CarMax Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 22, 2022

Key Takeaways

  • Q3 results were pressured by the macro environment, with total sales of $6.5 billion down 24% YoY, total gross profit down 31% to $577 million, and net EPS of $0.24 versus $1.63 a year ago.
  • Through expansive price elasticity testing, CarMax held retail gross profit per used unit at $2,237—matching last year’s level—by choosing not to engage in deep discounting amid competitor price cuts.
  • Total inventory dollars fell over 25% YoY while maintaining saleable unit counts, driving strong free cash flow that funded a full pay-down of the $2 billion revolver.
  • SG&A expenses were reduced ~1% YoY ex-one-time legal settlement via attrition in stores, lower advertising, reduced share-based compensation and paused corporate hiring, aiming to reach mid-70% SG&A-to-gross profit.
  • CarMax Auto Finance income declined to $152 million from $166 million, but originations rose to $2.1 billion with 44.4% penetration at a 9.8% average rate, and the multi-lender prequalification tool was rolled out nationwide.
AI Generated. May Contain Errors.
Earnings Conference Call
CarMax Q3 2023
00:00 / 00:00

There are 17 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter Fiscal Year 2023 CarMax Earnings Release Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, David Lowenstein, AVP, Investor Relations, please go ahead.

Speaker 1

Thank you, Ashley. Good morning, everyone. Thank you for joining our fiscal 2023 3rd quarter earnings conference call. I'm here today with Bill Nash, our President and CEO Enrique Mayermor, our Let me remind you, Our statements today that are not statements of historical fact, including statements regarding the company's future business plans, Prospects and financial performance are forward looking statements we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, Expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results In providing projections and other forward looking statements, we disclaim any intent For additional information on important factors that could affect these expectations, Please see our Form 8 ks filed with the SEC this morning and our annual report on Form 10 ks for the fiscal year ended February 28, 2022, previously filed with the SEC.

Speaker 1

Should you have any follow-up questions after the call, Please feel free to contact our Investor Relations department at 804-747-0422 extension78 Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow ups.

Speaker 2

Bill? Thank

Speaker 3

you, David. Good morning, everyone, and thanks for joining us. Our 3rd quarter results reflect the continuation of widespread pressures across the used car industry. Vehicle affordability remained challenging due to macro factors stemming from broad inflation, climbing interest rates and continued low consumer confidence. In addition, persistent and steep depreciation impacted wholesale values throughout the quarter.

Speaker 3

In response, we have been taking deliberate steps to support our business for both the short term and for the long run. We are leveraging our strongest assets, our associates, our experience and our culture to manage through this cycle. Actions that we took during the quarter include further reducing SG and A, Selling a higher mix of older lower priced vehicles, slowing buys in light of the steep market depreciation, Maintaining used saleable inventory units while driving down total inventory dollars more than 25% year over year, Raising CAF's consumer rates to help offset rising cost of funds, pausing share buyback to give us capital flexibility and slowing our planned store growth for next fiscal year to 5 locations while maintaining our ability to open more locations if market conditions change. In the near term, we are prioritizing initiatives that unlock operational efficiencies and create better experiences for our associates and our customers. While we continue to selectively invest in initiatives that have the potential to activate new capabilities, we have slowed the pace of those investments.

Speaker 3

We believe these steps will enable us to come out of this cycle leaner and more effective while positioning us for future growth. We will provide more details on these actions later during today's call. And now on to our results. For the Q3 of FY2023, Our diversified business model delivered total sales of $6,500,000,000 down 24% compared with last year's Q3, driven by lower retail and wholesale volume. In our retail business, total unit sales in the 3rd quarter declined 20.8% and used unit comps were down 22.4% versus the Q3 last year when we achieved a 15.8% used unit comp.

Speaker 3

In addition to the macro factors that I mentioned previously, we believe our performance was impacted by transitory competitive responses to the current environment. External title data indicates that we gain market share on a year to date basis through October, though we've seen some recent loss of share. As we have said before, we are focused on profitable market share gains that can be sustained for the long term. Through expansive price elasticity testing, We determined that holding margins during the quarter was the right profitability play. 3rd quarter retail gross profit per used unit was $2,237 which is consistent with last year's Q3.

Speaker 3

Wholesale unit sales were down 36.7% versus the Q3 last year, driven by rapidly changing market conditions, which included about $2,000 of depreciation. This is incremental to approximately $2,500 of depreciation experienced during the Q2. Wholesale performance was also impacted as we continue to reallocate some older vehicles from wholesale to retail to meet consumer demand for lower priced vehicles. Also gross profit per unit was $9.66 down from a 3rd quarter record of $11.31 a year ago. Recall, last year, Prices appreciated approximately $2,500 during the quarter, which was a margin tailwind.

Speaker 3

Just as we are doing We will continue to focus on maximizing total wholesale margin profitability. We bought approximately 238,000 vehicles from consumers and dealers during the 3rd Quarter down 40% versus last year's period. Our volume was impacted by steep depreciation and our deliberate decision to slow buys in reaction to the depreciation. We purchased approximately 224,000 cars from consumers in the quarter with about half of those buys coming through our online instant appraisal We also sourced about 14,000 vehicles through Max Offer, our digital appraisal product for dealers, up 16% from last year's Q3. Our self sufficiency remained above 70% during the quarter.

Speaker 3

In regard to our Q3 online metrics, approximately 12% of retail unit sales were online, up from 9% in the prior year's quarter. Approximately 52% of retail unit sales were omni sales this quarter, down from 57% in the prior year's quarter. Our wholesale auctions remain virtual. So 100 percent of wholesale sales, which represent 18% of total revenue are considered online transactions. Total revenue resulting from online transactions was approximately 28%, down from 30% during last year's Q3.

Speaker 3

CarMax Auto Finance, or CAF, delivered income of $152,000,000 down from $166,000,000 during the same period last year. John will provide more detail on consumer financing, the loan loss provision and CAF contribution in a few moments. At this point, I'd like to turn the call over to Enrique, who will provide more information on our Q3 financial performance and the steps we've taken to further align our business to the current sales environment. Enrique?

Speaker 4

Thanks, Bill. Good morning, everyone. 3rd quarter net earnings per diluted share was $0.24 down from $1.63 a year ago. Total gross profit was $577,000,000 down 31% from last year's Q3. Used retail margin of $403,000,000 and wholesale vehicle margin of $115,000,000 declined 21% 46%, respectively.

