Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the CarMax Fiscal 2021 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Stacy Frole, Vice President, Investor Relations.

Thank you. Good morning and thank you for joining our fiscal 2021 second quarter earnings conference call. I'm here today with Bill Nash, our President and CEO; Tom Reedy, our Executive Vice President of Finance; Enrique Mayor-Mora, our Senior Vice President and CFO; and Jon Daniels, our Senior Vice President, CAF operations. Let me remind you our comments today 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 management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the Company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the Company's Form 8-K issued this morning and its annual report on Form 10-K for the fiscal year ended February 29, 2020, 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. I also would like to thank you in advance for asking only one question and getting back in the queue for more follow-up. Lastly, I want to take a moment to personally thank Celeste Gunther, who is retiring from CarMax. Celeste has been an integral part of our IR program for almost 20 years, and I'm sure you will all agree, she'll be deeply missed. Celeste, we wish you all the joy and happiness retirement can bring. Bill?

Great. Thank you, Stacy. Good morning, everyone, and thanks for joining us. As you read in our earnings release this morning, we delivered a record quarter with sales up 3.3% to $5.37 billion, net earnings up 27% to $297 million, and EPS up 27.9% to $1.79. This performance was the result of strength across all aspects of our business: retail, wholesale, and CAF. We are proud to be the nation's largest and most profitable retailer of used car. I'm also proud to say that this quarter we completed the rollout of our omni-channel offerings. This has been years in the making and has required a remarkable level of focus and change across our entire organization. During this time, we have evolved nearly every aspect of our business. From how we support and interact with our customers to how we structure our staffing to how we buy, sell and deliver cars. Our omni-channel experience is built to provide a personalized multichannel experience that empowers customers to buy a car on their terms. It is designed as a world-class in-store experience, a world-class online experience, and a seamless integration of the 2 giving us the largest addressable market within the used car industry. No other used car retailer is in the position to deliver this iconic customer experience the way we can. Now turning to our results. For the second quarter, we achieved a 3.9% increase in total used units sold and the used unit comp growth of 1.2%. In June, we experienced a high-single-digit negative used unit comp which was more than offset by positive comps in both July and August. The improvement in sales was the result of a variety of factors, including solid execution in operations, finance, and marketing in addition to a strengthening used car sales environment. In the quarter, we saw solid growth in web traffic, averaging approximately 29 million visits per month to carmax.com. During the second quarter, our saleable inventory was below our targeted level as we saw a rapid increase in demand from the first quarter. For the past three months, our teams have done a phenomenal job buying and producing vehicles at record levels, increasing salable inventory by more than 50% in the quarter. Today, I'm pleased to report that we've successfully ramped inventory to targeted levels, providing customers with more than 55,000 vehicles nationwide, the largest of any used car retailer. We offer a broad selection of inventory with a focus on zero to 10-year-old vehicles. This quarter, we saw 5 to 10-year-old vehicles increased to 27% compared with 22% last year as a percentage of our sales mix, reflecting customer demand for older and less expensive vehicles. Gross profit per used unit for the quarter was $2,214, up $31 per unit from a year ago. For wholesale, performance was supported by strong appreciation in the market and excellent execution by our teams. Volume was up 5.1%, driven by one more auction date in the quarter and a record buy rate. We also achieved record gross profit per wholesale unit of $1,086 in the quarter, the result of strong appreciation and operational execution. By the end of the quarter, we saw depreciation return to the marketplace. As a reminder, all auctions continue to run virtually throughout the quarter. As our results show, we have achieved a substantial recovery in our business. Over the past several months, our talented workforce has demonstrated incredible agility and ability to drive change in one of the most challenging environments that we've ever faced. We are proud to say that by the end of July, our team was back together again and we no longer had associates on furlough. We are now actively hiring across the country as we continue to grow our core business, enhance our omni-channel offerings, and pursue new opportunities. At this point, I'd like to turn the call over to Enrique to provide more information on our second quarter financial performance, and Tom who will provide additional detail around customer financing. Enrique? Enrique Mayor-Mora: Thanks, Bill, and good morning, everyone. For the quarter, other gross profit increased $6.8 million or 5.8%. EPP profits grew by $6.1 million or 5.4%, largely due to the increase in used units sold. In the quarter, we also recognized $8.2 million in extended service plan profit sharing revenues compared with $6.5 million recognized a year ago. In the second quarter, we maintained our ESP penetration above 60% compared with the prior year quarter. Service profits increased $4.5 million or 31%, which benefited primarily from the improved sales growth and the employee retention tax credit from the CARES Act. The increase in EPP and service profits were partially offset by a $5 million increase in net third-party finance fees attributable to a shift in our sales mix by finance channel. On the SG&A front, expenses increased 2% to approximately $9 million to $490 million. SG&A per used unit was $2,256, a year-over-year leverage of $44 per unit on the quarter. Excluding the impact of stock-based compensation, SG&A leverage was $97 a unit. Notable SG&A expense drivers for the second quarter were: the opening of 14 stores since the beginning of the second quarter of last year, which represents a 7% growth in our store base; a $12 million or $53 per unit increase in share-based compensation expense; a 7.7% increase in advertising expense and continued spending to advance our technology platforms and support our core and omni-channel strategic initiatives. Our ability to leverage SG&A in the quarter was supported by the decisive actions we took at the start of the pandemic to appropriately manage costs in a challenging environment. We furloughed associates and froze hiring for a period of time, rightsized certain functions, aligned other overhead costs to the business, and paused our store expansion strategy thereby reducing preopening costs in the quarter. We also experienced year-over-year favorability in the quarter due to lower self-insured loss and litigation-related expenses. We remain committed to ensuring we are efficient in our spend, and we expect that targeted areas of focus will continue to deliver improvements over time. Examples of these areas include improving the efficiencies of our customer experience centers or CECs, strategic sourcing, and inventory production. At the same time, we are very bullish about our future given our unique customer offering. We recognize that we have an opportunity to capitalize on our current position and grow market share. Accordingly, we remain in a period of investment as we continue to evolve our omni experience in the areas of vehicle and customer acquisition. We also planned in the back half of this year to increase our year-over-year spend in marketing which Bill will address shortly. From a capital allocation perspective, we remain focused on growing the business while managing with the appropriate amount of caution given the uncertainty that remains in the macro environment. Two key updates. First, we are ready to resume store growth and are currently planning for 8 to 10 new stores in FY '22. And second, subsequent to the end of the quarter, we fully paid down the outstanding balance on our revolver. Given the turnaround in our business, the strength of the credit markets and our solid balance sheet, we are confident that we have the appropriate liquidity and access to capital. Finally, we ended the quarter modestly below our historical leverage target of 35% to 45% adjusted debt-to-capital when netting out cash. I'll now turn the call over to Tom.

