Ladies and gentlemen, thank you for standing by, and welcome to the Q1 FY 'twenty two KNX Earnings Release Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Stacy Froehle. Thank you.
Please go ahead.
Thank you, Shelby. Good morning. Thank you for joining our fiscal 2022 Q1 earnings conference call. I'm here today with Bill Nash, Our President and CEO Enrique Meamora, our Senior Vice President and CFO and John Daniels, our Senior Vice President, CAF Operations. 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 management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause Actual results could 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 ks issued this morning and its annual report on Form 10 ks for the fiscal year ended February 28, 2021, filed with the SEC. Should you have any follow-up questions after the call, please feel free to contact our Investor Relations department at 804-747 422 extension 7,865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-up.
Phil?
Great. Thank you, Stacey. Good morning, everyone, and thanks for joining us. As you read in our earnings release this morning, we delivered exceptional performance in the Q1 with record results across all aspects of our business, Retail, Wholesale and Auto Finance and a solid flow through to EPS. Our success reflects the continued We are making our digital transformation and online experience along with solid execution and our ongoing commitment to disciplined cost management.
In addition, we benefited from the backdrop of a strong demand environment enhanced by the impact of the most recent round of government stimulus payments. For the Q1 of FY 'twenty two, our diversified business model delivered sales of $7,700,000,000 up 138% compared with Q1 of FY 'twenty one and net earnings per diluted share of $2.63 up $2.60 from a year ago. This also represents increases of 43% 65% respectively from the previous record set in the Q1 of FY 'twenty. Across our retail and wholesale channels, we sold approximately 452,000 cars, up 128% versus the Q1 last percent more cars in the Q1 of this year versus last year and 77% more compared with 2 years ago.
As many of you know, for
the past several years, our priorities and investments have focused on building an unmatched experience with that integrates seamlessly with our best in class in store experience. The result has been a massive organizational transformation That includes building a comprehensive set of digital and hybrid processes to accommodate our customers in whatever way they want to interact with us. Our progress in executing this strategy has given us a very solid start to FY 'twenty two and we remain confident in our long term targets announced at our recent Analyst Day of 2,000,000 retail and wholesale combined units sold per year and $33,000,000,000 of revenue by FY 'twenty six. In our retail business, total unit sales in the Q1 were up 101% and used unit comps were up 99% versus the Q1 last year. Compared with the Q1 of FY 'twenty, total retail unit sales were up 21% and same store comps were up 16%.
In addition to strong unit sales, we reported $2,205 of retail gross profit per used unit for the quarter, up $2.68 versus a year ago and in line with the Q1 of FY 'twenty. Given the strong We will continue to monitor the macro factors and pricing elasticity and we will adjust our pricing accordingly to maximize unit sales and profitability. For wholesale, our units sold were up 187% compared with last year's Q1 and were up 50 when compared with the Q1 of FY 'twenty. Wholesale gross profit per unit increased to $10.25 compared with $9.78 for same period last year and was in line with the Q1 of FY 'twenty. The strength in wholesale was primarily driven by the introduction of our instant online appraisal offering, which we rolled out nationwide on carmax.com in February after launching on edmunds.com last year.
We also benefited significant appreciation of used autos in the broader market. CarMax Auto Finance or CAF continued to deliver solid results income of $242,000,000 In addition, CAF and our partner lenders delivered strong conversion in all credit tiers. John will give you some more details on that coming up here shortly. Overall, we are extremely pleased with our performance. We know there are opportunities to be even better.
For example, on the operational front, inventory available for sale was below targeted levels throughout the entire Q1. These lower levels are the result of recent demand and the temporary COVID and weather impacted production slowdown we experienced in the Q4. Remember, The Q4 is a time when we are ramping production ahead of the peak demand tax refund season. Our teams have done an amazing job producing inventory in will turn the call over to Enrique who will provide more information on our Q1 financial performance and then John will share additional detail around customer financing. So Enrique?
