Operator
Ladies and gentlemen, thank you for standing by. Welcome to the first quarter fiscal year 2026 Cormax 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, Vice President, Investor Relations. Please go ahead.
Thank you, Nikki. Good morning, everyone, and thank you for joining our fiscal 2026 first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO, Enrique Mayer-Murra, our Executive Vice President and CFO, and John Daniels, our Executive Vice President, CarMax 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 for 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 in 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 facts and risks that could affect these expectations, questions, please see our form 8K filed with the SEC this morning and our annual report on form 10K for fiscal year 2025, 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 you for more follow-ups bill thank you david good morning everyone and thanks for joining us our first quarter results highlight the strength of our earnings growth model which is underpinned by our best-in-class omnichannel experience diversity of our business and a sharp focus on execution across the company we are operating with a continuous improvement mindset we are focused on growing sales and getting market share expanding gross profit managing caps credit spectrum expansion, leveraging SG&A, and buying back shares. This focus, combined with our ability to provide a unique customer experience across our large total addressable market, provides a long runway for profitable growth. In the first quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered robust retail, wholesale, EPP, and service GPUs. We bought more vehicles from both consumers and dealers, achieving an all-time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting and funding model. We materially leveraged SG&A as a percent of gross profit. We doubled the pace of our share repurchases and we achieved 42% EPS growth. This marks our fourth consecutive quarter of positive retail unit comps and double-digit year-over-year earnings per share growth. During the period, we delivered total sales of $7.5 billion, up 6% compared to last year, reflecting higher volume, partially offset by lower prices. In our retail business, total unit sales increased 9%, and used unit comps were up 8.1%, $26,100, a decrease of approximately $400 per unit year over year. First quarter retail gross profit per used unit was an all-time record, driven by strong demand and operating efficiencies across our logistics network and reconditioning operations. Wholesale unit sales were up 1.2% versus the first quarter last year. Average wholesale selling price declined approximately $150 per unit to $8,000. Wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 336,000 vehicles during the quarter, up 7% from last year. We purchased approximately 288,000 vehicles from consumers, with more than half of those buys coming through our online instant appraisal experience. With the support of our Edmunds sales team, we sourced the remaining approximately 48,000 vehicles through dealers, which is up 38% from last year. Our digital capabilities supported 80% of our retail unit sales during the first quarter. 66% were omni and 14% were online. Relative to traditional and online-only dealers, we are the only nationwide retailer to offer an integrated, simple, seamless, and personalized experience to meet the largest and growing segment of used car buyers. According to Cox Automotive Research, as well as our own, the majority of customers shopping for used cars intend to transact via an Omni experience. The combination of our associates, stores, technology, and digital capabilities, all seamlessly tied together, is a key differentiator that gives consumers the optionality to shop online, in-store, or a combination of the two. Our Net Promoter Score is the highest it's been since rolling out our digital capabilities nationwide, supported by new record high online and Omni scores, reflecting that this experience is resonating well with customers. Our differentiating offering gives us a unique opportunity to reach more customers. To further capitalize on this opportunity, we're excited to launch a new marketing campaign later in the summer that will bring our omni-channel experience and our digital capabilities to the forefront for a broad set of consumers. And now we'll turn the call over to John to provide more detail on CarMax Auto Finance.
Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2.3 billion, resulting in sales penetration of 41.8% net of three-day payoffs, which was 150 basis points below last year. The weighted average contract rate charged the new customers was 11.4 percent, in line with last year's first quarter. Cash reduction in penetration was primarily driven by an influx of self-funded higher credit purchasers seen during the initial announcement of tariffs, and to a lesser degree, a higher Tier 3 penetration, both of which more than offset our expansion since Q4. Third-party Tier 2 penetration in the quarter was down 100 basis points year-over-year to 17.7 percent of sales, while third-party Tier 3 volume accounted for 8% of sales, up from 7.5% last year. CAF income for the quarter was $142 million, which was down $5 million from FY25. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding costs. CAF's loan loss provision of $102 million was impacted by several notable items. First, Q1 is a seasonally higher sales and lower credit quality period, requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages, along with the uncertain economic outlook necessitated additional loss reserves. Note that 2024 vintages remain largely in line with our original loss expectation. The last noteworthy item impacting the Q1 provision relates to CAF's continued build-out of our full-spectrum lending capabilities. While we remain focused on increasing our penetration across the credit spectrum, we also want to carefully manage future risk from higher profit, higher loss receivables. To that end, during the quarter we earmarked a held-for-sale pool of loans with a $632 million principal balance from our non-prime portfolio. That loan pool is intended to be fully sold off our balance sheet as a part of a non-prime securitization transaction. In the immediate term, this treatment removes the requirements to reserve for future losses expected on this pool of receivables. In the period in which the ABS transaction closes, CAP will book any gain realized by selling the financial interest in the loans. Also, the risk of any financial impact from this pool due to future deterioration is removed once sold. This additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide CarMax with significant flexibility and allow us to mitigate risk while focusing on our growth plan. Our loan loss provision of $102 million results in a total reserve balance of $474 million, or 2.76% of managed receivables exclusive of auto loans held for sale. Note there was a reduction on this quarter's provision stemming from $26 million in the reserve allocated to loans booked prior to the first quarter, now classified as held for sale. As we reflect on the bigger picture, CAF has delivered solid income for yet another quarter, and we see tremendous potential for the future. Now I'd like to turn the call over to Enrique to discuss our first quarter financial performance in more detail. Enrique? Thanks, John, and good morning, everyone.
