Operator
Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter fiscal year 2026 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, VP Investor Relations. Please go ahead.
Thank you, Angela. Good morning. Thank you for joining our Fiscal 2026 Fourth Quarter Earnings Conference Call. I'm here today with Tom Foliard, Interim Executive Chair of the Board, Keith Barr, President and CEO, Enrique Mayor Mora, Executive Vice President and CFO, and John Daniels, 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, prospects, and financial performance, are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations, and assumptions, and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them. For additional information on important factors and risks that could affect these expectations, please see our Form 8K filed with the SEC this morning, our annual report on Form 10K for fiscal year 2025, and our quarterly reports on Form 10Q previously filed with the SEC. Please note, in addition to our earnings release, we have also prepared a quarterly investor presentation and both documents are available on the investor relations section of our website. 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. Let me thank you in advance for asking only one question and getting back in the queue for more follow-ups.
Thank you, David. Good morning, everyone, and thanks for joining us. Today, I'm going to provide some brief commentary on a performance during the quarter. I'll also introduce our new president and chief executive officer, Keith Barr, before turning the call over to him to say a few words. After that, Enrique and John will speak to our fourth quarter results in more detail, as well as highlight a few key expectations for fiscal year 27 before we open the line for your question. In the fourth quarter, we made solid progress on the priorities outlined last call to strengthen the business. Prices, investing in acquisition marketing, and deploying an initial set of digital enhancements designed to drive conversion. We've also continued streamlining our cost structure and lowering the cost to bring cars to market, helping us offer more affordable vehicles. Concurrently, we made meaningful progress on our SG&A reduction goals, CAF full-spectrum ambitions, and extended protection plan redesign. Before I get to Keith, I'd like to thank David McCrae for stepping into the role of interim president and CEO over the past several months. As we search for the right leader to guide, David's leadership was critical in strengthening the business in the near term and solidifying the foundation for growth ahead. It will continue to be a tremendous asset to the company, serving as an independent director of Welcome Keith to CarMax. In searching for a CEO, we were looking for several attributes. First and foremost, a people-first leader who will establish a complex business, customer focus, and strengthening brands, maximizing the benefits of an integrated omni-channel model, and finally, experience-leading digital transformations. Keith embodies each of these characteristics, making him the right choice to lead CarMax through a critical juncture and drive the company's next job. All over to Keith to introduce himself and say a few words. Keith?
Thanks, Tom, and good morning, everyone. I'm looking forward to their trust and lead this iconic organization alongside our talented associates. For more than 30 years, CarMax has helped shape the way people buy and sell use cards and in doing so it's earned something rare the trust of its customers a customer and associate centric approach is central to how i lead and i recognized right away that it is central to carmax as well this is one of the many things that attracted me to this team access built something truly exceptional a beloved brand the combination of an unmatched physical footprint and strong digital infrastructure and an award-winning people first culture I am confident that we can build on this strong foundation and better serve our customers and unlock the significant opportunity ahead of us. Before joining CarMax, I spent my career in hospitality, holding numerous leadership roles in commercial, operations, and technology, and ultimately serving for six years as CEO of IHG Hotels and Resorts. I led a successful transformation that created value for shareholders through empowering associates and pioneering a better experience for customers that has become the industry standard on the surface hotels and used cars may seem different to succeed by delivering the right product at the right price in the right way for my time and hospitality was defined by placing the customer at the center of every decision the automark is evolving quickly and i believe a fresh outside perspective can be a real advantage especially when it's grounded in respect for the complexity of the industry, a deep understanding of the competitive landscape, and a clear focus on changing customer expectations. I believe there's a tremendous opportunity ahead to better meet the needs of today's CarMax's scale, including the fact that we reach 85% of the U.S. population, is a competitive advantage in this market. Paired with our brand and culture, we are well positioned for success. Recent performance has not reflected our potential. and closing that gap is exactly what we are focusing on. I have been spending my first few weeks deeply familiarizing myself with every aspect of the business. This has included meeting many talented associates across the organization, both in our corporate offices and in the field, studying our customer and associate experience in both the buying and selling journeys, assessing our omnichannel capabilities, and understanding our approach to recondition, inventory, pricing, marketing, and cash. In addition to the actions that Tom and David initiated during the fourth quarter, we're working hard to identify where we can improve, and when we have more detail, we will communicate our plans with you. What I can already say with absolute certainty is that we will put the customer at the heart of every decision we make to drive better performance. Through that lens, this is what we will prioritize, the obvious and easy choice. That starts with consistently delivering three things that matter most to customers. a competitive price they trust is fair, access to a broad selection of high-quality vehicles, and an end-to-end experience that meets the needs of used technology to drive more differentiated experiences and efficiencies. We'll use software, data, and AI in practical ways that make it even easier for customers to buy and sell cars and easier for our associates to serve them. That means reducing friction across the journey, personalizing the experience, improving how we match inventory and pricing to meet customer demand and ensuring a great experience both in our stores act with more urgency and intention while ensuring there is alignment across the organization we will change what is not working double down on what is and keep evaluating opportunities and risks as we move we'll be bold hold ourselves accountable and move with the speed as we build a durable, long-term growth engine. Your priorities are where we will begin, and I expect our work to evolve as I continue to listen, learn, engage with our teams and investors. We have a meaningful opportunity ahead of us as we strengthen the business and improve our execution to drive growth and returns. I look forward to sharing more about our strategy and long-term objectives in due time, and I'm confident in what we can accomplish. Now I'd like to turn the call over to Enrique to discuss our fourth quarter financial performance.