Thanks, Bill, and good morning, everyone. Together with the strong gross profit growth in retail and wholesale Bill just discussed, other gross profit increased to $142,000,000 up $111,000,000 from last year's Q1. This increase was driven by EPP growth of $61,000,000 or 83%, driven primarily by retail sales growth and a stable penetration rate above 60%. Service growth of $42,000,000 or 125 percent, driven by labor leverage due to our strong sales performance and prior year And an improvement in third party finance fees of $6,000,000 or 57% due to our renegotiated fee structure and changes in tier penetration, partially offset by increased sales. Relative to the Q1 of fiscal year 2020, other gross profit grew $22,000,000 or 18%.
This was primarily due to volume related growth in EPP and the benefit from our renegotiated third party finance fees, partially offset by On the SG and A front, expenses for the Q1 increased to $554,000,000 up 71% from our COVID impacted quarter a year ago. Robust sales in the Q1, along with disciplined cost management delivered strong leverage with SG and A as a percent of gross profit of 59.9%, down from 91.7% in the prior year's Q1. The increase in SG and A dollars over the last year was primarily driven by a $108,000,000 increase in compensation and benefits, which was primarily the result comping over COVID related payroll reductions last year, along with an increase in variable costs due to higher volume and in headcount as we continue to invest in our growth initiatives. Compensation leveraged by 25.8 percentage versus last year. A $38,000,000 increase in advertising expense driven by our Previously communicated investment in advertising spend to amplify the CarMax brand, build awareness of our omni channel offerings and drive customer acquisition.
This year's increase was also impacted by reductions in last year's spend Due to the pandemic, marketing leveraged by 1.9 percentage points versus last year and a $79,000,000 increase in other overhead due to comparing against the $40,000,000 Takata settlement benefit recognized in last year's quarter. Our continued investments to advance our technology platforms and strategic initiatives and quarter of fiscal year 2020. We remain committed to ensuring we are efficient in our spend And we expect that targeted areas of focus will continue to deliver improvements over time. For example, Our CDCs are a significant differentiator for us and an area of opportunity. In the Q1, our CDCs continued their that ensures customers get the right support.
We are very bullish about our future, given the strength and trajectory of our current business and the opportunities to expand into the broader used auto ecosystem. We recognize that we have an opportunity to capitalize on our leadership position to grow market share and deliver long term shareholder value. Our approach to capital allocation is aligned with this belief and is supported by the significant amount Cash our diversified business model generates. 1st, we continue to focus on our core business By aggressively investing in the digital capabilities required to enhance our omni channel experience, Vehicle and customer acquisition and the strategic expansion of our store footprint. Of particular note this quarter with the very strong ROI we are experiencing in vehicle acquisition, primarily through our instant online appraisal offerings.
2nd, we will deploy capital to pursue new growth opportunities through investments, partnerships and acquisitions. On June 1, we completed our acquisition of Edmunds. We are confident this transaction will create significant shareholder value over time. Additionally, of note on the P and L this quarter, other income increased $29,000,000 when compared with the same period last year, primarily due to a $22,000,000 unrealized gain on an investment. As we've noted in the past, we have a portfolio During the quarter, we repurchased approximately 1,000,000 shares for $125,000,000 We have $1,210,000,000 remaining in current authorizations.
Now, I'd like to turn the call over to John. Thanks, Enrique. Good morning, everybody. Once again, the Finance business has delivered outstanding results. For the Q1, CAF's penetration, Net of 3 day payoffs was 43.7 percent compared with 36.1% a year ago.
Tier 2 decreased to 22.8 You will recall in the Q1 of FY 'twenty one, at the beginning of the pandemic, we leveraged our long term relationships and routed a portion of CAF's Tier 1 volume and all of the allocated Tier 3 volume to our Tier 2 and Tier 3 partners, which explains much of this year over year shift in tier mix. Note, this was done as a temporary measure, which limited CAF's origination volume while preserving the high quality of the portfolio. By the end of the Q2 last year, we had returned to our normal routing procedures. During this Q1, CAF's net loans The weighted average contract rate charged to new customers was 9%, up from 8.4% a year ago and 8.5% in the 4th quarter. Similar to the Q4, this year over year difference in APR is a result of the credit mix of customers rather than an increase in the rate charged.