As a reminder, last quarter we provided a view into the strength of the earnings model that we have built as part of our Omni transformation. This model is designed to deliver an annual earnings per share CAGR in the high teens when retail unit growth is in the mid-single digits. First quarter results delivered net earnings per diluted share of $1.38, up 42% versus a year ago. Total gross profit was $894 million, up 13% from last year's first quarter. Used retail margin of $554 million increased by 12%, with higher volume and per-unit margins. Retail gross profit per used unit was $2,407, up to $60 from a year ago, and a record high. Wholesale vehicle margin of $157 million was flat from a year ago, with an increase in volume offset by a slight reduction in per-unit margins. wholesale gross profit per unit was a thousand forty seven dollars which was historically strong though down slightly from a year ago other gross profit was 183 million dollars up 31 from a year ago this was driven primarily by a combination of epp and service epp increased by 13 million dollars or nine dollars per retail unit as we fully copped over margin increases taken in the prior year. Service recorded a $33 million margin, which was $30 million improvement over last year's first quarter. We achieved this performance improvement through cost coverage, volume-based leverage, and efficiencies. On the SG&A front, expenses for the first quarter were $660 million, up 3% or $21 million from the prior year. SG&A to gross profit leveraged by 680 basis points to 74 percent driven by the growth in gross profit and our ongoing actions to improve expense efficiencies sgna dollars for the first quarter versus last year was mainly impacted by a compensation benefits increase of 19 million dollars the majority of this increase was related to unit volume growth we continue to deliver efficiency gains across the business. We are off to a strong start in achieving our goal of Omni cost neutrality in fiscal year 26 for the first time across three key metrics. In the first quarter we were both more efficient versus pre-Omni and versus last year per used unit, per total unit and as a percent of gross profit. Recall that this compares the variable commission costs of selling and buying vehicles in our pre-Omni model to our cost now, which includes a new per unit commission as well as the costs of running our customer experience centers. A key driver of these efficiency gains and experience enhancements has been our strategic deployment of AI technology across our operations. A few key metrics that illustrate the progress we are making year-over-year include Sky, our AI-powered virtual assistant, realized a 30% improvement in containment rate. Our customer experience consultants' productivity improved by 24%, and phone and web response rate SLAs improved by double digits. We see tremendous opportunity to continue expanding AI applications across our business to drive both the top-line growth and operational excellence. Turning to capital allocation, we remain committed to creating long-term shareholder value. Our priorities are clear. Invest in the core business, primarily through the reallocation of resources, evaluate new growth opportunities through investments, partnerships, or acquisitions, and return excess capital to shareholders. During the first quarter, we accelerated the pace of our share repurchases, buying back approximately 3 million shares for a total spend of $200 million. As of the end of the quarter, we had approximately $1.74 billion of repurchase authorization remaining. Looking forward to the balance of the year, I'll cover a few items. We expect service margin to grow year-over-year, predominantly in the first half of the year, and to deliver a positive profit contribution for the full year, as governed by sales performance given the leverage-deleverage nature of service. Recall that the first quarter is typically the strongest for service margin due to higher seasonal sales volumes. Turning to marketing, we expect for the full year that our spend on a total unit basis will be flat year over year. Regarding CAF's funding strategy, our current plan is to execute the programmatic off-balance sheet sale of the financial interest in the non-prime securitization once a year. As John noted, we will also be assessing additional off-balance sheet funding levers to further accelerate CAF penetration while continuing to learn from our full spectrum models. Now I'll turn the call back over to Bill.
Thank you, Enrique and John. Before I open it up for questions, let me summarize what you heard from us today about our strong first quarter. We delivered our fourth consecutive quarter of retail, of positive retail unit comps and double-digit earnings per share growth. We grew both retail and wholesale unit volume. Our sourcing efforts hit another milestone with a record dealer volume through MaxOffer, and we continue to leverage our cost structure with meaningful SG&A improvement. Our digital capabilities and overall experiences are resonating with customers, as evidenced by our Net Promoter Score. We're also continuing to leverage AI across the business to further enhance the experience for both customers and associates, and to increase operational efficiencies. We're taking the next steps in our credit expansion by delivering a new funding method for a portion of our non-prompt portfolio that mitigates risk, gives us more flexibility, and supports the growth of cap income. And we doubled our share repurchase pace. Our associates, stores, technology, and digital capabilities, all seamlessly tied together, enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator in a very large and fragmented market and positions us to continue to drive sales, gain market share, and deliver a significant year-over-year earnings growth for years to come. I want to thank our associates across the country for their dedication in delivering these results to providing an unmatched experience for our customers. With that, we'll be happy to take your questions.
