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

Thank you, Carol. Good morning. Thank you for joining our fiscal 2021 first quarter earnings conference call. I'm here today with Bill Nash, our President and CEO; Tom Reedy, our Executive Vice President of Finance; and Enrique Mayor-Mora, our Senior Vice President and CFO. Let me remind you, our statements today regarding the company's future business plans, prospects, and financial performance are forward-looking statements we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the company's Form 8-K issued this morning and its annual report on Form 10-K for the fiscal year ended February 29th, 2020 filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at 804-747-0422, extension 7865. 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, Stacy. Good morning everyone and thanks for joining us. Before I get started, I wanted to comment on the significant social challenges we are facing as a country. At CarMax, we stand united against racial injustice, hatred, and violence. I'm proud that our values have always been focused on doing the right thing and treating everyone with respect regardless of race, ethnicity, or background, but we need to do better as a company and as a country. I want our associates, communities, and shareholders to know that we are committed to doing more. Change must start at the top and that's why I'm personally championing this to ensure we make a positive difference for the future. Now, moving to the highlights for the quarter. As you read in our earnings release this morning, our first quarter performance was significantly impacted by the coronavirus. At the peak in early April, sales were down more than 75%. During this time, 95% of the country was under shelter-in-place orders and approximately half of our stores were closed or under limited operations due to the mandates of public health officials and government agencies. Limited operations means the stores could sell cars, but were limited to appointment only, curbside pickup, home delivery, or some combination of all three. Social distancing guidelines and occupancy restrictions also limited operating capacity at our open stores, including our largest stores, which prior to the virus routinely saw more than 100 customers shopping in a store on any given day. To put this further into perspective, more than 80% of the days in the first quarter were impacted by stores that were closed and/or under limited operations. As of May 31, all of our stores were open, but we still had more than 50% of our stores…

Thanks, Bill, and good morning, everyone. Our diversified business model, solid balance sheet, and strong cash generation positioned us extremely well to manage through challenging times. This strength also allows us to be opportunistic in the short-term, while maximizing our long-term growth and earnings potential, further distancing ourselves from our competitors. I'll begin with an overview of our operating performance, followed by a review of our financial position. On the GPU front, our teams did a great job managing margins, despite a period of unprecedented marketplace depreciation and operating limitations. Our GPU of $1,937 for the first quarter represented a decrease of $278 per unit versus the prior year. Our wholesale gross profit per unit was solid at $978, down by only $65 per unit versus the prior year quarter. This was despite sharp declines in wholesale values in late March and April. Our strong GPU management is a testament to the strength of our professional buyers, our proprietary algorithms for buying, selling, and appraising cars, and our experience in managing through challenging times. Our wholesale business experienced a 48% decrease in year-over-year unit sales. Wholesale unit sales were negatively impacted by lower appraisal traffic from stores being closed or having limited operations as well as a decline in our buy rate. During the second half of the quarter, we began to see steady improvement in both areas as the country began to reopen and our auctions transitioned online. Our sell-through rate at our auctions in the quarter was consistent with our historical rate of over 95%. For the quarter, other gross profit decreased by approximately $89 million. This was driven by a $55 million decrease in service department profits and a $38 million decrease in EPP revenues. The decrease in EPP profits is attributable to the decrease in used…

Thanks, Enrique, and good morning, everybody. The vast majority of customers who purchased a vehicle obtained some sort of financing, it's important that we ensure our broad range of customers have access to lending in all economic conditions. So having cap, along with a diverse group of partner lenders, who recognize the value of CarMax's origination channel allows us to consistently provide high-quality finance offers to our customers. In the first quarter, our lending channel continued to deliver, providing offers to 97% of customers applying for a vehicle. Having a captive finance arm offers numerous contributions to the business model that are difficult to replicate. Within the origination channel, CAF captures considerable finance income, while generating some incremental sales. CAF fully services all of the customers at finances, continuing CarMax's outstanding brand promise throughout the life of the finance contract. We have more than 800 CAF associates and the entire team did a phenomenal job this quarter, quickly mobilizing to work remotely, while responding to the increasing demands of our customers. In mid-March, as the pandemic escalated, we put in place a variety of measures at CAF to help our customers. This included suspending repositions, waiving late fees and providing payment relief under our disaster policies. Our service offering did evolve throughout the quarter, as we focused on supporting our customers, while also protecting our portfolio. Similar to auto – to our retail and wholesale business, CAF performance was also impacted by the coronavirus. For the quarter, originations decreased substantially due to closed stores and lower sales demand. In addition, CAF penetration, net of three-day payoffs decreased to 36.1% from 41.4% a year ago, due to the shift in the customer credit mix, some temporary underwriting adjustments in certain pockets, focused on preserving our high-quality portfolio, and some testing of…

