2.95% of receivables. This sequential seven basis point adjustment in the reserve to receivable ratio reflects unfavorable performance in the portfolio as well as the uncertain macro environment. along with the continued increase in CAFs Tier 2 and Tier 3 volume. We continue to target and operate within the 2% to 2.5% cumulative net credit loss range for our core Tier 1 portfolio, and we believe we are appropriately reserved for future losses. Regarding further advancements in our credit technology, we continue to stabilize and improve upon our nationally available best-in-class prequalification product, finance-based shopping, or FBS. During the fourth quarter, we fully deployed yet another of our large lending partners within the FBS platform, now bringing the total to five well-established lenders that are providing decisions on the full vehicle inventory for an applicant and co-applicant, leveraging a soft credit pool. Note, what truly makes this product distinct in the used auto industry is our ability to calculate over 6 million unique credit decisions every minute from multiple finance sources, each leveraging their own distinct credit models. and then to make these offers digitally available to customers wherever they are shopping, in the store, at home, or walking the lot. During this upcoming first quarter, we hope to add additional finance partners to the platform as work is already well underway. Now I'll turn the call back over to Bill.
spk03: Thank you, John and Enrique. As I mentioned at the start of the call, even as we navigated the challenges of fiscal 23, we achieved a number of key milestones during the year by focusing on making investments our omnichannel experience faster, simpler, and more seamless for our associates and customers. I'm proud of the progress that we've made on our journey to deliver the most customer-centric experience in the industry. Some highlights from this year that will have a lasting impact across our diversified business model are for retail, we enabled online self-progression capabilities for all of our customers. As we evolve our omnichannel experience, we're also updating our operating models to drive efficiency gains in our stores. During the year, we launched self-checking capabilities for appraisal customers, and also enhanced e-sign functionality to better enable self-progression. Our e-commerce engine combined with our unparalleled nationwide physical footprint is a competitive advantage. Our ability to deliver integration across digital and physical transactions is a key differentiator in both the experience we provide and the total addressable market available to us. For wholesale, we rolled out a modernized, mobile-friendly vehicle details page that displays the most relevant information from dealers They need to preview our wholesale inventory, creating a shopping experience for dealers that is similar to how consumers shop our retail inventory. We also expanded Max Offer, our digital appraisal product for dealers, to approximately 50 markets, which enable us to build on our leading position as a buyer of cars. We utilize our Edmunds sales team to sign up new dealers for the service, which provides profitable incremental wholesale volume. For credit and CAF, we completed the nationwide rollout of finance-based shopping, our multi-lender prequalification product. As John mentioned, this gives customers the flexibility to digitally receive quick credit decisions from a majority of our lenders across the entire vehicle inventory. Over 80% of our customers have used this online tool as they begin the credit process. In addition, CAF is equally focused on coming out of this cycle leaner and more effective. The team is already leveraging the new loan receivable system that we deployed a little over a year ago to deliver on savings opportunities with many more expected in the upcoming years. Looking ahead to fiscal 24, we will build on last year's initiatives and prioritize projects that unlock operating efficiencies and create better experiences for our associates and customers. We are confident that the actions we will take position us better to capture the upside when the market improves. Some examples include For retail, we are leveraging data science, automation, and AI to make it even easier for customers to complete key transaction steps on their own and to go back and forth between assisted health and self-progression. We are also building digital tools that will support customers across key transaction steps in their journey and give them better insight into their remaining steps. These tools will drive online sales and make it easier for customers to opt in to Express Pickup. This delivery option offers customers the ability to complete their transaction at one of our stores in as little as 30 minutes and represents a win-win opportunity. Our research shows that customers love this experience when utilized and it will enable us to lower costs over time. For wholesale, we will leverage our modernized vehicle detail page to offer new services. Some examples include AI enhanced condition reports and proxy bidding capabilities. We will also improve max offer by rolling out our instant offer experience to all participating dealers. These tools will enable us to drive incremental operational efficiencies as we continue to scale our wholesale volume, all while providing a better experience. For CAF, we're working to integrate our finance-based shopping product into our stores and customer experience centers more seamlessly so that all consumers can enjoy the full experience. As John mentioned, we will also continue to pursue opportunities to add additional lenders to the platform which will expand the breadth and depth of offers available to our customers. While these are a few good examples, our entire organization, from Edmunds to logistics, is focused on improving efficiencies and experiences. We are confident in the future of our diversified business. We will continue to evaluate our performance relative to our long-term financial targets annually. As we start fiscal 24, we are affirming the targets that we updated in April 22. selling between 2 and 2.4 million vehicles through our combined retail and wholesale channels by fiscal 26 generating between 33 and 45 billion dollars in revenue by fiscal 26 and growing our nationwide market share of zero to ten-year-old vehicles to more than five percent by the end of calendar 25. i want to thank and congratulate all of our associates for the work they do they are our strongest differentiator and the key to our success Last week, Fortune Magazine, named CarMax, is one of its 100 best companies to work for for the 19th year in a row. I am incredibly proud of this recognition, particularly as we face a challenging year. It's due to our associates' commitments to supporting each other, our customers, and our communities every day. Over our nearly 30-year history, we've navigated many challenging environments and have emerged stronger each time. This environment is no different, and I am confident that the actions we are taking will enable us to drive robust growth as the market improves. With that, we'll be happy to take your questions. Corliss?