Speaker 4

The year over year decreases were driven by lower volume across used and wholesale and lower wholesale margin per unit. As Bill noted, we continue to face depreciation and have been adjusting accordingly to better position ourselves to manage through the current environment. Other gross profit was $59,000,000 down 49% from last year's Q3. This decrease was driven primarily by the effect of lower retail unit sales on service and EPP. Service results declined $37,000,000 as lower sales and secondarily our decision to maintain technician staffing levels drove some deleveraging.

Speaker 4

Technicians are among the most in demand associates in the industry and their retention will position us strongly to quickly grow inventory when we exit the current cycle. EPP fell by 14% or $15,000,000 reflecting the decline in sales that was partially offset by stronger margins and a favorable year over year return reserve adjustment. Penetration was stable at approximately 60%. 3rd party finance fees were relatively flat over last year's Q3, with lower volume and fee generating Tier 2 offset by lower Tier 3 volumes for which we pay a fee. On the SG and A front, expenses for the Q3 were $592,000,000 up 3% from the prior year's quarter, reflecting a slowdown from the year over year increases of 19% during the Q1 and 16% during the Q2 of this year.

Speaker 4

In the prior year's Q3, we received a $23,000,000 settlement from a class action lawsuit. Adjusting for that settlement, SG and A actually would have declined 1% year over year this quarter. SG and A as a percent of gross profit was materially pressured as compared to the Q3 last year due primarily to the 31% decrease in total gross margin dollars compared to last year's quarter. The change in SG and A dollars over last year was mainly due to the following factors. First, a $41,000,000 increase in other overhead, primarily driven by cycling over last year's legal settlement.

Speaker 4

We also continue to invest, although at a reduced pace, in our technology platforms and strategic and growth initiatives. Second, an $18,000,000 reduction in compensation and benefits, including a $16,000,000 decrease in share based compensation and third, a $17,000,000 reduction in advertising. During the quarter, we continued to take steps to better align our expenses to our sales. This included further reducing staffing through attrition in our stores and CECs, Limiting hiring and contractor utilization in our corporate offices and continuing to align our marketing spend to sales. While our advertising expense was lower year over year, our investment on a per unit basis remains consistent with last year's Q3.

Speaker 4

We remain focused on reducing expenses and anticipate continued progress in the 4th quarter. Regarding capital structure, our first priority is to fund the business. Given 3rd quarter performance and continued market uncertainties, We are taking a conservative approach to our capital structure. While our adjusted debt to capital ratio was below our 35% to 45% We are managing our net leverage to maintain the flexibility that allows us to efficiently access the capital markets for both CAF and CarMax as a whole. In keeping with this goal of maintaining flexibility, we took the following steps this Quarter in addition to the SG and A actions I spoke to.

Speaker 4

First, we paused our share buybacks. Our $2,450,000,000 authorization remains in place as does our commitment to return capital back to shareholders over time. 2nd, we slowed the velocity of our CapEx spend. We expect CapEx will end the fiscal year at approximately $450,000,000 versus our previous $500,000,000 estimate. As Bill mentioned, we have also conservatively planned store growth for 5 new locations in fiscal year 2024.

Speaker 4

Our liquidity remains very strong. We ended the quarter with over $680,000,000 in cash on the balance sheet and no draw on our $2,000,000,000 revolver. Now I'd like to turn the call over to John.

Speaker 5

Thanks, Enrique, and good morning, everyone. In the Q3, the strength and stability of our credit platform provided approvals to over 95% of the consumers who applied for credit during their shopping journey. CarMax Auto Finance originated $2,100,000,000 within the quarter, resulting in a penetration of 44.4 percent net of 3 day payoffs, up from 42.2% realized in the same quarter last year and 41.2% in Q2. The weighted average contract rate Charge to new customers was 9.8%, which was higher than the 8.3% in last year's Q3 and the 9.4% seen in Q2. We continue to leverage our scalable testing environments and nimble underwriting infrastructure to strategically pass along a portion of the increased funding costs to consumers while still increasing share of the finance contracts.

Speaker 5

Tier 2 penetration in the quarter was 20.5%, in line with historical levels, but down from last year's 22.2%. Tier 3 financed 6.1% of used unit sales compared to 6.5% a year ago. Our lenders continue to make their own independent lending decisions in this challenging environment, and we remain pleased with the competitive offers they are collectively able to provide to our customers. Cash income for the quarter was $152,000,000 a decrease of 8.3% or $14,000,000 from the same period last year. Our loan loss provision was $86,000,000 resulting in an ending reserve balance of $491,000,000 This is compared to a provision of $76,000,000 in last year's Q3.

Speaker 5

The current quarter's reserve of $491,000,000 It's 2.95 percent of managed receivables, up slightly from 2.92% at the end of this year's 2nd quarter. This sequential 3 basis point adjustment in reserve to receivables ratio comes primarily from the continued addition of Tier 2 and Tier 3 receivables to the overall portfolio as seen in previous quarters. All in all, we were pleased with the credit performance within our portfolio during the quarter. We believe we are appropriately reserved for future losses. Further, we continue to be in a strong position to leverage our unique credit platform to operate our Tier 1 business within our targeted loss range of 2% to 2.5%.

Speaker 5

Within the quarter, total interest margin dollars were flat Last year at $277,000,000 modestly supported by a $5,000,000 benefit from our hedging strategy. The corresponding margin to receivables rate 6.7 percent was down 54 basis points year over year as receivables with historically low funding costs were offset by the receivables impacted by the more recent Fed moves. Regarding advancements in our broader credit technology, During the Q3, we successfully completed the nationwide rollout of finance based shopping, our multi lender prequalification product, And we continue to see a high level of engagement with this experience. As a reminder, this gives customers the ability to digitally receive Quick credit decisions across our entire inventory via our simple online application with no impact to credit scores. This also allows consumers to quickly and easily secure financing at any point in their shopping journey.

Speaker 5

Like the rest of the business, CAF is also focused on driving efficiencies. We are already seeing benefits from the modern, more nimble receivable servicing system that we launched a year ago. Consumer finance is a highly regulated and ever changing space, and our new system allows us to adapt more easily to these necessary changes. A recent example is California's upcoming regulatory change that requires added disclosure and refund requirements related to the cancellation of the GAP wafer product. With our old system, the implementation would have been lengthy and onerous, and we likely would have temporarily suspended the product in the state while we made the changes.