Great. Thank you, Tom, and Enrique. Our record sales, earnings, and market share gain last year, combined with the changing consumer behavior in favor of omnichannel offerings, validate our strategy as the right path forward. We believe that CarMax is unmatched in the industry as an omnichannel used car retailer and now more than ever, customers want to personalize seamless and multichannel experience that allows them to shop on their terms, whether that is online, in-store, or a combination of both. Over the past several years, we've invested more than $300 million in digital initiatives, technologies, and our associates. These investments focus on modernizing our systems, expanding our digital offerings, and reorganizing ourselves to innovate quickly, while capitalizing on the inherent advantages of being a larger company. I am extremely proud of how these investments have empowered us to quickly adapt to an ever-evolving consumer and operating environment. I'm also excited about the opportunities we've set ourselves up for in the future. The priority of our near-term strategic investments will focus on our customer experience, vehicle acquisition, and our wholesale business. In addition, we will continue to assess opportunities to become a leaner, more agile and more cost effective organization over the long-term, which in turn funds new ways to evolve and grow. Our omni-channel offerings are the next evolution of the exceptional customer experience that CarMax is already known for, providing a truly unique retail experience by personalizing each customer's journey through multiple channels is a significant differentiator for us. With the rollout of omni-channel almost complete, our focus is turning towards improving and evolving this experience. For example, last year, we began testing a post-sale home delivery process, where a customer can buy a car fully online before it is delivered to their home. While most customers prefer…

Thank you. And at this time, we will be conducting our question-and-answer session. [Operator Instructions] Our first question this morning comes from Scot Ciccarelli from RBC Capital Markets. Please go ahead.

Good morning, guys. I hope every one is well and healthy down there. Bill, I have a question just regarding your performance. I mean, we obviously saw a very nice sequential improvement since kind of late March, early April. But the fact is you are still posting negative comps, call it 10% or just under 10%. I think we've seen both e-commerce competitors and franchise competitors shift to positive comps in their used business. So I guess, I'm wondering are there any structural reasons why CarMax would be underperforming others by that magnitude, especially given your outperformance call it in the fourth quarter?

Yes. Good morning, Scot. So I think, first of all, it's a little difficult to do comparisons at this point. You have to look at growth rates going into it. You have to look at growth rates that they're currently at. I think you have to look at geographic differences. I also think you have to take into consideration different responses to the mandates, because I can tell you even though we are following mandates in every single market, we know that there are others that were not following mandates. But I think the biggest factor, I think the structural factor that I think it's important to remind everyone, and I talked about this in my opening remarks about the limited operations and the occupancy restrictions. Keep in mind, we sell on average more than 300 cars a month. We have locations that sell upwards of 1,000 cars a month. And when you start talking about limited operations or occupancy restrictions, let me bring it to life for you. We had occupancy restrictions in a bunch of markets where all you could have were 10 customers in your store at a time, that's 10 total customers. So, it doesn't matter if they're for appraisals, if they're for buying, or they're there for retail, you can only have 10. So I think that alone, the occupancy restriction and the limited operations probably hurt us a little bit more just because of the sheer volume. Because again, if you're a dealer that sells 60 to 100 cars, even limiting it to 10 customers at a time is not as impactful on them as it would be for someone like us.

So with that in mind, is there any way to potentially estimate the impact that some of these occupancy restrictions have had on your business within the last couple of weeks?

