Yahoo Finance

William Nash

Great. Thank you, David. Good morning, everyone, and thanks for joining us.
We're very pleased with the continuing momentum across our diversified business during the fourth quarter. Our results reflect solid execution and the strength of our business model. We delivered robust year-over-year EPS growth as we drove unit volume increases in sales and buys, materially increased gross profit, grew CAF income, and realized additional cost efficiencies.
Our associates, stores, technology, and digital capabilities, all seamlessly tied together, enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator that gives us the right to win and access to the largest total addressable market in the used car space. This also positions us to drive sales, gain market share, and deliver significant year-over-year earnings growth for years to come.
In the fourth quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered strong retail, wholesale, and EPP GPUs and materially improved service gross profit. We bought more vehicles from both consumers and dealers, achieving an all-time record with dealers. We grew CAF's net interest margin and continued to advance our full credit spectrum underwriting model. We materially leveraged SG&A as a percent of gross profit, and we also achieved double-digit EPS growth for the third consecutive quarter.
For the fourth quarter of FY25, we delivered total sales of $6 billion, up 7% compared to last year, primarily driven by higher volume. In our retail business, total unit sales increased 6.2%, and used unit comps were up 5.1% despite having one less selling day, inclement weather, and a delayed start to this year's tax season.
Average selling price was in line with last year's fourth quarter. For the full year, total retail unit sales increased 3.1%, and used unit comps were up 2.2%, with a decline in the first quarter more than offset by gains across the second, third, and fourth quarters.
Our market share data indicates that our nationwide share of age 0- to 10-year-old used vehicles was 3.7% in calendar 2024, consistent with 2023. External title data shows year over year, while our share came under pressure during the first half of 2024, it then recovered as we achieved accelerating gains through the second half with particular strength in age 0 to 4 vehicles, which grew for the entire year.
The data indicates that our market share continued to grow year over year during January 2025, the latest period for which information is available. While I do not intend to provide another update until this time next year, we remain confident in our ability to achieve further market share gains and across 2025 and beyond.
Fourth-quarter retail gross profit per used unit was $2,322, a fourth-quarter record up from last year's $2,251. Wholesale unit sales were up 3.1% versus the fourth quarter last year. Average selling price was flat year over year.
Fourth-quarter wholesale gross profit per unit was $1,045, which is historically strong, though down from the $1,120 a year ago. We bought approximately 269,000 vehicles during the quarter, up 15% from last year. We purchased approximately 223,000 vehicles from consumers with more than half of those buys coming through our online instant appraisal experience.
With the support of our Edmunds sales team, we sourced the remaining approximately 46,000 vehicles through dealers, which is up 114% from last year. For the fourth quarter, approximately 15% of retail unit sales were online, up from 14% last year. Total revenue from online transactions was approximately 29% compared with 30% last year. All of our wholesale auctions and sales were virtual and are considered online transactions, which represented 17% of the total revenue for the quarter.
Approximately 58% of retail unit sales were omni sales for this quarter, up from 55% in the prior year. As a reminder, our omnichannel sales definition incorporates customers who complete some but not all of the following transactional activities online: reserving the vehicle, financing the vehicle if needed, trading in or opting out of a trade-in, and creating a sales order.
To better reflect the ways customers are utilizing our digital capabilities to buy a car, going forward, we are updating our definition of an omnichannel sale to also include customers who complete any of the following steps online: pre-qualifying for financing, setting appointments, and signing up for notification on cars coming soon. Based on this updated definition, approximately 67% of our retail unit sales were omni this quarter, up from 64% last year. Of note, this does not impact how we calculate online sales, since the steps to complete an online retail transaction remain the same.
Across omni and online, our digital capabilities supported over 80% of our sales during the fourth quarter. We expect that our mix of digitally supported sales will continue to grow over time as we add further enhancements to our online tools, customers become more accustomed to leveraging them, and as we improve our ability to track their use.
Turning to finance, CarMax Auto Finance, or CAF, delivered income of $159 million, up 8% from the same quarter last year. In a few moments, Jon will provide more detail on customer financing, the loan loss provision, and CAF contribution, as well as our progress on full credit spectrum lending and increasing CAF's penetration.
At this point, I'd like to turn the call over to Enrique, who will share more information on our fourth-quarter financial performance. Enrique?