Thanks, Keith, and good morning, everyone. During the fourth quarter, we improved our sales trends and made progress toward our SG&A reduction goal, which we now expect to be greater than the FY27 exit rate reduction targets we had previously set. Our EPS during the quarter was impacted by restructuring costs as well as by a non-cash goodwill impairment, while our margins decreased from the prior year quarter as we continue our focus on targeted price reductions and driving sales. During the quarter, we delivered total sales of $5.9 billion, down 1% compared to last year. Across our retail and wholesale channels, we sold approximately 304,000 vehicles combined, up 1% versus the fourth quarter last year. In our retail business, total unit sales declined 0.8% and used unit comps were down 1.9%. This marked a strong positive change in trend relative to the second and third quarters, which saw used unit comps of negative 6.3 and negative 9% respectively. Sales performance in our fourth quarter was supported by the actions that Tom noted. Average selling price was $26,019, a year-over-year decrease of $114 per unit. Wholesale unit sales are up 3% versus the fourth quarter last year. Average wholesale selling price declined by $268 per unit to $7,776. We bought approximately 270,000 vehicles during the quarter, up slightly from last year. The actions that we implemented also supported a strong positive change in trend as compared to the third quarter, which was down 12% year-over-year. We purchased approximately 229,000 vehicles from consumers with approximately half of those buys coming through our online instant appraisal experience. With the support of our Edmunds sales teams, we sourced the remaining approximately 41,000 vehicles through dealers, which is down 9% from last year. Fourth quarter net loss per diluted share was 85 cents versus 58 cents in earnings in the fourth quarter of last year. Adjusted earnings per diluted share, a non-gap measure, was 34 cents in the quarter compared with 64 cents a year ago. Our EPS this quarter was impacted by a few items. This includes a non-cash goodwill impairment of $0.99 driven by a combination of a decline in our market capitalization, which coincided with a prescriptive impairment measurement period and pressured financial performance, and restructuring charges of $0.20 related to corporate workforce reductions and the early abandonment of the underutilized space associated with our Edmonds office. Altogether, these items reduced EPS by $1.19 this quarter. Total gross profit was $605 million, down 9% from last year's fourth quarter. Used retail margin of $383 million decreased by 10%, driven primarily by lower profit per used unit of $2,115, which was down $207 per unit from last year's record high fourth quarter. Wholesale vehicle margin of $115 million decreased by 7% from a year ago with lower wholesale gross profit per unit of $940, a decline of $105 per unit, partially offset by higher Other gross profit was $107 million, down 11% from a year ago. This was driven primarily by service. In line with the outlook we gave in the third quarter call, service was pressured by seasonal sales and the annualization of cost coverage levers taken last year. For the full year, service returned to profitability despite sales headwinds. Auto finance income of $144 million was down 10% year over year. John will provide detail on CAF in a few moments. On the SG&A front, expenses for the fourth quarter were $611 million. When excluding the previously noted restructuring cost, SG&A was $577 million, down 5% from the prior year. SG&A dollars for the fourth quarter versus last year were mainly impacted by three factors. First, total compensation and benefits increased by $31 million, driven by lower corporate bonus and stock-based compensation, as well as lower CEC payroll following the actions taken last quarter. These savings were partially offset by $12 million in restructuring charges tied to our SG&A cost reduction efforts. Second, occupancy costs increased by $27 million, including a $21 million charge related to the exit of our Edmonds office lease. That action will support lower SG&A moving forward. The balance of the increase was primarily timing related. Advertising expense increased by $6 million, reflecting higher acquisition marketing spend. Turning to capital allocation, during the fourth quarter we repurchased 1.3 million shares for a total expenditure of 50 million dollars. As of the end of the quarter we had 1.31 billion dollars in repurch authorization remaining. As we look ahead into FY27 I'll highlight a few key areas. We expect to take a more dynamic approach to margin management as we run the business. As a guidepost for FY27, we currently expect used margins for the full year to decline at a rate broadly in line with our fourth quarter year-over-year trend, although actual results may vary as we continue to optimize performance. We expect the first quarter to reflect the largest year-over-year decline at closer to $300 per unit as we lap record margins. This outlook reflects our pricing actions and our ongoing efforts to reduce logistics and reconditioning cogs in support of more competitive pricing and stronger sales. We completed our EPP product redesign and