Yes. It's hard to pinpoint down to specifics. In my opening remarks, when we had -- at the peak, we had half of them that we either closed or limited operations. At that point, the bulk of them were closed. So we had about 70 stores that were closed, 35 were under limited operations, and then the remaining 100-plus had occupancy restrictions. And over time, what we saw is that shifted from store close to limited operations and eventually from limited operations to occupancy restrictions. Now the great news is; the occupancy restrictions although currently, we still have half of our stores that have occupancy requirements, they're starting to ease. So instead of having only 10 customers or 20% occupancy or 30% occupancy, you're starting to migrate more to 50% occupancy, which makes a big difference. We still have four stores that are running limited operations right now, but we hope to get them back up to full operations based off the mandates in the near future. Now, keep in mind with the rise of the virus spiking in some markets, at any given point in time, we may have to close a store here and there because of a positive test result in the store. And our normal protocol, we close, we do a big deep clean and then we reopen. So, if I look back in Q1, it probably -- it's right around 73% of the days we ran with limited operations, about 70% -- a little above 70% of the days we ran with closed -- totally closed operations. And when you look at them combined, about 62-ish percent of the days out of the quarter had both things going on, closed and limited operations.

Okay. Very helpful. Thanks, guys. Good luck.

Thank you.

Our next question comes from Seth Sigman from Crédit Suisse. Please go ahead.

Hey, guys. Good morning. Thanks for taking the question. I want to follow-up on that last point. So Bill, you did discuss some stores returning to positive in the recent weeks. So, if you're running down 10% overall quarter-to-date, it does imply a pretty big gap still across the store base. So, I just want to confirm, is that purely the occupancy restrictions, or are there other regional differences and any other trends that maybe you can speak to across the store base. And then, if you can, anyway to give us a sense on how positive or how much stores are positive versus not, that would be helpful. Thanks.

Yes, Seth. So, regionally, if you look at it throughout the quarter, obviously, there were certain markets that were a lot more restrictive for a lot longer time period. And some of the West Coast stores come to mind. So right now, I think the occupancy restrictions and the limited operations are the big driver of the difference between -- keep in mind, there's lots of different mandates out there by local level. And so, the more restrictive the mandates are, the more it's going to have an impact on our business. So that's really what's driving, I think, the different performance as well as some of these markets have been open for three, four weeks now, other markets are just starting to kind of reopen. So I think that's the big driver between the differences. But, again, we're pleased both with how occupancy restrictions are starting to ease, and we're pleased with the fact that we do have a bunch of our stores already comping over significantly higher sales last year.

Okay. Any way to quantify what significant means, how much over the last year?

Well, it's not quite a majority of the stores at this point, but we do many stores that are comping.

Okay, perfect. Thanks very much.

Thank you.

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

Hi. Good morning.

Good morning, Sharon.

Good morning. I was hoping you could talk about some of the shifts you alluded to in consumer behavior, and put some more numbers around that. Obviously, you've been rolling out omni-channel and you rolled out curbside pick up pretty aggressively earlier in the quarter. Look, what kind of opt-in rate did you get on either delivery or curbside pickup? Any indication on how that's also trending as markets reopen, would be, I think, useful.

Yes. Sure, Sharon. So, first of all, the way I think about our omni-channel experience, I don't necessarily measure it, kind of through alternative delivery, although I'll speak to that to answer your question. The way I think about the omni-channel experience is, how many of our customers are engaging with us online with our CECs. And prior to the virus hitting, it was roughly about 50% of our sales were coming through engagement with our CECs. Fast forward to now, that number is north of 60%. And I think that's reflective of customers wanting to do more things online. If you look at kind of alternative delivery, so for us, it's about home delivery. And curbside, at the peak, when most stores were closed and running under limited operations. And the markets that offer those services, combined, you're looking close to about 15% penetration. The interesting thing though is now markets are starting to open. We still see heavy engagement online, doing things ahead of time, but customers are still opting to go to the store. So the number has actually settled down now between those two, right around 10%, a little bit under 10%.

Thanks for that. And if I could follow-up with an additional question, just on the GPU pressure you saw this quarter, I mean, obviously, you managed inventory very well. Are you expecting any kind of incremental GPU pressure in the second quarter, or do you feel like, you've kind of managed through that and have a lower cost inventory at this point?

Yes. No, I think we are in great shape. Again, I said this on my opening remarks that the team did a phenomenal job. And just to put it in perspective, if you go back to 2008 and 2009 in the Great Recession, over the worst depreciation cycle. So over about a year's time, we saw $3,500 in depreciation. In this period, over about a five-week period, we saw about $2,500 of depreciation. We've never seen the magnitude of depreciation like we saw this time. The team did a phenomenal job rightsizing our inventory, and we certainly did not go into fire cell mode by any stretch of the imagination. But we did do strategic markdowns on certain pieces of inventory to make sure that we got it into the right level. So I feel really great about our position. I feel really great about our margins going forward. And assuming that the economy, obviously, there's lots of uncertainty with the economy right now, but assuming that we continue on this cycle, I think we – the GPU headwinds are beyond us.