Regarding the portfolio, the overall interest margin increased to 6.9% versus 5.9% Cap income for the quarter was $242,000,000 up from $51,000,000 a Total interest margin in the quarter increased by $47,000,000 or 24%, driven by the growth in originations and lower cost With respect to our provision for loan losses, in the Q1, we experienced $7,200,000 in net credit loss were 21 basis points of average managed receivables. As a percentage of the portfolio, this is the lowest reported loss we have experienced in over 20 years. The resulting favorability versus our expectations, coupled with the corresponding adjustment in our outlook for future losses, resulted in $24,000,000 of income related to the provision in the Q1. This is compared to a $122,000,000 provision This release of reserves resulted in an ending reserve balance of $380,000,000 for the 1st quarter were 2.62 percent of managed receivables, which is a decrease from the 2.97% at the end of the 4th quarter. Our reserve as a percentage of managed receivables has continued to trend downward towards more historical levels as our customers remain persistent in their willingness and ability to make their auto payment despite the uncertain environment.
We believe this current adjustment effectively captures positive loss performance we have seen over the past 4 quarters and is appropriate for the current macroeconomic environment. Finally, as previously mentioned, CAF increased as a percent of Tier 3 volume to 10% by the end of the first This adjustment had a minimal impact on the reserve within the quarter, but as the higher volume continues to flow into the portfolio over subsequent quarters, We expect income and the provision to increase accordingly. With regard to where CAF will participate in the credit spectrum in the future, as always, We will continue to evaluate the lending environment and will consider future adjustments if and when we believe those changes are sustainable and in the interest of our long term business goals. Now I will turn the call back over to Bill.
Great. Thank you, John and Enrique. As I said at our Analyst Day in May, we are proud of the work Our teams have done to put CarMax in the excellent position we are in today and we are really excited about the tremendous opportunities ahead of us. Our multiyear investment in omni channel experience has further enhanced our offering, which is the most customer centric experience within the used auto industry. We are agnostic about how our customers shop and buy because we are positioned to give every customer a world class buying experience regardless of how they shop with us.
In turn, this gives us access to the largest addressable market within the space. In the Q1 approximately 8% of our retail unit sales were online. As a reminder, when a customer completes all 4 of the major transactional activities remotely, so that's reserving the vehicle, financing the vehicle if that's needed, trading in or opting out of a trade in and creating a sales order. We consider this an online retail sale. Because all our wholesale auctions were made virtual This quarter, 100 percent of wholesale sales, which represents 18% of total revenue, are considered online transactions.
As a result, Total revenue coming from online transactions was 24% in the Q1. Omni sales represented approximately 56% Retail unit sales up from 51% last quarter. As a reminder, omni sales are retail sales where customers complete at least one of those major transactional activities remotely. While all of our customers can buy a car online with assistance, have been focused on providing a 100 percent self-service experience. Today, 40% of our retail customers can independently complete an online sale, up from 25% at the end of the 4th quarter.
We expect to have this capability available to most customers by the end of the second quarter. We continue to leverage digital innovations to drive growth with our online instant appraisal offerings where customers can receive an online offer on their car in less than 2 minutes and have payment in hand the same day. In the Q1, we bought approximately 163,000 vehicles through these online offerings, which represents 48% of our total buys from consumers. And since rolling out Nationwide at the end of last quarter, We believe we have become the largest online buyer of used autos from the consumers in the U. S.
This is a significant competitive advantage that allows us to efficiently source vehicles, especially during periods of high demand, enabling us to remain competitively priced while producing attractive GPUs. On the retail side, we are making our online experience faster by improving our finance approval and flow process. We are greater confidence they can afford the vehicle they select. As we expand access and further enhance digital aspects of our experience, we need to reinforce awareness CarMax's new capabilities and their values to customers. Since launching our new brand campaign and love your car guarantee offerings at the end of last year, We have seen strong growth in the awareness of our omni channel experience with both web traffic and Google search volumes continuing to increase.