spk13: Absolutely. At this time, we will open the floor for questions. If you would like to ask a question, please press the star followed by the one key on your touchtone phone now. Questions will be taken in order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. Please limit your questions to one at a time. Again, to ask a question, please press star one. And your first question comes from the line of John Healy with North Coast Research.
spk17: Guys, I wanted to talk just a little bit about the CAP business to start off. And Enrique, I was hoping maybe you could hit us with kind of maybe your thoughts on, you know, where maybe some of the key metrics might look out, maybe say the next quarter or so, maybe on, you know, kind of losses as well as recoveries and maybe the cross currents there. But also just kind of on your cost of funds and where that's kind of moving to of late, as well as kind of the, coupon rate that's going to the consumer and, you know, is there a lag? Is there a catch-up period? Just how we can think about maybe some of those dynamics moving for, you know, as we start fiscal 24.
spk19: Yeah, thanks for the question, John. I'll address the cost of funds and kind of how to think about that, but I'll turn it over to John and talk about the business. So from a cost of funds perspective, what I'd tell you is that, you know, the securitization market, which we're largely dependent on, The market is open. It's constructive currently. And what we've seen, you saw it in our first deal where the cost of funds came down relative to the deal that ended in 2022, right? And so we do believe that the benchmarks continue to come down, spreads continue to be healthy, and we would expect that to kind of carry forward. Per timing, you would expect us to be in the market here in the near term. But we would expect to be able to execute our deal. And again, I think relative to a couple of deals ago where the market really was compressed and the cost of funds was one of the highest we had seen in many, many, many years. It's come down from there. Still higher than obviously what we'd like them to be, but certainly better than where they had trended a couple of deals ago.
spk18: Sure, and I'll jump in on the other metrics. Just to piggyback on the cost of funds, obviously the other component there is kind of the APR that's in the deal as well. Last time we were at 909, we just cited that we were 10.9 on our originations in this quarter. We've done a great job of raising rates through the year, so you can imagine that to drive through into future deals as well. So if spread settles in and our APRs are higher, that should benefit us. With regard to losses and delinquencies, as mentioned in the prepared remarks, Again, we've taken our reserve up to $507 million. That's 3.02% of receivables. I did mention that some of that is driven by unfavorability in the portfolio and the macro environment. I think the entire industry is feeling a higher sense of delinquency in the consumer. For us, in the existing book of business, you've got definitely higher inflation. making it more challenging for consumers. Our newer originations are purchasing at a higher average selling price, therefore there's a higher payment. So people are having to work through having a higher auto payment than they might normally be used to. So all of these factors are things we're watching very carefully. We've reserved accordingly for it, but definitely a rise in delinquencies that we've done a nice job with and hasn't fully trended its way into losses, and we think we're going to be able to continue to serve the consumer well. The other thing I'll add to that is we did mention the prepared remarks, and we have tightened. Many lenders have tightened down there in our platform as well as outside of the industry, and we've tightened as well. It's something that we've done on a regular basis. We did it in the Great Recession. We did it at the start of the pandemic. We've done it many times in between. So we have tightened just to make it a little more conservative to watch this consumer carefully. But again, with our tightening, our partners will be happy to pick up that volume as we've done. So looking out, hard to say where losses and delinquencies are going to be, but we think we're in that 2% to 2.5% range as we always have. We think we're well-reserved, and we'll watch the consumer carefully.
spk09: Great. Thank you.
spk13: And the next question comes from Michael Montani with Evercore ISI. Your line is open.
spk05: Great. Thanks for taking the question. Just wanted to ask on retail and wholesale GPUs. Those were both, I think, stronger than we were anticipating. If you could just provide some update, you know, on the pricing volatility that we're seeing, you know, pretty unprecedented, I think, both at retail as well as at wholesale GPUs. And then competitively, what you're seeing in the market, how sustainable is this kind of strong discipline in GPU, I guess, for those two segments?
