Ladies and gentlemen, thank you for standing by and welcome to the CarMax Strategic Update Call. At this time, all participants are in a listen-only mode. After the speaker's 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, Mr. David Lowenstein, Vice President Investor Relations. Please go ahead, sir.
Good morning. Thank you for joining our strategic update webcast. I am here today with Keith Barr, President and CEO, Enrique Mayor-Mora, Executive Vice President and CFO, and Jon Daniels, Executive Vice President, CarMax Auto Finance. 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 fiscal year 2026, and our quarterly reports on Form 10-Q previously filed with the SEC. Please note, the presentation from today's webcast is available on the Investor Relations section of our website. Our commentary today may include non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the investor presentation. 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. Keith will start today's webcast with a brief overview of the used auto market and how CarMax is structurally positioned to deliver sustained growth.
He will then frame our Shift into GEAR growth strategy, and Jon will highlight CAF's competitive differentiation and full credit spectrum strategy. Finally, Enrique will detail the financial targets we have set through fiscal year 2030 and our capital allocation approach. We will save plenty of time after our presentation to take your questions. With that, I will pass it over to Keith. Keith?
Good morning, everyone, and thank you for joining us. I want to start today by sharing again why I came to CarMax. Looking at CarMax from the outside, I saw a very strong foundation, an iconic brand, an award-winning culture, a differentiated business model with unmatched scale, and an irreplaceable platform. I believe these assets could be leveraged better to drive consistent growth, gain market share, and generate strong return for shareholders. A little more than seven months in, I am more confident than ever in our ability to capture the tremendous opportunity ahead of us. In order to do this, we need to have a clear strategy, and I have spent meaningful time across our business engaging with our associates, listening to our customers, and working with our leadership team to develop our strategy for growth, Shift into GEAR.
The work in front of us is focused on turning our advantages into stronger performance. Our second quarter results showed that when our pricing is right, customers choose CarMax at a rate that outperforms the industry. We are building on this early momentum with our Shift into GEAR strategy, which is designed to strengthen the core of our operations by focusing on the fundamentals of what we do every day at CarMax, helping our customers buy, sell, and finance cars with ease and confidence, however they choose to do it. Shift into GEAR is a clear, actionable plan to drive sustainable market share gains and earnings growth, enabling us to consistently reward our shareholders. It will do more than just drive our near-term results. It will establish the foundation for accelerated growth in the long term.
Let me start with talking a little about the market we are competing in and the strength of our platform. The used car industry is one of the largest consumer markets in America, a roughly $1 trillion market that is incredibly fragmented. The 10 largest retailers together hold only about 10% share of the total market, with CarMax having only a 4% share today of the age 0 to 10 market. The opportunity in front of us is substantial, and we are well-positioned to leverage our national and unique scale to win customers and grow faster than the market. In this industry, a company with the right operating model and customer offer has a tremendous opportunity to take share, and we have both.
The hallmark of our market position is that the operating model CarMax has built over the last 30 years aligns with the way customers actually shop for and buy vehicles. Industry research, as well as our own, shows that customers want digital convenience combined with an in-store connection. While most customers intend to utilize both online and in-store steps in their car buying journey, the vast majority consistently choose to complete their purchase in-store. We can meet the customer however and wherever they want to be met. This is why CarMax is strategically advantaged from a position of strength since we have already built the combined digital and physical scale to deliver that experience nationwide. Our digital offering is backed by a store network that reaches 85% of the U.S. population.
Customers can see and test drive the car they are considering, explore a wide selection in one place, trade in their vehicle, obtain financing, and receive knowledgeable guidance along with the personal connection our associates offer. Additionally, our offering is underpinned by a national logistics network, scaled reconditioning operations, and exceptional brand awareness. The key advantage we see is not just any one of these things, but how they work together to drive growth inside one platform. These capabilities took decades and significant capital to build, and are our long-term differentiators when we deliver on the fundamentals. This is where the pieces come together to create our competitive advantage. First, customers know and trust the CarMax brand, which is backed by 30+ years of bringing transparency to the car buying process.
Second, we deliver the best of both worlds, the convenience of digital backed by a network of over 255 stores and 28,000 associates. Third, we have structural advantages built over decades. Our scaling capabilities are nearly impossible to replicate. Fourth, we have a leadership team and a culture built to execute. I've seen that firsthand, both in our corporate offices and with our associates in the field, and I continue to be impressed by the capability and commitment of our associates. Fifth, the largest opportunities in front of us are within our control, and our growth is not dependent upon market acceleration. I'll share examples a bit later in the presentation. Most importantly, we have a clear plan to strengthen the core of our operations. Shift into GEAR is how we convert these advantages into stronger growth and financial returns.
Now, I'm going to talk to you in more detail about our Shift into GEAR strategy. Our strategy is built around four fundamental pillars. Great offering is about giving customers every reason to choose CarMax. Easy experience is about making it easy to do business with us. Add value is about maximizing the value we create on each transaction. Run lean is about unlocking efficiencies so we can fund a better offer and generate stronger returns. These four pillars do not work in silos, but as one system. Let me walk through each, beginning with great offering. Great offering is built around two things that matter most when a customer is buying a used car: price and selection. On price, our objective is straightforward: deliver highly competitive prices to customers and use that advantage to take share.
We intend to take hundreds of dollars of cost out of each car across reconditioning and logistics over the coming years, and we intend to reinvest those savings back into price. That gives us a sustainable way to compete harder for the sale without structurally sacrificing retail margins. At the same time, we are getting more precise about how we price. Each year, we price more than $20 billion of retail vehicles and have augmented our pricing models to use more local and real-time market signals with the goal of pricing more dynamically so we can win the sale while earning the right margin. Selection is the other half of the offering. We're adding more inventory while continuing to ensure our mix matches the cars customers want to buy. Just as importantly, we're unlocking the inventory we already own.
Saleable inventory is up materially from a year ago, driven in part by freeing up more of our existing inventory for customers to purchase through better management of local holds and transfers. We know that having more saleable inventory leads to more sales. But having the right car is only part of the equation. We also have to get it to the customer quickly. Early results have been encouraging in the markets where we have tested faster delivery. In those markets, we are making more cars available to customers faster, within days, and this is driving more sales. Customer feedback is validating our efforts, and we see this as a meaningful lever to drive more share gains. We plan to scale it up in a disciplined way, in step with what the results and the economics tell us.
In addition to having the right car at the right price, making it easy to complete the purchase journey drives stronger conversion. We are focused on the end-to-end customer journey. When I joined, I saw a clear opportunity to bring our digital capabilities and stores closer together, and that is where we're putting our energy. Let me walk you through our progress. It starts with finding the right car. We have improved search and made car pages more intuitive, with clearer highlights and more personalization so shoppers find the right car faster. The new experience is already outperforming our prior pages, with more upside as we optimize. As AI changes how consumers research and shop, we will be ready with a robust generative engine optimization strategy and digital properties that support agentic commerce. Once they find the car, we're making it easier for customers to move forward.
Our redesigned reservation flow puts financing and trade-in information up front, so customers are better prepared and more reservations convert to sales. Next is the handoff to the store. Today, a customer might hear from the store, our Customer Experience Center, and our automated systems, which can sometimes be confusing. We are testing a model where the store owns the relationship from the moment of the reservation, supported by our Customer Experience Center and by automated communication. It simplifies the experience and draws on a real advantage, associates who know the customer, know the car, and understand local dynamics. The test is underway in a handful of stores, and we are encouraged by the early results. AI runs through every step of the journey. Our digital and voice agents work alongside our associates online, by phone, and in-store.