Thanks, Enrique, and good morning, everybody. Similar to our retail and wholesale business, CarMax Auto Finance and our partner lenders delivered with strong conversion in all credit tiers, and solid growth in cap income independent of the favorable loss experience. As we previously discussed, CAF made some temporary underwriting adjustments early in the pandemic, with the goal of ensuring financeable Tier 1 portfolio. While we remain cautious in our outlook, we are pleased with the trends we have experienced to date. Payment extensions are down significantly, delinquencies are trending favorably, and our July ABS transaction was well received. Consequently, in the back half of the quarter, we began originating our normal spectrum of Tier 1 business. CAF also curtailed its in-house Tier 3 lending at the start of the pandemic and did not originate any loans through this channel in the second quarter. Based on the trends I just mentioned, we have reengaged in the Tier 3 space in recent weeks. Now I'll turn to performance in the quarter. Net of 3-day payoffs, they were significantly lower year-over-year. Cash penetration was 42.6% compared with 42.2% a year ago. Tier 2 accounted for 22.3% of used unit sales compared with 19.7% last year. And Tier 3 was up to 11.1% compared with 9.6% a year ago. Year-over-year, cash net loans originated grew by 1% to $1.8 billion as the increases in used cars sold and penetration rate were somewhat offset by a lower average amount finance. For loans originated during the quarter, the weighted average contract rate charged to customers was 8.2%, down from 8.6% a year ago and 8.4% in the first quarter. The lower rate reflects our focus on a higher-quality portfolio for much of the quarter. Portfolio interest margin as a percent of average managed receivables increased to 6% versus 5.7% in Q2 last year. Combined with our growth in receivables, this drove an increase in total interest margin of 7.4%, independent of any favorability in the provision for loan losses. Total CAF income for the quarter was up 29% to $147.2 million. This improvement primarily reflected a reduced loan loss provision, plus the increase in both interest margin and average managed receivables. The provision for loan losses was $26 million in Q2, which results in an ending reserve balance of $433 million. That's 3.2% of average managed receivables, which is moderately lower than at the end of Q1. While its loss experienced in June, July and August was significantly favorable to the expectations we set at the end of Q1. The loss reserve continues to reflect the unpredictability of the current environment in the highly uncertain consumer situation. Our results in Q2 illustrate the importance of having a diverse group of lenders that can continually deliver high-quality finance offers to our broad range of customers in all economic environments. In addition, having a fully functioning captive finance such as CAF offers numerous contributions to the business model that are difficult to replicate. Now I'll turn the call back over to Bill.