Operator
Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. you may withdraw your question by pressing star two once again to ask a question please press the star and one on your telephone keypad and your first question comes from the line of brian nigel with oppenheimer your line is open you may now ask your question nice quarter congratulations really nice quarter thank you ron thank you so i guess the question I want to ask, you know, we've seen a nice acceleration here in your used car business.
I know you don't typically talk much about your intra-quarter trends or trends into the following quarter, but I would look at the question I want to ask is, I mean, how are you viewing the sustainability here? I mean, is, you know, as you look at this, is the business coming back? Is there anything unique to this re-acceleration? And then a follow-up to that is, and you showed again in this quarter, nice SG&A leverage, But, you know, as we're thinking about sales continuing to restrain here, how should we consider expenses coming back into the model? To what degree expenses need to come back to the model to support those sales?
I'll take the first one. Then, Enrique, you wanted to talk about the expenses. As far as, you know, acceleration, look, Brian, we feel really good. I mean, first of all, just back up a second. We're really pleased that this is the fourth consecutive quarter of comp growth. Obviously, this quarter we're pleased with the comps, especially, you know, all three months were positive. You know, as I think about the acceleration, and we talked a little bit about this last quarter, you know, I think this month or this quarter's performance is driven some by the macro factors, but I also think it's driven some by with what we have can control. And I would go back to some remarks I made in the last quarterly call, which is, you know, the quarter started off strong, and then we saw an uptick at the end of the quarter when there was speculation about the tariffs. And then I talked about that uptick towards the latter part of March and then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But I would just go back to even before we saw that the initial uptick, the business was growing, was doing well. And I think that's a reflection of a lot of the work that we've done, you know, internally, whether it's the inventory management, it's our pricing, this is our savings, it's the omni-channel experience, continue to make that better. so I think there's this performance is both part market driven I think it's also driven driven by us so you know we feel great about the uh the the rest of the year as I said at the beginning of the at the end of last year that we would expect to grow sales and and uh gain share this year and and there's nothing that's that's changed that that outlook and then Enrique yeah for SG&A um you know Brian we spent the past couple of years being able to lever SG&A and that's really given and all the actions we've taken on focusing on efficiency.
And, you know, we're committed to continuing to lever the business. I do think this quarter is really illustrative of the power of the model that we've built. So strong comps, and we levered SG&A almost 700 basis points this quarter. And when you look at the increase in SG&A for this quarter, primarily it was driven by variable costs. But, again, with those variable costs, we were able to lever, again, by almost 700 basis points, taking us to the mid-70% in the first. We're committed to continue doing that, and you can see the power of the model here.
Yeah, and, Brian, the only thing I would add to that is that's a big focus for us is continuing that leverage, and we certainly like the additional volume and how it helps that, but we're also very much focused on continuing to find efficiencies, continuing to take SG&A, and we just think there's a lot of opportunities still there.
Thanks, guys. Again, congrats.
Operator
Thank you. Our next question comes from Scott Ciccarelli with Therese. Please go ahead. Your line is open. Scott, your line is open.
Good morning, guys. Good morning. Bill, I know you guys don't guide, but with comp growth kind of bouncing around a bit the way it has, in comparison, it's getting much more difficult in the balance of the year. How should we, from an outside modeling perspective, be thinking about the comp growth on a go-forward basis? Are we thinking about stacks? Is that something that, like, two-year stacks or three-year stacks, is that relevant? I think I know, obviously, there's a lot of moving pieces on the macro and you guys are making all the changes that you've already cited. But just from a broader perspective, like how should we be thinking about the comp growth for the balance of the year?
Yeah, I'll tie back a little bit to what I talked about in Brian. But, you know, as far as like you can look at two year stack, three year stack, they tell a little bit of a mixed story. I think that's you can't rely 100 percent on that because there's lots of dynamics that happen over the years. And, you know, as far as the outlook for the for the rest of the year, we feel like we put ourselves in a good position. And as I said to Brian's question, we don't we're not changing our outlook for the for the year based off of what we laid out there for the beginning of the year. And so we expect to to continue to grow sales and continue to gain market share. And nothing has changed that that outlook.