Okay. Thank you.

Thank you, Sharon.

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

Thanks a lot and good morning. My first question is just around restraints on sales that you haven't mentioned so far in the Q&A. First is on inventory and second is on CAF underwriting. Any sense of how you can quantify how much of those held back your sales in recent weeks?

Yes. I'll talk about the inventory. So obviously, when the virus hit, our immediate focus in – when the virus hit, our immediate kind of crisis focus was really about, okay, the health and safety and financial wellbeing of our associates, the health and safety of our customers, but then also the financial security of the organization. And part of that financial security was rightsizing the inventory. And we always make sure we have the inventory that's appropriate for sales. So this was no different. When we saw the demand go down, we absolutely got into the mode of, okay, let's get our inventory right sized. Now, the great news is, the sales have come back better than what we expected over a quicker time period. And we've got our production facilities all back up and operational, but it is a bit of a headwind right now. If you look at the sales demand and our inventory is lighter than where we want to, but truthful I'd rather be on this side of the equation than the other side of the equation. So again, I think the team did a great job. And we'll work over the next few weeks to get the inventory right sized. We've already started to fill back up our pipeline. Our sale of inventory is less down – I mean, it's more down year-over-year than our total inventory. So now it's just a matter of getting it produced, which our teams do a phenomenal job on. And then I'll let Tom talk a little bit about CAF.

Yes, hey, Seth, because there's so many moving parts, it's really hesitate to try and tease out precise numbers on drivers of sales. But what we saw during the quarter was not just a shift in mix of overall credit for customers, but even a shift in the mix within Tier 1. And that means a greater proportion. When you look at how CAF approves, we have segments that we buy and a greater portion of the Tier 1 mix was at the lower most – higher – higher loss segments. So in order to preserve our portfolio and financeability, as we target on a go-forward basis, we made some, I would call it, fine-tuning by carving out, at least for the time being, some of those highest loss segments. And what does that mean? That means that those loans go down to Tier 2 and they see them first rather than us. We know that, overall, there is some pressure on conversion when you go to Tier 2, because the offers aren't quite as nice as what they see at CAF. But for the most part, our Tier 2 lenders are delighted to see those and accommodate them, because it's the high end of what they typically buy. So we did see them taking up for the most part. I think there was some pressure, maybe one or two points on sales based on the adjustments we made. But as we see credit mix go back to normal and that means both the increase in the overall FICO score and mix within Tier 1, that pressure will diminish because a lower percentage of the portfolio is -- falls into those categories and is getting pushed down to Tier 2.

Thank you.

Hey Seth, the other thing I'll mention that you did not mention as far as the headwind is, I would also consider the CECs to be a bit of a headwind this quarter as well. Because of that big jump up that we saw from folks engaging online, we expected to get there. We had no idea we're going to get there over about a four-week period. So, we had to ramp up the CECs, which in the near-term, is a bit of a headwind. Our service levels were not at where we want them to be. But again, we're fixing that right now and that will continue to improve as well.

Thank you. And just as a follow-up, Tom, as it relates to your loan loss provision, your current balance, which is 3.3% of loans, that's up in the range that we saw at the peak of the Great Recession. And for loans originated in the quarter, 3.8% is well above it, understanding that there's some shift in the credit profile of what you originated this quarter. But how do we think about where that loan loss rate and provision is likely to go going forward?

Well, it is -- the way things work, we may take our best information and make an estimate on where we expect the portfolio to end up. So, for existing loans, that 3.32% is our expectation based on everything we know today. We would not expect that to evolve unless we were to learn new information or new things to evolve in the economy. As far as new originations, as I said, we've made some adjustments to our origination strategy and we expect that those should evolve in kind of the higher end of our target range of 2% to 2.5%. That's what we're striving to do and that, I think, ensures a financeable portfolio and keep things going.

Understood. Thank you.

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

Good morning.