Speaker 5

However, with our new, more agile technology, we are able to incorporate these requirements without interruption. This is just one example of our early wins resulting from our new system, We have a clear line of sight to many more in the near and midterm. Now I'll turn

Speaker 6

the call back over to Bill.

Speaker 3

Thank you, John, and thank you, Enrique.

Speaker 7

As I

Speaker 3

mentioned at the start of today's call, we're taking steps to support our business by prioritizing projects that unlock operating efficiencies It starts with making our omnichannel experience faster, simpler and more seamless. Some examples include, we are enhancing online features to help customers feel more confident in completing key transaction steps Customers the ability to complete their transaction at one of our stores in as little as 30 minutes and represents a win win opportunity. Our research shows that customers Love this experience when utilized and it will enable us to lower our costs over time. Our final example is that we are working to seamlessly integrate our finance based shopping product into our stores and customer experience centers so that all consumers can enjoy this experience, not just those who shop online. At the same time, we are adding additional lenders to the platform to expand the breadth and depth of offers available to our customers.

Speaker 3

We have launched self check-in capabilities for appraisal customers and have also enhanced eSign functionality to better enable self progression. Additionally, we are testing an improved digital customer queue to better manage appointments as well as new software to improve title speed and visibility. We anticipate these tools will enable us to reduce associate time spent per customer and shorten customer transaction times. Our associates are key to providing an exceptional customer experience and we are focused on leveraging their skills in the most value added manner. We will also continue to selectively invest in key projects that have the potential to deliver new capabilities while lowering our costs.

Speaker 3

Examples include: 1st, We're updating Mac's offer, our appraisal product for dealers, which is available in approximately 50 markets. Many of our dealers are still on the initial version, which Does not provide instant offers and requires them to take and send us vehicle pictures. We are rolling out a new product, which offers a fully digital instant offer experience to all dealers. We believe this will well position us to grow our dealer to dealer buys more efficiently and support higher volume over time. 2nd, we are leveraging technology to enhance our logistics capability.

Speaker 3

We move approximately 2,000,000 vehicles each year. We estimate that our internal logistics operation drops about a 20% cost advantage over 3rd party providers and improves our speed, predictability and control of moves. Enhancements to our transportation management system will enable us to consolidate loads, increase our mix of pull loads and reduce the truck volume in and out of our stores. This will support our ability to keep our costs low as we complete moves even faster and more efficiently. 3rd, we're continuing to upgrade our auction experience.

Speaker 3

During the Q3, we scaled our modernized vehicle detail page to 50% of dealers. This page is mobile friendly, provides more relevant data to our dealers and improved search and filter functionality. It is also the springboard that we will use to launch capabilities We believe will further enhance our wholesale business, including AI enhanced condition reports and proxy bidding. We are confident that our focus initiatives will drive efficiencies and grow our business over the long term. In closing, We have spent almost 30 years building a diversified business that can profitably navigate the ups and downs of the used car industry.

Speaker 3

We have a strong balance sheet and access to capital. Our experience in inventory and margin management is a strength and we will We continue to be thoughtful and manage our expenses, pulling levers as necessary. While we're not able to predict how long the industry will remain challenged, We believe the pressures are transitory and that we are well positioned to manage through them and emerge an even stronger company.

Speaker 4

I I want to thank

Speaker 3

our associates for everything that they're doing to support each other, our customers and our business. Our foundation remains strong

Operator

And your first question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Speaker 8

Thanks for taking my questions.

Speaker 3

Good morning, Brian.

Speaker 8

Happy holidays.

Speaker 9

You too.

Speaker 8

So I guess the question I have, Just with regard to sales, maybe Bill, if you could discuss a bit more just the trend of sales through the quarters, we understand better how the Business is performing here. And then also you mentioned in your comments that you saw market share, I guess market share decline, if you will, I guess later in the period. It sounds like that was a result of others taking more aggressive actions on price. If you could elaborate further there. Who's doing What cohort of your competition is doing that?

Speaker 8

And how long should it how long would you expect that dynamic to persist? And then I guess a follow-up to that, As you look at your business and CarMax has historically been very, very good in managing inventories, but you're starting to see now others take more aggressive action on price You've held the line on margin. Could there be percolating issues within your inventory?

Speaker 3

All right. There's a lot in there, Brian. So let me start with sales during the quarter. The last time we spoke, it was middle of September, latter part of September, we talked about sales being Down in the mid teens, it actually got a little softer by the end of September and it continued we continue to see even more softness in October November. I'll save you from having to get back into the queue because I'm sure your next question is, well, how is December panning out?

Speaker 3

December is Running about where the quarter, the Q3 ran on average. So it's a little bit better than November, but I would just remind you that we're also going to be We're comping over a little bit of easier performance obviously than we were from the Q3 that we will be doing in the Q4. As far as market share, giving you some detail on market share declines. Year to date, Like you said, we still got we still have gains in share. We did see declines Most recently in September October, which is the latest title data that we have.

Speaker 3

But this speaks to why I always hesitate talking about market Share on the short term basis because sometimes there are some temporary pressures and we saw competitors lowering prices and margins to move inventory, which I'll be honest with you, it's not surprising. I mean, we saw these a very similar play Back in the 2008, 2009 recession, it's also the reason that we did much more expansive Pricing elasticity testing and through those tests, we're confident that even though we would have sold more cars if we had lowered the prices, we actually would have We made less money. And as I said in my opening remarks and what I've always said is we're always what we're going after is profitable Long term market share gains. I think we've got a great track record on that. I think your other question was just who's getting that look.

Speaker 3

This is a highly dispersed business, lots and lots of players out there. I can't point to any of them. I just know that widespread pressures Folks trying to move their inventory and get rid of it.

Speaker 9

Thanks, Bill.

Speaker 10

Sure.

Speaker 3

Ashley?

Operator

Yes. And we'll take our next question from Rajat Gupta with JPMorgan. Please go ahead.

Speaker 9

Great. Thanks for taking the question. Maybe firstly just on retail GPU, obviously very well managed again this quarter. You talked about the fact that you're not discounting as much as some of your competitors. But at some point, you have to move the inventory that you have.

Speaker 9

It seems like it's aging and it's getting older on the lot. So like what gives ultimately? I mean, Would you have to consider the discounting at some point to move that inventory out the door? And if not this quarter, maybe the next quarter? So how do you manage that transition?

