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CarMax Inc. (NYSE:KMX)
Q2 2019 Earnings Conference Call
Sept. 26, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the CarMax Fiscal 2019 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Katharine Kenny, Vice President, Investor Relations.

Katharine Kenny -- Vice President of Investor Relations

Good morning and thank you, Jamie. Thank you all for joining our Fiscal 2019 Second Quarter Earnings Conference Call. As always, I'm here with Bill Nash, our President and CEO, and Tom Reedy, our Executive Vice President and Chief Financial Officer. Before we begin, let me mention that CarMax celebrated our actual 25th birthday last week. Congratulations again to our associates past and present and our millions of customers who drove our success over the years.

Next, let me remind you that our statements today regarding the company's future business plans, prospects, and financial performance are forward-looking statements that 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 to differ materially from our expectations.

In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see the company's annual report on Form 10-K for the fiscal year ended February 28th, 2018 filed with the SEC. Lastly, as always, let me ask you in advance to only ask one question and get back in the queue for your follow-up. We appreciate it. Now, I'll turn the call over to Bill.

Bill Nash -- President and Chief Executive Officer

Thank you, Katharine, and good morning, everyone. In the second quarter, we were pleased to return to positive comps. Used unit comps grew by 2.1% compared to 5.3% in the prior-year quarter and were driven by better conversion, partially offset by lower traffic. Total used units grew by 5.8%. Our industry continues to experience an unusual depreciation environment. In this quarter, our mix-adjusted vehicle acquisition costs remained high, and were only somewhat lower than we experienced in the first quarter. This contrasts with the prior-year second quarter, when our mix-adjusted vehicle acquisition costs were significantly lower year over year.

Our website traffic grew in the second quarter by 19%, up from 17% in the previous year's second quarter and 16% in the first quarter. On average, we saw volume of more than 20 million visits per month. Our retail growth profit per used unit remains stable at $2,179.00 compared to $2,178.00 last year. We had a strong wholesale quarter, with units up almost 15% year over year in the second quarter. This was a result of high appraisal traffic, the growth in our store base, and an increase in our buy rate. Our gross profit per wholesale unit decreased by about $30.00 to $919.00 in the second quarter compared to $950.00 in the prior-year period.

Other gross profit increased by over 12%, driven by higher EPP revenue and improvement in third-party finance fees. Like last quarter, EPP revenue grew with sales and benefited from provider cost decreases in approximately $4 million related to the acceleration of revenue recognition under the new accounting standard adopted at the beginning of this fiscal year. These were partially offset by lower service profits.

Before I turn the call over to Tom, let me cover our sales mix and SG&A expense. As a percentage of our sales, 0-4-year-old vehicles decreased to about 77% versus 80% in the second quarter of last year, but similar to the first quarter. Large and medium SUV and truck sales were about 27%, almost exactly the same as a year ago and down slightly since the first quarter. On SG&A, expenses for the quarter increased about 12% to $454 million, or a year-over-year increase of $126.00 per unit.

Several factors impacted SG&A expense, including the opening of 18 stores since the beginning of the second quarter of last year, which represents a 10% growth in our base, a $7 million or 18% year-over-year increase in advertising expense, which is largely due to timing, an increase of $6.5 million or $28.00 per unit related to share-based compensation expense, and our continuing investment in technology platforms and digital initiatives. Now, I'll turn the call over to Tom.

Tom Reedy -- Executive Vice President and Chief Financial Officer

Thanks, Bill. Good morning, everyone. Unlike the last two quarters, where we saw modest declines in the volume of credit applications, we experienced growth in applications across the credit spectrum in the second quarter. During the quarter, we continued to see strong lender performance in Tier 2, which accounted for 17% of sales compared with 16% last year. But, we saw weaker performance in the third-party Tier 3 space, which represented 8.8% of unit sales compared to 9.6% last year.

CAF penetration net of three-day payoffs was modestly higher than last year's second quarter at 43.9% compared to 43.5%. Our net loans originated in the quarter grew by 8.8% to $1.7 billion due to our sales growth and increase in the average amount financed and a slight increase in CAF's penetration rate. CAF income increased 1.6% to $110 million. This was the result of the 8.6% growth in average managed receivables, partially offset by an increase in the provision for loan losses and the continued slight compression in portfolio interest margin. Total portfolio interest margin was 5.7% of average managed receivables compared to 5.8% in the second quarter of last year, but flat compared to the first quarter.