Early tests show improved conversion and efficiency, and our agents free up associates to spend more time on the moments that matter and where they can add the most value. The goal is one easy, connected CarMax experience, from the customer's first search to the moment they purchase their car. We have multiple paths to create more value for the customer and cash and more economics for CarMax. CAF has a proven prime lending platform, and we've been extending our platform across the credit spectrum in disciplined stages, with a focus on tier two. CAF financed 10% of CarMax's tier two volume in Q2 fiscal year 2026. In Q2 fiscal year 2027, that number has more than doubled, and our goal is to reach 40% by fiscal year 2030.
As that expansion continues, it provides meaningful runway to capture more of the financing economics from our customers CarMax is already serving. In tandem, we are broadening the way we fund CAF so we can grow responsibly, implementing the structure that gives us the best balance of return and risk. Our second residual sale, which included selling roughly $600 million of receivables in the second quarter, is one example of that flexibility. Jon will go deeper on our funding efforts in a few minutes. Another opportunity to grow profitability is with our extended protection plan products. We reinvented MaxCare over the last year with more term and deductible options, as well as optional wheel, tire, and dent protection. That updated product suite is now available nationwide.
Our objective going forward is to grow EPP profit per retail unit by more than 20% through fiscal year 2030 while putting relevant protection in more customers' hands. As we sell more cars, finance more customers, and leverage expanded protection plan products, we create more profit from every customer we win. The fourth pillar is run lean, unlocking efficiencies that fund a great offering and experience by taking cost and complexity out of the business. Our first focus area is on reconditioning. Much of that work still runs on a legacy store-based system supported by paper checklists and whiteboards. We are replacing it with a modern end-to-end best-in-class third-party software as a service digital platform that will standardize processes across every store and centralize decisions on what work to do, where to do it, and which parts to use.
It will also enable better data and analytics that show us what is working and help us improve. Specifically, we plan to optimize our reconditioning processes with several key enhancements, including digital inspections to efficiently capture an accurate profile of each car's condition, digitized repair order management to enable smart and consistent decisions on what to repair, work management systems that improve productivity by refining how we route work to our associates, part and tire selection tool upgrades that broaden automated ordering, sublet management to improve decisioning on when and what repairs facilitate across our partner network. The result is that we deliver the high-quality cars our customers know us for, and we do so with more efficient operations, more work done in-house, and a lower cost embedded in every car. We expect to begin piloting next year and will scale from there. Our second focus area is on logistics.
Our model today is largely point-to-point, connecting our 255+ stores. To better leverage our national scale, we are re-engineering the network toward a hub-and-spoke design, with plans to expand that model over time. Fewer, smarter moves should lower costs and get cars to customers faster. We're also putting a modern technology foundation underneath the network so we can make better decisions and continuously improve cost and experience. Across reconditioning and logistics, we have a clear line of sight to hundreds of dollars per car savings through fiscal year 2030, allowing us to self-fund sales growth through competitive pricing. Our third focus area is acquisition. Buying directly from consumers is the lowest cost source of inventory, and we see a very tangible opportunity to do more of it.
Today, more than 20% of customers who come to us to sell their vehicle cannot receive a truly instant offer online and instead are sent through a more time-consuming process. Our goal is to increase instant offer eligibility to over 95%, so almost all customers can get an instant appraisal on their car through CarMax. We plan to begin testing changes in December that will move us toward that goal over time. The fourth focus area within run lean is SG&A. We remain on track for $200 million of run rate savings exiting fiscal year 2027. We will continue to look for more efficiencies in the business and maintain this cost discipline moving forward. We expect to build significant leverage into how we operate every year. This is the simplest way to think about what we expect Shift into GEAR to deliver.
Four pillars, one system driving sustained market share growth. Each pillar has its own work, but the value comes from the way they compound and create a flywheel of continuous growth. Every turn of the flywheel adds durable earnings growth. Better price, selection, and experience brings more customers to CarMax and drives more sales.
Each sale earns more, with CAF and protection products adding profit. More volume runs through our stores, reconditioning centers, and logistics network, which creates scale efficiencies and lowers our cost base. Those savings go back into the offer and into the operating leverage so we can compete harder for the next customer. Then the cycle repeats, and we keep taking share and building durable earnings. CAF is a big part of that cycle, and it scales with every customer we win I will now turn it over to Jon to walk you through how it works and where we are expanding. Jon?
Thanks, Keith. Good morning, everyone. As Keith discussed, a key part of our Shift into GEAR strategy is finding ways to add more value on each transaction. CarMax Auto Finance is central to that opportunity, and I'd like to spend a few minutes discussing the role CAF plays in our business, our opportunities to expand, and how all of that translates into earnings. CAF is one of the advantages that makes the CarMax model unique. Having such a well-established captive lender provides additional sales, a significant source of earnings, and a sizable opportunity for added growth. CAF diversifies CarMax's earnings. It creates an additional profit engine beyond the economics of the vehicle sale and generates earnings over the multi-year life of the loan, helping to complement the immediate income recognition of that sale.
A captive lending business not only provides an opportunity to maximize finance income, but it is also fundamentally more integrated into the broader business ecosystem, both tactically and strategically. Unlike what occurs inside a more traditional third-party financial institution, CAF lending decisions are made with direct consideration for our customers and CarMax as a whole. We have a strong, long-standing track record of more than 30 years of underwriting, funding, and servicing auto loans. That experience across multiple economic cycles gives us a deep base of lending knowledge and operational know-how specific to CarMax customers. We have always run the business with discipline. We balance growth, credit risk, and financial return, and make decisions that are sustainable and in the best long-term interest of CarMax. This model is scalable.
We see significant volume runway inside the customer base CarMax already serves, and our funding capabilities continue to expand, giving us more ways to capture attractive economics while managing risk. Together, these traits make CAF a differentiated and integral part of the CarMax business model, positioning it to play an increasingly important role in driving growth and earnings over time. Historically, CAF's core has been the more prime tier one credit space, and that remains a strong, proven business platform that continues to anchor our $16 billion portfolio. Full Spectrum is about extending that proven platform into the tier two non-prime lending space, where we see a compelling opportunity within customers CarMax is already serving. Tier three is not a near-term priority for CAF, and at this point remains primarily a partner opportunity that drives incremental sales. Why tier two?
We have been successfully serving these customers through our retail business for decades, but much of the financing is captured by our long-term third-party lenders. By expanding CAF's participation in this segment, we have an opportunity to finance more of these transactions and retain more of the economics associated with these loans. As Keith Barr mentioned, CAF continues to grow its volume, doubling our tier two penetration in the second quarter versus last year, and the credit performance of the originated volume to date continues to track in line with our expectations. We are confident in our ability to succeed in this space. Over 30 years, we've demonstrated a proficiency at adapting and refining how we underwrite and service CarMax customers.