Great. Thank you, Tom, Enrique. As I mentioned earlier, we have completed the rollout of our omni-channel offering. The powerful integration of our online and in person experiences give us the largest addressable market within the used car industry. Along with the ability to buy online, customers are also seeking experienced guidance along the way. We are uniquely capable of providing this help whenever and wherever the customers want with our centralized CECs, experienced floor sales consultants and personalized e-commerce capabilities. Buying a used car is still a highly considered and complex purchase. Customers don't want to be forced to interact 100% in-store or 100% online. Our competitive advantage is giving customers the option to seamlessly do as much or as little online and in-person as they want. While omni is now rolled out nationwide, it is still early in its evolution, and we will continue to make enhancements to meet and exceed our customers' current and future needs. One area of focus is our CECs. And although a relatively new capability for us and still maturing, they are quickly becoming more effective than our previous model. An example of how we are optimizing performance is by leveraging our data advantage and machine learning to ensure we get the right work to the right associate at the right time. We capture our customers' online interactions, combine them with the information in our customers' data mark, and provide a truly personalized experience that is much more effective in meeting the customer needs and improving our conversion rates. We believe that we have an unmatched opportunity to create a superior customer experience by leveraging our data and technology advantages, both online and in-store. Digital merchandising is another area of continuous improvement. By the end of this year, we will have rolled out approximately 95% of our photo studios, which provide a more immersive experience with high-quality photos, 360-degree interior and exterior views, feature scoring hotspots and reconditioning with new part call outs. We also continue to upgrade content on our website to help customers fully research a vehicle without ever having to leave carmax.com. All this provides our customers more confidence as they progress online. The other omni area of focus that I will highlight is our customer hub, which provides customers a means to track the progress they have made, both online and in-person. It is here that customers can manage certain aspects of their car-buying journey. They can book mark and save vehicles they've selected online. They can submit financing pre-approval and compare their financing options. They can also get an estimate or an actual offer for their trade-in. And finally, they can complete the checkout process in the hub for the car they selected online or in-store and choose if they want a home delivery or a curbside pickup. Our omni-channel experience has been well received. Approximately 70% of our customers interacted with our CECs this quarter. Additionally, approximately 50% of our customers progressed their sale remotely, up from about 42% pre-COVID. Most of these customers still chose to come to the store to complete their transaction, and approximately 30% of our customers still opted for an in-store experience only. Again, the advantage of our business model is that customers have the choice as to how they progress their experience. This is what gives us the largest addressable market. We are focused on driving customer engagement strategies to ensure we continue to remain top of mind and the first choice for car buyers and sellers. We launched a national marketing campaign last year, which has reinforced the strength of our brand and established a solid platform for future campaigns. We've now introduced our omni-channel offering nationwide. Accordingly, as we go forward, our messaging will focus on clearly differentiating our brand from digital-only and traditional dealer brands by demonstrating the benefits of our omni-channel offering. Additionally, we will be increasing our year-over-year marketing spend in the back half of the year to expand our teams and investments in areas such as SEO, SEM, messaging, content and social. Our goal is to drive high ROI customers to our digital properties, while empowering us to create multichannel personalized campaigns. We have a unique retail customer experience that we are continuing to evolve to exceed our customers' expectations. At the same time, we are identifying and investing in new initiatives that we believe will also be solid contributors to our earnings growth. All of this leads to a very exciting future, but none of this would be possible without our great associates. I want to recognize all of them and the high-performance culture they maintain here at CarMax, a culture that values all individuals and perspectives. Over the past several years, we have taken on the largest transformation in our company history, evolving nearly every aspect of our business. We also accomplished all these great results in one of the most challenging environments we've ever faced. And through it all, our associates have continued to live our values every day by putting people first and taking care of each other. I am very proud of what we've accomplished, and I'm excited about the opportunities ahead. At this time, we'll be happy to take your questions.

[Operator Instructions] Our first question this morning comes from John Murphy from Bank of America. Please go ahead.

Great execution in this environment, it's really impressive stuff. Bill, there's one statement in the press release that is kind of intriguing. You're saying inventory was a headwind to sales in the quarter. I'm just curious if you kind of expand upon that, if you think that will be relieved here in near term, it sounds like in September, it was to some degree, but also as all these omni-channel efforts bear fruit and bring customers in, how do you think about sort of the change in inventory management as your addressable market grows dramatically, and do you need to inventory more or think about inventory in a different way than you have historically?