Enrique Mayor-Mora

Thanks, Bill, and good morning, everyone.
The momentum we built over the last few quarters continued into the fourth quarter. We achieved positive growth in retail and wholesale units, increased per unit and total dollar margin, grew CAF income, and had strong flow through to our bottom line.
Fourth-quarter net earnings per diluted share was $0.58, up 81% versus a year ago. Adjusted for a $12 million non-cash impairment within other expense related to an Edmunds lease, EPS was $0.64, which has doubled from a year ago.
Total gross profit was $668 million, up 14% from last year's fourth quarter. Used retail margin of $424 million increased by 9%, with higher volume and per unit margins. Wholesale vehicle margin of $125 million declined by 4%, with an increase in volume offset by a reduction in per unit margins.
Other gross profit was $119 million, up 72% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $8 million, or $10 per retail unit, as we lapped over the initial rollout of margin increases that took place in last year's fourth quarter. Service recorded a $1 million loss, which was a $44 million improvement over last year's fourth quarter. We achieved this performance improvement through successful cost coverage, efficiency measures, and growth in sales.
On the SG&A front, expenses for the fourth quarter were $611 million, up 5% or $30 million from the prior year. SG&A leveraged by 770 basis points, driven by growth in gross profit and our ongoing actions to improve expense efficiency.
SG&A dollars for the fourth quarter versus last year were mainly impacted by two factors. First, total compensation and benefits increased by $22 million. Over half of this increase was due to our corporate bonus accrual, with the majority of the balance driven by unit volume growth. Second, advertising was up by $9 million due to timing. This was in line with the guidance we provided last quarter.
In respect to capital allocation, during the fourth quarter, we repurchased approximately 1.2 million shares for a total spend of $99 million. As of the end of the quarter, we had approximately $1.94 billion of repurchase authorization remaining.
As we look ahead, I'll highlight a few key areas which support our earnings model that Bill will speak to shortly. We are testing EPP product enhancements that will focus on increasing penetration and per unit margins. These enhancements are expected to drive a small year-over-year increase in per unit EPP margin in FY26, with the potential for more expansion in fiscal '27.
We expect service margin in FY26 to grow year over year, predominantly in the first half of the year, and to deliver a slight positive profit contribution for the full year, as governed by sales performance, given the leveraged, deleveraged nature of service. Additionally, we expect service to continue to serve as a slight profit lever beyond [FY27].
In respect to SG&A, in the near term, we expect to require low single-digit gross profit growth to lever on an annual basis, including in FY26. This will be supported by our goal of hitting full-year omni cost neutrality in FY26 for the first time, with continued improvement thereafter.
We expect all three metrics -- per used unit, per total units, and as a percent of gross profit -- to be more efficient than pre-omni for the full year. This reinforces our pathway back to a lower SG&A leverage ratio, with the initial goal of returning to the mid-70% range over time, as we see healthier consumer demand. In FY26, we expect that marketing spend will be approximately the same as in FY25 on a total unit basis.
With regard to capital expenditures, we anticipate approximately $575 million in FY26. The increase is primarily driven by the timing of land purchases, as we experience favorability to our FY25 outlook due to the timing of certain deal closures. Similar to FY24 and FY25, the largest portion of our CapEx investment is related to the land and build-out of facilities for long-term growth capacity in off-site reconditioning and auctions.
In FY26, we plan to open six new store locations, up from five in FY25, and four standalone reconditioning and auction centers, up from two in FY25. Our extensive nationwide footprint and logistics network continue to be a competitive advantage for CarMax.
Now, I'd like to turn the call over to Jon.

Jon Daniels

Thanks, Enrique, and good morning, everyone.
During the fourth quarter, CarMax Auto Finance originated approximately $1.9 billion, resulting in sales penetration of 42.3% net of three-day payoffs, which was in line with last year's fourth quarter. The weighted average contract rate charged to new customers was 11.1%, a decrease of 40 basis points from a year ago, which was reflective of credit tightening and APR reductions executed prior to Q4.
Third-party Tier 2 penetration in the quarter was 17.6% of sales, down 110 basis points from last year, while third-party Tier 3 volume accounted for 7.9% of sales, down 30 basis points from last year.
CAF income for the quarter was $159 million, which was up $12 million from FY24. This increase was driven by net interest margin, which remained steady from the third quarter at 6.2%, but is up 30 basis points from last year's fourth quarter.
Provision for loan losses was $68 million and results in a total reserve balance of $459 million, or 2.61% of managed receivables. This sequential improvement in the reserve to receivable ratio reflects an additional quarter with a more normalized provision, along with the continuation of previous credit tightening.
Regarding our full-spectrum lending initiative, we remain excited about CAF's continued efforts in this space, as well as the tremendous growth potential unlocked by the broadening of our securitization program. During the month of March, CAF began measured expansion by recapturing profitable portions of Tier 1 originations that we had shifted to our Tier 2 lenders as we tightened lending standards. This adjustment is targeted to grow our penetration by 100 to 150 basis points in the near term and is enabled by our non-prime securitization program, which allows us to efficiently fund these non-prime receivables, while retaining the full economic value of the contracts.
We were also pleased to successfully execute our second non-prime ABS transaction which closed in late March and was well-received in the market. We continue to learn from our new underwriting models and corresponding tests currently in place and anticipate capturing additional volume across Tier 2 and Tier 3 during the back half of the fiscal year. But as always, we will carefully monitor the consumer and the broader economy, and we'll adjust our origination strategy as needed.
It is worth noting that in the first quarter, we are forecasted to have a larger provision sequentially and year over year, driven by new origination volume. This stems from seasonally higher sales and a lower credit quality period, plus the need for additional reserve given the profitable but higher loss nature of the recaptured receivables that I mentioned a few moments ago. As a reminder, we expect this initial impact from building the loss reserve as we grow CAF penetration to be materially offset by future income over time.
Now, I'll turn the call back over to Bill.