For loans originated during the quarter, the weighted average contract rate charged to customers increased to 8.5% compared to 7.6% a year ago and 8.4% in the first quarter. The loan loss provision for Q2 was $40 million compared to $33 million in the prior-year period. This arose from the growth in the managed receivables a well as fluctuations that are often experienced with quarterly loss provisioning. The ending allowance for loan losses was 1.13% of average managed receivables, flat sequentially from the first quarter and down from 1.15% in the second quarter of last year. Moving to capital structure, during the second quarter, we continued to return capital to shareholders and repurchased 2.3 million shares for $171 million. Now, I'll turn the call back to Bill.

Bill Nash -- President and Chief Executive Officer

Thank you, Tom. During the second quarter, we opened three stores -- two in existing markets, including Santa Fe, which we include in the Albuquerque market, and Oklahoma City, and one in a new market -- Macon, Georgia. In the third quarter of fiscal 2019, we plan to open another four stores, all in new markets for us. They include Wilmington, North Carolina, which will actually open today, Lafayette, Louisiana, Corpus Christi, Texas, and Shreveport, Louisiana.

As I've done before, let me update you with some of our individual product initiatives. We recently rolled out our alternative vehicle delivery options to a second market. These options will allow customers to complete most of the vehicle shopping and purchase process from their homes, after which they can decide how they want to receive the car. In addition to the Charlotte market, this is now available in all three stores in the Raleigh market. It includes our expedited or express pickup service, which kicked off in Raleigh in August, and our home delivery service, which launched in early September.

In addition, we began testing an online appraisal estimator in 10 stores in August. After entering just a few questions, the online estimator provides customers with the opportunity to quickly receive an approximate offer on their vehicle. While the offer is an estimate, it is based on actual CarMax appraisal data. Also, we now have a Customer Experience Center. This call center provides customers in test markets with support at any point along the way throughout the progression of their shopping and purchase journey. These consultants can work with the customers until they are ready to either go to the store for pickup or schedule home delivery.

Last quarter, I talked about how we are working to combine all of our online products together into one comprehensive offer. We are building a full omnichannel experience that enables customers to seamlessly move across the online and in-store experience with ease. Customers want the flexibility and independence to do much of their shopping and buying online. Given the complexity of a vehicle purchase, they also often want the help and assistance of our expert store associates at various points along the journey.

We believe our ability to provide this integrated experience across both online and in-store is unique in the automotive industry. Because of our skilled and knowledgeable associates, our national footprint, brand strength, infrastructure, inventory scale, and continued investment in technology and digital capabilities, we believe we will have a clear competitive advantage to lead the industry in delivering this experience to our customers. Later this year, we will bring this integrated omnichannel experience to a major market. This will help us learn how to best operationalize all of our offerings and scale them across the entire organization. We will provide you more information on this in the future. Now, we'll be happy to take your questions.

Questions and Answers:

Operator

At this time, if you would like to ask a question, press *1 on your telephone keypad. If you would like to withdraw your question, press #. Your first question comes from Scot Ciccarelli with RBC Capital Markets. Your line is open.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Good morning, guys. Bill, given the success of one of your online-only competitors out there, can you help us understand what the impediment has been to rolling out the alternative delivery and full digital capabilities maybe faster than what we've seen so far? I know it's in the works, but just wondering if you can help us understand what the process impediments have been to rolling that out thus far.

Bill Nash -- President and Chief Executive Officer

Well, Scot, it really goes back to this experience that I'm talking about -- this omnichannel experience. We want to make sure that we can connect all the different pieces, and so, for example, the alternative delivery, where there's home delivery with express pickup -- that's only one small piece of the whole equation. We want to be able to combine that with all the other tests that we're doing. The other thing that we want to do is we want to make sure that our sales consultants are trained on how to continue to progress the customers in a different way than they do today. So, I'm actually pleased with the progress that we've made over the last couple years. It's a big change for the organization. There's a lot of technology involved. I think we're on the right track, so I'm excited about it.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Maybe if I were to rephrase the question a little bit, then. If you roll it out to this major market that you're expecting in the back half and you like what you see, how quickly could it be rolled out from that point into other markets?

Bill Nash -- President and Chief Executive Officer

We'll wait and see on that, Scot. The plan would be once we get into market, we'll obviously want to iterate quickly on that, so that's what our focus will be. So, our first focus will be to get it into market and the second one will be to iterate it quickly from there because I think what you'll see is the first version of it will not be the end state.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Okay, got it. Thank you.