As digital adoption by consumers and dealers continues to grow, we will keep building on our investments in omni, our proprietary technology stack and our strong brand reputation to maximize growth in our core businesses. We are also pursuing additional growth And the broader $1,000,000,000,000 plus used auto ecosystem that leverage our capabilities and strength in the industry. As Enrique mentioned, Edmunds brings us closer to a broader set of consumers and brings us closer to dealers. Our teams are super excited and are continuing to collaborate on new products that will support Edmunds dealers, partners and consumers. We see tremendous opportunity and will provide updates as we launch new offerings more broadly.
In summary, This was truly an exceptional quarter and we are absolutely excited for the future. Our results reflect strong and disciplined execution across Our diversified business model and further validate our strategies to enable sustainable growth and meaningful long term shareholder value creation. We will continue to accelerate our growth and market share gains while also laying the groundwork for future initiatives and growth opportunities. Now, we'll be happy to take your
Shelby?
Your first question is from Craig Kennison of Baird.
Hey, good morning. Thanks for taking my question. Congratulations on the wholesale momentum. My question goes to the GPU, you mentioned that you pulled back on the GPU experiment in the hot market. Will you go back to experimentation once the Yes.
Good morning, Craig. Great question. So yes, we did suspend it. And if you remember last quarter in the Q4, I talked about we're going to continue, but we've been monitoring those And as we monitor the macro factors, especially like the inventory constraints and the elasticity, it didn't make sense to continue to do that. As I said in my opening remarks, we will continue to monitor those macro factors and we are very open to continuing to do some different things with pricing.
I would tell you like right now, I probably would say we wouldn't do it, but we'll reserve the right just as the quarter progresses. But either way, We'll be able to provide great GPUs above $2,000
Thank you. Sure.
Your next question is from Sharon Zackfia of William Blair.
Hi, good morning. I'm sorry if I missed this, but did you Talk about what your customer sourcing ratio was in terms of the retail business for the quarter? And then As you're looking at the online purchases, which obviously have ramped really quickly, how are those how is the GPU on the online appraisals kind of comparing to the in person appraisals. Are you seeing those kind of be relatively similar or is there a variance that can narrow over time?
Good morning, Sharon. Great question. So when I think about the total buys that we bought from consumers, it's about a fifty-fifty split between retail and wholesale. And that's both As you think about traditionally customers coming into the store and doing the appraisal, but that also is very similar to the online purchases. As far as the productivity of the online purchase versus the traditional in store appraisals, they are both great and they are very similar.
So which again It's a huge benefit as we think about inventory sourcing and be able to manage GPUs, pricing, that kind of thing.
Thank you. Sure.
Your next question is from John Murphy of Bank of America.
Just maybe the follow-up actually On the question of supply, Bill. I mean, you bought 341,000 vehicles from consumers in the quarter. I mean, that's As much, I think you had 1 quarter in history of 345,000 in total vehicles. I mean you bought almost as many vehicles as you ever peaked out on selling. So just curious what's going on there on your ability to buy directly from the consumer?
And then also if you think on the supply side, Both from the consumer and then even at auctions, when do you think supply more naturally eases up? I mean, there's crazy things going on like Avison Buying cars in auctions and traditionally they're sources and sellers, right? So there's some wacky stuff going on in the supply side. I mean, how much wood can you shop on buying Consumers, how important is that going to be going forward? And then when does supply, which is totally wacky at the moment normalized for the flow of supply?
Yes. So John, Obviously, the buying directly from consumers has been a big focus. I've talked about us putting investments in that area and I think what you're seeing is it really coming to fruition. I mean, you think about it, More than 340,000 cars that we bought from consumers, it's up 236%. It's up 77% versus FY 'twenty.
It's truly remarkable. A big piece of that obviously is just having easier access for consumers with our online offering. We're also encouraged just by the traditional with customers coming in the store and doing appraisals that way. So we feel good about both of those. The supply piece is interesting.