spk03: Sure. Good morning, Michael. Yeah, on the retail and wholesale GPU, obviously they did come in stronger. I think the wholesale benefited a little bit. We saw some appreciation in the latter part of the quarter, which when that generally happens, we usually trail whether it goes up or comes down. So I think that added a little bit of – favorability there. I think as you go forward thinking about wholesale, I would land probably more in the line of where we've been historically, $900 to $1,000. On the retail side, again, we did expansive price elasticity testing and determined that we could have sold a few more cars, but we actually would have made less money. So we held the retail JPUs. They're pretty similar to the third quarter. They were up year over year, and that's more of a function of the fact that we continue to have a a higher mix of older vehicles, which carry a little bit more margin. I think just in the retail pricing environment in totality, we did see some depreciation at the beginning of the quarter. We saw a little bit of appreciation at the latter part. If you go back a year ago, not this year, they just completed the year before, prices appreciated about $7,500, and that's in the zero to five-year-old cars this year. By the end of the calendar year, they had come back about $5,000. I would expect, even though we've seen some recent appreciation, I would expect to probably start to see a little bit more depreciation as we go forward. So that should continue to give a little bit of relief on the overall retail sales price. Thank you. Sure.
spk13: And the next question comes from the line of Craig Kinison with Baird. Your line is open.
spk08: Hey, good morning, and thank you for taking my question.
spk09: We're hearing that some banks... I think we may have lost Craig.
spk13: Craig, your line is open.
spk08: Yeah, good morning. Can you hear me?
spk03: Yes, we can hear you, Craig. Go ahead.
spk08: Thank you. Yeah, so we've heard that some banks are pulling back on floor plan credit for some of your competitors. I'm wondering, since you self-fund your inventory, would you expect an advantage sourcing inventory in this environment?
spk03: Yeah, I think it's hard to say. I mean, what I would tell you is because our self-sufficiency is so high, we just really haven't had an issue on sourcing environment. It's not like we're going out and competing in the auction lanes as much as we used to. I think it remains to be seen what the impact is on competitors and, you know, where they get their funding. I guess theoretically it could cause prices to go down if they are not able to source financing to keep inventory on their lots. But that remains to be seen.
spk08: Thank you.
spk03: Yep.
spk13: The next question comes from the line of Rajat Gupta JP Morgan, your line is open.
spk06: Great. Thanks for taking the question. Just had like, you know, a question on SG&A and one within that. Maybe, you know, just on the store occupancy cost, it was lower quarter over quarter by roughly 10%, you know, despite, you know, five new stores open. Is there something we're missing there? You know, we would have expected it to be up sequentially given the new opening, but I just want to make sure we're not missing any one-timers there. And I have a quick follow-up.
spk19: Great. Yeah, thanks, Rajat. Yeah, I don't think you're missing anything. I think a couple of points here. One is that there was some timing of spend. You know, from quarter to quarter, things will vary. So we had some timing favorability this quarter over the previous quarter. In addition, given the volumes and where they're at, we had a bit of a pullback in our rent. As volumes flex, we will move up in terms of our off-lot short-term capacity to accommodate volumes. And given where volumes are at, we did have a pullback in our off-site capacity. So you'll see that reflected in occupancy through a lower rent. So those are the two bigger items I tell you within the quarter.
spk06: Understood. That's helpful. And in terms of just budgeting purposes for SG&A for the year, What kind of view are you taking on the used car market this year? I mean, do you expect the industry, you know, specifically the zero to 10-year-old space to grow this year? And do you expect to grow share within that with the level of ad spend that you're guiding to? You know, just curious, like, what kind of shape of recovery are you assuming in your budgeting plan?
spk03: Yeah, Rajat, thanks for the question. Look, we're certainly not economists, but I think there's some publications. I think like Cox, for example, has the used market overall being down a little bit this year. I think they also have it, you know, softer in the front part. I mean, yeah, softer in the front part, a little bit better in the back half. I think that's kind of the way we think about it as well. But, you know, that remains to be seen. And, you know, as always on the market share, Our goal is whether the market's a good market or a bad market, we want to gain profitable market share. And I spoke to just the transitory pressures that we continue to see in this quarter as it relates to market share. But given previous experiences, we would expect that to turn, and then we'd get back into gaining market share.
spk09: Thank you. Sure. Sure.
spk13: Our next question comes from the line of Ryan Nagel with Opheimer. Your line is open. Hi, good morning.
spk03: Good morning.
spk07: Okay, so the question I wanted to ask, so in the comments, it sounds like you are telegraphing for this year now a lower leverage point. You know, you're going to leverage expenses at lower rates of growth. So I guess the question I have is, to make sure I'm correct in that assessment, And then what would change? I mean, what leverage were you able to pull in order to allow that to happen? And then, again, kind of going back to your comments for clarification, should we assume then as the business eventually straightens out of this cyclical trough that that leverage point will remain more subdued than it had been previously?
