管理層發言
Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2025 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. I would now like to hand the conference over to your speaker today, David Lowenstein, VP, Investor Relations. Please go ahead.
Thank you, Madison. Good morning, everyone and thank you for joining our fiscal 2025 fourth quarter earnings conference call. I'm here today with Bill Nash, our President and CEO; Enrique Mayor-Mora, our Executive Vice President and CFO; and Jon Daniels, our Senior Vice President, CarMax Auto Finance Operations. Let me remind you, our statements today that are not statements of historical fact, including but not limited to statements regarding the company's future business plans, prospects and financial performance are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, we disclaim any intent or obligation to update them.
For additional information on important factors and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning, our Annual Report on Form 10-K for the fiscal year 2024 and our quarterly results on Form 10-Q, previously filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations Department at 804-747-0422, extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups. Bill?
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 cap 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 FY ‘25, we delivered total sales of $6 billion, up 7% compared to last year, primarily driven by higher volume. In the 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 zero 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 zero to four vehicles, which grew through 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 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 incentive appraisal experience. With the support of our Edmund 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 omni-channel 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 omni-channel sale to also include customers who complete any of the following steps online: pre-qualifying for financing, setting appointments, and signing up for notifications 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, John will provide more detail on customer financing, the loan loss division, and cap contribution, as well as our progress on full credit spectrum lending and increasing caps 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.
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 cap 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 gross profit was $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 and 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 FY ‘26 with the potential for more expansion in fiscal ‘27. We expect service margin in FY ‘26 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 leverage, de-leverage nature of service.
Additionally, we expect service to continue to serve as a slight profit lever beyond FY ‘26. In respect to SG&A in the nearer term, we expect to require low-single-digit gross profit growth to lever on an annual basis, including in FY ‘26. This will be supported by our goal of hitting full year omni-cost neutrality in FY ‘26 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 FY ‘26, we expect that marketing spend will be approximately the same as in FY ‘25 on a total unit basis. With regard to capital expenditures, we anticipate approximately $575 million in FY ‘26. The increase is primarily driven by the timing of land purchases as we experience favorability to our FY ‘25 outlook, due to the timing of certain deal closures.
Similar to FY ‘24 and FY ‘25, the largest portion of our CapEx investment is related to the land and build-out of facilities for long-term growth capacity in offsite reconditioning and auctions. In FY ‘26, we plan to open six new store locations, up from five in FY ‘25, and four stand-alone reconditioning and auction centers, up from two in FY ‘25. 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 John.
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. Cap income for the quarter was $159 million, which was up $12 million from FY '24. 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 within 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 let's turn the call back over to Bill.
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 associate and customer-facing tools we launched during fiscal ‘25 are contributing to our results and to 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 Max offer even easier to use. This has attracted more dealers to the offering and has driven strong record 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, and elevated 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 CAF'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 availability to new markets. We will also further enhance Max offer to attract new dealers, expanding our access to directly sourced vehicles. For credit, as John mentioned, we plan to continue expanding CAF's participation across the credit spectrum to grow penetration and capture profitable returns. Additionally, we plan to modernize the ownership experience on CAF'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 CAGR in the high teens 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 strength in other gross profit, CAF's credit spectrum expansion, continued operating efficiencies, SG&A 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 timeframes associated with them, given the potential impact of 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 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 our 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. With that, we'll be happy to take your questions. Madison?
分析師問答
Thank you. Your first question comes from Sharon Zackfia with William Blair. You may now ask your question.
Hi, good morning.
Good morning.
As we look ahead to fiscal '25, there seems to be a distinction between the first half, where we experienced some share losses, and the second half, which saw accelerating gains. Can you provide insight into the factors that contributed to the differences between these two halves and what led to that shift? Additionally, with the potential increase in used car prices due to tariffs, what lessons have you learned over the past few years that might help the business if affordability in the industry becomes more difficult? Thank you.