There's some Abnormal things that you mentioned there, but I'll go back to what I said in the Q4. Supply has not been an issue for us. While our sale of inventory is Certainly lower than where we want it to be right now. The supply, if we look at total inventory, we are very much in line with where we were in FY 'twenty, it's really more a matter of production. And I think with the online offering in addition to the traditional appraisal lane, that also just diminishes Our need for external supply going through those other sources.
And more general to your question of how long absolutely there Supply constraints out there because you've got some different folks doing different things. You also have the demand for maybe some new car customers moving into used cars. I think it will as time will tell, I think the new car isn't going to work itself out in the next quarter or 2. I think we are probably looking more towards the latter part of the year. So I don't see a lot changing in supply over the next couple of quarters, but again the supply is not an issue.
Is still a lot of cars that are changing hands out there. You may if you are buying off-site and have to work a little bit harder, but we feel great about where we are from total inventory standpoint.
Yes. And you know, John, what I would say is the 163,000 cars that we bought through our instant online Offers really exceeded our expectations. That has been extremely well received by customers. And I think it's a really good example of The investments we've been making in innovation to make sure we're at the forefront of the consumers' mind. And again, that's 163,000 cars through our online offer.
And really, we just stood up that product a quarter ago. So we're really, really pleased with that performance.
Can that ever significantly drive the
consumer storage vehicles way above 50%?
I mean, is that the direction you're
We've historically over the last several years, we've been in this range of 35% to 45%. We're already above that range For this quarter, we are between 45% 50% for this quarter. And I think again, our goal is to drive that as high Possible and what we're seeing, we're very, very encouraged by that.
Thank you very much.
Sure. Thank you, John.
Your next question is from Michael Montani of Evercore.
Hey, good morning. Thanks for taking the question. I wanted to ask about any thoughts you all may have on the pricing environment, both in terms of the wholesale side as well as the retail side And what you might be seeing recently in our discussions with Manheim, it sounds like they might have just seen an inflection point where The pricing is at least starting to moderate. So I'd just love to get some incremental thoughts that you all may have. And then secondly, what does that mean for the business?
If we do see some moderation, what does that mean for retail and wholesale?
Yes. Good morning, Michael. Yes, it's a great question. You've been following us long enough to know that this pricing environment is really it's really unprecedented. If you think about from January till now, the $5,000 to $6,000 worth Appreciation that we've seen, it's truly remarkable.
Our average selling prices were up a couple of $1,000 an acquisition standpoint, they are actually up a little bit more than that, but it was a little bit offset based off of mix and age. I do think we are reaching an inflection point. If you look at the consumer price index and the difference between new cars and late model used cars, That gap is definitely narrow. While new cars are going up, they have not gone up at the pace of used cars. And that's fairly self correcting.
Get to a point where, okay, it's Late model used car is bumping up against the new car and I think we are getting close to that inflection point. I think that's great, because obviously when the gap narrows, it's a headwind for used car purchases. When the gap widens, the gap between used and new, that's a great thing For used car sales. So I think that's a positive thing.
Great. Thank you very much.
Thanks, Michael.
Your next question is from Brian Nagel of Oppenheimer.
Hi, thank you. Good morning. Nice quarter, congratulations.
Thank you.
So my question is very much a follow-up to that prior question, just with regard to pricing, Bill. So we've all talked about we've all heard and read about this Unprecedented, if you will, price environment in used cars. So I guess the question I have is, as we look at these results in various facets across the business, Was the pricing environment a tailwind or headwind for CarMax? And then again, this is again How should we think about this going forward as we look towards the balance of the year?
Yes, normally that pricing environment would The headwind to just the used car industry in general. I think the difference this quarter was that because there was a lack of New car availability, I think it pushed customers down into the used car market, which helped to raise the price of used cars. So it's really it's hard To kind of pull that apart, it's there's a lot of different factors going on there, because you got new customers coming in there, you have the stimuluses out there that's driving up demand. So I think the normal what you would normally see from really high price increases on used cars, it's hard. I don't think it was the same It had the same elasticity effect that you would normally see.