testing and have begun our national rollout, which we expect will drive approximately $35 per unit in margins in FY27. We will ramp throughout the year driven by the rollout plan. Regarding SG&A, we expect FY27 exit rate reductions of $200 million, an increase over the previous guidance of $150 million. However, the year-over-year savings within FY27 are expected to be offset, primarily as we annualize over the materially reduced corporate bonus and share-based compensation in FY26, which offsets approximately half of the FY27 in-year savings, inflationary pressures, and new location growth. With our focus on lowering vehicle pricing through lower GPUs and COGS efficiencies, we will be transitioning our SG&A efficiency metric to a per total unit ratio which will consist of retail plus wholesale units. We expect SG&A to lever in FY27 when excluding the restructuring charges incurred in FY26. Regarding capital expenditures, we anticipate approximately $400 million of spend in FY27, down materially from the past two years. The largest portion of our CapEx investment continues to be related to the land and build out of facilities for long-term growth capacity in off-site reconditioning and auctions. In FY27, we plan to open four new stores, two new off-site reconditioning and auction locations, and two new off-site auction locations. Regarding capital structure, our priority remains funding the business and maintaining financial flexibility. We continue to take a disciplined approach to our capital structure including managing our net leverage to preserve efficient access to the capital markets for both CAF and CarMax overall. With leverage slightly above our targeted range and as we focus on improving the business during this transitional period we have paused our share buybacks. Our 1.1 billion dollar authorization remains in place and we remain committed to returning capital to shareholders over time. At this time I I will now turn the call over to John to provide more detail on CarMax Auto Finance and our continuing focus on full credit spectrum expansion.
Thanks, Enrique, and good morning, everyone. During the fourth quarter, CarMax Auto Finance originated almost $1.9 billion, resulting in sales penetration of 42.8% net of free day payoffs versus 42.3% last year. The weighted average contract rate charged to new customers was in line with last year at 11.1%. and Tier 3 penetration in the quarter combined for 25.6% of sales, which was also in line with last year. The year-over-year increase in CAF penetration in the fourth quarter reflects our continued focus when expanding in Tier 2, supported by our flexible funding strategy and newest underwriting models. We expect our penetration growth for Tier 2 will accelerate in FY27. The quarter was $144 million, down $16 million from the same period last year. The loan loss provision was $74 million as compared to $68 million last year. Net interest margin on the portfolio was up slightly, both sequentially and year-over-year, at 6.3%. With the third quarter, credit losses in the fourth quarter were in line with our expectations. The $74 million loan loss provision largely reflects expected charge-offs on newly originated loans, including those tied to our credit spectrum expansion, primarily into the top half of Tier 2. Total reserves ended the quarter at $453 million, or 2.78% of auto loans held for investment. We also designated a $100 million pool of non-prime loans as held for sale during the quarter, which does not require a loss reserve. As signaled previously, we anticipate leveraging future off-balance sheet funding transactions strategically, as it supports our full-spectrum growth strategy by balancing income and future provision risk. While CAF income was down year-over-year in the quarter, this is largely reflective of a reduced held-for-investment receivable base, impacted by the $900 million 25B transaction executed in Q3, coupled with lower origination dollars over the last few years. CAF realized approximately $5 million in servicing fees during both the third and fourth quarters. The third quarter also included a $27 million gain on sale as a result of the 25B transaction. As we grow our volume in Tier 2, we will continue refining our funding strategy and earnings model throughout the year. We believe a diversified funding approach gives us flexibility to optimize returns beyond traditional third-party lender fees while maintaining appropriate risk discipline. More broadly, we see cap penetration growth as a contributor to the larger strategic goal of retaining a higher percentage of finance income. As always, we will carefully consider the current state of the economy and consumer as we shape our strategy, provide an update on our redesigned extended service plan, MaxCare, which focuses on mechanical coverage, and our new MaxCare Plus offering, which adds cosmetic protection. The redesign of these products is aimed at increasing penetration by improving affordability amid higher vehicle prices and has shown encouraging results across multiple markets to date. As Enrique mentioned, we have completed our product enhancement testing and expect to achieve nationwide rollout by Q2 of FY27. Now I would like to turn the call back over to Keith. Keith?