Yes. Thank you, John. Well, first of all, I think omni or not omni, it won't change how we manage our inventory. I think it's one of the strengths of the Company that we've fine-tuned over the last 27 years, and we continue. And I can't say enough about the team. I mean, bumping up our inventory during the quarter about 50% is truly tremendous. And I think in any normal environment, having that amount of inventory shortage would be a significant headwind to sales. Now having said that, we're far from a normal environment, and I think it's hard to quantify the exact degree of how much it impacted our sales other than it absolutely had an impact to sales. But in the COVID environment, there are a lot of other competitors that were light on inventory. You had some stimulus money out there, so it's hard to know kind of what the offsets were to that headwind. But again, I'd just go back to saying that the team has done a remarkable job both buying and producing to get us into the spot where we are today. We ended the quarter. We were still light on inventory when we ended the quarter. But as of today, we feel really good about our total inventory position.

Okay. And just one follow-up real quick. I mean, on -- in the future as omni-channel expands, I mean, would you think you need to bump up your inventories, you have to go with that or would you just be turning and be much more efficient on inventory? Just trying to gauge inventory would go up 10%, 20%, 30%, 40%, 50% as these efforts really take off and if there would need to be something else in the mix or are you just much more efficient on inventory trend?

Yes. I mean, we went down the omni path, because we expect this. This is a better customer experience, and we expect to sell more cars. And if we're selling more cars that will also be reflected in our inventory, we'll have more inventory. So -- and I think that's the way we've managed the business for the last 27 years. I don't see that deviating, so So as we have more sales, we'll have more inventory.

Our next question comes from Sharon Zackfia from William Blair. Please go ahead.

I guess a question on customer awareness of omni-channel. So, I'm glad to hear you're going to be bulking up the marketing around that, and that can happen in the fiscal year. But do you have any measures as to what kind of broader customer awareness is nationally versus maybe Atlanta where you started? And then a corollary question that adds as the tail. Given this is a long purchase cycle, in those early markets, do you continue to see that tail of omni-channel relative to kind of the more recent markets where you've rolled it out, if that makes sense?

Yes. So Sharon, I think, first of all, for the broader awareness. I mean, I think now is the time to really let customers know that, hey, everything that's in great about CarMax is still there, but we have a lot of new capabilities. So we really haven't unleashed that up to this point. I mean we've had some marketing campaigns. I can't give any specific market awareness about omni-channel, but it is one of the reasons why we're going to step up advertising as we go forward. As far as how we feel -- if I look at our older markets, say, the Atlanta market, we feel great. We feel great about the gains that we're seeing in the markets. We also feel great about the awareness because, obviously, it's been around a little bit longer. But I do think the advertising message going forward is going to be -- it's going to be different, and we'll make sure that people understand the difference between us and traditional dealers and online competitors.

Bill, just a follow-up. How quickly are we going to see the new marketing?

You will see it later this year.

Our next question comes from Craig Kennison from Baird. Please go ahead.

Celeste, best wishes to you. Thanks for all your support. Question on the wholesale business. Wholesale GPU was up $174. How much of that is a byproduct of higher prices versus a lower cost to process the vehicle? And then to what extent has the pivot to digital auctions increase the number of buyers at auction from like a broader geographic radius?

Yes. Craig, yes. So wholesale performance was outstanding and I think a lot of it was driven by the appreciation. It's interesting. As COVID unfolded, we saw some of the most rapid depreciation in a very short period of time. We also saw the most rapid appreciation. I think from the depth of COVID, there's probably a $3,000 to $4,000 swing in vehicle value. So obviously, as that's going up and appreciating that, that certainly is a tailwind. But I wouldn't minimize the execution of our teams as well. Especially early on in the quarter, there was a lack of supply, a lot of this stuff because some of the traditional auctions just weren't open and up and running. And our team pivoted quickly, got the sales -- all of our sales virtually. They continue to be all virtually. We're working through individual local mandates as far as when we can open them back up. But our goal will be to get ourselves physically opened again, but also complement them with the simulcast, and that's the plan as we open up the new auctions going forward. As far as the impact of the digital, look, I think having digital will do nothing but enhance the overall experience because it will hopefully open up the door to more participants. And you know if you have more folks at your auctions, hopefully, that drives the price up. And then we can offer more in price line. And I think you saw that. I mean, we're really proud. We had that record by rate this quarter, and it's not by a little bit, it's by a lot. We were traditionally here lately. We've been in the low 30s. Now with this -- what we saw this quarter, it was the high 30s. So it was a substantial step up.

Our next question comes from Seth Basham from Wedbush Securities. Please go ahead.

Can you give us a little bit more color on your gross profit per unit on the retail side through the quarter? How that trended? And what your outlook is as it relates to that?