Now I think going forward, not having some of that stimulus out there, I think The normal elasticity and pricing, I think, will start to return. And I think back to Michael's point, if we have seen this inflection point starts to go down, I think that's a good thing.
Yes. I think the other thing as well is that the diversity of our business model really allows us to perform in any kind of environment. So while pricing may be a headwind in some It's a tailwind to other parts of our business and you see that in our results and you see that kind of from quarter to quarter in our results, that Diversity that is unparalleled in the industry.
Yes. And I think the other thing I'd play here is, look, we've been doing this long enough that whether you see rapid appreciation or rapid depreciation, I think The way that we manage our inventory, how we buy the data that we leverage and the technology that we leverage, I think it's certainly a competitive advantage.
Got it. Very helpful. Thank you.
Thank you, Brian.
Your next question is from Rick Nelson of Stephens.
Thanks. Good morning. So we saw the reserve reversal this quarter. Allowance now sits at 2.62 percent of receivables. Historically, I believe that number has been more in 2 to 2.5 range for Tier 1.
I guess, how should we think about that allowance account and potential
Is our reserve as a percentage of receivables right now and correct, historically, we have stated that 2% to 2.5% is our targeted range for our Tier 1 portfolio. Now bear in mind that 262 incorporates both Tier 1 and Tier 3 included in there. So if you were to back that out, you can see that we really are in the operating range that we've previously stated, And we've trended downward nicely since then. I think it's a pretty substantial move we've made since the end of Q4 to now, and obviously that's a reflection of the great So going forward, we think 262 is a really solid number for us across both the Tier 1 and Tier 3 portfolio,
Your next question is from John Healy of Northcoast.
Thank you. I wanted to ask a little bit about the SG and A levels. I know you've talked about Variety of investments and clearly those are paying off right now. But wanted to get your view on kind of this traditional ad campaigns that You, Quash, I know you've done the things with the NBA and some new television and I think radio ads. How do you feel about that Spend, is it still as effective as it once was?
Are you happy with it right now? And Do you see that continuing to be a big part of the SG and A as we go into next year or maybe should we expect some recalibration on that front?
Yes, John. So let me talk first just about the productivity of the ad spend. First of all, we are thrilled with it. If you look at the advertising spend For the quarter, it's actually below the guidance we've kind of given for this year. And I would just think about that as that's just the timing.
We're committed to Continuing to advertise in a thoughtful ROI way. I would tell you, looking at what we've been doing, we had a record hit. Our average number of hits to our website For this quarter was $34,500,000 which is up significantly from any prior record. We're seeing web visits up roughly 60 Year over year, 40% if you compare back to FY 'twenty, Google searches are up double digits. So we feel very, very good about The new programs that we are doing and how we are really kind of going out there and spreading the omni channel Experience to consumers.
But I will tell you, this isn't it's not a one quarter thing. We need to continue to be at this and we are committed To continue to spend. And Rick, I don't know if you have any other thoughts as it relates to the SG and A.
Yes, absolutely. If you take a look at advertising we communicated last quarter and in our Analyst Day We intend on spending more and what we said was we're going to spend this year on a per unit basis pretty much what In the back half of last year, which was a ramp up in expense. And so if you take a look at that and you compare it to 2 years ago in FY 'twenty, certainly a more normalized year, We're looking at an increase of over 40% on a per unit basis in our advertising costs, which is consistent with what we've communicated. But just to give you some context and perspective on how we think of the importance and more importantly of the returns that we are getting from our advertising spend. Thank you.
Thanks,
Your next question is from Rajat Gupta of JPMorgan.
Hi, good morning. Congrats on the strong print. I just had a question on you mentioned earlier About how the pricing is reaching a level where it's probably starting to maybe impact demand to some extent. Could you give us some Color on like how the progression was through the quarter, like this March to May on the comp versus 2019 levels? And if you could give us any color on how The 1st 3 or 4 weeks of June have trended there, but that would be helpful.