spk03: Yeah, Brian, thanks for the question. I'll give you my thoughts first. I'm sure Enrique will have some thoughts as well. But you're exactly right. We are sending the message that we expect this to to be at a lower rate going forward. And if you think about the past few years, every year we update and say, okay, you know, this is what it's going to take to lever. And we were running that five date and this past year prior to the year, we said, Hey, it's going to require more than that because of the investments we knew we were making. Plus some of the carryover investments, we hadn't been giving longer term guidance because quite honestly, while many companies have gone from a pure brick and mortar to more of an Omni channel, they're really, hasn't been any other example of companies doing that with what I call a considered purchase, where there's a lot of back and forth between physical and digital properties. And so I almost equate this to renovating an old house, which unfortunately I haven't experienced with that too. You don't know what you don't know until you get into it. And every time you pull down a wall in an old house, there's some new surprise there. Well, with this, every time we would you know, turn over a rock as it related to the omnichannel experience. There were two other rocks underneath it. And I think what we've gotten to the point of is that we've built out our product organization. We feel really good about the resources there. We've got the base of the capabilities. Now it's about enhancing. And then as we enhance and finish some things, we'll shift people to work on different things. So we feel good about the resources that we have at this point. And I'll let Enrique add any other comments.
spk19: Yeah, just to build on that a little bit, you know, As I said in my prepared remarks, we are past the investment-heavy phase of our Omni transformation. We believe, largely speaking, that we have the resources in place, we're appropriately staffed, and now it's really a matter of executing on our plans, which are really focused around enhancing efficiencies, enhancing and strengthening experiences for our customers and for our associates. But we believe we passed that point. So we do think that now and for the guidance that we've given, low single-digit growth, profit growth is what we're going to need to lever. And I would think about that as well as carrying beyond FY24 and into, while not giving specific guidance, I would think about that. That is kind of where we are in our maturity curve as a company, and that's kind of how I think about it for the next period of time.
spk07: All right, guys. I appreciate the call. Thank you.
spk13: Our next question comes from the line of Sharon Zagfia with William Blair. Your line is open.
spk00: Hi, good morning. A few things around SG&A. I just want to make sure I understand the context around leverage. So are you referring to SG&A leverage as a percent of sales or SG&A to gross profits? I just want to make sure we're all level set on what metric you're using. I also want to clarify the cadence in the first quarter. Are you... referring to sequential moderation in the decline or year-over-year moderation. I think that's kind of important to quantify as well. And then lastly, and I'm sorry it's a multi-pronged question, it's just on the ad spend. So I was a little surprised to hear, and I think I heard correctly, that ad spend per car would remain consistent year-over-year. And I just wondered, you know, the thought process behind that given the environment we're in, which you know, it sounds as if a lot of people are just priced out of cars, period. So I wonder about keeping that ad spend kind of at the same level versus retracting maybe more towards the $300 level that you had had historically.
spk19: Yep. Thank you, Sharon, for the multiple questions. And I'll see here if I can... A couple clarifications.
spk00: I'm using the clarification excuse.
spk19: I guess, yeah, there is a nuanced difference here, right? So on the first one, you know, absolutely, we moved to... Leverage being defined as SB&A to gross profit, so not retail units, not sales, because as you know, as we've migrated and transformed ourselves, it's less about just solely per retail unit. It's also about our wholesale business, about our cap business. So we take a holistic look, and our leverage point specifically is on gross profit. So I think that was your first point of clarification. The second, for the first quarter, yeah, it is an important point, and I had it in my notes here. that I spoke to. So in the fourth quarter, year over year, we were down 8% in SG&A. So what we're communicating here is that in the first quarter of FY24, upcoming year, that decrease may be muted compared to the year over year decrease in the first quarter versus last year's first quarter. You know, would be muted compared to that 8% and that's just because will be will have more comparables when it comes to the corporate bonus accrual, which in the fourth quarter. Was down pretty materially, as I call that in my notes as well. Our fourth quarter last year, our marketing spend was much higher than what it was in this fourth quarter, which provided some relief in this fourth quarter so you know, that presents a little bit more of a challenge for the first quarter of FY24 as compared, year over year, as compared to FY23. And then lastly, on marketing for spend, you know, we made a decision a few years ago to take our marketing per unit spend up along with our journey here and our transformation. And, you know, that's where we currently, where we intend on keeping it. We believe we have a strong line of sight into ROI and very accretive and investments here. Our marketing team does a fantastic job in being able to track what is accretive, what is ROI generating, and what is not ROI generating. So we have a pretty good understanding of our portfolio of investments when it comes to marketing, and currently we think that 350 roughly per unit spend is appropriate for where we are.
spk03: And Sharon, the only other thing I would add to that is Enrique said this in his comments, it can vary quarter to quarter. You may be up in some quarters, you may be down in some other quarters, and that will really be dictated by some of the ROI that we're seeing. We're always going to have some brand spend out there because I think it's important long term. The other thing I think of note here is that when we think about advertising, it's not just about customer acquisition, it's also about vehicle acquisition. There may be some times where you spend up a little bit more in trying to buy cars from consumers. So again, we'll continue to monitor this.
spk00: Okay, thank you.
spk03: Thank you.
spk13: Your next question comes from the line of Scott Ciccarelli with Truist Securities. Your line is open.