Hi good morning. Thanks for taking my questions here. I just had one clarification from a prior question and then one follow-up. So, on clarification, the 10% to 15% penetration level you talked about for omni earlier, is that -- does that mean that 10% to 15% of sales -- unit sales right now is completely through the alternative delivery channels or I just want to make sure like I'm understanding that definition correctly?

Yes. So, the 10% to -- so at the peak of the virus, when we had the most stores closed or in limited operations, we saw in the markets, the eligible markets that have the home delivery and the curbside, we saw peak -- combined peak close to 15%. If you looked at it as a percent of total sales across the whole organization, it was around 10%, and it settled in -- it was a little bit above 10%, but it's now settled back in to a little -- around 10%, a little bit under 10%.

Got it. So, that will mean like around like 15,000 units or so in last quarter were through the alternative channel? Is that the bulk for us roughly?

Roughly. Yes, maybe a little bit higher.

Got it. Thanks for clarifying that. And then just on the cost side of the equation, just through the crisis process and the furloughs and the headcount reductions, do we -- should we expect to see any permanent reductions in SG&A when you're back to more normalized levels of sales? And relatedly, during the 2008, 2009 crisis, you did see significant improvement in efficiencies related to reconditioning. I mean, there was a structural shift in your retail GPU. Do we -- should we expect something similar or maybe of a lower magnitude this time around as well? Just want to clarify on those two points. Thanks.

Yeah. I'll talk about the reconditioning side, and then I'll let Enrique talk about the SG&A. So on the reconditioning side, as I said earlier, we're going to continue to look for ways to take cost out. The reconditioning well be one. If you remember back in 2008, we had significant improvements there. What I would say is I think they're going to be incremental improvements in the reconditioning. So I wouldn't say that you're going to see -- back then, it was north of $250 per unit. There is no big, okay, go do this, and it's going to be $250. There's going to be a lot of incremental things. We're going to be rolling out our new version of flow into all the stores, we pick up efficiencies there, as well as we'll continue look for procurement efficiencies, both in the reconditioning side, but in the store side as well. And I'll let Enrique talk about the SG&A.

Yeah. From an SG&A perspective, within the quarter, we focus our actions aggressively on better aligning what we've traditionally considered as fixed costs really to match the lower demand. So items like staffing through our furloughs, advertising reduction, reduction in contractors, store-based project, home office-based projects really were all acted on aggressively within the quarter. But as sales rebound, we do expect these costs to increase, as I spoke to earlier, but we're always looking at ways to get more efficient. It's kind of too early to tell whether or not there's some systematic opportunities. What I will tell you, though, is that we will continue to invest in our business as well. So we have a strong balance sheet. We have a strong financial position and it allows us to continue to invest in our growth as well.

Yeah. I think the other thing to add to that. If you looked at what we were thinking about -- before the coronavirus, we're going to be coming into this year, we were going to continue to make investments. In the past couple of years, we've talked about needing comps in the range of 5% to 8% in order to lever. If you looked at what we were looking at coming into this year, if all we've been focused on with omni, the omni experience, we would have levered better than that. Now we have made the decision to hit some new strategic initiatives, some of which we continue to hit into this quarter, some of them we put on hold. But that gives you a little bit of color. We still -- this year had been a normal year. We would have still been in the 5% to 8% range, but it's just so hard to know at this point, as sales come back, we'll continue to adapt.

Got it, great. Thanks for the color and good luck.

Thank you.

Our next question comes from Armintas Sinkevicius from Morgan Stanley. Please go ahead.

Good morning. Thank you for taking the question. I was hoping you could quantify the growth in the web traffic and the growth in the lead to the customer experience center that you highlighted in the press release?

Yeah. So that growth, I was talking about was the first two weeks of June, both leads and traffic were double digit.

Both leads and traffic, okay. And what was it for the quarter?

For the quarter, web traffic was down, it was about 11% and leads weren't far off from that.

Okay. And then just a quick one here. As we think about less new vehicle inventory coming to market, there being a pressure on new vehicle inventory. Maybe you could talk about the age of your portfolio and how well positioned or not, you are to be able to sell nearly new vehicles to the market that may be demanding them?