William Nash

Thank you, John and Enrique.
As I mentioned at the start of the call, I'm pleased with the momentum we are seeing across our business. The associated customer facing tools we launched during fiscal '25 are contributing to our results and providing the most customer centric car buying and selling experience. I'm proud of the steps we took during the year to further differentiate our offering and drive incremental operational efficiencies. Some examples include for retail we rolled out a number of new systems that enhance consumer shopping experiences, support conversion, and enable our associates to be more efficient. These include order processing in our stores, customer accounts online, AI-driven knowledge management in our CECs, and EV research and shopping tools on the Edmunds and CarMax websites.
Our digital tools and enhancements have made it easier for consumers to self-progress in their shopping journey. Sky, our AI-powered virtual assistant, is now able to independently answer over half of the questions our customers ask it, reflecting more than a 20% year over year improvement. Additionally, the rate of fully self-progressed online sales grew by 25% across fiscal 2025.
For supply, we enhanced both our consumer and dealer facing appraisal experiences. We are now able to give digital offers to approximately 99% of the customers who come to CarMax.com for an appraisal, and we made Mac offer even easier to use. This has attracted more dealers to the offering and has driven strong records sourcing volume each quarter.
For finance, we began testing new credit scoring models and corresponding strategies across the full credit spectrum which positions us to further grow cap income modestly in the near term and more materially over time. We also released an update to our finance-based shopping experience that seamlessly incorporates existing instant appraisal offers into our pre-qualification offering, giving customers more precise credit terms.
And finally, we continue to focus on driving down cost of goods sold by pursuing incremental efficiency opportunities across our logistics network and reconditioning operations. We achieved savings of approximately $125 per unit this year and anticipate that we will achieve at least another $125 per unit in fiscal 2026. This exceeds the initial $200 target we set at the beginning of fiscal 2025. These efficiencies support affordability as we pass savings on to our customers and also support our margins.
In fiscal 2026, we will leverage and enhance our capabilities to drive growth through better execution, innovative offers, innovative efforts, and up leveled experiences. Some examples include for retail, we will continue leveraging data science and AI to offer even better digital experiences for our associates and consumers driving conversion and efficiency. We plan to improve our online vehicle transfer experience and to expand Sky's functionality with additional data and new architecture.
In recognition of the breadth and seamlessness of our best in class offering, we will also launch a new marketing campaign over the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of consumers.
For supply, we plan to streamline the online appraisal checkout process and expand appraisal pickup avail availability to new markets.
We will also further enhance MAC's offer to attract new dealers expanding our access to directly sourced vehicles. For credit, as John mentioned, we plan to continue expanding CA's participation across the credit spectrum to grow penetration and capture profitable returns.
Additionally, we plan to modernize the ownership experience on CA's digital platform, which will enhance customer experience and drive operating efficiencies.
Looking ahead, we've positioned the company to achieve ongoing growth in retail and wholesale unit sales and market share with double digit EPS growth for years to come. We're excited about the power of the earning model we have built. Our model is designed to deliver an earnings per share growth keger in the high 10s when retail unit growth is in the mid single digits. In addition to retail and wholesale unit growth, other key inputs driving our model are strengthen other gross profit, caps, credit spectrum expansion, continued operating efficiencies, SGA leverage, and our share repurchase program.
Regarding our long term goals, we are focused on growing the business, and we continue to make progress towards those goals. However, at this point, we are moving the time frames associated with them given the potential impact of broader broader macro factors.
Before turning to Q&A, I want to recognize two significant milestones. First, Fortune magazine recently named CarMax, as one of its 100 best companies to work for for the 21st year in a row. I'm incredibly proud of this recognition. It's due to our associates' commitment to supporting each other, our customers, and our communities every day.
Second, we opened up our 250th store during the fourth quarter. Reaching 250 stores across the country is a fantastic accomplishment. I want to thank and congratulate all of their associates for the work that they do. They are our differentiator and the key to our success.
In closing, we're excited about the strength of the business model and the opportunities that lie ahead to grow sales and earnings. We are proud to offer customers the ability to progress seamlessly through and across online and in-store channels, delivering what our research affirms is the most customer centric buying and selling experience. This competitive advantage gives us access to the largest total addressable market in the used car space and provides a strong runway for future growth. With that, we'll be happy to take your questions. Madison.

Question and Answer Session

Operator

(Operator Instructions) Sharon Zackfia, William Blair.

Sharon Zackfia

Hi, good morning.
I guess, as we think about fiscal '25 and kind of that tale of two halves where there were some share losses in the first half followed by the accelerating gains in the second half, as you kind of diagnose that, can you give us some insight into kind of what you think the drivers were between the first half and the second half and why you kind of saw that inflection and I guess secondarily as we're kind of staring down this idea of maybe used car prices going up again with tariffs, I mean, what lessons did you learn over the past several years that could maybe help the business more if affordability becomes more challenged again in the industry?
Thank you.

William Nash

Okay, Sharon, on the first question about kind of first half versus second half, look, the main driving factor that we talked about that at the end of the years we were coming off of, if you remember last calendar year, that last quarter, there was a big price correction. Remember it was the 3rd last and 3rd 1 that we saw, and when you have those big price corrections, I think if I remember correctly, it was probably around $3000 in a very short period of time of depreciation that impacts us a little. Bit differently, so I think you had that that kind of really worked into the 4th quarter that masked a lot of the things that were providing benefits for the rest of the year. If you think about the improvements, and I cited a lot of them on the call today, but I think there's just a lot of factors, you take, we'll continue to make the experience better for the consumers and our associates. We've got better execution. You've got the benefit of efficiency gains and kind of flexibility that gives you both in your pricing and your margin, making sure that you're competitively priced. Our inventory acquisition expansion, we continue to set new records with our max offer. It just gives you a wider variety of inventory. And then I think the other thing is this year we've also just seen more normal, a more normal price environment. So I think there's a lot of things going on there, but I do think that the actions that we've taken are really what's driving the momentum, and I think they were masked a little bit in the first quarter because we were coming off of the big macro factor. As far as your second question goes, I think it was just kind of, if I remember correctly, it's, how, what have we kind of learned, how we better positioned now versus previous and And again, I think there's a lot of things that we learned in the last 2 or 3 years. One of them obviously is, we've sharpened our skills when you, when we came out of COVID, our 6 to 10 year old cars just wasn't a big focus for us, as big a focus, and that's not really what customers were looking for. And so we had to build that muscle up. So we have more 6 to 10 year old cars that, over time, I think other things. We've expanded the sourcing, which I just talked about. I think John spoke about the ABS bifurcation, if you remember coming out of COVID, there's a lot of profitable loans out there, but we couldn't, we had to pass them on to lenders because we had one ABS that required a certain return and certain loss ratios.
So now having a second ABS, I think absolutely helps us preserve some of those sales. You'd like to think all of them get picked up, but some of them won't get picked up. So I think that's That's another one you've got the cost improvements that we've been focused on over the last couple of years, the work that John and his team have done on the FPS and making sure that we make it very easy for customers to understand their monthly payment and look for options that fit that monthly payment. So I think there's just a lot of great things as well as just the overall on experience, we didn't slow down during the last few years. We kept plugging along at it because we knew this is where we wanted to get. So I think there's a lot that goes into that.

Operator

Seth Basham, Wedbush Securities.