And then I'll take a quick follow up if I can. can you just provide a little bit more color on the shift on the the non-prime like if i heard you correctly it sounded like there was going to be another 26 million dollar provision but you don't have to count it because it's now uh being held for sale was that the correct interpretation sure yeah i can take that question scott so first overarching let's just talk about the the help for sale transaction broader picture like we are super excited about our full spectrum strategy if you look at what we put in place we bifurcated our securitization program we've implemented our new models we've executed two transactions where we held the future cash flows and this is the next step the sell-for-sell transaction is something we have been thinking about along with other off balance sheet transactions but it was just the right time to move on this thing so the mechanics of it is ultimately for those receivables you do not need to hold any loss reserve because you have intent to sell them. So if those $630 million were able to not have to put dollars into the reserve, so that works for you in your provision line. Beyond that, there's no future risk there associated with those receivables if there were deterioration. Mention that in the prepared remarks. So that, again, is a risk mitigant there, especially really well targeted to this non-prime space, which we're looking to really drive growth in on top of that you're going to capture the gain when the sale closes don't know when the sale will close but you can imagine it's probably not in q2 but sometime after that which is going to bring all of those cash flows up front for us so rather than earning them over time we get them right up front so again a really pivotal thing for us in our strategy and just an extra extra tool in our toolkit regarding the provision in the quarter just as you mentioned just to play that out so So again, you had your origination volume. We signaled about $100 million provision in the Q4 call. We landed on that number, but there were puts and takes there. You had some increase in the provision from the true up 2022 and 2023 vintages, which we've mentioned. The economic view that we have, we've put aside not an insignificant amount of dollars for that as well.
But again, this help for sale, you're able to offset some of that with dollars you no longer have to hold in the reserve so long answer want to lay out the entire transaction how it plays out and how the provision was impacted by that so hopefully that that's clear I think Scott you know what I would add to that is we're really excited about the program I think a simple way to think about it is that it really enables full spectrum and CAF income growth while mitigating the risk so it's a tool that we're excited about as John had mentioned in his remarks we're also looking at other off balance sheet potential funding vehicles as well to further accelerate and help us grow our full spectrum strategy okay super helpful thanks guys thank you our next question comes from michael montani
Speaker 14
with evercore please go ahead your line is open uh yes hey guys uh good morning um congrats on the quarter thanks for taking the question thank you i just wanted to ask uh i guess the two-parter But the first part was you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multi-channel capabilities. So I'm just kind of wondering, can you share some basic levels of awareness kind of prior to that campaign and what exactly it is you're doing differently there? And then I guess the follow-up was just also related to credit, which was, you know, does this signal that you'll be kind of increasing subprime penetration as a percentage of the loans that you're issuing as well? And just how should we think about that?
Yeah, great. I'll hit the marketing and then I'll pass it to John to talk about the subprime question. As far as the marketing goes and kind of awareness there, Mike, we've built up our awareness on both digital capabilities and the fact that we can do an online sale. So that's been increasing through our marketing campaigns in the past. I think I talked about the last call. You know, we've gone with a new ad agency, 72 and Sunny, and we're really pleased with how the relationship is going. And, you know, I cited some Cox information, and I did that purposeful because if you look at how customers want to buy, they intend to buy Omni. But if you look at how the vast majority of them still buy today, it's all in store. And I think what happens is consumers, they want to buy a certain way, but then they settle. They go into a dealership, and they're forced to buy a certain way. And what we want to make sure that we educate the consumers on is that, look, you don't have to settle. You don't have to go for the one way a dealer has. You have optionality. So I think the campaign build-out is, like, don't settle. Like, you know, CarMax has the best experience no matter how you want to buy. and I think that is really going to start to resonate with folks as they're looking for options in the future. John, I'll turn over you on the subprime.
Yeah, Michael, I'll take your question on the subprime growth, and yeah, fair question. Short answer is absolutely we are looking to grow. We've signaled that very clearly. We made adjustments at the beginning of Q1, taking volume back. We signaled 100 to 150 basis points of growth. Now, that was muted because of a lot of stuff that happened in the first quarter tariffs etc we cited that in prepared remarks but yes we if you look at what we're doing from our full spectrum strategy we're putting things in place that allow and fuel that growth especially we think this help for sale supports that so if i were signaling you know a level to you of penetration because again we're at 42 43 historically we said we want to grow that um i i put a great first step for us at 50 we're not to get there this year we will tell you as we grow that but yeah that is our plan um and uh we're real excited about it a tremendous amount of value as we grow this um in the quarters and
Operator
upcoming years thank you our next question comes from chris potiglieri with bnp parabas please go ahead your line is open hey guys thanks for the question um so first off congrats on the mental agility around the subprime funding.
I think it's an interesting structure. I just have one clarifying question, just a broader question on credit. What percentage of new originations were classified as health for sale? Were those part of the $26 million you cited, or would that be incremental? And then my broader question is just, you know, obviously you elaborated on the, you know, the allowance stepping up and some of the factors that drove that. How much of this is like the macro environment with student loan lending?