To open the line for questions, let me leave you with a few final thoughts, David, and all our CarMax Associates for the foundation they have built. We made progress in the fourth quarter to improve affordability and streamline our talk. My time I have spent with Associates in our offices and in the field has only reinforced my confidence in the opportunity ahead. If we do that well, we can be named by fortune as one of the 100 and more about our strategy and long-term objectives.
Operator
Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. As a reminder, we do ask that you limit yourself to one question. Once again, that is star 1 to ask a question. Your first question comes from the line of Craig Kennison with Baird. Your line is open. You may now ask your question.
Hey, good morning, Keith. Congratulations on the new role. I guess I'd start with, what are your general observations after the first few weeks in the role? And then more specifically, as you draw upon your experiences in the hotel industry, what are your thoughts on how to streamline the click-through experience at CarMax? It feels like that's an area where you lag the best-in-class experience.
Thanks, Craig. And, yeah, I'm thrilled to be here, and it's a pleasure to meet you. I think it's been great to get to know the team in the first few weeks, and what really stood out to me so far has been the caliber of our associates, both in the corporate office and in the field, and the culture that's really, really palpable. I mean, there's an amazing culture here in the company. And, you know, right now we're focusing on sharper execution on the fundamentals of the business about pricing, about selection, availability and experience and so it's amazing. It's an amazing team. I think you're right on the hotel experience you know one of my rallying cries in my old role was how do we reduce friction. Now if it takes us six clicks to do something how can we make it three? What are the things that really matter most to customers and really understanding that end-to-end customer journey both online and in-store and how we can streamline those processes. So that's gonna be one of my main focuses in the The omni-channel experience is just streamlining the experience and really making it easier for our customers.
Operator
Thank you. Our next question comes from Brian Nagel with Oppenheimer. Your line is now open.
Good morning. Keith, welcome. Look forward to working with you. So my question, just looking at this quarter, I think one of the big efforts here has been the price, I guess, price investment, so to say, in the used car business. So maybe you can discuss further, you know, what you saw in terms of elasticity of demand as you adjusted prices. You know, how much of the, while used car unit comps were still down, they did improve rather significantly from the prior couple quarters. I mean, how much of that could you attribute to these price investments? And I know you gave us the guidance for, at least some guidance for the first quarter, but, I mean, how should we think about these price investments going forward?
Yeah, Brian, thanks for the question. You know, the impact that we had on the quarter was really – there were several things that we did, right? So we took our prices down, and we also made improvements that we saw this quarter were pretty much in line with what we had.
So could I follow up quickly, David, on that topic? I mean, just to – is there a way to quantify, you know, again, looking at the improvement, so to say, that we saw in used car unit comps here in fiscal Q4 versus Q3 and Q2, is there a way to quantify? I mean, how much of that was a direct result of these efforts you took?
Yeah, it's not really. We haven't really talked externally about the price elasticity. We have a very deep understanding of price elasticity. It's not something we've necessarily communicated externally exactly what it is. But, again, what I tell you is that change in trend and that change, a positive change in direction, those three items drove it, lower prices, increased marketing, better selling capabilities online. But of those items, we do believe that.
I appreciate it. Hey, Brian.
I think it just proves price matters in this business. And we had let our, as we said at the beginning of last quarter, we kind of had let our prices drift up where we weren't as competitive as we'd like to be. And so, as Enrique mentioned, we took several actions immediately at the beginning of the fourth quarter. And as you noted, we saw a significant change. But clearly, the biggest one was price. And now, as you've heard the team talk about sales moving in the right direction, who's behind it, whether it's COGS or SG&A.