Speaker 9

And how should we think about implications to retail GPU maybe in the next quarter or 2 through that pricing transition?

Speaker 8

And I

Speaker 9

have a follow-up. Thanks.

Speaker 3

Yes. So Rajat, great question. This is where I think we really shy when it comes to inventory management. I'm really pleased. If you notice, I talked about how much our total inventory has gone down, but we're able to maintain saleable units.

Speaker 3

And that's because the team did a phenomenal job Really cleaning up stuff that we had, whether we're waiting on parts, missing titles, we really worked hard to clean up a lot. So to see your point, The aging inventory, it's one of the reasons why you didn't see more movement in our ASPs, our average selling prices given the depreciation. The Did a phenomenal job working through that getting it out there. And then with our sophisticated price testing, we just realized, look, there's no sense in giving this away. And so again, we feel like we've put ourselves in really good position going forward.

Speaker 3

And I think what you'll see going forward is your retail average selling prices are Come down a lot more than what you've seen up to this point. So we feel good about retail GPU. Obviously, we'll continue to test the elasticity as we go forward. But if elasticity holds, I think you'll see us continue to have Robust retail GPUs.

Speaker 9

Got it. And maybe like the other gross profit line, If I look at the volumes that you did 3 years ago, very similar to the volumes that you have today, really slightly lower today. And that other gross profit was $94,000,000 and it's now $59,000,000 despite your 3rd party financing fees actually better. So why is that like down almost 50% on a similar level of volume? I mean, is there any opportunity to reduce the cost there?

Speaker 9

I know you mentioned that you want to retain the technicians, but How long are we going to see this kind of run rate before things recoupled to what you had in the past? Thanks for taking the question.

Speaker 4

Yes. Specifically with the other margin, it's what you really need to do is look within the service business. And this quarter, a couple of things. Number 1 was just with sales volumes being where they were down 20% year over year that places a fair bit of deleverage pressure On the service business, that's number 1. But number 2, of almost equal importance this quarter, about $15,000,000 It was our decision, the correct decision is to hold on to technicians, right?

Speaker 4

It's a very difficult position to staff. It is of utmost importance That we retain and we recruit the technicians because when we come out of the cycle, we want to be in a position where we can actually ramp up our inventory Quickly, faster than our competitors. But that being said, it is an investment that flows through that service line. And again, this quarter, it was roughly $15,000,000 given the current sales levels. But it's absolutely the right decision for the medium term and definitely for the longer term.

Speaker 4

That was the biggest pressure this quarter, Rajat?

Speaker 3

Yes. Rajat, the only thing I would add is, obviously, you're comparing it to a few years ago. We have a lot more production capacity now because we have more technicians, we have more space. So That's feeding into it as

Speaker 9

well. Sorry, just to follow-up. So what's your view on the cycle recovery? I mean, like, Are you anticipating things like rebound at some point next year? Or I mean, what kind of conviction do you have on that?

Speaker 9

So just so that you might have to take some of these headcount actions more aggressively. Just curious on the thought process there.

Speaker 3

Yes. Look, Rajat, your guess as far as what's going to happen next year is as good as mine. I think what we're trying to do is put ourselves in a position that regardless of what happens In the upcoming quarters, we'll flex up or if we need to pull additional levers, we'll pull additional levers. So we're just trying to give ourselves flexibility at this point.

Speaker 8

Yes. I

Speaker 4

mean, we are laser focused on what we can control, and that's what we're taking actions on. And so you can take a look at our SG and A and how we've bent the curve there. You can take a look at service. Yes, it's up. But again, there's a the reason it's up is that we're investing in our technicians because we know that we're going to get through the cycle and when we emerge from Because we know that we're going to get through the cycle and when we emerge from it, we want to be in a really strong position to reduce cars quickly.

Speaker 9

Got it. Great. Thanks for taking the question.

Speaker 11

Thank you.

Operator

Okay. We'll take our next question from John Healy with Northcoast Research, please go ahead.

Speaker 6

Thank you for taking my question. Just wanted to ask for a little bit more color on the SG and A cadence. I appreciate The comp cadence, but I was just wondering if you could help us think about the actions you took in Q3 and maybe the run rate. And really, I don't know if we can think about an SG and A to gross kind of level for the next couple of quarters or just help us understand kind of What might be reasonable for you guys just because there's been a lot of growth SG and A and now it sounds like you're Calibrating that back. So anything you could provide there would be helpful.

Speaker 4

Yes, great. Thank you, John. Yes, like I said in my prepared remarks, we have Significantly bent the curve on our SG and A. Go back to the first half of the year as a whole, it was up 16% to 17% year over year. We've met that down to 3% year over year growth this quarter.

Speaker 4

But again, when you back out the $23,000,000 settlement that we received last year in Q3, you're really looking at a So, pretty material change in the curve. We would expect that to carry forward into the Q4 and into next year. And why is that? It's because of the actions we've been talking about, right? And it's really kind of 2 groups of actions.

Speaker 4

Number 1 is on the more variable perspective. We've been lowering our headcount, lowering our staffing from an attrition basis in our stores. So that actually takes a little bit more time, right, because you're managing it through attrition, but we believe it's the right thing to do from a culture standpoint. And that has been bleeding down really since the Q2 as when we started talking about it. We expect that will carry forward to the Q4 and into next year.

Speaker 4

The second piece is really taking a look at our fixed costs and actively managing there as well. So I've talked about looking at our Our usage of contractors in the corporate home office, we've pulled back there, right? And we've also essentially paused our hiring in the corporate office. We are still hiring backfills, kind of key positions that we have as well, kind of strategic positions as well. But materially so, we've kind of paused our corporate overhead hiring as well.

Speaker 4

So we've taken strong actions. We believe they're appropriate actions for The marketplace that we're operating in, if we need to take further actions, we would do that as well if required, but we believe we're strongly positioned right now. And to answer your question about like the cadence, I would expect the Q4 to look similar to the Q3 once you back out The settlement from last year.

Speaker 6

And when you say similar to the Q3, would that be in terms of dollars or would that be in terms of And the SG and A type of growth.

Speaker 4

Yes. So it's more of a year over year SG and A and how that's Moving, it's not to gross. I think the challenge, John, with the leverage ratio, the SG and A to gross profit is We can control SG and A, and I believe we've been doing that effectively. The challenge is the gross profit number. So depending on where that gross profit number ends up And sharp movements quarter to quarter make it really difficult to manage that leverage ratio.