Yes. So, as far as the source goes, we don't feel like we had a problem on finding the vehicles. We're in production mode right now, which is really building the inventory back up, but the concern isn't about being able to find the vehicles. We'll be able to source those. I will tell you, during the quarter, pretty much the wholesale market external market froze because a lot of the sales were closed, dramatically low vehicles being offered for sale. But at that time, we weren't out really buying anyway. So it didn't really matter. And it's gone to the point now where, if you look at the volume that you're seeing in the sales and you look at the sales rate that you're seeing in the external sales, they really have come back. They're very near getting back to pre-virus levels.

Okay. But are you seeing you selling younger cars or older cars? Where are you seeing the most demand?

Yes. Well, during the quarter, we had a little bit of a shift mix to -- from zero to two-year-old car shifted to five plus. So that's what we saw during the quarter. We also saw – if you look at our average selling price for the quarter, it was up a little bit, but that's primarily due to the fact that we had a shift mix into large SUV gas closures, which are more expensive year-over-year. We were several percentage points up on that. And because a lot of the inventory that was sold in March and April was acquired back in the appreciating market time of the pre-virus.

Okay. Appreciate it.

Thank you.

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

Hi, good morning. Thanks for taking my question.

Good morning, Brian.

So Bill, on the last quarter conference call and I was right in the beginning of the COVID crisis. I asked you, we discussed this kind of the nature of what was then very quickly diminish in demand. So here, you're saying today, it's very encouraging that we're seeing this rather significant sales pickup late into the quarter into the current quarter. So you've gotten much better with data, watching your customers. I mean, as we're all trying to figure out kind of what we're rebounding to, we have got this with CarMax within retail in general, how would you characterize this demand right now? Is there pent-up from the weaker sales maybe several weeks ago, or do you see underlying – real underlying demand taking hold that's likely to sustain itself?

Yes. Brian, it's hard to know for sure. I mean, I think there's absolutely some pent-up demand because people were staying at home for several weeks. So I think there's some of that. I think the CARES Act has given some folks money. And I think that’s one of the reasons why you see the increase in Tier 3. I think that it's a little bit like tax refund money. When folks have it, they tend to go out. And the biggest population that we see that driving are the lower FICO-type customers. As far as the sustainability, it's hard to tell. I mean, right now, it's such an uncertain environment out there. I mean, we've got high unemployment. You've got these spikes in the coronavirus cases. You got the social challenges going on. So I think we're well positioned and having come through this, I think we're more agile and resilient than even before. So I think we're prepared for wherever it may go, but I think it's too early to say, hey, this is going to be – where this is going to go? And is this going to be sustained? I think it's going to depend on a lot of macro factors, but what I can tell you is that we'll be ready to pivot any way we need to.

That's really helpful. And then my follow-up question and I think it's a bit of a follow-up to some of the prior questions. Just with regard to inventory. And I know there's a lot of moving parts out there right now. But as we think about with that spread, if you will, between new and used car pricing, give what you're seeing right now. How is that shaping up in this environment? As you look forward, I mean, what I'm saying, are you seeing -- for whatever -- because of the dynamics or shifting dynamics, actually better inventory acquisition opportunities that could basically help to bolster sales down the road?

Yes. So, during the quarter, it really was a kind of a non-story as far as the gap widening or collapsing. And I think as we look forward, there's a lot of factors that you have to kind of weigh in. What's going to happen with new cars as far as the manufacture and how much production they're going to actually be able to do? They're struggling to get opened back up again and get new cars out there. So, I think that will be something that weighs into it. I think there's probably a lot of wholesale inventory that needs to be released through the sales that kind of got backed up a little bit. So I would expect to see additional wholesale inventory being offered. So, I think it just depends. It depends on the new car and how that continues to progress as well as when the timing of some of this wholesale inventory really starts to come out. I mean, I talked about the depreciation during the quarter, but what’s remarkably, which is as remarkable as the decline was how quick it's come back. And so, I think, the wholesale market is pretty self regulating. And at some point, if it gets too high, it will just slow down sales. And it corrects itself. But I think supply -- we will be fine on the supply side. But as far as the gap between new cars really going to depend on, I think, production of the manufacturers.

Okay. Well, thanks a lot. Appreciate all the color.

Thank you, Brian.

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

Hey. Good morning. Thank you for taking my question. I wanted to ask about the wholesale business, that pivot to all online wholesale auction sales happen really fast, that's tremendous execution on behalf of that team. I would like to understand the economics of that digital-only model versus your traditional format? Are you experiencing any differences in like the proceeds per unit, or what you see as your cost per unit? And do you see this as a permanent change? Thanks.