Seth Basham

Thanks a lot and good morning Bill. If you wouldn't mind commenting on quarter to date use comp trends, that would be great. And then as you think about this macro environment and the potential for new car tariffs driving double digit increases in new car prices, what does that mean for you guys from a share gain perspective and from a used car industry growth perspective?
Thank you.

William Nash

Good morning, Seth.
The the comp trends. Look, if I look at the 4th quarter, December and January were very strong. February was a little softer, which we expected, given that we had leap day last year.
We also think February is slightly impacted by the delay of refunds, and what I mean by there is if you remember, probably halfway through February, refunds were off significantly year by year. Now they caught up pretty much by the end of February, but I think it pushed a little bit.
In March as well as we had some weather impacts. Then we get into March and we saw a step up that was a little stronger than the 4th quarter comp and it continued the whole month until the end of March when we saw some strength, some additional strength, which continued and then. Accelerated into the first few days of April, which obviously we're early into April right now, from a comp standpoint, first quarter to date, we're running high single digits.
Your second question, I think it was on tariffs, is that correct?

Seth Basham

Yeah, new car tariffs, if they drive double digit increases in new car prices, what does that mean for the used car industry and your ability to gain market share in that environment?

William Nash

Yeah, I think it's, there's a lot of moving pieces here and I'm sure it's probably changed even while we've been on this call, but there's a lot to watch. You want to look at the new car pricing, the supply, parts costs, used vehicle supply, just market volatility in general with consumer sentiment. Obviously, as you pointed out, new car prices are definitely going to go up. I think, certainly as new car prices go up, that'll put a bigger spread between late model used and new cars, so.
Obviously just the speculation of the tariffs and now the tariffs actually being out there, it's driven demand. I mean, you're seeing it in the franchise dealers. We're seeing it just based off of the step up that I just spoke to, I think it will push some folks into looking at used cars, late model used cars, which is interesting because that's what we're seeing a lot of interest in right now. Now I think over time what could happen. Is that the used car prices will also go up. Now the question is how much will they go up over what period of time. I think the other thing to think about on the tariffs that impacts our business as well as anybody that sells used cars is just the parts piece. When it comes to reconditioning, the parts will be going up and it just makes our work that much more important on the efficiencies that we're going after on cost of goods sold to offset those increases.
Thank you very much.

Operator

John Murphy, Bank of America.

John Murphy

Good morning, guys. I mean, I love hearing about the investment in the recon centers and the auctions because it, gives you more, throughput and production capacity. I'm just curious, Bill, as you think about that, does that give you the ability to stay and maintain this presence in the 6 to 10 year old, sort of car, segment of the car population and could that actually be increased over time and sort of kind of, along that same line. You talked about the 200, in cog savings going, it sounds like now 250, how much of that do you think you're going to, be able to maintain as you kind of go through this reconditioning and other efficiencies and is, 23 to 2,400 the new 2,200?

William Nash

Okay, good morning, John. So, on the reconditioning in the auctions, yeah, look, we're thrilled. I mean, that's going to give us additional capacity, which is why you're seeing that we open up more. Certainly we want to have the cars out on the lot, we sell 0 to 10 year old cars. We want to have what the consumers are looking for and if they're looking for 6 to 10, we're certainly going to continue to TRY to move that mix without. Sacrificing the quality, I mean that's something that you and I, we've talked about in the past is we don't want to push cars out there to meet an age parameter that don't meet our quality standards because quite H1stly we're fine with taking those cars and wholesaling them and we just, we don't get the retail market share for them, but you know it's a great business when you're turning an $8000 car and making $1000 every every seven days. So interestingly, if I look at the sales mix.
This last quarter we actually sold a little bit more 0 to 4 cars than we did we did older cars.
That's not to say we're not pushing on the older cars and putting out those at the consumers. It's just an interesting anecdote that actually the consumers are looking a little bit more for the younger cars this quarter. I think on the $250 efficiency that we're going after.
Look, I think the big wildcard there is just how much tariffs end up impacting parts. I feel great about the fact that, we're getting these efficiencies, across the system in old stores, in old production centers, in new stores, so I feel good about getting those. Then the question becomes how much will tariffs kind of offset that.
Which again we're going to continue to focus and go after that. The other thing I would tell you on these reconditioning centers, these off-site reconditioning centers, the additional benefit that you get from that is that you now have the cars closer to the stores and the markets, and we put them in, we're putting them in markets where we have capacity challenges and so we're having to pull cars from further distance.
For retail now with these these auction these production centers being closer, you cut down on your logistics, which is a savings that you know we're going to continue to get whether there's tariffs or not.

John Murphy

Good to hear.
Thank you very much.

William Nash

Thank you, John.

Operator

Brian Nagel, Oppenheimer.

Brian Nagel

Hi, good morning. Nice quarter. Congratulations.

William Nash

Thank you, Brian.

Brian Nagel

So I want to, I think Seth asked the question about the quarter to trend business, and you said, Bill, you're running high single digits would be a step up from, what we what you did in Q4 and then particularly as you talked about February. So I guess I know you're not, I know you don't give guidance, but what I want to ask you is, I mean, as you're looking at the business, how should we think particularly against what is a very, fluid macro backdrop? I mean, how should you think about, how should we think about the sustainability of that?
Fully, fiscal Q1 performance. I mean, do you think it is it, is it a catch up from maybe February? Is it, does it reflect, potentially people buying cars ahead of time because of tariffs? There is this overall sustainability from your standpoint?

William Nash

Yeah, first of all, I don't think it's a catch up for February. I think we've probably got a little bit of benefit there because again you're not going to get the catch up on the leap day miss, which you will get a little catch up on is the tax refunds, a little bit of weather, but you know that's very small in the in the scheme of things, so I wouldn't look at it nearly as nearly like a catch up. And as you said, we don't give guidance for the full year, but I will tell you, Brian, I mean, we expect that momentum that we've been seeing for the last 3 quarters. We're coming into the year very strong, and we've got some good momentum, and we would expect to continue that momentum. Obviously you alluded to it. I mean, there's a lot that's going on in the macro right now and it's changing. It's a very fluid situation. We're constantly monitoring it, we're looking at mitigation plans from a part standpoint, all kinds of things. So it's a little hard to speak on the whole year, but I will tell you that we feel good about the momentum coming into into this this year.