Speaker 4

So in terms of, as I mentioned earlier, we'll control what we can control and that's what we're focused on. We're focused on that SG and A line. So I would my comments are specifically about SG and A growth year over year on the quarter.

Speaker 6

Perfect. Thank you. And just one follow-up question just about the gross profit per unit levels. I feel like you kind of already answered this, but I just wanted to ask it maybe in Hypothetically, if ASPs fall another 5% to 10% over the next couple of quarters, either given market conditions or just changing of mix, Are you guys still confident that the $2,000 to $2,200 GPU level is achievable even in that So I just wanted to ask that more directly.

Speaker 3

Yes. Look, I think we feel very comfortable where we're running the retail GPUs. We'll continue to monitor the test. But look, I expect ASPs to continue to fall, which I think overall for the industry It's a good thing to help drive some gap between new and late model used. So we feel comfortable with where our GPUs are and we'll continue to test.

Speaker 6

Appreciate it. Thank you, guys.

Speaker 11

Thank you.

Operator

We'll take our next question from Daniel Imbro with Stephens Inc. Please go ahead.

Speaker 7

Yes. Thanks. Good morning. Thanks for taking our questions. I want to follow-up on John's question on expenses.

Speaker 7

Enrique, can you just provide some more color Around really what the biggest inflationary drivers are in that other overhead cost line. I think you pulled back, you said, on some of the labor in the CECs and It's still up $40,000,000 year over year. So is any of that one time increase? And then just taking a step back on expenses, I think even last quarter we talked about One of the reasons that you don't want to reduce headcount too quickly is the need to hire back and that gets harder next year. But now it sounds like we're expecting a softer backdrop for the next Yes, 12 plus months.

Speaker 7

So I guess why not reduce expenses or headcount more quickly across other parts of the enterprise? Thank you.

Speaker 4

Yes. And what I'd say there is that we did. And so as sales got more challenged in the Q3, we went deeper into the staffing levels in the field. And so it's still through attrition, so it takes it does take a little bit longer. But at the same time, we did lower our staffing targets And in regards to your first question, I think you're asking about the other The expense line and what goes in there because it was a 41% increase if you just look at the release, right?

Speaker 4

That is primarily because We're comping over the $23,000,000 settlement that we had last year. If you back that out, you're looking at Less than half of that is of an increase and what that really is attributed to is our investments in technology and product, Right. And that's what that's attributed to. What I'd tell you though as well is that if you compare it to prior quarters, there's a reduction in the pace of that investment from a year over year standpoint. And so we've been pulling back there as well.

Speaker 4

You also see that manifested in our CapEx guidance for this year. We've taken that down from $500,000,000 to $450,000,000 The largest chunk of that decrease really comes from kind of slowing down some of those projects, in addition to just slowing down some of the capacity initiatives that we have out there in terms of growing our capacity with lower volume, We're just slowing down some of those investments.

Speaker 12

And Daniel, the only thing

Speaker 3

I would add there is, look, we're and you know this our culture is one that's People first mindset. Our people are the reason for our success and that's the reason we've chosen to allow attrition to get us to where we need to be. We'll obviously continue to monitor The situation, but we're very comfortable with allowing attrition to get us to where we need to be.

Speaker 7

Got it. I'll stick with one question and hop back in the queue for follow-up. Thanks.

Speaker 11

Thank you. Thank you.

Operator

Thank you. We'll take our next question from John Murphy with Bank of America. Please go ahead.

Speaker 13

Good morning, guys. I just wanted to focus sort of on the supply side here just for a second. I mean, we think about the 1 to 6 year old car fleet, that's going to continue to probably shrink for the next couple of years. Competition is more focused on them, Bill, as you mentioned in the dealers. It seems like the available 1 to 6 year old car fleet is its supply is going to continue to shrink, But certainly what's available to you and other folks in the secondary market, but you've kind of mentioned going lower in the Asian price spectrum to drive volume and you've shown an ability to kind of manage that fairly well.

Speaker 13

So I'm just curious how fast you can move On that to potentially drive volume back up here, lower price points but higher grosses and maybe better returns just on the capital employed?

Speaker 3

Yes. Thanks for the question, John. It's interesting because we're kind of living a very similar life to what we did after the 'eight and 'nine recession. You remember where You come out of that and you have less newer cars and it kind of has to work its way through. I tell you, we're in a better position today than we were back there just because our self sufficiency is So high and we'll be able to sell what consumers are looking for and we're going to be able to get that really in a better way than we Could after 809 because our self sufficiency is so high.

Speaker 3

In my opening comments, one of the reasons our buys were down so far, Obviously, depreciation was the biggest lever, but there's also we made some decision just to slow down buys. And so there were retail cars that we Purposely did not buy because of the risk of those cars in a highly depreciating type of market. So again, I'm very comfortable with where we are and I think we're Better positioned than we were in 2008 and 2009, and I think we did a phenomenal job in 2008 and 2009 navigating that period.

Speaker 7

But maybe to follow-up on

Speaker 13

that, Bill, I mean, how fast can you move on this to drive comps positive? I mean, we understand the kind of the headwinds in sort of It was traditionally your core. I mean, this is obvious, you know it. I mean, you're going after it. I mean, when do you Kind of just push and just increase maybe materially the penetration of these older vehicles to drive the volumes higher because I mean the one thing that is it's very admirable is that the variable The focus on GPUs, which is a variable cost analysis, but you do have these fixed costs that are high, particularly as Enrique is talking about these technicians.

Speaker 13

So you got to cover these costs at some point, not and I mean, when can you do this? I mean, it's something you're stating to do, but you're not doing it.

Speaker 3

Well, when you talk about penetration of the older vehicles, look, the penetration and how much we put out there is driven by the consumer demand. And not everybody wants an older, Higher mileage type of vehicle that's less expensive. So again, that's all driven by demand. And As we see consumers continue to demand that, we'll continue to put that out. But again, not everybody's not everyone's looking for that.

Speaker 13

Okay. So I mean it's really a supply I mean it's getting to the supply of the core product more than I'm going to push a little bit.