Paired with our newly enhanced funding capabilities and backed by our own customer and credit data, we can generate sizable income growth from tier two segments that will provide us highly attractive risk-adjusted economics. We also believe it is valuable to keep the financing and servicing relationship inside CarMax for years after the vehicle sale, providing a meaningful customer loyalty benefit. The opportunity is both economic and strategic: serve more CarMax customers directly and capture more of the value created by the transaction. In short, Full Spectrum builds on CAF's proven foundation, extending our capabilities to more customers, strengthening relationships, and creating a meaningful opportunity for long-term earnings growth. As we expand into tier two, it's important to understand the mechanics of how lifetime earnings will change and ultimately grow.
When we originate a loan that we hold for investment, we are required to reserve for lifetime expected credit losses upfront, but we earn the income on that loan over time. That timing impact is more pronounced in tier two because expected losses, and therefore the upfront provision, are higher. As a result, as we meaningfully grow tier two volume and retain a portion as held for investment, CAF income will initially be pressured by the provision associated with these new loans. However, on a per-loan basis, tier two is expected to carry a higher return than tier one and to deliver sizable income over the life of the loan. This results in CarMax capturing substantially more cumulative value than the fee historically received when the customer financing was given to a partner lender.
In the case where we fund our growth through off-balance sheet transactions, we avoid this upfront provision, but instead receive a gain on the sale of the loan, ongoing servicing fees, and retain the net interest margin up until the point at which the loan sale takes place. While the full lifetime value earned is less than had we held the loan for investment, there is substantially more value versus the current partner fee structure, while also de-risking the remaining portfolio. We believe that for each point of sales attributed to tier two that we retain, there is between $8 million and $20 million of additional lifetime pre-tax income to be captured beyond the partner fees provided today, depending on our funding approach and corresponding terms of a deal.
We see the potential of our blended held-for-sale and held-for-investment strategies generating in excess of $100 million of lifetime pre-tax income annually from the tier two space as CAF pushes towards financing 40% of this volume, or roughly 8 points of total sales by fiscal year 2030. Two factors squarely within our control will be the keys to realizing the full potential of this growth effort. First, we will be growing in stages. Rather than scaling originations all at once, we will methodically originate and evaluate each segment within the tier two space and use those results to inform our next phase of growth. This allows us to refine our underwriting and servicing approach and maintain the discipline that has been fundamental to CAF's success. Second, we will continue to refine and leverage our new funding capabilities.
Having the flexibility to retain loans on our balance sheet or utilize off-balance sheet funding channels allows us to balance risk, capital requirements, and the opportunity to capture attractive lifetime economics as we grow. Ultimately, we are focused on building a larger, more profitable CAF business over time, and are doing so in a controlled and thoughtful manner. With that, I will turn it over to Enrique. Enrique?
Thanks, Jon. I am going to bring the operating strategy into the financial framework. The goal is to show you what we expect Shift into GEAR to produce through fiscal year 2030, the key building blocks underneath those targets, and how we will allocate capital as performance improves. Using fiscal year 2026 as the base period and assuming a stable operating environment, we expect to deliver mid-single-digit compound annual growth in used retail units through fiscal year 2030 as we strengthen the core of our operations. At the earnings level, we expect to deliver mid-teens compound annual growth in adjusted EPS over the same period. These targets are grounded in the work Keith and Jon just described. Great Offering and Easy Experience drive share gains. Add Value increases the economics of each transaction. Run Lean lowers the cost structure, funds a stronger offering, and enhances operating leverage.
When those pieces work together, we are confident CarMax can sustainably outperform the industry. I want to highlight the five key drivers of achieving our financial targets. First, as I just mentioned, we are targeting a mid-single-digit CAGR through fiscal year 2030 for used retail units. We expect the work we are doing under Great Offering and Easy Experience, along with greater industry price transparency that helps customers see the value of our offer more clearly, will drive market share gains. We are assuming retail GPU stays generally consistent from fiscal year 2027, with some expected fluctuations from quarter- to- quarter, while hundreds of dollars of per-unit savings in reconditioning and logistics costs are reinvested in price. Our recent trends have proven that when our pricing is right, we gain market share. Second, we are targeting low- double-digit EPP margin dollar CAGR, led by unit growth and increased per-unit margins.
The increase in unit margins will be driven by the rollout of new and enhanced products, heightened focus on store execution, and improved provider economics through a redesigned profit-sharing arrangement. Third, expanding tier two originations drives higher loss provisioning upfront, which will impact the growth trajectory of CAF income. We therefore expect CAF income to be down slightly in fiscal year 2027 and flattish year-over-year in fiscal year 2028. From the fiscal year 2028 base, we are targeting an accelerating high- single-digit growth to fiscal year 2030 as more of the lifetime economics flow through reported income. Fourth, we are targeting low- single-digit SG&A growth over the plan period while units grow at mid-single-digit rate. We are on track for a $200 million run rate savings target exiting fiscal year 2027. We will reallocate savings to self-fund growth, and we will continue to look for additional efficiencies.
The combination of controlled spending and higher volume creates strong operating leverage. Finally, when you add up unit growth, EPP acceleration, CAF growth over time, SG&A leverage, and disciplined share repurchases, we expect to deliver mid-teens adjusted EPS growth. We expect share repurchases to contribute low- single-digit EPS growth within that framework, with the majority of the growth driven by our operating performance. That brings me to capital allocation. Our framework has three priorities. First, maintain financial strength. We plan to preserve a strong balance sheet and manage within our long-term leverage target of 1.5x-2x . That gives us the flexibility to operate through cycles and supports efficient access to capital for CAF and the broader business. Second, investing to grow the core business.
Our current viewpoint is that we will allocate approximately $500 million per year for CapEx starting in fiscal year 2028 to fund the areas that increase long-term earnings power and strengthen the customer proposition. The two largest buckets of these expenditures are expanding physical locations, including standalone reconditioning and auction centers, and investing in technology modernization and AI capabilities to enhance operational effectiveness and efficiencies. We will also take a measured approach to funding CAF expansion as we grow into tier two credit. Third, we plan to continue to return excess capital to shareholders. Disciplined share repurchases remain an important part of the framework. We will continue to balance those returns against the needs of the business and the relative returns available across other uses of capital.
Overall, Shift into GEAR builds a strong financial framework that we expect will deliver a mid-teens EPS CAGR and increase our capacity to return capital to our shareholders, which we will utilize to compound growth over time. With that, I will turn it back to Keith for a few closing thoughts. Keith?
Thanks, Enrique. Let me close by bringing the story back to why I joined CarMax and where we are headed. I came to CarMax seven months ago because I saw a great company with assets that are nearly impossible to replicate and a growth opportunity much larger than recent results reflected. The time I've spent with our associates, customers, and inside the business has only increased that conviction. We are operating in a large, fragmented market with a long runway for growth. The largest players hold a small share. We have roughly 4% of it, and we intend to take more. We are starting from a position of strength, a truly trusted brand, a national physical footprint larger than the competition, scaled digital capabilities, and an integrated retail, wholesale, and CAF model. We know that customers want digital convenience paired with an in-store experience.
We are built to deliver both at scale. Shift into GEAR puts all of our advantages to work. We are strengthening our price positioning and broadening our selection. We are making the experience of buying and selling a car easier for our customers. We are expanding CAF and our protection products and taking out structural costs so we can reinvest in the offering and create leverage as we grow. This strategy will also deliver strong financial results. Through fiscal year 2030, we are targeting mid-single-digit retail unit growth and mid-teens adjusted EPS growth. Most importantly, the work is already producing results. We are seeing how sharper prices drive share gains, how greater inventory availability and access improves conversion and sales, and how extending proven capabilities like CAF creates new earning opportunities for the long term.