spk15: Hey guys, Scott Ciccarelli. Obviously retail prices are still up quite a bit. Average rates also up and so monthly payments are up meaningfully. I know it's causing a double-digit decline in comps, but I guess what kind of impact is it having specifically on your conversion rate? In other words, like when we look at the sales decline, is it being driven more by reduction in traffic or kind of the first swing at the plate that you guys get? Or is it more, you know, kind of people get close to the finish line and then just decide that they really can't afford what they're looking at? Like, is it one more than the other or are those factors about the same?
spk03: Yeah, great question, Scott, and welcome back to the call. um thank you it's it's uh definitely we see that we see the traffic top of funnel so it's not top of funnel the degradation really happens at the conversion point and which you know can make sense as you find a car that you like you start working through it all of a sudden you realize wow that monthly payment is more than i can afford and then you see where they they fall out which is the reason why we've been talking about vehicle affordability is one of the biggest factors that impact our our sales so it's it's all about conversion not necessarily top of funnel
spk18: Yeah, and I'll just add on to that, Scott. Just one added thing. We mentioned the FBS platform, and one of the things we're so excited about that, right, so many people are shopping for that monthly payment online, out the gate, not in the store necessarily. And so being able to If they pick vehicle X and it ends up being a higher payment for them, we're providing them the capability to see payments on all the vehicles with multiple lenders so they can pivot relatively quickly. So we think, again, once the shock of the higher ASPs come down over time, just having that tool out there to adjust that price point and that payment as needed will really benefit us and will springboard out of this thing.
spk15: Okay. So total demand is still there. It's just the affordability or the ability to close is really the main challenge, if you will.
spk03: Yeah, the interest is definitely there, and I think some of the web traffic, continued strength in the web traffic is also because of the finance-based shopping product that John just talked to, people just trying to figure out what can I afford. Maybe they're not ready to buy a car, but maybe they're just looking to see what can I afford.
spk15: Great. Thank you very much.
spk03: Thanks, Scott.
spk13: Your next question comes from Daniel Ambrose with Stevens, Inc. Your line is open.
spk10: Good morning, everybody. Thanks for your question. Good morning. I want to ask on SG&A maybe a little bit different way. You talked about attrition for a few quarters now, and you're making, it seems like, good progress driving down that compensation line. Where are staffing levels today in the stores or CECs versus a year ago or before these attrition? Are we 15% lower? Is headcount 20% lower? And then where should that go as growth improves? Because on one hand, I think Bill just mentioned you should stay more lean going forward. But I thought in your prepared remarks, you said working towards the mid-70s SG&A to gross ratio over time. So just trying to put those pieces together, if you could talk about kind of the staffing, where we're at, and where that goes, and what it means for long-term SG&A margins.
spk19: Yeah, what I tell you is that we believe we're, you know, largely speaking, appropriately staffed. There's still some pockets where there's probably some overstaffing that we're working through, right? And we do it in a healthy way, which is just through attrition. And that's the approach we've taken for the past period here. But logically speaking, we think we're appropriately staffed kind of across the board. Compared to last year, we're down when it comes to what flows through SG&A, because we do have a large service department and service associates that flows through our COGS. But just through SG&A, we're down about 10% year over year. And that's really kind of staffing in our CECs as we've right-sized, in our stores as we've right-sized. as well, and that's where you'll see it offset a little bit by our corporate overhead staffing, but net-net, we're down about 10%. So that's kind of where we are. When it comes to like the 70%, mid-70%, yeah, we're actually striving to get there. Our goal is to get back to a leverage rate that's more reflective of a stronger flow-through and a business model that we're striving to get to. Now, to get to that number, we're also going to need some help in sales. right as well to support that and we expect to get there over time. I think to get there in FY24 I would tell you would be a strong stretch just kind of given where we ended FY23 and kind of where volumes are at and just the environment that we're operating in. But you know we are controlling what is in our control and I think we've done a pretty effective job here of taking our SG&A down and thinking about our business model and the maturity curve in terms of where we are with our Omni transformation. And now it's really a matter of kind of reallocating resources internally to work on the most accretive projects that we have.
spk03: Yeah, and Daniel, the only other thing I would add to that is even as business returns, we're heavily focused on finding efficiencies. You know, the business model has really changed within the store with Omni. So, you know, we're looking at more efficiencies in the CEC, so as more volume comes in, CECs don't have to grow as fast. We've already taken... You know, we've reduced the sales force because of the CECs, because customers are coming more progressed, which is another reason why we're really focused on this self-progression. The more customers can progress on their own, our floor sales consultants can handle more associates. So as we think about the future model, we're trying to get efficiencies not only at the corporate side, which we feel pretty good about the teams we've got there, but also just become more efficient in the field operations.
spk10: If I could squeeze in. Clarifier, not another question. I guess you guys used to be in the mid to high 60s. It sounds like you reduced headcount 10%. The CEC is making you more efficient. I guess why wouldn't that or something better than that be the target you're working towards, Enrique, rather than the mid-70s? I guess have there been incremental expenses from the Omni and Edmonds that have just raised that long-term SG&A margin?