Thank you.
Yes, Rajette. So we are pleased with the whole entire quarter. I mean, when we talk about looking back FY 'twenty, don't forget the Q1 FY 'twenty was a 9.5 And we are comping 16% on top of that. And we saw strong growth in every month of the quarter. I have talked about it on the last call how March was a new record Month for us, April was also a record month as it relates to April.
May was also a record month as it relates to May. So we are very pleased with the strong performance And we are very pleased with the performance as we enter into the new quarter. I will tell you, I will be excited to get to the Q2 because if you remember last year, we had a positive comp The second quarter and I am going to knock on wood that we don't have to keep talking back to FY 'twenty, because there is a lot of numbers to remember. But we will certainly at the end of the second quarter talk more about that
Your next question is from Scot Ciccarelli of RBC Capital Markets.
Good morning, guys. Scot Ciccarelli. So Given the dynamics that we're seeing in the used vehicle market, obviously, the category is very hot, and your more aggressive posture in vehicle Purchasing activity, can you shorten your reconditioning process further to improve throughput or maybe add more pay capacity? Bill, when I'm listening to you, it sounds like your own production capabilities may have limited some of your inventory offerings and thus Your sales performance?
Yes. No, Scott, you are absolutely right. I mean, our inventory level right now, if I think obviously we are below The whole quarter, we're probably 40% lower than where we'd like to be. And in a normal environment, you have that much less inventory, it certainly is a headwind. I think it was a headwind.
I don't think it was the normal elasticity that you would see just given what was going on in the rest of the marketplace. But it really is about production and we normally build ahead of time to get ready. We weren't able to do that. Our operations team is doing a phenomenal job. We're Adding additional capacity in those existing facilities, so I would expect that to continue to go up.
One of the areas I've talked about from Efficiency standpoint in the past, as we look to take waste out of the system, one of the areas that we've been focused on is our flow And we've actually now finished rolling out kind of the next version of that and we would expect to get more throughput Through existing facilities and resources, so we're excited about that and that will continue to help us. And then of course, to meet our long term goals, we'll be adding additional capacity as we go forward. But yes, I think it's absolutely fair to say that the inventory was a headwind for us and And it's not the supply side, it's more of the production side. And again, I can't give enough shout outs to our operations team, because not only they've been Meeting that demand, but they're building on it. If you watch your inventory recently, you've seen that we're starting to ramp it back up.
So how long does it take to recondition, let's call it, an average car today? And where does that potentially Go, can you knock off a significant amount of time or is it kind of you are pretty close to where you are optimized?
I think we can optimize more and to say traditional car, remember it also depends on the mix of vehicles. Your older vehicles take a little bit longer than Your newer vehicles, I think we are probably if I think about the whole what you are really asking about is cycle time. It's like the time and keep in mind that's the time that the car is ready to be worked on, you got to wait for parts all that kind of stuff, you think about that cycle time, it's probably somewhere in between the 5 10 days and that depends on the vehicle. Now certainly some vehicles take a Less than that and we have obviously phases in our production that we measure by minutes. But I do think this is an area of opportunity.
I think this is one that we are already with our new flow production system, I think we are already starting to realize More throughput, which is great. Got it. Okay. Thanks a lot guys. Thanks Scott.
Thank you.
Your next question is from Chris Bottiglieri of Exane BNP Paribas.
Hi. Thanks for taking the question. Strong quarter. I had a quick question on the GPU. So it sounds like you pulled back in the price investments, The customer sourcing mix is as high as ever seen it.
It sounds like used pricing was a tailwind to GPUs. I don't know if that's I can confirm that. But were there any offsets? Like are you just like is it just costing work to recondition cars in the environment or Anything that would mitigate some of these tailwinds on GPU that you could speak to? Well, first of all, for us, the used car pricing isn't necessarily a tailwind to GPU.