Operator

Your next question comes from Sharon Zackfia with William Blair. Your line is open.

Sharon Zackfia -- William Blair and Company -- Partner

Hi, good morning. I guess a follow-up question on the omnichannel paradigm. So, as you think about that going forward -- and, I know you're still early -- can you talk about what the targeted margin profile would be for a car that would be delivered versus picked up? Are you looking to maintain that gross profit per car? How do you think about that? And then, secondarily, I don't think you've ever given any metrics in Charlotte about the number of customers that actually choose to get delivery or inquire about delivery. Is there any metric you can give us on what you're seeing in Charlotte?

Bill Nash -- President and Chief Executive Officer

On the first question, Sharon, it is a little early to talk about the cost profile and the structure. We're still learning. As I talked about, we've got a call center opening up. I think there's opportunity, and we're testing different opportunity on compensation structure, so I think there's a lot of things that we're continuing to work through, so I can't really give you any guidance on that at this point.

As far as the number of customers, you're correct. We haven't talked about that, but the majority of customers by far still want to interact with our expert sales consultants and still want to come into the store at some point. The key is that we want to make sure that we individualize each customer's journey and help them at the points that they need help so that it's not one size fits all.

Sharon Zackfia -- William Blair and Company -- Partner

Okay, thank you.

Bill Nash -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from Matt Fassler with Goldman Sachs. Your line is open.

Matt Fassler -- Goldman Sachs -- Managing Director

Thanks so much and good morning. I'd like to ask a question on CAF. So, the interest spread, I think, essentially stabilized sequentially. I know that the last securitization saw a little bit of a better spread than the prior one, but generally speaking, the spreads on your securitizations have been coming down as the pace of increasing your cost of funds has moved a little bit faster than the average rate you've been able to charge, even as that's been moving higher. How is it that that spread was able to stabilize, as you're still essentially mixing toward -- I think -- those lower-spread securitizations?

Tom Reedy -- Executive Vice President and Chief Financial Officer

Matt, it's stabilized quarter over quarter, but it's still a little bit down versus last year. In general, as I've talked about, in reaction to interest rate increases, we immediately start testing. So, you're naturally going to see a little bit of a lag, I think, in our ability to increase rates in response to benchmarks rising. But, if I look back at what benchmarks have done over the last year, they're up a little over 100 basis points, and if you look at what we're charging customers in this quarter versus a year ago, it's up a little, under 100 basis points.

So, I think we've been successful in migrating rates up. We've kept an eye on the three-day payoffs, which have been very stable this year. When we first started increasing rates, we saw a little bit of a tick-up in that, but I think it's normalized now, and the reality is it just takes some time to respond to rate increases. We're not going to pre-emptively increase rates on a prediction that rates are going to go up. So, I think we've done a pretty good job of moving things up, but in an increasing rate environment, you're naturally going to see a little bit of lag there.

Matt Fassler -- Goldman Sachs -- Managing Director

Thank you.

Operator

Your next question comes from Brian Nagel with Oppenheimer. Your line is open.

Brian Nagel -- Oppenheimer and Company -- Managing Director

Hi, good morning. Nice quarter.

Bill Nash -- President and Chief Executive Officer

Thank you.

Brian Nagel -- Oppenheimer and Company -- Managing Director

My question centers on the used car business. So, clearly, the Q1 comp -- like you said, Bill, in your prepared comments, a return to positive comps, but what's encouraging there is that on a stack basis, it's stronger in both two and three years. I wanted to understand better from your perspective what's happened in the overall environment. You talked a bit about used car pricing. It sounds like that's still a headwind, so maybe elaborate further on that. Then, are there other factors on there that are helping you drive better sales, and how do we think about sustainability of those stackers for the back half of this year? Thanks.

Bill Nash -- President and Chief Executive Officer

Yeah, Brian. I've been here a long time, and it's a very unusual market right now. As I said in my opening remarks, acquisition costs are still -- when you look at a year-over-year basis -- are much higher than they were a year ago, and we had a little bit of an offset on acquisition prices because our inventory that we sold skewed to be a little bit older, but it wasn't enough to offset the increase in acquisition prices. At the end of the first quarter, we were starting to see -- although your starting point of prices was higher, at the end of the first quarter, we were starting to see depreciation trends more normalized. It really stopped after the end of the first quarter. Second quarter, we've seen unusual depreciation curves. In other words, normally, you see continued depreciation during this time of year, and we just really didn't see that. It's very different than in past years. It's been very flat.