spk19: Yeah, and what I've said is that our first step, right, so our initial goal is to the mid-70s. And then longer term, you know, we do have as part of our aspirations to get back to roughly where we were. I don't know if we'll get back fully to where we were in the medium term here, but certainly our first step is to get to the mid-70s.
spk03: Yeah, and I think, Daniel, on that, keep in mind, part of the Omni transformation is we've gone from an organization that worked with all legacy systems that really didn't cost us anything to a combination of you know, systems that we built in-house, but also software as a service. And software as a service is an expense that we used to not have. So things like software as a service, the product organization that we built out, you know, we've got 60 product teams that really enable having this omni-channel experience, both, you know, to have the store and the digital. So that expense isn't going away. We didn't used to have that expense. You know, theoretically, the CECs will be offset with the sales, so that should wash. But there are other things like cybersecurity that Because we have so much of a digital presence now, you had to step up your spin there. So there's some things, which is why, to Enrique's point, our first goal is, hey, let's get back to the 70s. Because we know we've got some headwinds on things that we didn't used to have. And then we'll continue to work on taking it below there.
spk10: Great. I appreciate all the color and best of luck.
spk03: Thank you.
spk13: Your next question comes from Seth Basham with Wedbush Securities. Your line is open.
spk16: Thanks a lot, and good morning. My question's on retail GPU. Pretty good performance this quarter. Curious to know whether or not you think the market dynamics helped you on that metric, and then looking forward, should we be thinking about that flat year over year for 2024 fiscal, or should there be a movement one way or the other based on the price elasticity expectations and other factors?
spk03: Yeah, good morning, Seth. Yeah, I think the market dynamics did help because again, we were doing a pricing elasticity test. And as I said earlier, you know, we could have sold some more cars, but overall profitable profitability would have been down. So I think that that did help. Um, now, as far as going forward, um, you know, I think I'd probably get more in the range of where we were historically. Uh, and you know, part of it will depend on what the macro factors, cause we'll continue to test elasticity, but. You know, if you think about we've been kind of in the 2100 to, you know, roughly 2100, 2150, 22 in that range, I would think somewhere in that range is probably a good target to think about for the upcoming year. But again, it's going to be dependent on what we see from the market factors.
spk16: Okay. And just as a follow-up, thinking about the tradeoff between unit sales and GPU, market share is clearly an important goal of yours. Is there a point in time where you'll be more aggressive on price to regain market share to meet your long-term targets? Do you truly believe this is transitory? Is there any reason why it may not be?
spk03: Yeah, no, it's a great question. And again, we've always said this idea of profitable market share, and that hasn't changed. If I look at the market share for 2022, relatively flat, you could argue it's slightly up, but we call it relatively low. flat for the first half of the year, we saw good, a good market, um, share gains. In fact, most, uh, several of the months were double digit gains. We hit August, August, I would call was fairly flat. And then, uh, you know, we saw, uh, declining gains really from September through December. And we've seen this before. If I go back to 08, 09, if I go back to COVID, although they're very different circumstances. You know, we've seen where we've lost market share for a period of time. Then it flattens out. We start from a month over month. We start to grow it back. We get back to, you know, where we were before we started, and then we continue to increase. I would expect this to not be any different. I am, you know, I'm encouraged as I look at the data that we have so far. If you look at the August through, or really September through December, it was decreasing market shares month over month. I think, you know, December, January, my hope is we've kind of bottomed out there. We don't have the February data yet, but I'm hoping that we've bottomed out it, which means that, okay, market share should, for month over month, will still be probably below year over year, but we should start to climb back out.
spk09: Thank you. Sure.
spk13: Your next question comes from Scott Butleri. with BNP Paribas. Your line is open.
spk02: Hey, guys. It's Chris Boniglieri. I just wanted to ask on CapEx, if you could elaborate a little bit more there. The Omni channel is slowing a bit, and you're only opening five stores. Just trying to get a sense for, like, why the CapEx is stepping up. Are you planning to reaccelerate store growth at FY25? Just incurring some upfront capital costs there. And then, you know, you mentioned, sorry, this is a long-winded question, but you said a lot on the call. You mentioned that you're opening up these off-site reconditioning centers and auction centers. Are these more capital intensive than your stores? Trying to understand what the strategy is and what these investments help to accomplish. Just elaborate that would be really helpful.