Brian Nagel

That's helpful. I appreciate it.
Thank you.

William Nash

Sure.

Operator

Scot Ciccarelli, Truist.

Hi, good morning, guys.
Joshhungg on for Scott. So you talked a bit about the improving market share here in the back half of the year, but with it sitting just under 4% today, curious.
What do you think you have to do from here and what has to happen to get closer to.
That 5% target over time?

William Nash

Yeah, I think everything that they're working on that I've highlighted earlier on this call, look, our big focus right now is growing sales and robust EPS, and if you do those things, all the other stuff is going to work out great, including, market share. If I look at the market share, for this last year, we're gaining market share, we're taking it from other dealers. The The thing is you also see where P2P is growing market share when you look at that 0 to 10 space and the PAP strength is really in kind of the older vehicles which you would expect.
So I think we're, we've got all the steps in place to continue, as I said, January, which is the latest title data that we have at this point, we're continuing that share gain and like I said, with Brian, we like the momentum that we're on and we would expect to continue to gain market share.
Got it. That's helpful. Thanks.
Thank you.

Operator

Jeff Lick, Stephens Inc.

Jeff Lick

Good morning, guys. Congrats on a nice quarter. I was wondering if we could talk about sourcing, in this quarter, you bought 46,000 units from dealers, which is the most you've ever done on a percent basis in terms of improvement or even unit basis, and also your overall purchase, 269 was 89% of the combined units. I think a big thing going forward, especially in this tariff scenario is going to be your ability to source because you talk about, both on the dealer front and the consumer front and any evolutions or, changes and what drove the kind of pick up there and improvement in Q4.

William Nash

Yeah, it's a great question, and you're right, I think sourcing is critical. We're very pleased with the max offer product. I think it's a solution that works well for dealers, obviously with the expansion. When I think about the performance there over the last year, it's being driven by, first and foremost just dealer expansion. This quarter we were up from an active dealer standpoint 40% year over year. As I said in my prepared remarks, we also made it very easier for them to use. If you look at the last year, we've got a great instant offer program for them. We also have one that allows them to take pictures that they'd like us to see some of the pictures that might be unique to that vehicle. We consolidated the vehicle condition information, making it faster and easier. We've made improvements so because you realize, a dealer may start this max offer on the desktop but they need a mobile device to go through the car or whatever. So we've made a very seamless transition to go from device to device. So this past year was really about trying to make that that experience better.
The other thing that I would add is that we've also started to embed it in their. Inventory management systems in the dealership, which just makes it more convenient and as I look forward to the upcoming year, I think we can still, we've got some improvements, we're working on some landing page improvements and I think some more integrations into dealers which will continue to attract dealers so you know we feel good about it. We feel good about the momentum.
I yeah, I think you also asked about the consumers, and again, the consumers, as I said in my prepared remarks, we pretty much can give you an offer online now. There's very few cars that we can't. There's a small subset that, we really need to to see the car, but essentially 99%. You can get those offers. We've made it easier. I think there's progress. We've got some things chewed up there again, with appraisal express drop off, appraisal pickup. There's some other things that we're working on there, again, just to enhance that experience and continue to drive incremental bias.

Jeff Lick

And then the last two weeks have been kind of crazy. There's been a pickup and conversion at the auction lanes in general. Any comments in terms of just looking at what we just talked about with Q4, any changes with the last two weeks?

William Nash

Yeah, well, I think you hit the nail on the head, if you look at the wholesale the last couple of weeks, it's, there's a lot of folks out there trying to bid, which again I think it just makes me feel really good about all of our initi initiatives on supply and sourcing directly versus having to to to go that route.

Jeff Lick

Awesome. Well, congrats, and good luck in the next quarter.

William Nash

Thank you, Jeff.

Operator

Rajat Gupta, JPMorgan.

Rajat Gupta

Great. Thanks for answering the question. I just had to follow up to Jeff's question earlier. Bill, trying to understand how are you as an organization, trying to manage inventory acquisition, over the next, few weeks, couple of months, given, firstly, there's already a lot of uncertainty around the tariffs. It it may happen, it may go away, you're hearing a lot about the auction in activity. I mean, I'm curious like how are you managing.
Your inventory acquisition, in that backdrop, I mean, you think you need to be aggressive or you just be cautious, just in case, like tariffs actually don't stick, ultimately, I'm just curious like how is the company strategizing around that and I have a very quick follow up on service.

William Nash

Yeah, well, look, I think we manage inventory better than anybody in the business. We've been doing it for over 30 years. We are very familiar with operating and changing a fluid type of environment, keep in mind, we have the benefit of professional buyers who are on the ground. They're seeing things coupled with data that we're getting, coupled with our own auctions. So, I feel really good about where we are both from an inventory on the ground and our inventory, going forward, and I have no doubt that the team will continue to execute it, at a very high level. And then you said you had a question on service as well?

Rajat Gupta

Oh yeah, curious what drove the significant, I mean, typically seasonally, we see like a big drop in like service gross profit. I curious what drove the improvement. It was just better productivity, just maybe some like cost take out, just trying to understand, the cadence there. I know, I think, and we could talk about like lattish gross profit, a little more than flattish for the fo year. So does it mean that, this is going to be less seasonal from here on just that cadence, just curious if you can add any more cover on the surface.