Yes. I think the GPU was fairly consistent throughout the whole quarter. I mean, I think we've been able to prove that we can manage in all different types of environments, the GPU. And I don't see any reason going forward that we wouldn't be able to continue into that traditional range. But I always give the caveat that we continue to test and check pricing elasticity because we want to make sure that we're driving the most total gross profit dollar. So I think as you look forward, I don't see a reason why we can't maintain those GPUs.

That's helpful. And as a follow-up, you mentioned some efforts around strategic sorting. Could you provide some more color what you're referencing there?

Yes. So I think, first and foremost, we want to accelerate and prove in our core buying channel. So that's both off-site and the in-store appraised lane. And the way I would think about that is it's not only our processes but leveraging data and technology better. And I think that's important because we're the largest buyer of used cars in the U.S., and we value more than 6 million cars on an annual basis. So continuing to make incremental changes there is significant. We also want to open up some new buying channels and expand our capabilities with some of our partnerships and other businesses. And then I think another area that I kind of put into the vehicle acquisition bucket is, we will continue to invest in our wholesale business. We're working ona new auction platform. The auction platform has been here since I started CarMax. And it's time to upgrade that. So the way we think about it is on a bunch of different fronts.

Our next question comes from Scott Ciccarelli from RBC Capital. Please go ahead.

Bill, I know you said you feel great about your performance in Atlanta and some of the older markets, but can you help quantify the usage of your omni-channel capabilities in markets where you've had that capability for a few quarters? And then I guess related to that, is there any way to size the overall sales lift that you think omni generated for you in the quarter?

Yes. First of all, Scott, I think the incrementality of omni is really difficult to measure. Because you can't say, okay, well, you measure it just by who has it delivered to the home or who's in the store because we have lots of instances where customers that are coming to us anyway. They start online and they decide to have a home delivery or folks that come to us now because, "Hey, I want it delivered to my home, I want everything online" and end up coming into the store. I think for us, obviously, rolling this out is because we believe that this is a superior model to deliver to the customer. And at the end of the day, it's all about sales and market share. But I'd tell you, along the way, the most important thing is us measuring the customer experience, no matter how they want it. So we'll be looking at different metrics, the CEC engagement, online progression, in-store only customers, alternative delivery customers, but we'll really be focused on the experience of those customers and how they feel about that, and we'll continue to move that needle. And everything that we've seen, whether it's in older markets or newer markets that we rolled this out, it is being very well received. And this is despite having some just inherent headwinds, and I would go back to the CECs. They're immature. We have a lot of new folks there. We have new technology. And while we expected customers to migrate to this, we did not expect them to migrate as quickly. So in this quarter, we had more leads than we could actually handle in our CECs at certain times. So that's a headwind. And I think there's probably some experiences that we can improve on that customer experience as well. So again, we feel great about where we are today. And while it's the end of the rollout of omni, we really think about this as kind of like day 1. This is where we're just getting starting -- started, and this is kind of where we springboard to the future.

Our next question comes from Brian Nagel from Oppenheimer. Please go ahead.

First off, Celeste congratulations. Thanks for all the help all over the years. Much appreciate it. So my question, I guess, Bill, it's bigger picture in nature is, I'm listening to you today, and congrats on the execution here in a very tough environment. You're really performing well. But I hear your partner saying is that, look, you're almost caught -- you're moving path, a crux in the crisis with COVID and your -- you also now will begin positional leverage a lot of the omni-channel investments you made. So the question, if you look at -- if you just take a step back yourselves and just kind of look at the overall environment, I mean, how would you characterize just the demand, right? The consumer demand now, maybe -- I recognize you don't give guidance, the demand dynamics now and going forward versus what they were pre-COVID?

Yes. It's Brian, I mean, you can imagine, that's a hard question to answer. I mean, look, there's still a lot of uncertainty in the marketplace. We have, obviously, high unemployment. You've got the rising COVID cases. This is an election year that always can throw a little wrinkle into things. We've got continued social challenges. But all that being said, I mean, I think if you look at the back half of the quarter, when you look at July and August performance and how that trend continued into month-to-date to September, we feel good about where we are, given all those uncertainties, and yes, there could be -- just with the external environment, there could be some bumpiness just for some macro factors. But again, we -- what we work on is things beyond -- we look beyond the next quarter. But I'd tell you, I feel great about where we are right now, and we're going to keep progressing.

If I could just slip one follow-up in -- sorry, Stacy, I think you may have alluded to this. I know you typically don't talk about quarter trends. But how is the business here early in fiscal Q3 or September tracked relative to what you saw in the last couple of months of Q2?