Those early results give us confidence in the strategy, our ability to execute, and the opportunity ahead. When we execute on the Shift into GEAR growth strategy, and we will, we strengthen the core of our operations, grow market share, and create value for shareholders. This is only the starting point. We have confidence that the foundation we are building today will unlock even more growth in the future. We are moving with focus and at pace. We are holding ourselves accountable and will be transparent about our progress. We know what we need to do, and we have the assets and the team to do it. Thank you for your time and continued interest in CarMax. With that, we are happy to take your questions. Operator?
Thank you very much, Mr. Barr. Ladies and gentlemen, at this time, if you do have any questions, please press star one. If at any point your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that is star one for questions this morning, and we do ask that you please try to limit yourself to one question and one follow-up. We will go first this morning to Sharon Zackfia with William Blair.
Hi, good morning. I was hoping you could talk about maybe what your longer-term market share opportunity is, maybe framing that in terms of what you see in some of your oldest markets and where you are now. Then secondarily, it is encouraging to hear about all of the opportunities for more consistent earnings growth, but the margins are down significantly from where they were pre-pandemic. Do you think there is an opportunity over time to recapture pre-pandemic margins more in the mid to high- single-digit range, or are there structural elements that make that more difficult to achieve?
Thanks, Sharon. Really appreciate your questions. Yeah, in terms of market share, like I said earlier, we have a 4% market share of the 0 and 10 market today, and we basically see the opportunity for us to continue to gain market share every single year moving forward when our pricing is correct. If you look at Q2, market was just broadly flat, and we had a 13% comp. We see that momentum continuing through the remainder of the year and into future fiscal years too. So we will gain market share every single year by posting this mid-single-digit comp growth going forward too. So, really excited about the opportunity, and we will talk more about it as the call goes on, but how we are going to go ahead and do that. In terms of margin, it is an excellent question.
I think one of the challenges of CarMax when I got here was, we protected margin at the expense of sales over a number of years. Right now, we're focusing on how do we make sure that we take cost out of the business from things like reconditioning and logistics, reinvest that back into price, and then have sustainable comparable sales growth, and continue to find more efficiencies and leverage SG&A. Not saying that there isn't margin opportunity potentially in the future, but right now, making sure that we're protecting our existing margins so we can drive comparable sales growth going forward.
Ms. Zackfia, did you have anything further, ma'am?
Oh, sorry, I thought I did my two at once. Can I ask one follow-up then? On the pricing, you talked about taking hundreds of dollars of reconditioning out. Is there a linearity there, or is there lumpiness? How should we think about that ability to reinvest back in pricing going forward?
Yeah, so we talked a little bit about both of those areas in reconditioning and logistics. We are in the design phase right now of the new reconditioning system. We'll be piloting that early next year, and then we'll be scaling that up over fiscal year 2028 and 2029. That will create reconditioning savings, which we're going to reinvest back into price to make sure we can continue to drive comparable sales.
Additionally, we just finished, I think it was a 16-week engagement, redesigning our logistics network, rolling that out in terms of piloting later on this year, early next year, and then be scaling up that new hub-and-spoke design logistics network over the coming years too. So, we'll take costs out probably quarter- after- quarter, year- after- year, and reinvest that back into price. You won't be seeing it coming through margin because we're going to, again, reinvest it back into price to make sure we can protect sales and have those comparable sales growth.
Sharon, I'd say while those bleed into next year, those specific examples of digitizing, reconditioning, and logistics savings as well, in the nearer term, so kind of like in the here and now and in the nearer term, we have taken costs out, as we talked about last quarter, going from a 90-day warranty to a 30-day warranty, improvements in sublet, and also by accelerating part of that digitization of our reconditioning through a part selection tool that we've already rolled out. So, there are some nearer-term opportunities that we're executing on, but as Keith mentioned, certainly as we look out over the scope of these four years, we do think that there is material opportunity to drive down costs and then give it, first and foremost, back to consumers to drive sales.
Okay. Thank you.
Thank you. We'll go next now to Rajat Gupta at JPMorgan.
Great. Thanks for taking the questions. Just want to follow up just on the previous question. Apparently, you have seen really nice elasticity this year with the initial price cuts. With some of these savings that you expect within the hundreds of dollars pocket around recon logistics, is there a way to think about how the elasticity should look like? Because the way I see it is you are looking to maintain your retail GPU, but you can still remain price competitive with investing those savings into price. I am curious if anything has changed in terms of how you view elasticity, and why would not you see higher growth with those savings? And I have a follow-up. Thanks.
Sure. It is a great question, and I will let Enrique chime in as well. But again, we are going to continue to find cost taking out of the business over time to reinvest back into price. And again, we are seeing, again, Q2 13% comp against a flat industry, that momentum continuing on for the rest of the year into the following fiscal year. So, we think there is more opportunity. And again, when I think about Shift into GEAR, this is about strengthening the core of our operations. It is about modernizing parts of our business and leveraging some of our core competitive advantages to take a solid foundation and then continue to accelerate growth over time.
So again, we see this as a starting point for the next few years, which gives us an incredibly strong business that can deliver comparable sales growth, mid-teen EPS growth, and then continue to accelerate going on from there. So, Enrique?
Yeah, I think what I would add is, the elasticity versus what we saw in the past is very similar. So, it is not like the elasticity has changed. And in our second quarter call, what we did talk about in terms of driving our comp performance of 13% comps, kind of split between items that we control directly, that was pulling costs out of reconditioning, as well as lowering GPUs, but then also supported by the FTC enforcement. So, it was roughly half-half split between what drove our comps and we had talked about last quarter. But overall, the elasticity has not really changed versus what we had seen beforehand.
Understood. Got it. On CAF, appreciate all the color around increasing the tier two penetration. It all makes sense. I did not see anything on total CAF penetration. It took a bit of a step back last quarter, but I am curious, is that 40% based on maintaining the current level of total CAF penetration, or is that going to also drive incremental total CAF penetration? Just curious to get an update there. Thanks.
Hey, Rajat. It is Jon. Thanks for the question. I think total CAF penetration still remains a focus. We said we wanted to target 50% by 2030. That is still absolutely the goal of ours. We wanted to highlight this specific percentage of tier two metric because we really think it just shines a spotlight on really what we are focusing on and what we are going after, capturing an appropriate share of the tier two percentage. Clearly, you have seen we have made great strides there, and we will continue to do so into FY 2030. We highlighted during the Q2 call that for tier one, while we absolutely can control how much we take, it is cyclical and a function of the economic environment. With interest rates going up, you will lose some to cash, you will lose some to credit unions.
We did not want that to really not hide how much we are taking in tier two. So we will absolutely highlight both metrics going forward, but we really wanted to localize it on the tier two. We think that is important to track our progress on the growth.
Understood. Great. Thanks for taking the questions. We will get back with you, and good luck.
Thank you. We'll go next now to Brian Nagel of Oppenheimer.
Hey, guys. Good morning.
Morning.