Like, are you saying, like as the credit scores have dropped and credit performance in the broader economy has worsened a bit is that impacting capital is that measurable like what percentage of your customers have student loan debt i'm just curious if that's having an impact at all sure yeah i appreciate the questions chris sorry take them in order um so you know how do we think about the um the the provision takedown from the help for sale uh how much was it uh from new originations versus the the the fourth quarter originations or previous originations we had on the books that were already in the reserve. I'll just tell you the majority of it was from receivables that were already in the reserve. So yes, certainly some of it from Q1, but the majority were already in the reserve. So that handles that one. Second question, give a little more flavor around what we're seeing in the step up in the reserve, the 2.76%, what we're seeing in performance and as it relates to student loans. Yeah, as said in the prepared remarks, I think, you know, the 22 and 23 vintages certainly were uh ones that performed more unfavorably in the quarter again we think we have appropriately reserved and adjusted accordingly i did say in their prepared remarks actually 2024 we feel real good about we're um kind of on the mark there uh you know a year in on that stuff the year plus in on that stuff regarding student loans um yeah let's give you some statistics there uh in the cap portfolio about 30 percent of uh that we can see per the credit bureaus 30 percent of our customers have student loans we've been watching them as you might imagine for you know for years now um with the uh the thought of our payments going to be made what forgiveness has done for those perform and how they've performed ultimately what i'll tell you is we have not seen a material change in those customers um in the in the recent year as compared to what we've normally seen so we're watching this very very closely as payments are expected as it may impact their credit report, et cetera. We would hope that auto still remains top of wallet share for them, but we'll watch them closely, but no change to date.
And Chris, the only thing I would add there, when you think about kind of what I call the true up, that was primarily driven by the 22 and 23 vintages. And I just want to remind everybody, even with that, they're still super profitable. And then to a lesser degree, the kind of the economic factors as you lean forward, not in material, but I want to make sure everybody understands it's it's more of the the the the 22 23s that are driving that and and even with that they're still very very profitable yeah and to clarify that last thing i'll tackle on there is unemployment rates the big the big one that's driving that yeah again not insignificant contributor um but not the majority of it on the economic factor correct yes really helpful thank you thank you thank you our next question comes from sharon zafia with william blair please go Your lending is open.
Hi. Thanks for taking the question. I wanted to ask a question on CAF with the move to full spectrum lending. How far have you gone into kind of the full spectrum so far? Like, how do we think about that for the second half of the year? And then in terms of increasing that CAF penetration, I know there was, you know, there were moving parts in this quarter. But do you expect CAF penetration to increase, you know, year-over-year in the August quarter?
Thanks. yeah sure appreciate the question sharon um so let's just break down penetration as it as it typically sits you know caps has been historically sitting in where it's originally where it's normally originated 42 to 43 percent we've cited our tier two and tier three players taking combined caught 26 percent of volume as we grow that is definitely where we're looking to grow so um we're looking to penetrate that when you think about i think really yeah since your question is um you know how fast will we grow where you know that's really where we're looking to grow grow down there i think key for us will be we've got two securitizations in play we're looking for the help for sound transaction that we need to close that's got to happen we're just coming up anniversary on our models we put in place 100 to 150 basis points of growth at the beginning of the quarter now as we say to tariffs really through a bit of a snafu in that in showing that growth uh that we realized um but we have made move we've made progress as sort of that volume normalizes because so much of it came with non you know coming up with our own financing as that normalizes you're going to see that we have made progress on that and again we're going to look to grow that we will signal when that when that happens but i think you're going to see material growth we would expect in the not going to get there this year sharon at that 50 number i labeled but you're going to see hopefully material growth in the quarters to come sharon the only other thing i you know when when you think about the penetration speed there's
really two governors on that. One is having your funding available, and that's certainly taken care of. The other one, to John's point, is your credit model. Remember, you know, we had a lot of experience at the top. We had a lot of experience at the bottom, but then we put the full spectrum credit model in there, which we're still testing. I mean, John, how long has that been in play that, you know, August we launched it.
Yeah, so it just takes time to make sure your model is exactly the so those are the the two governors thank you sure thank you thank you our next question comes from david bellinger with me suho please go ahead your line is open hey everyone good morning nice results and thanks for the question here uh another run around the marketing spend in the new campaign and understanding the flexibility for consumers will be front and center, but is some of that new push being driven by this omni-cost neutrality that you mentioned in the prepared remarks and suggested that CarMax is now ready to flow more digitally initiated volumes and in a more profitable way going forward? We're just trying to gauge whether you're seeing a step change within the digital economics of the business and we're opting to put more marketing dollars behind that now.
Yeah, I mean, that definitely enables, You know, the push on efficiency, the productivity, customer service, all of those things, again, fueled by AI, fueled by our associates, definitely enabling a better experience, but then makes us feel a lot better about going out there and advertising and letting our customers know the incredible experience and highly differentiated experience that they're going to get through CarMax.