Operator
Thank you. Our next question comes from Rajat Gupta with JPMorgan. Your line is now open.
Thanks for taking the question, and I look forward to working with you, Keith. I have an initial question, just to follow up on Enrique's comments around SG&A. How much of the $200 million do you expect to hit this year's P&L? uh and could you double click a little bit more on you know some of the commentary around you know accruals and stock-based comp and how we should think about the magnitude there um and maybe on any of the grid rails around asgna you know with respect to add expense for you that would be helpful yeah no absolutely thanks for that um so a couple things i think one way to think about it is the exit rate dollars we have coming out of fy26 in between you know the cec actions we took last quarter, the Home Office actions we took this quarter that we talked about on the call, as well as the Edmunds lease, all those things combined mean FY26 we're exiting
the year with about $100 million in savings. And as we said, we have a line of sight to another $100 million, exit rate FY27. So some of those will be recognized within FY27, but really you're looking at a full realization in FY28 for a full annualization. What I would say though, and as I said in my prepared remarks, in FY27, the in-year savings we do expect to be offset as we annualize over the materially reduced corporate bonus and share-based compensation. And that's about half of the actual expectations we have for savings in FY27. Now, in normal course of business, we don't expect those items to actually be around, right, and have the same magnitude of impact. So that's really where you look at FY28 and you say, okay, that'd be a full annual. Like, look, we are laser focused and just to be absolutely clear we are laser focused on running as efficiently as we can I think that's taking up our target from 150 to 200 million is a sign of that intent and so you know we're certainly following forward and excited about those savings but again the full material the full impact part of your question I have like just quick follow-up please yes I'm just
curious like I just had a chance to look at the portfolio a little bit would you consider taking a look at just you know your store count uh as well and you know maybe think about pruning the number of locations you need uh the density you need uh i'm curious like how that would fit into you know how you're thinking about you know rationalizing and just creating more efficiency thanks yeah you know it's Enrique again as we go through our strategic planning process here with Keith uh Keith's new leadership it's certainly something that we're going to be assessing look we're going to go through a strategic plan outlook we're going to come back and as Keith mentioned in his prepare remarks we're going to come back at the appropriate time and communicate what those longer-term objectives are
what the goals are and the key underpinnings of that strategy so at the current moment I think that you know a lot is on the table and that's something that we'll be assessing as part of the strategy understood great thanks for all the color thank you our next question comes from Sharon Zakhia with William Blair your line is now open hi good morning Thanks for taking the question.
I guess as you think about kind of improving affordability and clearly taking this GPU hit currently, are you also kind of considering maybe relaxing some of CarMax's standards? And I don't mean on the mechanical side, but on the cosmetic blemishment side, is there an opportunity to sell a few cars with dings or modest scratches where it might be more affordable to the consumer and could be clearly disclosed given that most of the research is done online.
Yeah, Sharon, thank you for the question. You know, certainly if you look over the past year, right, we have taken a way of thinking to better do that is something that is part of our strategy we're going to consider, want them to be.
I think the one thing that we will not change, though, is assets that we have and that we're CarMax is known for a quality car, and that will continue. but you know there's probably items around the edges that we can take a harder look at and can i follow up i know keith's been there for like a minute but is there any kind of time frame when we should expect kind of a strategic plan and some maybe more concrete benchmarks on sgna per car and things like that yeah you're right keith has been here a minute we will be we have
our planning sessions that are that are underway here and that'll take us over the next quarter here i think in june you'll probably start to see some some headlines maybe i don't expect by june There'll be a full strategic path forward. But in June, you'll start to get a sense of where we're going. And then certainly after that, shortly after that.
Operator
Thank you. Our next question comes from Scott Ciccarelli with Truist. Your line is now open.
Good morning, everyone. So two strategic questions, if I may. First on sales. If price reductions and a $300 GPU drop were to accelerate comps to the positive range, would you expect it to push it even further because it's working? or is there a floor on GPU levels that you're kind of thinking about? And then secondly, on the SG&A side, it sounds like you have an expectation to improve the customer experience, especially with online transactions. But can you help us reconcile, like, you're also expecting to cut OpEx and CapEx pretty significantly, and presumably some of those things cost money.