Enrique Mayor-Mora

I'll start with your second point, seasonality will still be in place, so from quarter to quarter there's definitely still seasonal aspects to it, which is why we expect the first quarter of the year. I had my prepared remarks to probably the strongest in the year because volume is higher. We'll also be copping over some cost coverage metrics we did last year. But I tell you in terms of why it's getting better, there's really 3 things that are driving the improvement.
That we've seen over the past 2 years now we've consistently improved our performance and service. Number 1 is efficiency opportunities that we've driven. We've made investments in technologies like RFID trackers, investments in technologies we can better have better reporting in the storage to manage.
Our costs 12 is we have taken cost coverage as well. So to match cost inflation that we've seen, we've had the ability to.
Fees there and part of that is also driven by what Bill has talked about the efficiency improvements in COGS and logistics gives us an ability to take some fees there without increasing the price of our cars. And then lastly, certainly sales being positive helps because service does have a large component of fixed cost. Certainly when you think of all the technicians that we're trying to retain, there is an aspect of fixed cost, especially. The shorter term, so you have positive sales, stronger ability to leverage, and we would expect going into this year to have a year of profitability and service, which we haven't had in several years, and thereafter too feeding the earnings model that Bill talked about and our ability to deliver double digit EPS growth over several years is also because of that as well.

Rajat Gupta

Got it. Got it. Great. Thanks for all the color and good luck.

William Nash

Thank you.

Operator

Michael Montani, Evercore ISI.

Michael Montani

Yes, hey, good morning. Thanks for taking the question.
Just wanted to ask, I guess a two part thing. One was, if you look at historically periods of appreciating prices, what does that typically do, for your market share and then also your margins, how would you typically respond there because historically, You've called out it can be challenging if we have abnormal depreciation. So if you get depreciation in price, does that help you from a share and margin perspective? And the follow up question was you guys had mentioned an EPS outlook that includes, if mid single digit unit growth is there, you could have high teen EPS growth. So I'm wondering if there's anything we need to keep in mind as it relates to that for this current year and then also. Anything we should know about from a timing perspective as we think through quarterly cadence.

William Nash

Okay, so Michael, good morning. On the appreciating price environment, I think for every group that sells used cars, when you're in an appreciating environment, it makes it easier, and I think generally in appreciating environment, your margins are easier to manage because you're not having to do as many markdowns because again, you're going to sell the car if it's appreciating the next car is going to be a little bit more expensive, so. I think it helps your margin. I think from a market share standpoint too, it would also help that. So I think that's good.
And then your second question was on the model.

Enrique Mayor-Mora

Yeah, so from the model, we've spent the past several years, as we all know, investing in our omnichannel model, investing in capabilities, investing in efficiencies, and we feel very confident about our ability at this point to deliver robust EPS Kager growth. Several years at least talking to high 10s like we mentioned in our prepared marks on just mid single digit retail sales and what that what that's enabled on strong margins, strong growth in other GPU as well, exceeding retail units. I talked about service. We talked about EPP opportunities.
You also talk about SGNA, we're done with the heavy investment period. We're pivoting from building capabilities to leveraging leveraging and enhancing them. To grow efficiencies and to grow the bottom line, so we think we are really well positioned to grow, and then you throw in the share repurchase program that we're committed to that's also going to induce our EPS. And then you take a look at cap. We're making those investments there in terms of the full spectrum credit that John talked about. Those are also kind of in the shorter term and the medium term and definitely in the longer term accelerators to our EPS growth. So we think we've built a model here that is in this really strong position to deliver outsized returns.

Michael Montani

Anything cadence wise to think about as we progress through the year because I think you called out there could be some calf related things to keep in mind in the first quarter, but then on the flip side you also have potentially some benefits from the work you've done in service and EPP.

Enrique Mayor-Mora

Yeah, before jumping into cap and I'll turn it over to John. Certainly from service we do expect the first half of the year to perform probably better, holding everything constant than the back half purely due to seasonality when you think of higher volume and comping over some some cost coverage metrics we did last year.
I would expects outside performance in the front half and then for cap I'll just turn it over to John.

Jon Daniels

Sure, yeah, I'd definitely like to take the opportunity to speak to Cadence on provision coming up, mention prepared remarks that, anticipate a sequentially higher near every year increase in provision and just to give some orders of magnitude around that.
So I'll jump off Q4. So we had a $68 million dollar more normalized provision in Q4. You're going to have a sequentially higher, provision in 1 because it's a higher from a seasonality standpoint it's a higher volume quarter.
It is a lower credit quality quarter so you can anticipate a about a 30 to 35% increase off of that Q4 number simply from that aspect, couple that with the fact that we said we are going to, we have taken some volume back, that we were giving to flowing to tier two partners kind of undo a portion of our titan.
So you can add probably another 10 to 15% increase off of the Q4 number there. So you absolutely could see a 45 to 50% increase in provision in Q2, and that can, sorry, in 1, and that tightening will continue, sorry, that that that increase will continue because again this is volume that we anticipate keeping. You're going to have to continue to provision for that added volume we're taking on, and then again we will watch that economy very carefully, but the back half of the year we anticipating taking in more volume from our Tier 2 and tier 3 testing. So again that would stack on there all in the long run, a very good thing for calf, but an impact in the near term to our provision. That's relative to and that's relative to Q4 is the key, yes.

Michael Montani

Thank you.

Operator

Chris Bottiglieri, BNP Paribas.

Chris Bottiglieri

Hey guys, thanks for taking the question. So you've done a really nice job taking costs out of business for the last few years, fairly consistently my own expectations.
The question is though, if the economy slows from here and sales turn negative to mid single or high single digits again, because ETF decline high 10s very much like the upside, or do you have leverage left at your disposal to continue to cut costs and mitigate the operating leverage?

Enrique Mayor-Mora

Yeah, we feel good. Look, a couple of things. I mean, one is we still have room for efficiency improvements. Those are part of our plan irrespective of kind of the macroeconomy we're going after those efficiency improvements. That's #1. Number 2 is if there is a downturn in the economy, we have pulled levers in the past. We're positioned to pull those levers if we had to, again, you're looking at a management team here that's been through, quite a few things here over the past few years. So we know kind of how to manage through these kind of environments, whether they're upswing or downswing.