Yeah, I think, you know, David, the way I think about it, too, is, you know, FY25 was a big year for us from an experience standpoint and really closing some of the last big gaps, you know, with the rollout of order processing and shopping cart. And so we feel like we're at a point where if you're going to go out and celebrate this and really point direct customers to this fact that, like, you don't have to be forced into a fixed path. You better have best-in-class in-store. You better have best-in-class Omni. You better have a best-in-class online-only experience. And we feel like we're at that point where, like, we need consumers to understand you don't have to settle. And so that's a lot of the thrust why we're thinking about it now in addition to the efficiency stuff that Enrique has already mentioned.
Operator
Thank you. Our next question comes from Rajad Gupta with J.P. Morgan. Please go ahead.
Great. Thanks for taking the questions. I just had a couple of clarifications from some of the commentary. Firstly, any color on how the second quarter might have started? We've heard anecdotes in the broader macro around some meaningful pullback from just the pre-buy ahead of tariffs. I'm curious if your business has felt any of that here in June, any color you could give on comms there. And then just on CAF, I mean, obviously a lot of discussion there. In the last quarter, you had given us some guidance around the provisioning, cadence for the year, any color you could give us on how the second quarter might look like, especially in context of all the changes that are happening. That would be helpful. Thanks.
Okay, Rajad. On June, look, we're 19 days into it.
We'll talk about June when we talk about the second quarter at the end of the the second quarter the only thing i would add to that is just you know remember or you may not know this but uh the second quarter we do lose a saturday and it happens to fall out in the month of of june and then you don't pick it up for the rest of the quarter you won't pick that saturday up until the rest of the year john i'll toss to you on the provision sure yeah um yeah for just think about the cadence of provision uh for the year we would expect q1 to be the high watermark here we've made the adjustment that we believe needs to be made on those older vintages we feel good about the 24s obviously not withstanding the consumer and all that could happen in the future but but again we feel good about a reserve ideally this just be provisioning for new originations the only thing that could throw that is what is our growth plan obviously if we grow you're going to have to add provision accordingly for that non-prime space but we'll signal that when we're going to do any material more growth there so yeah i think the way you should think about it is what he talked about last quarter is we're going in the near term after the 100 to 150 basis points were, you know, well on our way there.
Just got a little bit mass this quarter.
Operator
Thanks for the cover.
Operator
Our next question comes from Craig Kenison with Baird. Please go ahead.
Hey, good morning. It's been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%. That was down from 82% in the February quarter. So I think you lost a point in Omni and a point in online. I know you're really focused on the Omni channel, but digital had been gaining share and clearly feels like the future. So I'm just curious if you can explain why that might have stepped back in this quarter.
Yeah, I think part of it is just seasonally. I mean, I think Omni is actually up a point and maybe online's flat or maybe down a point, but I mean I think it's more seasonally driven I think the the more interesting and the more relevant point is that we continue in the Omni bucket we continue to see more transactions more pieces of these digital capabilities being used and I think that's the more relevant point they know did everybody go to online or did everybody go to Omni it's like okay of your Omni bucket you're seeing that the number of steps that they're doing is is continuing to increase and then just to follow up on the marketing comments you've made how is ai changing the way you think about search engine optimization as part of this new marketing campaign yeah well i you know i think the the the big new buzzword is is geo instead of seo and you know it's that generative engine optimization that's what it's all about it's like how do you show up well so it's critical. I think if you're only focused on SEO, you're going to miss the boat. SEO is still super important. You still got to focus that, but now you have to kind of also be really good at GEO. So it'll play a big role in the marketing campaign. And I just think in marketing in general, I think, you know, generative AI, there's just a lot of potential there.
Operator
Thank you. Our next question comes from Jeff Lick with Stevens Inc. Please go ahead.
Good morning. Congrats on a great quarter, and thanks for taking my question. There was obviously, this quarter is a lot of puts and takes in terms of, you know, you expanding the credit spectrum, you know, kind of the tariff surge, and then also you guys have kind of been, you know, you indicated in your annual state, leaning into a bit more on the value cars, six to seven plus years. You know, maybe if you could just kind of walk us through, you know, anything, any call outs as the quarter progressed and, you know, and how those buckets influenced your impressive comp.
Yeah, I appreciate the question, Jeff. Look, I think take some of the noise, like the credit spectrum expansion, take that out. It's still a great quarter, okay? You know, we're really pleased with it and i think the the credit expansion look it's the next step we we've been we've been working through that it didn't we didn't contemplate in the provision of the fourth quarter but something we've been been working on so we're we're excited about that i think you brought up an interesting point on just the the age you know we did sell if i look at our let's call it 10 plus year old cars um you know we we increased we probably sold roughly 25 000 more of those cars. When I say it's like, think about the 10-year-old, the 11-year-old, the 12-year-old, and that's by continuing to really kind of push in that area, because we do know customers, they're interested, they want to buy, but even like this past quarter where we saw this higher no finance, those are folks that have higher credit, but interestingly, if you look at how they bought, they bought vehicles across the spectrum. In fact, our biggest growing contributor to sales this quarter was kind of barbell. It was the under $20,000 cars and the over $40,000 cars. And so I think having a good answer there for all those is going to be critical. And that's an area that we'll continue to focus on without sacrificing the quality standards of CarMax. But that is a work track that we're definitely focused on.
