CarMax FY 3Q16 Earnings Call Notes

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New cars eventually come back to market at some point as used cars

“I think this is probably short-lived. Obviously, it’s been driven by low gas prices. We have seen bigger increases in new car sales as it relates to SUVs and trucks compared to the used car market increases. But ultimately, these cars will all come back into the market at some point.”

The average new car dealer sells about 50 cars per month

“our average store sold 340 cars a month during the quarter. If you look at industry data, the average new car dealer sells about 50 cars a month. So it’s really hard to say that we are losing ground and a lot of that stuff that you read about for – from new competition are very small players in very limited markets.”

A couple of years from now there will be a lot of trucks and SUVs available on the wholesale market

“we are seeing, as you know highest SAAR we have ever seen and the bigger of the increase in the SAAR is related to trucks and SUVs. If I was thinking about that over a long period of time, that means a couple of years from now we will see lot of trucks and SUVs out in the wholesale market, which if there is demand, then we will be able to take advantage of that and buy and sell them.”

Spreads in the asset backed market should stabilize as the Fed has given guidance on interest rates

“Historically, as rates have come up, we have been a little bit as the market has slower to adjust upward, because that rates can be sticky and conversely when rates have been coming down, you are usually a little slow to adjust downward because the market is going to drive that as well and you see a little bit of a benefit. But as far as going forward, yes, the market will tell. I think now that the Fed has given some guidance, I think about where they are going with interest rates that stabilize things from the perspective of spreads in the asset-backed market.’

Traffic was slightly down, but it may have been more prepared to buy because conversions up

“we did get enough traffic to sell 340 cars a month per store. And it was only slightly down. And then conversion was slightly up. And we ended up where we ended up. But in terms of traffic through the door, I think there is a chance that customers are being more prepared and are more likely to buy when they show up. And for us if we could get traffic that’s more prepared and more likely to buy, that’s just as good for us as it is if we just got plain old extra traffic.”

At some point we knew the tide was going to turn in credit

“Charge-offs has to do with what’s in the portfolio and it’s been put in there over the last several years. And the way I characterize it is we have had a long stream of favorable experience and at some point, it was – the tide was going to turn in. Things were probably going to normalize. I would probably characterize it as giving back some of the favorable experience we have had over the last several quarters. It’s too early to tell what that means from a go-forward perspective.”