Thank you, Sharon. Regarding your first question about the differences between the first half and second half of the year, the primary factor has been the previous year's events, especially the significant price correction we experienced in the last quarter. If I remember correctly, this correction led to a depreciation of around $3,000 within a short timeframe, which had a different impact on us. This situation somewhat obscured the benefits we were experiencing throughout the rest of the year. We’ve made several improvements that I mentioned on today's call. We're enhancing customer and associate experiences, improving execution, and benefiting from efficiency gains that enhance our pricing and margins while ensuring competitive pricing. Our inventory acquisition has reached new levels with our MAX offer, providing a greater selection. Additionally, this year has brought us to a more stable pricing environment.
Overall, our actions are what drive our momentum, even though they were somewhat hidden in the first quarter due to broader macro factors. As for your second question, looking back at the lessons learned over the past two to three years, we’ve definitely honed our skills since emerging from COVID. Our focus on six to 10-year-old cars was limited, but we've strengthened our position there to better meet customer demand. We've also expanded our sourcing capabilities, as Jon mentioned regarding the ABS bifurcation. Coming out of COVID, we faced challenges with profitable loans because we had to rely on one ABS that dictated certain returns and loss ratios. Having a second ABS now helps us retain some of those sales. Our emphasis on cost improvements has been significant in the last couple of years. Jon's team has worked hard on the FDS to simplify monthly payment options for customers. Overall, we maintained our efforts during the last few years, continuously working towards our goals, which has greatly contributed to our current position.
Thank you. And your next question comes from the line of Seth Basham with Wedbush Securities. Your line is open.
Thanks a lot and good morning. Bill, if you wouldn't mind commenting on quarter-to-date used 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.
Good morning, Seth. Regarding the comparable trends, in the fourth quarter, December and January were very strong. February was a bit softer, which was expected due to the leap day last year. We also believe February was slightly affected by the delay in refunds. About halfway through February, refunds were significantly lower year-over-year, but they largely caught up by the end of the month. However, this pushed some activity into March, and we also faced some weather impacts. In March, we experienced a boost that was stronger than the fourth quarter comparisons, and this positive trend continued throughout the month until the end, where we saw additional strength that accelerated into the first few days of April, which we are still in. From a comparable standpoint, for the first quarter to date, we are seeing high single-digit growth. Your second question was about tariffs, correct?
Yes. 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?
Yes. I think it's, you know, 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 will 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, it's just a 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.
Yes.
Thank you. And your next question comes from the line of John Murphy with Bank of America. Please go ahead.
Good morning, everyone. I really appreciate hearing about the investments in the reconditioning centers and the auctions since they enhance production capacity. Bill, I'm curious, as you consider this, will it enable you to maintain a presence in the six to ten-year-old car segment? Is there potential for that presence to grow over time? Additionally, regarding the $200 million in cost of goods sold savings, which now seems to be $250 million, how much of that do you anticipate being able to sustain as you proceed with reconditioning and other efficiencies? Is the range of 2,300 to 2,400 the new norm instead of 2,200?
Good morning, John. Regarding the reconditioning and auctions, we are very excited. This will provide us with increased capacity, which is why we are expanding our offerings. We aim to have the cars available that consumers want, particularly those in the six to ten-year age range, while maintaining our quality standards. We don’t want to compromise on quality just to meet age requirements. If a car doesn’t meet our standards, we are fine with wholesaling it instead of pushing it retail. This strategy can also be profitable when dealing with cars that are generating significant returns. Interestingly, in this last quarter, we sold slightly more cars that were zero to four years old compared to older models. This doesn’t mean we’re neglecting the older cars; it's just an observation that consumers showed a preference for younger vehicles during this period. Regarding the $250 efficiency target, a key factor will be the impact of tariffs on parts.
We are making good progress on efficiencies across all our stores and production centers, but we need to see how tariffs may affect our overall results. Furthermore, with our off-site reconditioning centers, there is a significant benefit of having cars closer to our stores, especially in areas where we face capacity issues. This proximity will reduce logistics costs, which will remain beneficial regardless of any potential tariff impacts.
Good to hear. Thank you very much.
Thank you, John.
Thank you. And your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.
Hi, good morning. Nice quarter. Congratulations.
Thank you, Brian.