spk19: Chris, thanks for the question. Year over year in FY24, we expect our capex spend to be roughly the same as what it was, but what's making it up is changing a little bit. And so, you know, by far the largest contributor to our CapEx and FY24 is going to be really starting to build out our offsite production, our offsite auction capabilities to ensure that, you know, over time, over the longer term, that we're able to meet our long targets, right? We feel good about our near term and our ability to hit kind of our sales, our auction levels. but we also need to plan for the future at the same time. So that consists of buying land across the country. It also consists of this year, you know, building out and opening our first offsite production auction production site, sorry, which will be in Atlanta and the Metro market there. And the way to think about that, it's the size of it will be roughly, and this way to think about them moving forward in our offsite production locations will be roughly the size of our largest production locations that we have in our stores currently. Right? Large acreage, so 20 plus acres as well, is how to think about them. And from a CapEx spend, they'll be similar to the CapEx that we had spent in the past on kind of our production locations just for those. But that is actually driving the largest piece of our CapEx spend. There is some anticipation that stores will continue to grow in FY25. Right? Still, it was going to kind of see how the market, how we perform, how the macro environment is. We have lowered that amount for FY24. As you know, we're at five new stores. And we'll see in FY25. But there is some planning for that that goes ahead even this early on in the year because it does take quite a bit of time to get a store open.
spk03: Yeah. And Chris, I would just add to that. The plan spend for the capacity, it's no different than what we've done in the past. You know, we used to build production stores as we were going into new markets. Well, what we've been doing here lately, because we haven't opened up a bunch of production stores, we've been leveraging the existing production. So we had planned to add capacity. So it's really no different than what we've done in the past. It just happens to be, okay, now's the time that we start to do some additional production builds. And the really only difference is that Some of them will not be attached to stores, but still in close proximity to stores because that's a big big competitive advantage Yeah, that's really helpful.
spk02: They're just related. I think you mentioned something effective opening up simulcast again and wholesale Maybe just elaborate there. It seems you're getting really strong wholesale and in you know volumes and GPUs to understand like the motivation there and What that means for revenue and cost just any thoughts would be helpful.
spk03: Yeah. No, it's a good question Yeah, we just want to make sure that we're both maximizing the experience for our dealers as well as maximizing the ultimate price that our cars sell for and so we're just doing small tests just to see hey having a both a physical sale but also virtually broadcasting it are there new dealers that might show up are you know do you get extra bids so we you know in our in our efforts to make sure we're being as efficient as possible we don't want to leave any stones unturned so i don't really think about it as a as a big SG&A spend because a lot of, like the testing that we're doing is what I would call more of a post cartel. So you actually don't have the cars running through, but you have the auction lane open for folks to bid in and that kind of thing. So again, small tests. We're going to continue it to see what we can learn. But to your point, we feel great about the margins, what we can put on cars. But again, we always are looking to get a little better.
spk02: That's okay. Thank you for the time. I appreciate it.
spk03: Thank you.
spk13: Your next question comes from the line of John Murphy with Bank of America. Your line is open.
spk01: Good morning, guys. Just two very quick follow-ups or clarifications. In the press release, you said total interest margin would level off in 2024. I'm just curious, as we look at the last three years running, in 21 and 20, you did about 7% collateral spreads in those pools, and in the last four, you did 4% collateral spreads. Is there something in the forward market or what you're about to launch where you think the spreads are going to open up quite a bit. It just seems hard to understand how, you know, if we think about this, that spreads could level off and maybe not compress. And then just a second question, Bill, on the franchise, I'm sorry, on the market share gains, is there room to gain in the 6 to 10-year-old segment? I mean, if you kind of think about that 4% in one, you know, in the 0 to 10-year-old market, you know, is there significant room in these older vehicles where you might have higher grosses over time?
spk18: Sure. Yeah, thanks, John, for the question. I'll take the NIM one. So, you know, I think first, most important to point out is, you know, you're coming off of probably a 10-year peak in Q1 previous of this year. You know, you really benefited from low funding costs. Lenders were able to capture a lot of margin there. You look at some of those deals you referenced, I mean, very, very strong margins. So, you know, while we'd love to have been to stay up there, it was probably never going to happen. And you've seen us come down, you know, sequentially quarter over quarter. You know, I think if you look at how we have been able to raise rates for our consumers, and obviously Enrique already mentioned earlier, we do think that the ABS market is kind of improving. We're probably better matched with our rates to how we'll do long-term funding costs out there. And so we think that when we look out, you never know where funding costs are going to go. You never know what consumer is going to walk through the door. Ultimately, we need to remain competitive and make sure that we're able to sell cars and and provide competitive rates for our consumers. But when we look out, we've come down off of this peak. We think that we're well matched with our rates versus what we can fund this stuff for in the future. And we do think we can level off in 24.
spk01: I'm sorry, does the match mean that you're going to get back to 5% to 6% collateral spreads, you think, in the near future? That's where you've been when things are somewhat more normal. So I'm just curious if that's what you think you're going to get to soon.
spk18: Sure, yeah. If you just look at those previous deals, you look at the 23-1 deal, again, an APR of 909. We just referenced that we're at 10-9 this quarter. And I can tell you that's not where we ended the quarter. So you're going to see in subsequent deals, APR is higher if funding costs are more reasonable. I think we're absolutely going to be better matched funding costs for rate out there. That's exactly what I'm referring to.