Thank you for all the detail this morning. The first question I want to ask, just within the, I guess, the context of the new longer-term financial plan you're outlining today, how should we think about, I guess, the linearity of that plan? The reason I'm asking is, having followed CarMax for a while, in the past, there have been other algorithms that have been put forth, but there's been a lot of choppiness within those algorithms, meaning that the company's only really operated on algo in a very short amount of time. As you're looking about this new financial plan, should we think about this as more linear? Is there going to be more consistent growth in CarMax going forward?
Yeah. Thanks, Brian. That is absolutely our focus, and that's why we positioned the algorithm the way it is. We believe fundamentally we can have sustainable, consistent levels of comparable sales growth going forward by maintaining our pricing correctly and by taking cost out of the business. What gives us confidence in that, Brian, as Enrique commented on earlier, every year we see opportunities to take cost out of our business in terms of logistics and reconditioning, finding ways of making us more and more efficient, and just keep our pricing, again, competitive within the broader marketplace, too. Also, going back on the FTC piece earlier, that clearly is a tailwind for us for the foreseeable future. I also see it as a longer-term structural tailwind for CarMax, because really, the lack of compliance to FTC guidelines was a bit of a headwind for CarMax.
We were always being transparent in our pricing when the industry wasn't. This is going to just reaffirm to our customers the strength of the CarMax value proposition and the CarMax brand, too. So, again, to your point earlier, we expect to have a much higher level of consistent growth going forward and less variability, again, assuming that there's a generally stable macroeconomic environment and no major exogenous events.
Thanks, Keith. That's helpful. My follow-up question, in the presentation, you talked about the 250 or so stores you currently operate. The question I want to ask is, as you look at the operating model today, to get to the financial goals we're talking about today, A, is there any needed investment, or B, is there any type of restructuring? Do you have the right number of stores? Are the stores configured correctly, et cetera?
Yeah. It's an excellent question, Brian. I think I would call this an evolution, not necessarily a revolution for CarMax. We have an amazing geographic footprint, but the model's going to need to evolve to have consistent delivery of comparable sales growth and higher efficiencies. So, we are building standalone reconditioning centers. We're moving to a hub-and-spoke logistics network. We're digitizing reconditioning. We've guided from a capital perspective about $500 million a year to reinvest in those technologies and in that physical footprint, and we'll evolve and change it every year to deliver consistent levels of performance. So, I wouldn't say there has to be a massive transformation overnight. It will be an evolution of the model in the most efficient way possible as we kind of roll out reconditioning centers, as we roll out the new logistics network, if that makes sense.
That's perfect. I appreciate it. Thank you.
We'll go next now to Jeff Lick with Stephens.
Good morning. Thanks for taking my questions, and I'll echo what Brian said. Thanks for all the detail. Keith, now that you've been there for a little while, and obviously, you were new to the used car business, but not new to running businesses, I'm just curious if you could maybe just talk about where some of the lowest hanging fruit is that you've seen, or where you see the biggest changes to kind of how the Keith Barr regime will run CarMax versus how it was run previously.
Yeah. Thanks, Jeff. I'll say this. The car business is a very simple business and a very complex business. It's very simple. It's like, if you get your pricing right and understand how that flywheel works, you will drive sales and you will drive EPS. I understand that really, really well. How you do that consistently is the hard part about this business. How do you consistently take cost out? I think the biggest thing I'd say, Jeff, what's different is I think about leveraging our scale, centralization, digitization, just becoming a more efficient business. For 30+ years, this was built as a fairly decentralized business. Logistics was point-to-point. Stores were doing reconditioning and doing it different ways. Still using clipboards, still using whiteboards. There's so much opportunity here, Jeff, to leverage technology, data, analytics, AI, centralization, and leverage scale to just drive performance.
Scale is what wins at the end of the day. So, we're well-positioned from a physical footprint perspective, and we have the financial capacity to invest in the things that will help us win in the longer term. Actually, that's the upside opportunity for CarMax, right? There's a lot of things that we haven't invested in to the degree that we needed to, and we're going to do that now within our capital guidance, and really, that will drive sustainable performance. So, digitization, centralization, and just how we leverage scale in a very different way and moving away from being such a decentralized business.
I wanted to ask this question kind of in a respectful, intellectual curiosity way, as opposed to a sell-side analyst smarty-pants way. But with respect to the, when you highlight that customers want a store connection with digital convenience, I am just curious your theory as to if that is the case, why has Carvana's growth rate, on a big base now, they are not growing high percentages on small units anymore, why do you think that is the case? I am just wondering if it is possible that there is a sub-sector of used car buyers that do not really care about the store, and if that sub-sector has vastly different kind of psychographic and economic characteristics attached to it.
It is a great question. I will approach it two ways. I think there are going to be three types of customer journeys going forward, and I will talk a little bit about the competitive landscape. I believe there are a subset of customers who will be end-to-end digital, who want to start digitally and want to complete digitally and do not want to come to a store. There are a set of customers who actually just kind of almost start at the store, and there is the ones that are in between where they progress digitally and then they want to complete it in-store. I was just looking at some of the most recent consumer insight data we have. What was interesting to me was how many customers, even though they complete digitally, actually test drive either at an OEM or at CarMax or at another used retail dealer.
Customers are, even though they say they are digital, the truth is, the vast majority of them are still going to a store to test drive it. Even then, they may complete it digitally too. I think that is why CarMax is so advantaged, right? We can do the complete in-store, we can do the end-to-end digital, and we can do the combination, the best of both worlds too. We have to improve. We are going to get better in a lot of those areas, but again, we are structurally advantaged to be able to take advantage of the growth opportunities here.
Thanks very much. Take my questions and continued success.
Thank you.
Thank you. We'll go next now to Daniela Haigian with Morgan Stanley.
Great. Thank you for taking the question. My first one is kind of digging into this reconditioning theme. Keith, you made a very clear connection between having more saleable inventory and the ability to grow market share. If you think about how you're adding more standalone reconditioning centers, you're kind of reorienting some of your stores, moving to this more in-store. What are some numbers you can share around that in terms of annual throughput at your standalone reconditioning centers, the number that you want to add, the percentage you want to insource, or any other kind of goals internally around that initiative?
Yeah, I think when thinking about saleable inventory, there's multiple ways to increase our saleable inventory, right? There's adding off-site production and auction centers, and think about those as like the largest of our large reconditioning centers. Think of like a Murrieta and San Diego, you're looking at about 500 a week. You're looking at very strong capacity to recondition.
There's also taking a look at our hold policy, taking a look at our transfer policies, right, and making sure that for the inventory that we do have, that we're being as efficient and we're maximizing the speed at which they're moving. We're taking a look at all three of those different items, and that's part of the journey as well, right? Which is how to make sure it's not only adding off-site production capacity, but it's also maximizing, again, the efficiency of the inventory that we have.
Yeah, and just to expand on that a little bit, I mean, we're looking at how long should a hold be allowed? Should we be doing free transfers? Should it be paid transfers? Understanding which vehicles should be able to be held, which vehicles should be able to be transferred. I think we were doing a lot of things that were great for our customers, but were actually making us less productive as a business sometimes and not having the payback that we need to.
We're really encouraged by the early tests we're seeing on faster transfers. We're really encouraged by how we're seeing the impact of paid transfers and shorter holds. All these things effectively just give us more saleable inventory without having to just buy more vehicles. So, more and more efficient. I talked to the team about making our existing assets just work harder for us day in and day out.