Yeah, maybe just to start with SG&A. So we have increased our target, right, from $150 million to $150 million to $200 million. I think the key point here is that it's critical that we balance our cost production goals with our ambitions to grow to your point. There is a little bit of tension between the two. And I fully expect as part of our strategic planning deliberations, that's going to be a topic, right? We want to make sure we're running as efficiently as possible, but we also want to make sure that we're actually funding the business appropriately. And that may mean reallocating certain resources. It may mean reducing certain resources and in certain areas, perhaps increasing resources, right? But that's going to be a key point of tension as we build out our strategy, kind of moving forward. And then when it comes to price, I think the other lever to consider, right, that we're always focused on, but I think we'll take on heightened importance, is COGS and reducing our COGS. When you do that, you actually then have multiple choices ahead of you. You can either just take it straight and give it to the customer. You can take it to margin to help offset some of that pressure, or you can do a combination of the two.
And that's really something that we're laser focused on, kind of moving forward. that certainly will be a key tenant of our strategy moving forward as well hey scott i'm just going to build on what enrique said um in my past experience becoming a more efficient business and lowering sga sdna doesn't come at the team in this thanks guys thank you our next question
comes from daniela haggian with morgan stanley your line is now open hi keys congratulations on the role looking forward to seeing what what you and the team will accomplish here So I appreciate the overview on goals and understand we'll have to wait until June for the full strategic update. But I guess in the first, you know, 90 to 100 days here, what are the specific changes or low-hanging fruit that you'll prioritize to simplify that digital experience and improve conversion? And what are, I guess, areas or metrics that we can track against those goals?
Thanks for the question. Again, I've been here and had an amazing experience with spending time in the stores, in the office, and with the teams, and so I'm really enjoying learning about the car industry and understanding our strengths. And I guess I'll start with the company's made great long physical retail to create something that's really powerful. The team right now is incredibly focused on.
Correct. And again, in June, maybe some signals in terms of where we're going. June is really not that far. We'll do.
Operator
Great. Thank you. Thank you. Our next question comes from David Bellinger with Mizuho. Your line is now open.
Great. Thank you. Keith, congrats on the new seat. Two areas where we were looking for a bit more detail. First one on conversion. I know you just talked about this a second ago, but how do you assess the level and quality of traffic that's coming into your site and your app and just how you benchmark against others in the sector on conversion. And then second piece on vehicle inventories, looking at your app, you've got 55,000 cars in there right now. That's been as high as 60,000 or 70,000. So as you implement some of these new tools, even some AI tools, is there an opportunity to operate the business with simply less inventory while still giving that core customer the breadth and depth that they need? Thank you.
Yeah, I think on the inventory piece, I think, look, you know, that certainly is a key aspect that we need to consider. And we need to balance what is the right amount of inventory kind of by market. How quickly can we get it to customers? And I expect that will be the right amount of inventory. Is it less? Is it more? You know, we'll end up seeing what that looks like. And in regards to conversion, I think as well, that's going to be a key point of view. Like this past quarter, I would tell you conversion was relatively flat. Our selling opportunities were actually relatively flat as well. Our web traffic was up like 14% this past quarter. And for the first time in five quarters, we saw selling opportunities actually relatively flat as opposed to being down year over year. So positive movement there. And, again, conversion was relatively flat. But I think the items that Keith has pointed out in terms of getting the customer through our website, pretty immediately he's been here a hot minute but already identifying, I think, the key areas of opportunity for us moving forward. And look, our goal is to drive selling opportunities and also drive conversion as well.
Operator
Thank you. Our next question comes from Jeff Lick with Stevens, Inc. Your line is now open.
Good morning, Ed. My welcome to Keith. Question, Tom, this is probably to be your last call. We'll get the benefit of your wisdom. You know, I was wondering if maybe you could just give a little, any granularity or color. on just as you drop prices, obviously, you know, you didn't drop every price, $207. Some you dropped, some you might even have increased. Any color on where you do see more elasticity, you know, in terms of cohorts, age of car, you know, where you're getting more traction versus, you know, where you're getting less or where it's not worth it to, you know, try to play the price game?