Speaker 3

Well, I think it's just more it's a bigger issue. It's just you have to go back to vehicle affordability. It's just keeping a lot of people on the sidelines right now. And it's not only vehicle affordability, that's the line share, but you also have rising Interest rates. If I look at, CAF payments, just Tier 1 payments, just as an example, The monthly payment, which is the biggest factor on whether someone's going to decide to buy a car or not, it's up $150 year over year with the majority of that being driven by the vehicle price With a smaller piece being driven by the interest rates.

Speaker 3

And I think you've got that which is obviously keeping people on the sidelines, not to mention just the overall inflationary And I think what we're trying to do is make sure that we've got the right amount of inventory, the right mix of inventory, out there to meet the consumer demand and be very thoughtful about Our margins in order to cover the costs in the way that we're taking a people first mindset on how we approach the business.

Speaker 13

Okay. All right. Thank you very much.

Speaker 3

Thanks, John.

Operator

And our next question comes from Seth Basham with Wedbush Securities. Please go ahead.

Speaker 2

Thanks a lot and good morning. Just to clarify, for this sales With comps continuing to trend down 20%, do you still expect SG and A to be flat to up year over year in the Q4 and going forward?

Speaker 4

No, I mentioned that you need to back out the $23,000,000 we got last year in the Q3. And so we would expect to be down year over year in the Q4. Now it gets a little bit tricky Seth as you know like quarter to quarter things can happen, but our expectation is that we would It will be down year over year in the Q4.

Speaker 2

Okay. And how again, how much down? And when you think about the 20 percent decline persisting. When do you decide to get more aggressive on SG and A?

Speaker 4

Yes. We're not going to provide guidance on how much down in 4th quarter, because again, there's some variability quarter to quarter, but what I'd tell you is our expectations that it will be down year over year. And if you look at the kind of the trend That we've been managing to I think we've been focused on SG and A and we've been pulling the right levers so far now. If business doesn't pick up And deteriorates, we have other levers we can pull, right? But for the time being, we believe we pulled the right levers.

Speaker 4

And We'll continue to manage the business prudently as we always do.

Speaker 2

Got it. And my follow-up question is just on the wholesale business. The wholesale to retail ratio in terms of units sold declined sharply to 66% this quarter. Would you consider this the new normal?

Speaker 3

No. I consider this what you would see in a highly depreciating market. When prices are going down a lot like they have been And consumers have been told for the last year that this is the best time to sell their car. They can get more than they could ever gotten before. There's a disconnect there.

Speaker 3

So as prices come down, it always drives our buy rate down. The other thing I would just add to that is that we stepped back our Appraisal advertising, just given the volatility of the market. So no, I don't consider this the new norm.

Speaker 2

Thank you, guys.

Speaker 11

Thank you. Thank you.

Operator

And our next question comes from Sharon Zackfia with William Blair. Please go ahead.

Speaker 14

Hi, good morning.

Speaker 4

Good morning.

Speaker 14

I guess, following up on the SG and A question, I guess, is there a way to contextualize how much you've taken out year to date of SG and A and what that run rate is Now in the Q4, I'm assuming that those initiatives continued in the Q3 and into

Speaker 9

the Q4.

Speaker 4

Yes. I think the better way to think about it, Sharon, or the best way to think about it is just the cadence, the year over year cadence that we've had. There's just always seasonality that occurs, right, quarter to quarter in our business and that also impacts SG and A. But again, if you go back to the first half of the year, Q1, we grew SG and A 19 percent up year over year in the Q1. In the Q2, it was up 16% year over year.

Speaker 4

This quarter, if you back out The legal settlement that we got last year, we are down 1%. So that's a significant decrease in the pace of SG and A. And So we are focused on it. We are managing to the current environment, right? We think we're doing so appropriately.

Speaker 4

Now if the business continues to be challenged, there's other things we can do. But for the time being, We've taken some pretty material steps to manage our SG and A.

Speaker 14

Yes. I think part of the confusion is It sounds as if you're expecting SG and A to be down similarly like down 1% in the fiscal Q4 year over year, But it also sounds as if you're continuing to proactively manage SG and A. So I think a lot of us are trying to reconcile that in our heads as to why We wouldn't see SG and A down a bit more year over year than what you saw in the Q3, if that makes sense.

Speaker 4

Yes. We expect to continue to see SG and A kind of to go down. I think on an individual quarter, It gets a little bit challenging to give you a number that we're managing to. Many things can happen on a quarter. But what I'd tell you is thematically and practically, We expect to continue to manage our SG and A down from a year over year basis.

Speaker 14

Okay. Maybe separately, I mean, how should we think about SG and A on a full year basis for next year. So you've got a lot of moving parts. You kind of have to Keep your muscle intact for a potential rebound, but at the same time, you're dealing with a very difficult macro climate. So as we think about next year, particularly with the curtailment in the unit openings, I mean, how are you viewing SG and A dollar growth?

Speaker 4

Yes. The way we're looking at SG and A is we've given guidance in the past like, hey, we need 5% to 8% gross profit growth to lever. I think in this kind of environment, right, in this kind of macro backdrop, that kind of guidance is less important What I'm about to say, so we are actually managing and our goal is to get to kind of the mid-seventy percent SG and A to gross profit, Right. That is our first step on the way to improving our SG and A. Now we're going to need gross profit growth there, right?

Speaker 4

But that is our first step. Over time, We have talked about having an operating model that's more efficient than what it used to be and we still expect that. That's going to be over time though. Omni Transformations and you can take a look at other retailers that have gone through it, it takes time to get to a better and more efficient operating model. We expect to get back to where we used to be.

Speaker 4

It's just going to take time. Our first step is to get to kind of the mid-seventy percent SG and A to gross profit, Right. But again, we're going to need gross profit support to get there. In the meantime, we're going to continue to manage our SG and A appropriately for the market and that's what we do. And you can see that's exactly what we did in the Q3.

Speaker 4

We expect to carry that forward into the Q4 and into next year. And we'll focus that program.

Speaker 3

Yes. And I think, Sharon, we'll also have a lot more visibility after the Q4 to really be able to tell you more Depending on how the business does between now and then.

Speaker 14

Okay. Thank you.

Speaker 3

Thanks,

Operator

We'll go next to Craig Kennison with Baird. Please go ahead.

Speaker 11

Hey, good morning. Thanks for taking my question as well. And I'll try to hit the SG and A topic in a different way. But There's been a change in the competitive landscape and I think it's been to your favor. And I'm wondering if philosophically You can make a change in how aggressive you are with respect to SG and A given that winning in this market may not be a sprint anymore, but might Truly be a marathon and allow you to throttle back more aggressively than just low single digit percentage cuts.