Got it. That's really helpful. My second one is on CAF. You had a really helpful slide 22, where you kind of show the unit economic for profitability of held for investment versus held for sale versus kind of these origination fees for third parties. Your target is for 40% penetration in tier two. Is there some reason that that's kind of an optimal number? Would you prefer to have more penetration? Is that a better economic outcome for you? Or is there some benefit to kind of leaving some tier two originations for third-party lenders?
Daniela, appreciate the question. The reason we offered 40% is, again, time-bound exercise here we're giving you, FY 2030. We feel like, and we stated this on the prepared remarks, we want to have disciplined, structured growth here. We're growing our funding capabilities. We're learning about our underwriting. We're continuing to iterate. That's just the trajectory that it takes us, and wanted to time-bound that on FY 2030. Beyond that, we absolutely believe there's more value to gain.
What I will say is, our overall credit platform that includes our long-term partners that we value tremendously, they will always be a part of our platform. The question will be, what's the optimal amount for CAF to take versus the partners and how much we have? That is something that we will continue to evolve. 40% is FY 2030, but beyond that, we definitely see there's more opportunity.
Great. Thank you.
Thank you. We'll go next now to Alex Perry with Bank of America.
Hi. Thanks for taking our questions here. I just wanted to see if you could sort of contextualize the level of price investment we should expect. Like maybe sort of benchmark us, how much did you sort of take like-for-like pricing down this year? What would be the expectation moving forward? What is the price gap you see versus some of the other franchise players and digital players? Like, how much price needs to be taken to be more in line or to drive that higher volume? Thanks.
Yeah. Thanks, Alex. I mean, I think that the team's done an exceptional job, I think, about how we think evolving our pricing. First it was, yes, we did lower GPU a year ago. We're also taking more cost out to be able to us to price competitively. We've also updated our algorithms now. We're bringing more local market data, and are going to continue to iterate those algorithms to be more dynamic in our pricing, and really understanding how we compete at the unit level and at the market level too. It's not like there's a set number of, "Hey, we have to reduce price by another $100." It's really understanding how do we price the individual vehicle sharper and smarter in individual markets based upon what's happening there. Continue to take cost out every single year.
As inflation comes in, we take cost out to make sure we can maintain our relative price positioning. CarMax deserves a premium. We provide just an exceptional experience, a great trusted brand, and so forth. We have to make sure that there's a sensitivity to how much of a premium we should charge. We're quite clear about that, actually. We don't publicly disclose it, but we actually really understand exactly where we need to be positioned in the market, and I think you're seeing that flow through in our results now.
Thank you. I just wanted to ask about the algo and the timing of the algo on the unit side, I guess. Does the mid-single-digit growth rate hold into next year? It sounds like some of the more chunkier, significant initiatives won't come online till next year. Just wanted to make sure that sort of mid-single-digit rate would hold through next year, especially when you have some of the difficult comps from the initial price investments and FTC tailwinds as well. Thanks.
Yeah. As Keith mentioned, our goal is to drive sustainable and predictable performance, right? Year- over year -over -year. I would say that quarter- to- quarter, there can be some variation, right? Certainly within the span of three months. But from year -over- year- over- year standpoint, we are looking to drive predictable, sustainable performance. So I would think about our guidance within that context.
Really helpful. Best of luck moving forward.
Thank you.
We will go next now to Craig Kennison with Baird.
Yeah. Good morning. Thanks for taking my questions and for the presentation. In the past, you've talked about online sales penetration, which has been a metric that really has been stuck in the 14% range. Is that a number you focus on, and is it something you can move the needle?
Yeah, Craig. Thanks for the question. Definitely an area we're focused on. I mean, what I've been focused on with the team, though, is just maximizing comparable sales growth, depending upon whatever channel it comes through. We're seeing that the vast majority of our customers do want to come to the stores and complete in stores. What we're really focused on, Craig, is having those customers maybe further progress digitally, so we'll be much more efficient at converting them in our store operations.
We talked a little bit about it now, how we're leveraging our AI agents to help customers progress further digitally, so they show up in the store ready to be able to transact too. Again, an area that we're focused on, but really overall focusing on just total comparable sales, irrespective of what channel they come through and what experience they have.
Thanks. You mentioned your AI agents. I'm wondering what you're doing more broadly to prepare for an agentic commerce world, and maybe what your vision is for CarMax to play a role there.
Yeah. No, it's an excellent question. We were having conversations the other day. Clearly, as an industry, we started off on SEO for the longest time, right? Now we're into the GEO world, so making sure that we have the right content and data, and it's organized the right way, so that when consumers are using LLMs to search for vehicles, CarMax shows up exceptionally well. We know how to do that too. So we're great at SEO, we're great at GEO.
Agentic shopping hasn't really taken off yet, and we're going to make sure that our systems are set up to understand exactly what is the consumer journey going to look like with agentic shopping, when they're leveraging use or what other agent they build or choose to use, and how's that going to interact with CarMax, and what do we want customers to be able to do, and what do we not want customers to be able to do? We've got an entire team working through and thinking about that, from purchasing vehicles through also our EPP products, through our financing pieces right now too. More work to do, but it's still just early days for agentic shopping. I think shopping for vehicles is going to be one of the more complex use cases for agentic shopping versus kind of traditional CPG.
Great. Thank you.
Thank you. We'll go next now to Scot Ciccarelli at Truist.
Good morning, guys. Scot Ciccarelli. I believe CarMax's management team has historically talked about having dynamic pricing really for years, because you were the biggest buyer and seller of vehicles and had the best industry intelligence on market price. Do you have any examples of what's different now in your dynamic pricing efforts versus what you were doing previously?
Yeah. I am happy to chime in, then I will probably look to Enrique since he is more the historian here than I am, I think, but I found. I think historically, we had incredible data. Well, we still do today. But we had incredible data on what was happening in the marketplace based upon what we were doing, what we were buying vehicles for, what we were selling vehicles for, how things were being priced in the marketplace overall. But it was still a fairly margin-based pricing model at the end of the day, with limited external data actually driving variation in dynamic pricing.
What we have done now is brought in a lot more external data to help us have more variability in terms of how we are going to price vehicles. That is why, as Enrique pointed out, we may have some variation quarter- to- quarter in terms of GPU, still be committed on a full year basis to what we are guiding, but we are going to make sure we are maximizing sales by having the most competitive pricing possible too. It is just more dynamic, and the algorithms are getting much more targeted on individual vehicles and individual markets versus more kind of archetypes, which is historically how it would go. I do not know if, Enrique, you want to-
Yeah, no, I think you are spot on. I think in the past, outstanding algorithms really based off of our own data, right? What we are incorporating now is external data at a market level. It allows us to be much sharper on pricing, but you-- That is exactly correct, Keith.
Yeah, I think that's a natural evolution when you think about CarMax's history. CarMax was the marketplace. I mean, there was really nothing at the scale of CarMax for the longest time. The industry has evolved and changed. It's a lot more easy for price discovery across third-party channels, through competition, and so forth. We have to make sure we really understand all that external data to make sure our vehicles are priced competitively, so we can continue to deliver that level of comparable sales growth on a sustainable basis.
Thanks for that. Secondly, historically, when you guys added lenders to any of your tiers, it led to incremental sales. I would assume a more aggressive positioning like you're doing in tier two right now would provide something similar. So, what kind of assumptions are you making for incremental sales growth from your tier two expansion? Thanks.
