Carmax 1Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

90% of customers are getting approval for loans

” if you look at our applicant flow, we’re still at 90% of our applicants are getting approval of some kind.”

Subprime lenders had gotten a little over-extended, now have pulled back some

“We told you last year at this time that our subprime providers had got a little more aggressive. We told you in the third quarter that they had pulled back a little bit.”

Prices rose much more than usual

“if this was what we would say a normal year, we would see some appreciation in the spring and then kind of a steady decline throughout the rest of the year. And this year, we saw more appreciation in the spring than we are used to. And lots of people attributed to weather and pent-up demand for inventory. So we will go with that.”

Don’t like wholesale prices going up

“I never like prices going up. I rather have prices go down, although I don’t think they will. So it’s a first time we have been over $20,000 average retail, since we started the business. But our margins per car were flat. So it was clearly a reflection of what the market was doing. And we talked about wholesale pricing being up during the quarter and it was simply that. And really, the only benefit from higher ASP is we get a little more on the spread when we do a CAF loan but other than that I rather see us provide lower prices to customers.”

People want to test drive cars before purchasing them online

“We don’t fully transact online. There isn’t really a preclusion. If we wanted to really press down that path, we could. We found that customers want to test drive cars. They want to — particularly, our average cars is almost four years old, with almost 40,000 miles on it.”

Do a lot of stuff online, just not consummate the deal

“we now allow our customers to put cars on hold and make appointments online without speaking to anybody. We still have the capability in the number of stores for customers to transfer cars, even a pay transfer by giving their credit card online without speaking to anybody and having that car delivered. They can actually start their paper work online, making appointment for the sales consultant and show up a lot of the work already done. But in terms of fully consummating the deal online, we’re not doing that yet.'”

Sometimes conversions drive comps, sometimes it’s traffic

“What happened over the last several years is we’ve had few quarters where all of our sales increase was driven by conversion and we’ve had sometimes where all of it has been driven by traffic. There were times when it was about a 50-50 split and I think over a long period of time, that’s kind of what we expect. It’s just so happened this quarter that our conversion was relatively flat and our comps were driven by traffic.”

It’s an infrequent purchase, so not as affected by weather

“We’ve never really made a big deal out of weather. I think because we are an in infrequent purchase that we don’t view that we lose. We’re not like a grocery business where if you don’t sell milk, then you never get to sell that milk. We sell a car. People buy it once every five years and what we’ve seen in our history is, if we miss some sales then we kind of get them back overtime. But it’s really hard to measure.”