Speaker 3

Yes. Craig, I think I think about it a little bit differently. I think similar to you, look, we have competitors that are obviously struggling. I don't think now is the time where given our financial strength where we should be pulling back a whole bunch on SG and A. We have pulled considerably back.

Speaker 3

But at the same time, as I talked about in opening remarks, we also want to make sure that we're continuing to build for the future. And I think what everybody needs to remember is, we don't operate this business on a quarter to quarter basis. We operate the business for the success over the long term and there's some things We're spending on that will absolutely help us, the longer term. Does it give us a headwind for EPS right now? Absolutely.

Speaker 3

But is it the right decision For the company long term, absolutely. So again, I think really my thoughts around your question is we're going to continue to walk this fine line. We want to continue To build out the muscle, we want to continue to find near term efficiencies, which we will do. And we'll continue to manage the business with a long term view versus just a quarter to quarter view.

Speaker 11

And maybe just a follow-up. I mean, obviously, the stock is under significant pressure and it feels like you have the long term philosophy, but Not enough shareholders are on board with it. Is there something you can do to improve the messaging or the guidance provided to Maybe reduce the amount of surprise with which your results are met.

Speaker 3

Yes. Well, I think the surprise is coming from macro factors to Enrique's point that We really those are things that you can't control. And so what you need to focus on is what you can control. And obviously, I think Our long term messaging is still more intact than ever. Yes, we've got some pain here in the short term.

Speaker 3

But guess what? We've seen pain before In the short term, we've seen if you look at market share, for example, which is a proxy for how I think success is going. If you look at market share, we've historically We've gained market shares. I mean even in the time where the 'eight, 'nine, we lost a little market share in the near term, but then we quickly got it back and then some more. Even if you look in the last few years, when you look back at like FY 2020 when we started really rolling out our online capabilities, we saw a step up in market share gains.

Speaker 3

Unfortunately, we went into COVID. We gave a little bit back, but the following year we got that back plus more. Now we're in a recessionary period. So Again, I think everybody just needs to kind of keep a perspective of what we're going after long term. And yes, the short term can be a little noisy, but the long term message is still intact.

Speaker 11

Great. Thanks so much.

Speaker 4

Thanks, Craig.

Operator

We'll take our next question from Michael Tanney with Evercore. Please Go ahead.

Speaker 15

Hey, good morning. Thanks for taking the question. Just wanted to ask

Speaker 3

a little bit more on

Speaker 15

the credit side for John. If you could give us Some incremental color, you had mentioned 2% to 2.5% is kind of normal for Tier 1. So what would the equivalent kind of loss ratio expectations be for Tier 2 and Tier 3? And then by way of follow-up would be, can you give some incremental color around delinquency trends and roll rates, If possible at all by tier would be very helpful.

Speaker 5

Sure. Yes, right on. Thanks for the question. The 2% to 2.5% is again our targeted range. I think we've done a great job staying within there.

Speaker 5

We've been in the Tier 3 business for since 2014. I think we've historically quoted it Basically, 1% of our receivables initially, it's not 2%, and obviously substantially higher Loss rates, I think we've put it often 10% of our losses when it was 1%. So you're seeing maybe a 10 times, tenfold loss rate difference there in the Tier 3. Tier 2 is somewhere in between, depends on where we choose to play there. There's obviously a wide spectrum.

Speaker 5

So hopefully that gives you some color on how to expect Losses, provisioning, whatever around the different buckets. Overall, macro factors and delinquencies and losses impacting our portfolio. I think it's very clear delinquencies are on the rise in the industry. There's no doubt. You can see that within our ABS deals.

Speaker 5

We've mentioned that historically. There's certainly seeing pressure in the consumer. I think we've done a really, really Strong job at working with that consumer. And while they might go 30, 35 days past due, helping them find solutions such that it doesn't go into A charge off status. So we continue to fight that good fight and work with our consumers.

Speaker 5

As Bill mentioned, obviously, monthly payments are up. I think we've done a nice job of being responsible on our lending to our consumers and helping them through it. And ultimately, we reserved accordingly expecting all of this. So I think we're in a good position from a reserve standpoint. We'll watch the credit environment and the consumer very carefully, And hopefully that answers your questions.

Speaker 12

And maybe can you just contrast

Speaker 15

a little bit the current delinquency experience you're seeing visavis What was happening in 'seven and 'eight?

Speaker 5

Sure. Yes, I think what you're seeing historically is I would say in 2,007 and 2,008, you absolutely saw an impact across the entire credit spectrum substantially. I think what we've identified is we're seeing a little more pressure on maybe the lower credit consumer, So I see that definitely different. And again, I think that we're seeing Delinquency pressure that hints of a challenge for the consumer, but it really is not manifesting itself into loss. Again, we're going to watch it carefully And we'll see what happens.

Speaker 5

But you absolutely saw more of an impact across the credit spectrum and into the loss side In 2008, 2009. And again, I think that's a very different environment. We can all agree with that, the labor pressures back then versus now Income for the workers. So we'll see where it translates. But I think those are the fundamental differences we've seen.

Speaker 12

Thank you.

Operator

And we'll take our next question from Chris Bottiglieri with BNP. Please go ahead. Your line is open.

Speaker 10

Hey, guys. Thanks for taking the question. I wanted to talk about your path to your target SG and A to gross. It sounds like it's gross profit dependent to some level, But some of the gross profit levers like service and used volumes, I think, are out of your control. I think it's probably fair to say.

Speaker 10

The wholesale took a pretty big step down this quarter, but you've driven significant improvement there. So I guess my point is like, where do you see the gross profit driven coming from? Is there any reason I think that wholesale could rebound imminently?

Speaker 3

I think to Enrique's point earlier, It is a 2 piece equation. We're controlling the expense side, the gross profit. We're going to need the business to come back. We're going to need it to come back. So I think Wholesale gross profit, obviously, we made some good improvement there.

Speaker 3

Retail actually, wholesale and retail GPUs, I think, are both strong now. It's about Getting some of the volume back, I think, wholesale, I'm hopeful we can grow that a little bit more. Like I said, we did some things this Quarter that probably slowed that down a little bit, but I think that's what it's going to be dependent. That's going to that'll carry some weight.