You know, I think Enrique talked earlier about kind of optimizing the first. Hey, Jeff, how are you doing? He talked earlier about optimizing the price and cost differences. We're likely to drop a car $1,000, like 20% of the car is $1,000 to achieve the $200 price and do it in a way that we think will maximize the, you mentioned some of the, we felt like lower the prices, get sales moving in the right direction, and then pay for it by taking cost out of the business. And I think that'll be a theme for this team going forward as well, which is figuring out how to grow the company. There's no reason we shouldn't be able to grow this business with our current combination of.
And then just a quick follow up and maybe if you could chime in on your thoughts. I mean, Tom, if I think back, you know, call it 10, 15 years ago, you know, when it when the world was really all brick and mortar. I think the thought, the strategy was, you know, you're trying to have a used car lot that was a little bit, you know, more customer friendly than your typical used car lot would lend itself to selling, you know, newer cars. And it seems like there's less competition, you know, relatively speaking in the, you know, your value max. I wonder, you know, is, you know, culturally, would you, are you more willing now to explore that seven, eight-year-old, nine-year-old sale and, you know, kind of mix the person who's coming in looking for that three-year-old Jetta versus the person that's coming in looking for the eight-year-old, you know, Ford Explorer?
Again, you know, we're a demand-driven business. And Enrique mentioned earlier about internally, we call it value max. It's really just an older car with higher miles, but we want to keep it at the same quality standard. I believe, Enrique, our inventory was around 50% value max. You know, that was 15%, 20% 10 or 15 years ago.
Yeah, and again, this year we have absolutely increased. Meet the customer where they want to be met on affordability. You know, at the same time, Jeff, clearly, overall, if you take a look at the entire year, we're not where we want to be. We need to continue to assess what is the right level of inventory, what is the right age of inventory, and the price points. And that will be part of our deliberation, certainly.
Yeah, and Jeff, it's a double-edged sword. You buy older cars with higher miles, they cost more to recondition, and they take longer to recondition. So, you know, it's not – and Keith said it earlier, it's the right car in the right place at the right price. And so it's a combination of those variables.
Well, thanks for taking my question, and Keith, I'm looking forward to working with Thank you.
Operator
Thank you. Our next question comes from Michael Montani with Evercore ISI. Your line is now open.
Good morning, and welcome to Keith. Looking forward to working with you as well. I wanted to ask, if I could, John, if you could unpack a bit more some of the trends that we're seeing on the credit side with respect to roll rates and delinquencies, both in terms of on a like-for-like basis of credit quality in applicants, as well as given some of the mixed changes that have occurred maybe towards more up at the end of year two.
Sure. Yeah, I appreciate the questions, Michael. So with regard to roll rates and delinquencies, you know, I think across the kind of the auto lending industry, you know, lenders would say, you know, customers maybe absent exception of maybe the highest credit quality, the 800 plus FICO, you know, they certainly are feeling the stress of affordability, inflation, et cetera. So, you know, those customers from mid-tier one all the way down to deep subprime, you know, are feeling the stress. You know, delinquencies are higher, roll rates are higher, and for us as a lender, our job is to support them, help to service them, and then, you know, set the reserve accordingly in preparation for that. And I think we've done that over the last, you know, at the end of Q3, we've hit our losses right on the mark in Q3 and Q4, so we feel good about where we sit. but there is a stressed customer out there, and we are thoughtful on that. That being said, again, it's a highly profitable business. We provide a fantastic car and a fantastic experience, so that's why we are willing to go into the Tier 2 space, and we are growing that space. You've got loans of value of $3,000, $3,500 on top of the Tier 1 business, so we look forward to growing that. So we have shifted our focus. Obviously, we will always take all the Tier 1 volume, but we're growing in Tier 2. We signal that. We're 43% penetration this quarter. We anticipate that accelerating over the course of FY27. We've made market changes to grow that across the last year, including Q4. And so we will look forward to booking that Tier 2 volume. We were approximately less than 10% of Tier 2 a year ago. We're closer to 20% in this quarter of Tier 2 and actually exiting the quarter, we're actually a little higher than 20%. So we look forward to taking on that volume, servicing that customer, reserving accordingly, nailing that, and obviously generating more income for CarMax.
Operator
Thank you. Our next question comes from John Pepcoch with Barclays. Your line is now open. Please go ahead.
Thanks for taking my questions. I just have two quick ones here. I guess just first of all, on capital spending, you talked about how that's going to be down over the last couple of years. Are you able to provide any color in terms of where you're reducing spending, whether that's on the maintenance side or the growth side?
Yeah, it's actually a little bit of, you know, we're taking new stores down.