Yeah. Thanks for the question, Craig. And you're right. It was awesome. The team did a phenomenal job. We've talked about in the past, the fact that we've been testing some simulcast technology. And really within a matter of about two weeks, got all of the sales converted over to the virtual platform is truly remarkable. And the team did a phenomenal job. As far as the economics, it's a little too early to talk about that. But what I will tell you is, during that time period, we didn't see any degradation of dealer attendance. So, we already had a very high dealer-to-car ratio. And obviously, the more dealers you have, the more your vehicles will bring as far as price goes. So, I think that our physical presence in having online auctions, but also complementaring it -- I'm sorry, having the physical presence and having running these auctions, and then also complementing it with the online, is great, because I think it will continue to open up the sales to even more dealers. And when you have more dealers, theoretically, you should be able to get more value for your cars. And if you can get more value for your car, then you -- for us, you want to put as much on it for the consumer as we can, so we can buy as many units as possible. So, I think it's a little early, but I would expect that having the online will make it available to more dealers.

Thanks, Bill.

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

Hey, guys. Good morning. Thanks for taking the question. Just, first off, wanted to start on the advertising front. You know, I was curious to see, Bill if you could give any color about where you see kind of full year and even next quarter kind of ad spend per vehicle going, just in light of the fact that the sales is recovering? And then I had a follow-up on multichannel.

Yes. So you know, if the virus hadn't been here, I think we had already talked about, you know, last year we stepped up a little bit on a per unit basis when it came to advertising. This year we were planning on – if you look at on a per unit basis is actually we look it. We would spend a little bit more and really a lot of that was also to support the omnichannel rollout. Obviously, we pulled back on all different pieces of advertising during the quarter, but we've been ramping it back up again. And so – I would expect the rest of the year to get more on par, assuming that business continues like this, I would expect to get more on par what we would have been expecting had the virus not hit us.

Okay. Great. And then just on the multichannel front. You know, in the release, you mentioned that a lot of that rollout was now kind of completed. And so I just wanted to drill into that to understand better – like how many of the stores currently are offering ship-to-home or home delivery capabilities? And then secondly, as it relates to the CECs, at what point in time could we anticipate that those would – start to generate kind of net favorability and efficiency gains as they gain scale?

Okay. So on the omnichannel experience, at the end of the quarter, we were roughly, let's say, it was available. Omnichannel experience was roughly available in about 65% of the markets. We're now in the 70-ish, mid-70-ish. We will be done with rolling omnichannel out next quarter. Now as far as home delivery goes, when we're all said – when we get it rolled out – omnichannel rolled out everywhere, home delivery will probably right off the bat. At that point, only be available to about 85% of the markets just because there's some small one-off markets and some different logistics that we'll have to work through. As far as the CEC efficiencies coming into this year, we didn't expect the CEC efficiency – we didn't expect the CECs to really become efficient because we knew we are going to continue to ramp of omni and as we are ramping up, but we knew they are going to be inefficient. So I would expect the efficiencies really – to really take hold in next fiscal year. But I tell you, I'm really pleased with some of the progress we've already made on the conversion. If you look at the conversion of the CECs versus the conversion of our old process, we continue to see improvements there. And so we're excited about it. We think it's going to give us a lot of great benefits as we look forward.

Great. Thank you.

Thank you.

This concludes our question-and-answer session as we have reached 10 A.M. Those remaining in queue can reach out to Investor Relations to have their questions answered. I will now turn the call back over to Bill Nash for closing remarks.

Great. Thank you. Thank you, Carol. Yes. So look, I would just say, look we've never experienced such a rapidly changing environment in all aspects of our business, whether it's retail, it's wholesale, or CAF. In my opening remarks, I talked about all the different accomplishments. And I'd tell you, it's really – it's because of the strength of our culture, the unique business model and our financial structure that really has enabled us to navigate all this. We feel really good about our investments and our path forward and we believe our omni-channel experience is fundamentally different than any other used car retailer, because of that fact it is designed in the world-class in-store or world-class online, but equally important, it's a world-class combination of the two. I want to thank all of you for your questions today. Thank you for your support. And as always, I have to thank our associates for their continued dedication to living our values each and every day. You are the success of CarMax. So, thank you for what you do and we will talk again next quarter.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.