We don't manage our margin according to how expensive a vehicle is. We have a lot of other factors. So that's not necessarily a tailwind for us We are going to be a tailwind for us. And I have always said that we have our prices are very competitive. And I tell you, I think our prices are as competitive as ever right now.
So I feel great about the direction we're going. I feel great about our prices. I feel great about the flexibility that we have to Not only provide world class GPU per car, per retail car, But also be able to do it in a way that our prices are very, very competitive.
Your next question is from Seth Basham of Wedbush.
Thanks a lot and good morning.
My Question is on
the mix of sales that were purchased online, 8% this quarter versus 5% last quarter. Is that solely due to the increased eligibility of customers being able to buy entirely online or are there other factors? And as you get to 100% rollout of eligibility, would you expect that metric to move up closer to 20%?
Yes. So the 5% to 8 was driven by geographic expansion and some additional capabilities. I would expect that number to continue to go up. As I said, we made some good progress. And actually, I'm sorry, you were asking about the total online, not just the self serve.
So self serve, mean online went from 25% to 40%. And I would expect that number to continue to go up as we add additional capabilities as we go forward. And the areas that we are focused on, I think primarily What's going to continue to drive the adoption will be again adding some of the self-service features. And so when I think about that, the areas we're focused To make it a little bit more simple and seamless on transfers as well as trade ins.
So we certainly expect that Percent of sales and percent of revenues from online to go up. But at the same time, the beauty of our business model is that it's really up to the consumer And of omni, right. So to the degree the consumer wants to buy online, they can do that and more and more so. To the degree they want to come into the store and shop that way, they can do that as well. We expect the numbers to go up, but again, it's really going to be driven by the consumers and how they want to interact with us, whether it's in store or online.
Got it. And the all in gross profit per unit for a vehicle purchased entirely online versus through the stores, how is that comparing these days?
Your final question is from David Whiston of Morningstar.
Thanks. Good morning. I wanted to go back
to the Edmunds acquisition because honestly I'm still not totally clear on the rationale for it. I get there's vertical integration benefits, but I think both Procuring and retailing, but
at the same time, there
are CarMax competitors that are paying in for their lead So how are you ensuring that they still get a fair shake because otherwise they're not going to do business with Edmunds that CarMax is getting All preferences. Can you just connect some dots for me?
Yes. So again, we are thrilled to complete the acquisition, as are the teams on Both sides, just to remind you, they are that premium brand for automotive research. We're going to continue to operate them as a separate brand and a separate company. And We're excited to work with them to continue to drive more of the services for their consumers and their dealers and their OEM partners. We're going to invest in their brand, But we are also excited about the teams continuing to collaborate and progress on programs that help both companies.
And a great Of that is the instant offers. We developed that with them, initially rolled it out on Edmunds and then we have it on carmax.com and we think there's a lot of opportunity there with Sil and we think there's a lot of opportunity on content. So I think it's very important that we keep the company separate and we keep make sure that they're And I think we can do both. And then as we continue to develop things Jointly together that benefit both companies, we'll continue to highlight those in the future.
Okay. And can you disclose what
the equity investment was that you have the gain on? No, we don't really talk about it. We have, as I mentioned, we have a portfolio of relatively modest investments across the used auto ecosystem, primarily To make sure that we understand and we know what's going on in that space. And so we just had an outsized gain this quarter on one of those investments, but we don't really disclose Which companies we are investing in.
And there are no other questions in queue. I would like to turn the call back to Bill for any closing remarks.
Great. Thank you, Shelby. Well, hopefully you guys can tell from our comments that we are extremely pleased with the Q1 results and that we are very excited about the future. And It's not just about the opportunities that come with having this largest total addressable market in the used auto retail, but It's also the opportunity to exist in our other core businesses. So if you think wholesale, if you think cap and then even going beyond that into This larger auto ecosystem and all of it is supported by the tremendous transformation, whether it's our omni channel Whether it's our proprietary tech stack, it's data or some of the other offerings that we highlighted on today's call.
I want to thank you for your questions today. I want to thank you for your continued support. And as always, I want to thank our associates
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.