And between those two is really the under $20,000 increase in under $20,000 that drove our comp. So that focus on affordability. And internally, as you know, we color certain cars or older cars, more of a value max car. That was up five points year over year on the quarter as well. So those that bleeds into an under $20,000 car to focus on affordability and ability to meet the customer where they want to be met.
Great. I'll get back in the queue and let someone else ask a question. All right. Congrats again. Thank you.
Our next question comes from David Wisden with Morningstar. please go ahead your line is open thanks good morning i was curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to q1 spend and how financially stressed is the consumer right now in your opinion on the share buyback you know what i tell you is our intent entering this year was to modestly accelerate the pace of our buybacks as compared to last year and in the first quarter based on valuation based on cash flow dynamics we saw an opportunity to sizably increase the amount of share repose clearly. So when determining the pace for Q2 and beyond, you know, we'll have the same considerations, the valuation, cash flow dynamics, as well as the broader macro backdrop.
Yeah, and I think as far as the consumers, you know, how stressed that, look, I wouldn't categorize it as way more stressed than the last, but I certainly would say they're less stressed. And I think what you're seeing is some of the consumers are, you know, obviously we talked about the student loans, you can see some default on folks that have got student loans, we haven't seen any impact on our business. But I think there's also a little bit of kind of wait and see on tariffs, you know. While tariffs have impacted some prices, I think there's a lot of stuff was already, a lot of things were already in the U.S. before tariffs kicked in. So I think really we'll just need to watch going forward as prices go up on for everyday consumables how that might push them. But I would say from a consumer sentiment standpoint, you know, they're probably a little less positive about the future, but I don't think it's necessarily showed up so much in the buying habits at this point.
Operator
And once again, that is star and one on your telephone keypad if you would like to join the queue. We will move next with Chris Pierce with Needham. Please go ahead. Your line is open.
Hey, good morning, everyone. Can you just walk me through cost avoidance in other costs of sales i just i'm not sure what's the model going forward it was down 33 million bucks year over year and drove a pretty high yeah i just love to hear about cost avoidance there and what to think about going forward well i'm sorry which which line are you talking about seven million dollars in other cost of sales versus 40 million year over year and if you're talking about service we had an improvement of 30 million dollars in service line in our gross margin if that's what you're talking about then again we had benefits coming there from cost coverage that we had taken meaning we had taken some fees to overcome some of the cost
pressures we had last year we saw a leverage on our uh on a largely fixed cost base in service right so positive sales will create some leverage and then we continue to go after efficiencies in that business as well and we continue to deliver on those like we've committed to um on an annual basis that's why we saw the improvement 30 million dollar improvement so those that 95 percent other gross margin that's something i mean i guess actually we think about other gross margin going forward given the impact it has on eps yeah the gross margin that's certainly aligned when i talked about our earnings model and our focus on being able to deliver high teen eps growth over time and on uh you know mid single digit uh comps that is something that we're focus on is continuing to grow that margin, that other margin. And the key components in other margin are going to be service, like I just talked about. And the other component is our EPP products, right? We saw our EPP margin go up again this quarter. I talked last quarter about we're undergoing some tests in terms of product enhancements in our EPP products. We've been pleased with the results of those tests in terms of product enhancements. Those have to do with deductibles, terms, and we would expect to see a modest rollout in the back half of this year, and then with a full financial impact or more full financial impact as we head into FY27. But, you know, we are laser focused on other gross profit as a vehicle for growth in terms of fueling our EPS growth.
Yeah, I think, Chris, for your modeling standpoint, I think it goes to some comments earlier, because a lot of that's being driven by service, and, you know, the service in the first quarter is always the strongest. we would expect as we said last quarter to uh to be profitable for the year but you shouldn't expect the the the service gains equal like you saw in the first quarter for the for the rest of the year yeah and again and yeah i made a note of that in my prepared remarks as well the first quarter is usually the strongest when it comes to service just because it's the highest volume just seasonally in cost basis and so you're going to lever more strongly there but again we're committed to growing our other gross profit in totality as part of our earnings model moving forward
And that's what you see now for the past couple of years.
Okay, and then just lastly, going back to the first question, SG&A retail unit was down mid-single digits year-over-year, but it was sort of flattish if we look back two years So I just kind of want to get a sense of where we are in fully levering, you know, omni-costs and how would you think about this kind of going forward?