Operator

John Healy, Northcoast Research.

John Healy

I think my question. Just kind of wanted to ask you a big picture question, Bill. In the last couple of weeks, obviously outside of the macro, probably the biggest item on used retail has just been some of the Amazon news, and obviously it doesn't appear like they're becoming a retailer per se in the auto space, but we would love to get your thoughts. About them entering in the fray, and do you view them as a, adversary competitor, maybe elevating your peers, or do you view them potentially as a partner and, would you be surprised if you maybe work collaborative collaboratively with them going forward?

William Nash

Thanks.
Yeah, good morning, John. Yeah, I don't think anybody was surprised to see them actually get into this space. They've been kind of talking about it. And to your point, they recently clarified, they're more interested in kind of the listings, the lead generation, the advertising. So the way I see it is at this point it's more like a facilitator that we facilitate with, I mean we work with. A lot of different facilitators.
I would see us as more of a collaboration, we obviously see a lot of traffic just through CarMax.com, but we also, we work with facilitators to help complement the CarMax.com traffic, and I think that that's the way we kind of view it at this point. But certainly, it's something that you continue to monitor. I would also just tell you it just makes me really glad that We've we've gone through this pivot to really become an omni-channel retailer because I think customers are really looking for this combination of physical and digital assets when it comes to buying a car, and it's just, it's a, it's a big competitive moat that we built and it's very hard to replicate. So if you're going to get into the used car business, there's a lot that has to be considered.

Operator

Chris Pierce, Needham.

Chris Pierce

Hey, good morning, everyone.
I just was curious as you move kind of more into 6 to 10, less late model because of the opening of the credit spectrum, is that an opportunity for, are you competing against dealers you haven't traditionally competed against at a larger a larger rate and there's potential for a new set of share gains, or is like the 6 to 8 year old car now? The what used to be the 2 to 4 year old car because of what's happened with new car production, is this a new competitive set or is it just kind of continuation of the deal you've been competing against for years now?

William Nash

Yeah, I think look, we've always sold 1 to 10 year old cars and I think you know I talked a little bit about this earlier, the biggest thing that we want to make sure that we do is that whatever we put the CarMax label on, it meets our quality standards and You know when you start getting into the 6 to 10 population, there's a lot of vehicles that just don't meet the carmac standards, and we're just not going to, we're not going to.
Flinch on that standard. That being said though, we've obviously built the muscle to continue to produce that type of car and get it up to the the carac standard. So you know what I would say is it's continuing to compete in the space that we've been in, but quite H1stly, it's it's a space where there's a lot of transactions that happen, I talked about the P2P, consumer to consumer selling each other, especially in the 789 year old, 10 year old cars.
There's a lot of vehicles in there that just Well, it's in the denominator. It's not going to necessarily be in our numerator set. It's just not going to be able to be brought up to the quality standards. So I think that's the thing to think about and I think the way it enhances is again if consumers are challenged on just everyday expenses and they're trying to figure out how to work a budget and they need to, they would traditionally buy a 3 or 4 year. Car they may be saying, okay, well I'm going to buy a 6 or 7 year old car, and we want to we want to be able to meet that need. I think it's very similar to the folks that are thinking they're going to buy a new car and they realize, well, I can't get the new car to work in my monthly payment. I'm going to go down to a 1 or 2 year old late model car. So I think it's just a kind of an evolution of the business and where the consumer's going.
Just one thing on that, yeah, I didn't actually.

Jon Daniels

What you just one thing I want to clarify, Chris, you made the comments, as you go full spectrum and go 6 to 10, I think they're relatively disconnected. The fact that cap is going full spectrum, all we're doing is, likely taking some volume from our tier 2 and tier 3 partners. We we'll drive some incremental sales, but. Our tier tier tier 2, tier 3, even our tier 1 players love 6 to 10 year old cars. So I, I'd separate the inventory needs that we have from where cap is playing in the credit spectrum.

William Nash

As well as they love 0 to 4 back and forth.
I'm glad you made that point, John.
Okay. And then just to follow up on that though, is it, can it be thought of.

Chris Pierce

As a GPU tailwind as you move into these?

William Nash

I don't want to move into these older cars, but maybe as you sell it, yeah, I'm sorry if you ask that. I didn't catch that part of the question. So a GPU tailwind. Look, when you sell older vehicles, they cost more to recondition, but especially in CarMax's case they're kind of like a unicorn, where it's at the CarMax quality standard. It certainly isn't a commodity. We think the quality is better than others, so those do bring a little bit more margin.

Chris Pierce

Okay, thank you.
Thank you.

Operator

David Whiston, Morningstar.

David Whiston

Thanks. Good morning.
Can you just talk a little bit more about the decision making process to change the 2 million goal where you just withdrew the timeline completely as opposed to saying, given macro factors, we think it'll be more like fiscal 30 because doing it the way you did it just seems like it's a bit more pessimistic and maybe that was intentional or maybe it wasn't. I just wanted to get more clarification. Thanks.

William Nash

Yeah, it definitely wasn't pessimistic. Look, I think the important thing right now is everybody should know that we're focused on. Driving sales and driving a robust growth and look, there are a lot of macro factors. If you see, and I'll give you a prime example, if you see highly appreciating market where you can get to the $30 billion way quicker and it's really nothing that we've we've done at this point.
Same thing as if you see a slowdown, it may delay the total units. So right now there's just so much uncertainty out there. Why put a target out there that's really speculative, not knowing exactly where this environment is going to go and we just think that that's the The prudent thing, but it does not take the focus on what we're going after and those targets. It's just, it doesn't make sense to put a range on them at this point.

Enrique Mayor-Mora

Yeah, and just to build on that, like even in our earnings release, you'll notice like we are focused on growing sales and focused on growing the bottom line, and I think that's what's important in this kind of environment. And then at the appropriate time we'll come back with a timing outlook as well. We just need some more stability in what's out there, but again, we are focused on driving sales and driving profitability.