Yes. Well, first of all, you're right, Brian. I don't like talking about these trends. But I do think in this environment and look I hope we get away from really having to talk about the environment. That will mean things are a lot better. But I think in this environment, it's appropriate. And so yes, September month-to-date, we're seeing the trends of July and August continue, which is great, considering there's still headwinds out there. So, we feel great about it.

Our next question comes from Michael Montani from Evercore. Please go ahead.

I just wanted to follow-up on the digital process a little bit further. And I guess three parts to the question. One was on kind of an update on remote appraisals. If you can just share the capability set there and then future upgrades to it. Secondly was on -- in the past, Bill, you've mentioned, I think, 1 out of 10 multichannel transactions were home delivery. So I just wanted to see if you could update us on how that's trending? And then the last thing was 70% of transactions, it sounded like were multichannel. So was just curious about in the more mature markets, how that percentage would compare to, obviously, some of the markets that have just been getting the capabilities more recently?

Okay, Michael. So first of all, on remote appraisals, like I said in my opening remarks, if you're going through our customer hub, trying to buy a car and bring it to your home, we absolutely give you the option to either get an estimate or an appraisal. We are -- we've got some tests going on right now with instant cash offers in markets and look to expand that. So there'll be more on that in the near future. As far as the 1 out of 10 home delivery, it's actually the way I've talked about in the past is really alternative delivery. And under alternative delivery, it's the curbside pickup and the home delivery both combined. And in the first quarter, we saw that spiked up during the quarter. We ended up around that 10%, a little bit under 10% after the -- at the end of the first quarter. And again, I would say that we're still below that 10%. And most of the customers, even though they are progressing online, they still prefer to come into the store. And then on the 70% CECs, again, that 70% of our customers are engaging with the CEC. Doesn't necessarily mean they're all doing online progression. That's the 50% number that I gave you. And I think as far as how does that compare to older markets, that kind of thing? Look, I think, it continues to grow. That 70% if you remember the first quarter, I talked about it, and it was north of 60%. So we've even seen a growth there. Now some of that is the fact that we finished rolling it out. But I would expect to see that number continue to go up, just like I would expect to see the progression of customers go up in the future as customers want a more personalized experience.

Our next question comes from Rajat Gupta from JPMorgan. Please go ahead.

Just had a couple on the SG&A side, you talked about the marketing expense going up during the second -- in the second half of the fiscal year. Could you give us a sense or quantify the degree of expense expansion we might see there? And how should we think about what the normalized expense per unit should be here going forward? And I have a follow-up.

Yes. Yes, you're right. I said it will be going up in the second half of the year. But I think the way to think about that is in the context of overall SG&A. And we've said in the past, hey, look, it's going to take 5% to 8% comps to leverage. We've picked up some efficiencies in SG&A. We absolutely expect to reinvest those back into the business. So even with the step-up, I worry less about what the advertising cost per car is, and more about in this context of the SG&A. Even with the step-up, we still would expect on an annual basis to lever at that 5% to 8% comps. Keep in mind, in any given quarter it can dramatically, dramatically swing. Enrique Mayor-Mora: And I'll just add to that. With -- during the pandemic, we took strong and rapid actions to lower our cost structure. With business improving, we've brought back a lot of those operational spend dollars. But we did make some structural changes in staffing and in operations that we do expect will yield savings moving forward. We're also focused, as we've mentioned a couple of times on efficiency and our CECs. That being said, we are in growth and investment mode. So I look at those savings that we're targeting to be at least partially reallocated to higher ROI and our strategic investments that are aligned with our growth plan. So the savings will be used to help fund our growth. And as Bill mentioned, the way to think about it is leverage with that same 5% to 8% comp that we've communicated in the past.

Yes. And we have -- I would say, we have efficiency savings, I think, across the board. I mean it's not only store efficiencies, it's not only CEC. I think about kind of also improvements in logistics, improvements in wholesales. And I think all of those provide opportunities, whether it's SG&A savings, SG&A reinvestments, cost of goods sold reinvestments. So it's not just one or two areas. I think it's across the business.

Got it. And just on the SG&A, more of a housekeeping item. The other overhead costs of $65 million, I mean that seems to be tracking well below normalized levels, is there still some catch-up to be had there here in the next quarter? Just curious as to if there were any permanent reductions there? Or how should we think about that going forward? Enrique Mayor-Mora: Yes. I think the way to think about that is roughly half of that favorability year-over-year reduced specifically to the cost-cutting efforts we undertook as well as certain spending limitations given the environment. But we reduced contractor spend our pre-open spend, relocation spend. And so those are cost cutting efforts. The other half is what I mentioned in my prepared remarks, was about higher self-insured loss last year and litigation last year versus this year. So again, half kind of cost cutting, the other half, I would view more as a onetime.