Yeah, appreciate that question, Scot. I just want to frame from where we sit today versus incremental sales, and I'll make this clear. In tier one, CAF has always been the sole lender. Obviously, we've talked about in the prepared remarks even that CAF makes decisions in the best interest of the broader CarMax, the customer, what have you, and we absolutely drive incremental sales there. If you had solely a third-party institution or a lender sitting there making the only offer, we make, we believe, just interests far better in the interest of the broader organization. In tier two, we have always had a multi-lender platform, three, four, five lenders at any given time vying for that customer. If you add a sixth, absolutely, you will drive sales.
What CAF is actually doing is we have spent the last few years honing our strategy and optimizing how we show our offer, but in some cases, we are competing, and in some cases, we are the sole lender. So, going from five to one, we are capturing all of the finance income. There is tremendous value there. We are winning all the deals, but there are fewer offers made to the customer. That's where you might not see necessarily added sales, but tremendously more finance income captured. So, I want to draw that distinction between adding a sixth lender versus adding CAF and how we're operating in tier two today versus how we would assume CAF benefits the company in tier one. Does that make sense?
Okay. Yeah, I appreciate it. Thank you.
Sure.
Thank you. We'll go next now to John Babcock with Barclays.
All right. Good morning, and thanks for taking my question. I guess just first of all, you talked about having the stores own the relationship, and I was wondering how that's worked so far, and also, what are the hiccups that have arisen to date so far in that approach?
Yeah, no, great question. Thanks, John. Still early days of testing it and mapping out the customer journey. Let me frame up the challenge. We created some fantastic digital platforms, great customer experience centers, and really, really engaged associates at the store level. Every one of those individuals had the opportunity to engage with a customer, which may sound like a good thing, but it can be a bit of a confusing thing sometimes. So that customers are starting on the website, they are then actually being engaged with a customer experience center, then actually the store is contacting them. What we've done is just really streamline the customer contact strategy. We're also leveraging AI and things like Sierra now, handling all the inbound calls to our stores and to our CECs, so they're getting routed correctly and faster the information that customers want.
We're just making it smoother and easier for the customer and having less points of contact coming from different parts of our organization too. We're still going to have to refine it, but I'm definitely encouraged by the initial thinking that the team has done on it and being crystal clear about wanting the store at the right point to own that customer, because they know the local market, they know the vehicle, they can answer those questions that somebody digitally probably couldn't do to the degree of specificity that we really want to be able to handle.
Okay. Next on CapEx, I think you mentioned potentially, what, $500 million, was that annually, I think, in fiscal 2028 and beyond. How much of that investment do you plan to make in technology and AI, and then also, how do you see AI helping on the cost side?
Yeah, no, absolutely. Yeah, so that's correct. So, it's $500 million, kind of way of thinking about it, FY 2028 through FY 2030. This year, for FY 2027, no, we're still sticking to the guidance we had given at the beginning of the year, which is about $400 million for this year. But think about the $500 million as largely driven by capacity and options, so the offsite locations there that we plan to grow to make sure that we can meet our sales targets moving forward. The second-largest chunk of spend, I'd tell you, is within technology, right? So, think about the platform, the digital platform we're rolling out for reconditioning. Think about logistics and the investments we'll be making there. Think about the investments in AI that we'll be making, really exciting investments that we think will drive performance, sales, bottom line, kind of moving forward.
We're really excited about that outlook and what it's going to drive. In terms of driving efficiencies, we do think there's even more efficiencies to be had. You can see it in our strong operating leverage outlook that we're providing. Mid-single digit retail growth and low single digit SG&A growth. That is really driving operating leverage moving forward, and that contributes to the really strong flow-through that we're projecting, right? So you're looking at, again, mid-single digit unit growth and 3x the EPS growth. That is really strong operating leverage that we're predicting, and margin leverage as well. We're excited about it, and we think it's a robust framework to roll out there to the market.
Hey, John, just to add on to that, why should investors have confidence in this plan at the end of the day? Because again, it's easy to put forward numbers and show a great algorithm. There's so much opportunity in CarMax to just drive better performance and leveraging technology. I'll just make it real for you. Right now, if you go to one of our reconditioning centers, it's a clipboard, then somebody writing down what they think needs to be done on that vehicle. In the future, it will be a digital picture. That individual is determining what parts to order. The system will tell you what it does. We can't compare and contrast how each store is performing against one another at a real level of detail.
I mean, there's so much opportunity to leverage technology that just will drive efficiencies into this business and let us reinvest back into price and drive comparable sales. The logistics network's the same thing. Looking at it the other day, moving from point to point to hub-and-spoke, it's just going to be materially more efficient for us. We'll have fewer moves. We'll have better load capacity on trucks. I mean, all these things are just upside for us to take cost out of the business, which again, we reinvest back into price and drive comparable sales, which is why I hope our investors have confidence in what we're doing moving forward.
Okay. Very helpful. Thank you.
Thank you. We'll go next now to Chris Bottiglieri at BNP Paribas.
Hey, guys. Thanks for taking the question. The first one would be just on the low- single- digit expense algorithm. We think kind of just like base wage and fixed asset inflation, advertising probably gets you to that low single. Implicitly, it assumes you're getting zero cost growth on units. Can you guys talk about to what extent that's operating leverage versus cost takeouts and how you guys think about that over that multi-year planning horizon?
Yeah. Look, it's a mix of the two, Chris. We have said very clearly, we're taking cost out. We expect to take out $200 million by the end of this year in terms of savings opportunities. We will hit that number. But we've also said we're going to take a portion of those savings to reinvest back into the business to make sure that we can then hit our growth numbers. That's what you're seeing play out in the guidance. You're also looking at year-over-year. You're going to have inflationary pressures that we're going to be offsetting, in addition to the cost takeouts that we're going to have. So I would tell you it's a mix of the two.
Got you. Okay. I was hoping just to provide a little more context on the recon and logistics at hundreds of dollars. Is there a way to frame like what percentage of cost that would represent by the company? Also, how does that level of cost out compare to the past? The company's perpetually taking cost out of recon. Just a sense of like how this hundreds of dollars would have compared to historical cadence would also be helpful.
Yeah, I mean, hundreds of dollars, at this point in time, as we're going to be rolling out the digitization next year, from a logistics standpoint, we're piloting at the end of this year, rolling it out next year over the next kind of 12-24 months. We're going to stick to kind of the more qualitative hundreds of dollars in terms of outlook, what we're going to pull out. To Keith's point, we think there's tremendous opportunity. When you think about where we're starting from papers, clipboards, to digitizing our processes, modernizing our systems, all within the context and framework of our CapEx guidance and our SG&A guidance, you're looking at just a lot of opportunity.
I think the point more, Chris, is like we know there's a ton of opportunity in terms of bringing costs out of the business, and we recognize how incredibly powerful that is to support our sales, right? To pass those savings onto customers. We have seen firsthand here the impact of improving our price competitiveness, the relationship to driving our comp performance, and that is really the goal in terms of pulling costs out of the system, which is to drive our performance.
Yeah, and we've just got amazing associates across the entirety of our business, and what we need to do is help them do their jobs better. Use technology to be an enabler, and then leverage the data analytics to find out where there are continually more opportunities for us to find cost savings in the business too. So, we start from a position of strength with great associates. Now we just need to put the right tools into their hands, literally and figuratively, so they can really continue to drive our growth going forward.