I think there's probably -- and, this is just my belief -- some of what's driving that may be anticipation of tariffs on new cars and people speculating and trying to buy up used cars, but to be honest with you, I don't really know why that is. New car prices are obviously still as high as ever, and they continue to go up. So, as far as the outlook going forward, I would think at some point, we would start to see depreciation trends more normalized, even if your cost is at a higher starting price. I would think that we'd start to see it more normalized, especially as continued inventory comes in off of the lease increases that we've seen over the last few years.

Brian Nagel -- Oppenheimer and Company -- Managing Director

On that -- so, the hurricane decline that we recently saw in the East Coast -- could that further exasperate the pricing dynamic within the used market?

Bill Nash -- President and Chief Executive Officer

It's hard to tell. I think the industry so far is saying that this is not from a destruction of automobiles, this is not to the magnitude of what Harvey was. I think I saw some estimates of 20,000 vehicles or so. So, I don't think we're going to see to the magnitude that we did a year ago.

Brian Nagel -- Oppenheimer and Company -- Managing Director

Okay, thank you.

Bill Nash -- President and Chief Executive Officer

Thank you, Brian.

Operator

Your next question comes from Seth Basham with Wedbush Securities. Your line is open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot, and good morning. My question is on the hurricane impacts on sales. Last year, I think you had some negative impact on your sales right at the end of your second quarter and some positive impact in the third. How do we think about that from a year-over-year perspective this year considering Hurricane Flo? Can you give some color there, please?

Bill Nash -- President and Chief Executive Officer

As far as the hurricanes last year, you're right. It really impacted us only the last week of the quarter, and so, the real impact is next quarter. As far as Flo goes, we'll talk more about that because it happened in the third quarter, but I will tell you we did have a period of time where we had several stores shut down, but we as an organization fared very well from a property standpoint. The stores and the inventory -- we did not see some of the impacts that we saw last year. Keep in mind when we have these weather events, generally, it's a timing, and then we'll get the sales back afterwards.

Seth Basham -- Wedbush Securities -- Analyst

Did you pull forward on opening the Wilmington store to capitalize potentially on demand in that market?

Bill Nash -- President and Chief Executive Officer

Actually, we delayed the Wilmington because it was supposed to open up pretty much right in the mix of the hurricane prep, so we delayed it, which is why it's opening today.

Seth Basham -- Wedbush Securities -- Analyst

Thank you.

Bill Nash -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Armintas Sinkevicius with Morgan Stanley. Your line is open.

Armintas Sinkevicius -- Morgan Stanley -- Vice President

Good morning. Thank you for taking the question. I can appreciate the -- having been down in Virginia -- the capabilities that you have in-house and continue to develop, and that you can transport cars the same way as Carvana can, but I'm curious -- what do you think it'll take for the market to realize that your capabilities are similar? Do you think it'll be the launch of the bundled offers? Just curious on your thoughts there.

Bill Nash -- President and Chief Executive Officer

I don't know. We're focused on making sure that we deliver this omnichannel. We understand that customers want to do more online, and like I said earlier, the complexity that's involved with the used cars -- we feel like there's points in that process where the customers want assistance, so that's where our focus is. Our focus right now is on delivering the omnichannel, and we'll see how the market responds after that.

Armintas Sinkevicius -- Morgan Stanley -- Vice President

And then, what are your market shares in the Carvana markets, and how has that changed?

Bill Nash -- President and Chief Executive Officer

We don't speak specifically to individual competitors. We view our competitive set as much broader than, say, digital-type players, and again, we're focused on all competitors, and just like we don't talk about geographic differences, we won't speak to competitor differences.

Armintas Sinkevicius -- Morgan Stanley -- Vice President

Okay. Thank you so much.

Operator

Your next question comes from Craig Kennison with Baird. Your line is open.

Craig Kennison -- Robert W. Baird -- Analyst

Good morning. Thanks for taking my question. Bill, you mentioned rolling out the online appraisal tool in more markets. I'm curious -- in those pilots, how accurate have those online appraisals proven to be?

Bill Nash -- President and Chief Executive Officer

Actually, Craig, let me clarify a little bit. So, what I talked about in the opening remarks was an estimator. That's a different tool than what we're testing. We have several tests going on. One is the estimator, which is the new one, which is just a series of simple questions a customer can fill out. We give them an estimate. In the markets where we're doing online appraisals, we have several different versions of that that we're testing as well, and what we've found is that we can be very accurate on the online appraisal offers. What we're really trying to figure out is what's the best delivery mechanism for those, what's the best process for individual customers, and how we communicate those offers. With some customers, depending on the vehicle, there may be different solutions, so that's why we've been testing several different things and continue to test several different things.