Speaker 10

Got you. Okay. And then a question on Cath quickly. The penetration is up a ton despite like a pretty large rate hike. I imagine like you've been more In terms of quicker to raise rates, the bring your own financing jumped a bit too as well and Tier 2 and Tier 3 declined.

Speaker 10

You're also adding new partners On to the Tier 2, Tier 3 network, if I heard that correctly.

Speaker 9

So could you talk about what

Speaker 10

you're seeing there in aggregate? Are the Tier 2 and Tier 3 tightening credit at the margin? Does your new instant appraisal tool that you added, it sounds like it includes the partners more. Will that help drive penetration of Tier 2 or 3? Just any thoughts there would be helpful.

Speaker 5

Yes. All right. Let me take them sequentially here. So just a remark on overall penetration. Yes, as we mentioned in the prepared remarks, cap penetration is up in tandem with actually us raising rates.

Speaker 5

I think that's something we're really pleased about. We know that generally you're going to lag The market, again, we're competing with credit unions at the higher end, but I think we've done a fantastic job at raising rates 40 basis sequentially 150 basis points year over year and still capture that penetration. So we're pleased with that. You see The Tier 2 penetration down from last year and the Tier 3 penetration down, I think that's a combination of 2 things. You absolutely see the consumer challenge there, as Bill mentioned.

Speaker 5

You still see an affordability issue there. But yes, absolutely, as we mentioned, Lenders are being very what they need to do to operate independently and pull back where they need to. And I think there's the benefit of our platform. You've got A number of lenders, they're going to work together to figure out what's best for them, but collectively, provides a good credit offer in the long run. So I think that's you definitely see pullback there.

Speaker 5

Chris,

Speaker 4

last part of

Speaker 5

your question, I think you mentioned not instant appraisal tool, but our prequal tool. Just to clarify there, we mentioned that we're continuing to add lenders onto that tool. Again, we think it's a best in class tool. It requires a lot of nimbleness from our lenders. They're all coming on board.

Speaker 5

Are we seeing engagement there? Yes.

Speaker 8

I don't know that that's necessarily

Speaker 5

driving a ton into the penetration story, albeit that tool does bring a better credit quality consumer to the application process. But so does that answer your questions? What else have I missed?

Speaker 10

No, no. You got my hold on to your list and thanks for correcting my misspoken. Yes, that's what I meant was the sorry, I said it again, the financing penetration tool. Thank you.

Speaker 4

Okay. Thanks, Chris.

Operator

And we'll take our next question from Chris Pierce with Needham. Please go ahead.

Speaker 12

Hey, good morning. I just wanted to kind of get some color around, you talked about competitors acting aggressively to preference units Is that positive because it means the industry is moving back to normal? But or is it a short term negative because they're going to have fresher inventory that's going to lower your unit numbers? I just kind of want to know how to think about that and how that's kind of trended in the past. You've talked about seeing this before.

Speaker 3

Yes, Chris. So I think what you're saying is there's competitors out there that just aren't moving any inventory and Depreciation has been very steep. And so what they're doing is they're trying to move some of that inventory. We've seen this in the past. In a lot of cases, it's not sustainable over the long term because you're just not making the money that you need to, but you're trying to get units moved.

Speaker 3

So It's again the reason why we did the expansive price test. We wanted to see what the elasticity and we did price test both up and down. So we did price test down. We also did price test up Just to kind of better understand it, which again just gives us confidence that we made the right decision from a profitability standpoint.

Speaker 11

Okay. Thank you. Thank you.

Operator

We'll take our final question from David Whiston with Morningstar. Please go ahead.

Speaker 16

Thanks. Good morning. It looks like you had a really great free cash flow generation quarter from an inventory reduction. And I'm just curious, I guess, one, can you how much longer can you reduce your inventory to get that free cash flow benefit, you still have adequate Vehicle inventory to sell and then you paid off the revolver with some of that free cash flow. Do you also want to pay off that June 24 term loan to get some more balance sheet healthy, would you rather have that cash on hand?

Speaker 4

Yes. I think in this kind of environment, I think Having some cash on hand isn't a bad thing. And we absolutely use The really effective management of inventory, like Bill talked about, we decreased overall inventory year over year, but we actually increased our sellable inventory. So that's some impressive work by the teams to work through our WIP. And so that was really good news.

Speaker 4

We used that Cash basically, as you mentioned, to pay down the revolver this quarter, take it down to 0. We have no tap on our revolver At the same time, sit on some cash. I just think, David, in this kind of environment, it's not a bad thing to have some cash as well. So it gives us ultimately the flexibility to manage And we have a really strong balance sheet. We're proud of it.

Speaker 4

And we have flexibility that others don't have in the industry. And I think that puts us in a position of strength.

Speaker 16

And somewhat related to the buyback pause, I do understand wanting to be prudent, but should we interpret this to mean you guys are less optimistic about maybe the short to midterm than you were 3 months ago?

Speaker 4

Well, it's important that we run a conservative balance sheet in this kind of environment. And as I mentioned in my prepared remarks, we do look at Our net leverage ratio is in terms of something to manage too carefully to make sure we have ultimate flexibility when it comes to Having funds and managing cap, we do have a very large captive finance organization and that's just a key consideration that goes into it. I think until the business kind of improves and just as importantly the macro backdrop improves, I expect that we will pause the share buyback. That being said, We remain fully committed to the share repurchase program and we'll get back into it at the appropriate time when things improve and the outlook improves.

Speaker 3

Yes, David, it's less about our views have changed on things are going to get worse. It's just more about the uncertainty.

Speaker 16

Yes, I hear you. Hopefully, it's not

Speaker 10

too long to pause.

Speaker 16

I think your stock is very attractive here.

Speaker 4

Yes, agreed.

Operator

All right. Thank you. We don't have any further questions at this time. I'll hand the call back over to Bill for any closing remarks.

Speaker 3

Thank you, Ashley. Well, listen, thanks everyone for joining the call today and for your questions. As I've said multiple times today, we believe we're well positioned to navigate this And I do think we'll merge an even stronger company. I want to thank again our associates for everything they're doing and their commitment to each other and the customer and the communities and the environment. And I want to wish you all a happy holiday season, and we look forward to talking again next quarter.

Speaker 3

Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes Q3 fiscal year 2023 CarMax Earnings Release Conference Call. You may now disconnect.

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