Thank you.
We'll go next now to David Bellinger with Mizuho.
Hey, good morning. Thanks for the update. First question on testing faster delivery times. Can you talk about the uptake in conversion rates you've seen so far? That's been an area where CarMax has arguably been behind peers. How quickly can this capability get scaled up, and how does that faster delivery contribute to the mid-single- digit retail sales CAGR you're outlining today?
Thanks, David. Again, we are now probably a couple months into the test for fast transfers in a couple different markets. We're determining what's the optimal balance of cost versus speed, and what's the impact going to be on comparable sales versus cost. We're really encouraged by what we've seen so far. We haven't landed on exactly what we think we want it to be, and we want to scale it up to a few more markets, but we definitely see faster transfers coming into the mix and how we're going to operate the company moving forward and being a tailwind for comparable sales. But it's not as if, hey, we have to do faster transfers to get to this mid-single- digit comp growth.
We're confident with the pricing we have right now, with the opportunities we have from our sales associates, we can deliver that even if we don't have faster transfers, but we do see that coming into the mix as another one of the levers that we're going to be able to pull.
Got it. Okay. I also wanted to follow up on the agentic commerce comments from earlier. I don't think you mentioned the Skye agent much on this call, but agentic may be a good proof point on some of these higher consideration purchases, such as a used vehicle. I know it's very early, but can you help us think through this? Maybe does agentic get consumers to progress more through digital channels, just given more content and context behind a purchase? Then second is, does this also make the logistics network and the store network of CarMax even more of an advantage if we get an agentic world? Thank you.
Thanks. I think CarMax is really going to be advantaged in an agentic world for a variety of reasons. First, as you said, in the shopping experience, making sure we've got our content right from SEO and from a GEO perspective. Then it's making sure we're leveraging our agents through Sierra and through Skye, our internal agent with Rhodes, helping our associates have the information they need. We're actually using AI in scoring and CAF now and analytics. So there's huge opportunities there. Then I think it's understanding how do we want to have agents who are actually going shopping, engaging with CarMax? Clearly our Skye agent helps people progress further. How are agents going to engage with agents in the future as well? I think there's a lot of opportunity for us, but we're still very, very early days, David.
I would tell you at a high level as well, just building on that, our digital infrastructure puts us in a really strong place relative to others in the marketplace, as well as just the amount of inventory that we have. When you look at the LLMs and what they're looking for, having more inventory is good. It'll drive business to your site. As you know, we have a tremendous amount of inventory, and we've invested heavily in our digital infrastructure. Those are two key items when thinking about the impact of agentic AI on us moving forward.
Thank you. We'll go next now to Michael Montani with Stifel.
Yes. Hi, good morning. Thanks for taking the question. I wanted to ask if I could about, first off, on store count. I was wondering how many stores you guys plan to build out per year and what you think the right number is ultimately to kind of realize the goals you've outlined. Then I had a follow-up.
Yep. Thanks for the question. In our outlook, we have, much as this past couple years here, a small handful of stores, new stores that we're going to be building out, similar in profile, meaning they're going to be our cross-functional, smaller footprint stores. That's the kind of the underlying assumption within our CapEx guidance. So yeah, think about it as a small handful of stores that we have.
Okay.
Just to build on that a little bit too, what we've been talking about as a leadership team is how to make our existing assets work harder and better for us. So how can we be selling more and more vehicles faster, more vehicles on the existing footprint, pushing it through the pipe faster effectively too? There's significant opportunity for us to do that. If we think about building our reconditioning network, our logistics network, that frees up parking spaces, it frees at stores, hence we have more saleable inventory in stores. There's just a lot of opportunity to sweat our existing assets a lot harder than we do today to drive sales growth.
Got it. The other question I had was around operating margin, and this has been asked a couple different ways, but when you look at the prior operating margin, say circa 2019, it used to be in the mid-single- digit, like 5%-6% realm. I'm kind of coming to [audio distortion]
Overall, a strong acceleration of our per unit margin in EPP, as well as just increasing from volume growth. You are taking a look at overall CAF performance and accelerating that. It is an investment that happens in the near term, this year, next year, but then really positioning us for FY 2029 and beyond to accelerate our growth there. You are looking at an SG&A model that does lever and provides a lot of operating leverage when it comes to the business. That really helps us drive what I think is a very robust financial framework of mid-single- digit unit growth to drive an EPS CAGR of mid-teens. That is a 3x factor when you are looking at volume to flow through, right? The majority of that is going to be coming from operating performance.
We do have an assumption around our share repurchase program, as I mentioned in the presentation, low- single- digit accretion there that we expect to support EPS. You are looking at an operating model moving forward, starting from today really, that is delivering robustly on margins, on EPS, and on retail units.
Thank you. We will go next now to Rob Saltzman with UBS.
Hey, team. Thanks for the time. Just one quick one on my end. You highlighted the low- double-digit growth in EPP for the financial targets. However, given the increased focus on consumer affordability, historically, the first thing that consumers tend to pull back on when feeling affordability pressure tends to be some of these warranty and protection plans. Given that macro backdrop, what gives you confidence in those low- double-digit targets, given what might be a more pressured consumer than 6- 12 months ago? Thanks.
Yeah, Rob. This is Jon. I will take the initial part of that question, let Enrique weigh in. We talked about this on the Q2 call. The product that we have implemented, the refreshed product that we have implemented that has been so successful and we are so proud of, it really focuses on providing actually, frankly, a more affordable product for customers.
Historically, our plan was five years long. Obviously, there comes with a cost there. We felt like there was an opportunity to provide two and three-year products. Different, obviously, we have always looked at different mileage bands and different deductible amounts, but we think we are providing a much more affordable product. So, if customers just want a two-year plan to get confident with their initial purchase, we make that available to them. That clearly comes at a lower cost. So, we are seeing a better take rate on that. It has proven itself out, and we think we are very attuned to the affordability needs of the consumer.
Yeah, I think in addition to that, we have also gone back to our third-party partners, and we have narrowed down the number of partners from three to two, and negotiated a better deal for us, if you will, with those two partners, whereby we expect to get profit sharing from those partners. So, it is not only from driving performance in the stores, it is also an increase in penetration and margins. It is also from on the back end, sharing the profitability of the program.
And we are seeing the results flow through already.
Yeah, as you saw in the second quarter, in the first quarter, you saw some of the benefits from increased penetration and margin. In the second quarter, clearly a step forward, and our guidance for the full year clearly points to our confidence in what we've rolled out.
Thanks, team. Appreciate the time today.
Thank you.
Thank you.
Thank you. Gentlemen, it appears we have no further questions this morning. Mr. Barr, I'd like to turn things back to you, sir, for any closing comments.
Thank you, operator. I want to thank everyone for your time and your continued interest in CarMax today. It has been a robust conversation. Hopefully, you have a better insight into our strategy and how we are moving the business forward. We are really, really encouraged by our results to date and really have confidence in the road ahead. Look forward to catching up with you when we update you on Q3, and I hope you have a great remainder of the week.
Thank you very much, Mr. Barr. Again, ladies and gentlemen, this brings us to the end of today's meeting. We do appreciate your time and participation. You may now disconnect.