spk01: Thank you.
spk03: And, John, on the market share, the 6 to 10, remember, we always measure market share 0 to 10. I do think 6 to 10 is an opportunity. I mean, if you look at our recent sales, like even this quarter, you know, vehicles over six years, over 60,000 miles, you know, if I look at where we were year over year, we're probably 10 points higher. You know, we're probably high 30s as a percent of sale. The real question will be, as prices come down, do consumers –
spk01: start to go back to you know newer model vehicles so you know we'll see i think we're in a great position we obviously have shown that we can acquire those vehicles and recondition them so it's a it's a great lever as we go forward but wouldn't you just think of that as a structural opportunity right i mean if those consumers go back to the the younger cheaper vehicles you still have those 10 year old vehicles that you can sell wouldn't that just augment your sort of long-term structural growth i mean i'm just curious i mean it just seems like a huge opportunity
spk03: Yeah, I think so. But again, some of it will be just on consumer demand. If the folks that are coming into our stores are looking for later model vehicles, lower mileage, we're certainly going to put more of those on our lot. So we'll manage to whatever the consumer is looking for.
spk01: Okay. Thank you.
spk03: Yep. Thank you.
spk13: Your next question comes from Chris Pierce with Needham. Your line is open.
spk04: Hey, good morning. About halfway through Q1 here, I was just curious if you could comment on used ASPs, retail ASPs, and what you're seeing. It came down 7% sequentially in Q4, but I know Q3 was a little bit artificially inflated. Just given there's been talk about wholesale demand and strong wholesale price increases, I was curious if that's slowing through to retail or not as much because of the retail wholesale spread. Just kind of curious what you're seeing according to date for retail ASPs.
spk03: Yeah, I think, Chris, it's a little early, you know, because... The vehicles we're selling right now, we sourced in the last quarter. So I don't think it's really going to impact up to this point what your retail ASPs are. So I would think about this quarter right now, our retail ASPs are probably similar to what they were for the quarter. And again, we had a little bit of appreciation that we saw there. Keep in mind that the depreciation flows through much quickly on the wholesale cars because you're turning that inventory every seven days.
spk13: And the next question comes from David Whiston with Morningstar. Your line is open.
spk14: Thanks. Good morning. I'm just curious if you've seen a note where they pull back from CAF lending partners, or I'm sorry, from your lending partners because your CAF gross penetration was up 330 BIPs. And related to that, John, I think you said earlier you wanted your goal this year is to add new lenders. Were you talking about ABS lending or also for the two tier two and three partners?
spk18: Sure, yeah, just to your first question, David. Yeah, certainly when partners pull back, you know, the pie sums to 100, so CAF can benefit from that. But, you know, I think CAF's penetration is really, again, us remaining competitive in that tier space and winning the volume outright. But, yes, we did see our Tier 2 partners certainly pull back. Tier 3 tends to benefit from that because those customers who, you know, typically would be Tier 2, may move down and get picked up by Tier 3. But I think that just speaks to the quality of our platform, right? If CAP pulls back, Tier 2 picks up. If Tier 2 pulls back, Tier 3 picks up, or other partners in Tier 2. But we did see pullback in the Tier 2 space, certainly. And your second question was probably with regard to my prepared remarks and about adding a subsequent lender. We were referring to the FBS platform. We have five, again, long-term lenders on there, which means that they are operating with a soft pull. They are decisioning all the vehicles using their models in minutes and getting it back to us so we can provide that to the consumer. provide as rich an offer as possible every lender you add we added one in q uh in q4 we hope to add another one in q1 just further strengthens the set of offers across all the inventory that the customer can see and helps them to convert so that's what i was referring to and those are david those are long-time lenders that we already have that we're pulling into the fund absolutely it's not adding a brand new lender although you know i'm sure we have plenty of lenders that would love to come into our space But no, this is existing in our typical in-store environment that we're going to add into this, again, very rich FBS environment.
spk14: Okay, thank you. And are you seeing any increase in repossessions, or do you expect that to happen later this year?
spk18: So if your question is, you know, increase in repossessions, yeah, obviously as losses go up, as you're seeing, you know, delinquencies certainly in the industry, it will lead to losses there. then you're going to see added repossession. So I think the entire industry is seeing that, you know, we are seeing that to some degree, if that's your question.
spk14: Yes. Thank you very much. Yep.
spk13: Thank you. We don't have any further questions at this time. I'll hand the call back to Bill for any closing remarks.
spk03: Great. Thank you. I want to thank everybody for joining the call and your questions and support. I do want to congratulate all the associates again. I'm being named a great place to work for 19 years in a row. And like I said earlier, we believe we're well positioned to navigate this environment and merge even stronger. We look forward to talking with everyone next quarter. Take care.
spk13: Thank you, ladies and gentlemen. That concludes the fourth quarter fiscal year 2023 CarMax earnings release conference call. You may now disconnect.
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