Understood. Sorry, just to wrap that up, the 5% to 8% comment that you made, is that now -- is that like a rolling forward comment here? Just curious as to when that drops down to a lower level? Or is that still like something you should expect for like the next 12 to 18 months or 24 months? I'm just curious how we should be thinking about that leverage dropping lower? Enrique Mayor-Mora: Yes. I would think of that as an annualized number moving forward. Again, from quarter-to-quarter, there's so much that can happen within a quarter. So I would view that, again, moving forward, at least the next 12 months is how we're viewing the business.

Yes. And the other thing I would tell you is, and I said this in one of our previous calls, if all we were focused on were omni this year, then we would have -- that guidance, 5% to 8% would have been less than that. It would take less to do that. But obviously, to Enrique's point, we are in investment mode. And there are some things that we're investing in that will pay benefits in other parts of the business. So for example, improvements in wholesale may not necessarily drive the leverage on a retail cost per car sold. But it will drive improvement in wholesale, which will be top line and bottom line benefits of the Company. So I think that's another important thing to remember in this whole discussion as well.

Our next question comes from Rick Nelson from Stephens. Please go ahead.

A quick question for Tom, related to CAF. Last quarter, you talked about an expected loss rate of 2% to 2.5%. If I look at this quarter's provision, $26 million, that represent 1.4% of receivables originated. Charge-off rate was below historical norms, curious about the expectation as we push forward.

Okay. Yes. Let me do a couple of things. One, I'll start with give you just a little more color around the loss provision. And then we can talk about that expected range. But -- we talked about income was materially supported by lower loss provision. At $26 million versus the $45.5 million last year, that reflects approximately $55 million of additional reserve for the originations we had in the quarter. And then $30 million of favorable development arising from the loss performance we saw in economic adjustment factors. And I will say that we -- the economic adjustment factor has actually tempered the impact of our strong loss performance and where we landed on the provision. So while we saw loss performance of substantially better than what we had booked at the end of Q1, that merited some release of the reserve. But as I said in my prepared remarks, 3.2% the overall allowance still reflects some uncertainty facing the economy and consumer behavior. And with regard to our target range, obviously, we can't do anything about the portfolio that's out there, what is -- it's what is. But we've seen improving performance. We're pretty confident about the capital markets and our ability to finance. I mean, if you look at our last deal, we had a pretty significant spread between APR and cost of funds, one of the highest in recent memory. So even in a little bit higher loss environment, that spread allows you to still make a good return on the business. So we looked at all those factors. And we're comfortable for a period of time, riding a little bit higher than the 2% to 2.5% range, given where everything is falling out. We believe it's worth the investment to get the return on that money rather than giving the profit to someone else right now.

Got you, okay. That's helpful. Then I think 6% this quarter haven't seen that since 2016. Any spread targets as we push forward?

It's hard to say. The 6% -- the expansion we saw this quarter really as a result of funding costs coming down. And then obviously, when we look at our rates that we charge customers, our goal is to make sure that we are a market lender, and we're competitive. We're not angering anybody about what the offers they see from CAF. And during the quarter, we didn't see any need to drop APRs. And as I always say, we'll look at that on a go-forward basis. If competition allows us to preserve those margins, we're going to preserve them. And if competition gets aggressive and the market demands a little bit less margin in the finance business, we'll act accordingly. But right now, we feel good about where we are.

[Operator Instructions] Our next question comes from David Whiston from Morningstar. Please go ahead.

Question on used gross margins per unit, they were up 50 bps because your dollar profit was relatively flat as despite -- and ASPs went down. But how were ASPs able to go down despite higher auction prices? Were you just more self-sufficient in the quarter?

Yes. So it's a great question. So the ASPs went down. The reason they primarily went down is because of that mix shift that I cited earlier where we sold a higher percentage of older vehicles. So that takes it down. Acquisition price was fairly flat. I think there's a lot of inventory that we bought during the quarter that hasn't necessarily sold that is a little bit more expensive. But the main driver of what you see there is the mix shift in age.

Okay. And then is it fair then that you're probably not going to assume that's going to be a long-term trend, especially if they can get better?

The mix shift or just the average selling price going down?

The mix?

The mix, look, I mean, the beauty of the business is, we'll have out there whatever our customers are demanding. So if the customers want old or less expensive cars, then we're going to make sure we put them out there. So that's all driven by customer demand.

Our next question comes from Michael Montani from Evercore. Please go ahead.

Just had two things. One was around the credit side. Just curious if there's any incremental color perhaps that you all can share around roll rates, the impact of forbearance, government programs and then also deferral. So kind of overall, what's -- how is it that you're feeling about CAF? And then just a quick follow-up.