That's very helpful. And then also, just given everything that's going on in the Middle East right now, I was wondering, you know, I know you've talked about lowering pricing and, you know, marketing spend and everything else you're doing to really try to drive more traffic, drive more consumer interest in CarMax. Just kind of curious, though, I mean, how have the Middle East tensions impacted what you're seeing, and do you think that's going to have a notable impact on your overall year over your growth trends, or do you think that you can grow through, you know, despite that?
That's a great question. What I tell you is what I point you to really-
John, just to add one more thing there.
Operator
Thank you. Our next question comes from Chris Pierce with Needham.
Your line is now open. hey good morning um if we just fast forward a year from now and we were looking out to 28 would we i just want to sort of understand is it lower prices lower sgna per unit and structurally lower retail gpu or are there levers you can pull on the retail gpu side of the world as well and i'm just sort of asking because you've got a customer being aggressive on not a customer a competitor being aggressive on financing rates to customers like what would happen if that competitor got aggressive on pricing as well? I'm just sort of curious how you can kind of, could you pull this lever again and drive growth again, or is this like a one-time lever and retail GPU needs to sort of move higher over time?
Yeah, no, I don't think it's a one-time lever. Look, that you can either give to the customer, you can either take the margin, or you can, and it's one where we think we have opportunity and one that we're laser focused on. And we've actually seen that, you know, we do track our relative price competitiveness pretty much on a weekly basis here. And what we have seen is that that price competitiveness has gotten better and pretty much in line with what we expected.
And Chris, I'll just add to that. As Enrique mentioned about, you know, you talk about the retail side and the retail margin. We've signaled and, you know, clearly shown in what we're doing in the CAF side of it, there is clear opportunity on the finance margin. And we're going to go after that. We're excited about the EPP product and the added margin there. So, you know, we look at holistically, we're going to look at it dynamically, and I think we can really support in those two buckets as well.
Okay, and then just Enrique, if you could sort of help me kind of, if I think about logistics as part of VTLGPU, what kind of like lever are we talking about? Is that a couple hundred dollars or like just kind of bucket it a little bit? So if you do decide to take that back and pass something on, like what, how much of a lever is that on VTLGPU to the extent you can say?
Yeah, no, I mean, our overall spend on, we believe there's plenty of opportunity.
Okay. Thank you and good luck.
Operator
Thank you. Our last question comes from John Healy with North Coast Research. Your line is now open.
Great. Thanks for taking my question. Keith, why don't I get a big picture question? I know we've talked a lot about the retail approach, but your view on the financing business, are you fans of it? Are you liking the approach to kind of maybe reach down a little bit deeper in that category? And then secondly, just as you look at the capital structure of the business, you know, I always felt CarMax is unique in that it doesn't floor a lot of its inventory or much of it at all. Is that something that you would consider to do to maybe take advantage of maybe raising some capital to maybe recapitalize or buy in a lot of stock? Or how would you think about, you know, maybe even the need to have CAF and maybe try to be creative with that asset as maybe some other entities have recently done? So we'd just love to get your thoughts if that is something that's also, you know, on the table for you guys.
Thanks, John. And a pretty wide-ranging question. I'll take the first part, then I'll let Enrique talk about kind of capital structure. I was with the CAF team last week and it was absolutely fantastic to spend time with John and his team to see just the caliber of talent we have there and how we're thinking about the business. And as we build our strategy more about in June, it's really understanding all the leverage we can pull to make this a growth business and drive returns for shareholders. And so CAF is going to play a key piece in that. That's going to be in the lending environment. It's also going to be in the other products that we can sell. And then how does that pair into our overall selling strategy for the business? there's going to be a critical lever for profit growth for this company moving forward. And we're going to really kind of see how it fits into the broader strategy.
Things, you know, and certainly capital structure, supporting cap funding and all that is very dynamic. And it's, I think, number one on the revolver that we have is the most efficient use of capital. I would not expect that different levers too, such as a colon sales. Is that an opportunity, right, that we've been dealing with for years and new potential partners as well out that we're exploring. Thank you.
Great. Well, I think I'll put the last question. So thank you for joining the call today, for your questions and for your support. And I look forward to getting to know all of you better in the quarters to come. And we will talk again next quarter.
Operator
Thank you. Ladies and gentlemen, that concludes the fourth quarter fiscal year 2026 CarMax earnings release conference call. You may now disconnect.