Brian Nagel

Yeah.

Operator

(Operator Instructions) John Murphy, Bank of America.

John Murphy

Sorry guys, I just wanted to speak 11 follow-up in. I understand that the long-term goals have been, postponed, here in the guidance, but you did reiterate the earnings per share growth model, give an update there.
When you talk about double digit earnings per share growth for years to come, you're talking about sort of mid, that has to come with, you, you'll get you tagger of high 10s on EPS with unique growth in the mid single digits. I'm just curious, when you think about that, does that include The normalization of SGNA from this 90% range back down to 70% or is that after that happens because it's just because if you, if you're taking SGNA down to back to the normal level, I mean, you're really kind of taking some of the growth capital, that you've that you're putting into the model, which makes sense. But I'm just curious, is this kind of run rate basis once we've gotten back to 70, 75% estrogen growth, or does that include the normalization from 90% down to 7070% in that statement?

Enrique Mayor-Mora

Yeah, like over time we expect to get back to the mid 70s, it's going to take us some time to get there. All that's factored into the guidance that we're providing, right? So we expect that again with mid single digit retail unit growth, we'd expect a keger of high teen EPS growth, and there's a certain there's an assumption of SDNA kind of ramping down over time, but that that's embedded in that guidance.

John Murphy

But to be fair, the mid 70s, the GAAP between you know 90% and mid 70s.
That's analogous to sort of CapEx or growth capital. That's, shouldn't be viewed as operating. So I'm just trying to understand, is this something that on an operating basis, you think you can do once, as regardless of that normalization of SGNA?

William Nash

So John, unless we got some robust on this year, I can't see us getting back to the mid 70s this year yet. I, we stand by what the model, we feel really good about the momentum and think that we can provide great, robust EPS growth even in the range that we're at right now.

Enrique Mayor-Mora

So again, the timing of getting back to the mid 70s is embedded in in that guidance. And what I tell you is that you mentioned 90, 91% where we ended this quarter relative to mid 70s.
Q4 is the high point of SGNA as a percentage gross profit for the year we were in the low 80s, right? And so just as a point of clarification.

John Murphy

Okay, all right, thank you very much.

Operator

Rajat Gupta, JPMorgan.

Rajat Gupta

Great day. Thanks for thanks for allowing me to follow up. I just wanted to clarify because we've gotten some like inbound like through the course of the call, just on the comments aroundA and provisioning, to understand the mechanics around the first quarter step up clearly. I just curious like what was was the suggestion from John that You know that level of provisioning will continue through the remainder of the year or it was just the fact that, you're increasing the subprime mix or the mix that will continue. Just wanted to make sure we're tying those two comments appropriately. Thanks. Yeah.

Jon Daniels

Happy to happy to clarify that, Rashad. I appreciate the question. So yeah, I think if you couple the two things. The larger one really in Q1 is certainly the step up in volume and the lower credit quality nature of Q1. So that is going to be the real big driver of the significant growth in the Q1 provision again as compared to the Q4 provision referring to.
And then yes, you tack onto there the fact that we are going to capture 100 to 150 basis points back. And obviously a highly profitable but at a higher loss reserve requirement, so higher provisioning there. Now that 100, 150 basis points we anticipate keeping through subsequent quarters and then again on the back half we look to tack on more as we continue our testing in the tier 2 and tier 3 space. So that will add further again different seasonality in different quarters, but I just want you to keep in mind that you know that added penetration, added volume from calf going deeper. Has to be factored into your provisioning going forward. Again, long run, it's a win, but one should keep that in mind. And then of course all, always the overarching comment of we will watch the macroeconomic situation decide what we do, but we want to make sure you keep the added penetration in mind in the subsequent quarters.

William Nash

The other thing I would just add to that, because you said something about subprime mix. I mean what John's talking about here in the near term is taking back stuff that we were originating earlier, not I just want to be clear, it's not going into subprime, it's basically pulling stuff back in that we had passed off to our tier two partners. Now, later in the year when we decide to go deeper into tier two and tier 3, then you could see a little bit of that. So I just wanted to make that distinction.

Rajat Gupta

Understood thanks so much for clarifying that again, thanks again and good luck.

Operator

Michael Montani, Evercore ISI.

Michael Montani

Yes, hi, thanks for letting me sneak another one in.
I was just hoping, could you clarify a little bit more what the Edmund's lease impairment charge was for? And then secondly, when could we think about, the added penetration turning into a win, I guess more specifically, can you grow calf profits if provisioning has to step up that much for this year?

Enrique Mayor-Mora

Yeah, I'll I'll take the first one. So we have a couple of floors in the Edmunds Santa Monica headquarters that we've been actively trying to sublease really since we acquired them, but it's been a hard market in LA as you can imagine. So, more recently in element. The school was impacted by the LA fires unfortunately, and they were in need of space so we ended up subleasing one of the floors to them. So we were able to find the subleaser while helping the community. So it really was a win-win situation and that kind of is what drove the impairment there.

Jon Daniels

Yeah, and see your second question, do we see, given the provision that growth in cap income, short answer is absolutely yes. We see growth in FY26 for cap income, on top of the provision that comes from strong net interest margins, obviously mentioning our expenses and all of that. But yeah, we absolutely see growth within the year and then obviously strong growth beyond that as the as the provision is trumped by the overall income we're going to gain.

Michael Montani

Understood. Thanks for the clarity.

Operator

Thank you. We do not have any further questions at this time. I'll hand the call back to Bill for any closing remarks.

William Nash

Well, thank you all for joining the call today and for your questions and support. Again, I want to just congratulate all of our associates for how they've built and enhanced our great culture for everything they do to take care of each other, our customers and our communities, and we'll talk again next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes the 4th quarter fiscal year 2025 CarMax earnings release conference call. You may now disconnect.