I think Seth raised the question regarding the quarterly trend in business. Bill, you mentioned that running at high single digits would be an improvement from what you achieved in Q4, especially in relation to February. I understand you don't provide guidance, but I'm curious about your perspective on the business, particularly given the dynamic macroeconomic environment. How should we view the sustainability of the early fiscal Q1 performance? Do you believe it's a recovery from February? Could it reflect consumers purchasing cars in advance due to tariffs? Or do you have a view on the overall sustainability from your standpoint?
Yes. First of all, I don't think it's a catch-up for February. And I think we 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 that's very small in the scheme of things. So I wouldn't look at it nearly as a catch-up. 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 three 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. 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 parts 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 this year.
That’s helpful. I appreciate it. Thank you.
Sure.
Thank you. And your next question comes from the line of Scot Ciccarelli with Truist. Your line is open.
Hi, good morning, guys. Josh Shang on for Scott.
Hello, John.
You talked a bit about the improving market share here in the back half of the year. But within 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?
Yes. Our primary focus right now is on increasing sales and delivering strong earnings per share. Achieving those targets will naturally lead to improvements in other areas, including gaining market share. Over the past year, we have been expanding our market share, taking it from competitors. Notably, the peer-to-peer market is also experiencing growth in its share, particularly in the zero to ten segment, while our strengths are found in older vehicles, which is expected. We have all the necessary steps in place to maintain this momentum, as shown by the most recent title data from January. We are optimistic about our current trajectory and anticipate continued market share growth.
Got it. That’s helpful. Thanks.
Thank you.
Thank you. And your next question comes from the line of Jeff Lick with Stephens Inc. Your line is open.
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 of $2.69 was 89% of the combined U.S. I think a big thing going forward, especially in this tariff scenario is going to be your ability to source. Could you talk about both on the dealer front and the consumer front and any evolutions or changes and what drove the kind of pickup there and improvement in Q4?
Yes, it's an important question. Sourcing is indeed crucial. We are very satisfied with the Max offer product, which is beneficial for dealers, especially with its expansion. Over the last year, our growth has primarily been due to dealer expansion, with a 40% year-over-year increase in active dealers this quarter. As I mentioned in my prepared comments, we've simplified the usage for them. Our instant offer program has been effective, and we also allow dealers to upload pictures of unique vehicle features. We've streamlined the vehicle condition information, improving speed and ease of use. Dealers can start the Max offer process on a desktop and seamlessly transition to a mobile device for on-site assessments. This past year has focused on enhancing that experience. Additionally, we've integrated the program into their inventory management systems, making it even more convenient. Looking ahead, we have plans for more improvements, including landing page enhancements and deeper integrations with dealers, which we believe will continue to attract them.
We feel optimistic about the momentum. You also inquired about consumers. As I noted in my prepared comments, we can now provide online offers for nearly all vehicles, with only a small fraction requiring in-person assessments. Essentially, 99% of offers can be generated online. We've made the process easier and have several initiatives in the pipeline to enhance the experience, including options for appraisal drop-off and pick-up, to further drive incremental business.
And then the last two weeks have been kind of crazy. There's been a pickup in 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?
Yes. I think you make a great point. Over the last couple of weeks, there has been a lot of bidding in the wholesale market, which reassures me about our efforts in supply and direct sourcing instead of relying on other methods. Thank you, Jeff.
Thank you. And our next question comes from the line of Rajat Gupta with JPMorgan. Your line is open.
Great. Thanks for taking the question. I just had a 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 is already a lot of uncertainty around the tariffs, if it may happen, it may go away. We're hearing a lot about the auction lane activity. I mean, I'm curious like how are you managing your inventory acquisition in that backdrop? I mean do you think you need to be aggressive or you're just being cautious just in case 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 gross profit.
Yes. 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 in 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 at a very high level. And then you said you had a question on service as well.
I'm interested in what led to the significant improvement in service gross profit, as we usually see a considerable decline due to seasonal factors. Was this change due to better productivity or perhaps some cost reductions? I'm trying to grasp the overall trend here. Additionally, can we discuss the slightly higher than flat gross profit for the full year? Does this suggest that the seasonality will be reduced moving forward? I'd appreciate any further insights you can provide on the service gross profit.