Sure. Yes. To speak to the quality of the quarter from a CAF perspective from loss side, I think, we felt like we had a really good quarter. Important to note from the improved losses within the quarter. A couple of reasons we believe that is: First, as you might remember, in Q1, we were actually unfavorable from a loss perspective, where in Q2, we were favorable. So we believe there's some swap that was going on there. You talk about payment deferrals. Certainly, we also were able to provide payment relief to our customers. And we did a good job throughout the quarter there. Payment deferrals were higher in -- earlier on in the quarter. We predominantly reverted back to typical practices. But we know that, that's provided some relief to our customers, avoided loss, helped to lower delinquency. And then certainly beyond that, also, the federal stimulus within the quarter certainly put money in the pockets of our customers, and that allowed them to pay their bills. And frankly, also, there was just less places for them to spend their money. So we think that probably helped the losses as well, speculative. But as far as roll rates are concerned going forward, hard to say on a go-forward basis, what's going to happen, a lot of uncertainty out there. But for the quarter, we felt real good that we were able to take care of our customers, and we're happy with where the numbers sit right now. From a reserve perspective, obviously, that uncertainty is reflected in our reserve. But all-in-all, good quarter from a loss perspective.

Great. So that's helpful color. And then just the other main question I'm getting before and during this call today is around market share. I've had folks who are a bit concerned because there's some other smaller competitors that might be growing faster. And the data we've seen from Cox is really showing that over the summer, the industry contracted like a mid- to high single-digit rate. But I guess I'm curious to know kind of what you all would be using to gauge that as well? How do you see that unfolding into the back half of the year as we think about some of the multichannel capability set?

Yes. So look, I think we talked a little bit about the beginning of -- in the first quarter how our sales, I think, were disproportionately impacted, just given the volume that we run through our stores. And the occupancy restrictions that we had to work through, the operating models that we had to work through, i.e., having stores that only could have appointment only or only curbside pickup. We talk about market share on an annual basis. And look, I think the whole goal of omni, obviously, is to deliver this better customer experience. But at the end of the day, it's to increase market share regardless of what the macro factors are that are out there. So we'll continue to progress forward. I mean, obviously, in this quarter. Again, I can't talk about how proud I am of the team. I mean you go from one quarter having negative 40-plus comps to the very following quarter starting to comp again with record earnings. And you've done that even in light of the fact that we're still working through occupancy restrictions, about half of our stores still have an occupancy restriction, although the bulk of them are at 50%. And I think the stores have done a phenomenal job being able to work within that 50%, you get less than that, it really gets hard. Also with the CEC and the mature and CEC and the inventory. So again, I feel good about where we are. And I think this is a springboard for us just to continue to grow sales and market share.

Our next question comes from Chris Bottiglieri from Exane BNP Paribas. Please go ahead.

I wanted to ask more about the store opening plan for 2022. I guess it's a little bit below trend. I would imagine it's probably the environment, but could just remind us what kind of goes into opening a store, what's the time line, how long will that takes? And maybe just more directly, is this the new cadence of store openings we should expect beyond 2022? Or is this just product environment. Then I have a follow-up.

Yes. Chris, I think the way you should think about this is it's more a factor of just ramp time. We were going to open up 13 stores this year. We've been opening up 13 to 16 for several years. The plan was to open up 13. But just given where we are this year and what it takes to start ramping, that number is more reflective of construction timing than anything else. So I wouldn't, at this point, read into that.

Okay. That's helpful. And then preopening, can you just remind us how that works? Obviously, you're not opening stores right now, but it benefit to other overhead for the next several quarters. But can you just remind us what -- I mean, obviously, it's depending on the number of stores you open, but what's a good rule of thumb for preopening expense per store, something else you can give us to think through the impact of no store openings unless you do that? Enrique Mayor-Mora: Yes, those costs will start rolling in a good three to four months before a store opens in a material way. And I would say on average preopening cost is going to roll about $1 million, $1.5 million, but that will be spread out again over that time period.

This concludes our question-and-answer session. And I will now turn the call back over to Bill Nash for closing remarks.

Thank you, Carol. Well, listen, thanks for joining the call today and for your questions and your support. We are definitely confident in our ability to seamlessly merge our world-class in-person experience with our world-class online experience, along with our diversified business model, we'll continue about earnings and market share gains for many years to come. I just need to thank again all of our associates. They are the reason that we remain a disruptive force within the used car industry. And finally, I've got to give a shout out to Celeste as well and best wishes to her. She's been here for a long time, knows CarMax better than anybody that I know. So she will absolutely be missed, but I wish her well. So again, thank you for your time today, and we will talk again next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you once more for participating, and you may now disconnect.