Yeah, I don't – we have opportunity to continue to lever our costs, whether it be specific on the the sales side when you're thinking about cec expense uh that kind of thing or just across the across the business and we have initiatives uh in pretty much every single area so we still feel like there's there's additional opportunity there yeah what you certainly see from us is a commitment to doing that it's been a couple years now where we've been levering and levering our sgna as a presented gross profit and whether comps were positive or whether comps were negative we've been able to successfully lever our sgna and we intend on continuing to do that thank you thank you thank you our next question comes from it's actually
a follow-up from rajat gupta with jp morgan please go ahead your line is open uh great uh yeah sorry sorry for the follow-up uh uh you know just wanted to follow up on the new off balance sheet approach and is it fair to assume that you know a lot of the incremental penetration uh that you see in the cap of, you know, from 42 to 50%, all of that will go through this off balance sheet approach, you know, basically trying to understand, like, what's the mix going to be, or what you're targeting in terms of on versus off balance sheet or cap. Thanks.
Yeah, appreciate the question, Rajat, and a fair follow up. So I think one of the things I wanted to drive home here was we think this is a periodic play for us. You know, it's obviously we have our higher prime deals. We don't think it's necessarily set up for this approach. Less volatility there, less risk in those customers. And the non-prime approach, especially as we grow from 42 to 50%, which you've cited. And I think it really does set itself up to, at some points in time, maybe we do want to retain that risk in all the additional cash flows that come with it, because there is additional value there. where we're willing to offload some of that risk, take the cash up front. And again, maybe there's a little bit of a haircut there, but I think it's an opportunistic play as we're going to see. So maybe it's once a year. We'll see how it plays out, but I wouldn't think about it as an all or nothing play here at all.
Yeah, I definitely wouldn't think about it that way. You look at the tier one business, we aren't changing that. I mean, think about it more, being able to expand on some things. Hey, at the end of the day, probably don't want to carry that. And so to John's point, don't think about it as all in one bucket or the other. It's going to be a nice complement of the two.
Yeah, they're definitely subprime receivables that we want to keep and hold for investment, and we'll continue to do that, absolutely. Think of this play, and I mentioned it earlier, just kind of simplistically. It's going to enable our full spectrum and calf income growth over time while mitigating some of that risk. So we're really excited for this program, but that's how I think about it.
That makes a lot of sense. and thanks for taking the question okay thank you and we have another follow-up from jeff lick with steven's inc please go ahead great thanks for taking the follow-up um i just wanted to double back or ask about retail gpus surprised we actually haven't hit on this you know it's a record at 2407 first time you've seen the 2400. you know last quarter you talked a little bit or and highlighted the, you know, improvements in logistics and then also recon, if we could get into the, if you wouldn't mind elaborating on the standalone recon centers, do that, do those have an immediate impact or does it, is it actually diluted for a few quarters or a year before they show up? And then I guess lastly on GPUs, are the 10 plus year old vehicles, I'm assuming those might have higher GPUs than the chain average.
So if you can just kind of talk about the, the improvements you're seeing there and and where the trajectory might be all right jeff i'm gonna try to hit it there's a lot in that question i'm gonna try to hit it all but you can keep me honest at the end so look yeah we're pleased with the retail gpus and i think the big the big thing there you should be thinking about and i i talked a little bit about this last quarter because someone asked how you think about retail gpus and i said look if you're modeling it think about it on a yearly basis and think about it being similar to what it was last year but i also said that you know, on any individual quarter, it's going to be up or down. And the reason I said that is because you've got to look at the factors in the quarter. And, you know, sometimes it's, you know, if you think about all the different things that go into the decision, you know, think about elasticity and price competitiveness and variable costs and how you're improving on that and ancillary services that you attach or products that you attach. There's going to be some quarters where you know what, and this is one of those quarters, like, look, we're going to take some of those savings that you're talking about from the reconditioning and logistics, and we're going to just flow them through to the to the bottom line um now as far as the standalone reconditioning centers look our the benefits that we're getting from reconditioning and logistics i just want to remind everyone we've had large reconditioning centers all all up until now because if you think about it we have 250 plus stores but we only have a little over 100 places where we produce cars we're seeing the benefits across across the board and and it's so early on the on the reconditioning side you know We just opened up a couple more large recon centers. We are seeing some improvements there, but that's more towards the logistics because we're having to ship cars from less out of market and being able to put them right there in the market. I think we've got one that's probably fully ramped to capacity. I would expect to continue to get synergies outside of those, but we're getting synergies across the board when you think about the reconditioning, and I would expect to continue to do that as we go forward. i missed anything okay oh yeah i did i did 10 year old cars yeah yeah the 10 year old cars yeah i mean you know historically we've talked about older cars you bring them up to carmax standard they're generally a little bit of a unicorn they will get a little bit more margin there you're able to make a little bit more margin on those on those vehicles so that's fair okay great well nice progress there all right thank you jeff thank you thank you we don't have any
Operator
further questions at this time, I will hand the call back to Bill for any closing remarks.
Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support. And as always, I just want to thank our associates for everything that they do and how they take care of each other and our customers. We will talk again next quarter. Thank you.
Operator
Thank you. Ladies and gentlemen, that concludes our first quarter fiscal year 2026 Corbex Earnings Release Conference Call. You may now disconnect.