I'll start maybe with your second point. The 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 as they had in my prepared remarks, to probably the strongest in the year because volume is higher. We'll also be comping over some cost coverage metrics we did last year. But I'd tell you in terms of why it's getting better, there's really three things that are driving the improvement that we've seen over the past two years now, we've consistently improved our performance in service. Number one is efficiency opportunities that we've driven. We've made investments in technologies like RFID trackers investments in technologies we can have better reporting in the stores to manage our costs, that's number one. Number two is we have taken cost coverage as well. So to match cost inflation that we've seen and ability to increase our 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 costs, especially in 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 in service, which we haven't had in several years. And thereafter, too, feeding the earnings model that Bill talked about in our ability to deliver double-digit EPS growth over several years is also because of that as well.
Got it. Got it. Great, thanks for all the color and good luck.
Thank you.
Thank you. And your next question comes from the line of Michael Montani with Evercore ISI. Your line is open.
Yes, hey. Good morning. Thanks for taking the question.
Good morning.
Just wanted to ask, I guess it's 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 and 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?
Okay. So Michael, good morning. On an 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 an 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?
Yes. 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 CAGR growth for several years, at least doing high teens like we mentioned in our prepared remarks, on just mid-single-digit retail sales. And that's enabled the strong margins strong growth in other GPU as well exceeding retail units. I talked about service. We talked about EPP opportunities. You're also talking about SG&A. We're done with the heavy investment period. We're pivoting from building capabilities to 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 reduce our EPS. And then you take a look at CAF. We're making those investments there in terms of the full spectrum credit that Jon 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.
And anything cadence-wise to think about as we progress through the year? Because I think you called out there could be some CAF-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 EPT.
Yes. Before jumping into CAF, I'll turn it over to Jon. 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 cost coverage metrics we did last year. So for service, I would expect outsized performance in the front half. And then for CAF, I'll just turn it over to Jon.
Sure. I would like to discuss the upcoming cadence on provision. I mentioned earlier that we expect a sequentially higher year-over-year increase in provision. To provide some context, in Q4, we had a normalized provision of $68 million. You can expect a sequentially higher provision in Q1, as it is a higher volume quarter and has lower credit quality. Therefore, anticipate an increase of about 30% to 35% from the Q4 number due to these factors. Additionally, we have also taken back some volume from Tier 2 partners, reversing part of our tightening, which could add another 10% to 15% increase to the Q4 figure. So, you could see a 45% to 50% increase in provision in Q1. This upward trend in provision is expected to continue as we plan to retain the added volume we're taking on, necessitating further provisioning. We will closely monitor the macroeconomic situation, but in the latter half of the year, we anticipate bringing in more volume from our Tier 2 and Tier 3 testing, which will further contribute to this trend. Overall, this is a very positive development for CAF in the long run, despite the short-term impact on our provision.
The other thing I would just add to that, Rajat, because you said something about subprime mix. I mean what Jon is 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 2 partners. Now later in the year, when we decided to go deeper into Tier 2 and Tier 3 you could see a little bit of that. So I just want to make that distinction.
Understood and thanks so much for clarifying that. Again thanks again and good luck.
Thank you.
Yes, happy to clarify that, Rajat. I appreciate the question. So yes, 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 on to there, the fact that we are going to capture 100 to 150 basis points back at obviously, a highly profitable, but at a higher loss reserve requirement. So higher provisioning there. Now that 100, 150 basis points, we anticipate keeping it through subsequent quarters. And then again, on the back half of the year, we look to tackle one more as we continue our testing in the Tier 2 and Tier 3 space. So again, that will add further, again, different seasonality in different quarters. But I just want you to keep in mind that, that added penetration added volume from CAF 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, always the overarching comment of we will watch the macroeconomic situation, decide what we do. But I want to make sure you keep the added penetration in mind in subsequent quarters.
Understood. Thanks for the clarity.
Thank you. We do not have any further questions at this time. I'll hand the call back to Bill for any closing remarks.
Well, great. 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 build and enhance 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.
Ladies and gentlemen, that concludes the Fourth Quarter Fiscal Year 2025 CarMax Earnings Release Conference Call. You may now disconnect.