Craig Kennison -- Robert W. Baird -- Analyst

Could you just remind me of the difference between an estimate and an appraisal?

Bill Nash -- President and Chief Executive Officer

Sure. The estimate is just what I said. It's an estimate offer that still has to be brought to the store or leveraged through our online appraisal offer. The online appraisal offer is one that we will back, assuming that the condition was called -- assuming that the customer didn't oversee some type of condition that impacts the vehicle.

Craig Kennison -- Robert W. Baird -- Analyst

Got it. Thank you.

Bill Nash -- President and Chief Executive Officer

Thanks, Craig.

Operator

Your next question comes from Michael Montani with MoffettNathanson. Your line is open.

Michael Montani -- MoffettNathanson -- Analyst

Hey, good morning. Thanks for taking the question. I just wanted to ask, Bill, for your thoughts around potential impacts from tariffs to the extent that we were to see those happen. How do you see that playing out for your business and the industry a little bit more broadly?

Bill Nash -- President and Chief Executive Officer

I think we'll have to wait and see, but obviously, the tariffs on new cars would certainly cause the new car prices to go up, and then you'd have to look at what that did to the gap between new cars and late-model used cars. I would think that that would widen, which I think would be helpful for our business. The other thing that we'd have to stay tuned on is really the parts and things that we use in our reconditioning process. So, we're staying close to it and we'll continue to monitor it as it progresses.

Michael Montani -- MoffettNathanson -- Analyst

Thank you.

Bill Nash -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from James Albertine with Consumer Edge. Your line is open.

James Albertine -- Consumer Edge Research -- Analyst

Great. Thank you and good morning, everyone.

Tom Reedy -- Executive Vice President and Chief Financial Officer

Good morning, James.

Bill Nash -- President and Chief Executive Officer

Good morning.

James Albertine -- Consumer Edge Research -- Analyst

I wanted to ask on the EPP side if possible -- I know there's some cost/benefit that you alluded to in the press release, and there's an accounting adjustment there -- a benefit -- but I wanted to get the sense on the unit side. Given the 0-4-year-old mix fell, are you seeing attachment actually increase? I would imagine that would be a factor driving monthly payments higher, so it makes the comp performance look even better in that regard.

Tom Reedy -- Executive Vice President and Chief Financial Officer

Jamie, we've seen pretty darn consistent EFP attach rates over the years, and that was part of the reason we were able to take a little bit more margin with the cost reductions from our competitors in lieu of passing it on to the customers in the form of lower prices earlier this year, because we've seen that elasticity, and it's come true -- we haven't seen a reduction in our attach rate at all. With regard to the accounting standard, that's something that's going to be -- we have to look at every quarter now. We have to put a receivable on the books for those retro payments that we're entitled to based on the contract, and every quarter, we'll look at it and we'll make an estimation of what we believe has changed and what we expect to collect on from those plans.

One thing that I think might be helpful to point out, though, is the methodology that we used to predict that receivable includes some seasoning of the plans before they're put into the consideration set so that every quarter, we'll be looking at additional plans that have seasoned to the point where they're worth looking at and making assessments based on that. So, the thing could move either direction, but one dynamic I think is important to know is there are new plans being put into the consideration set every quarter, and in recent years, as I talked about last quarter, we've seen overperformance for the vendors in those plans, and we've been expecting to get payback.

James Albertine -- Consumer Edge Research -- Analyst

So, just a point of clarification, then. You'd expect with older vehicles, the attachment rate would fall, I would imagine. So, if we were to see a surge in 0-4-year-old vehicle demand in the coming quarters, being flat now, arguably, you would see an uptick from here. Is that fair?

Tom Reedy -- Executive Vice President and Chief Financial Officer

I don't have the data in front of me, but I would think the opposite would be true off the top of my head. The newer vehicles still have some of their manufacturer's warranty left on them, and frankly, for the older vehicles, the EFP is a better value proposition for the customer because it's going to protect them when they don't have a warranty.

James Albertine -- Consumer Edge Research -- Analyst

Understood. Thank you so much.

Bill Nash -- President and Chief Executive Officer

Thanks, Jamie.

Operator

Your next question comes from John Murphy with Bank of America. Your line is open.

John Murphy -- Bank of America Merrill Lynch -- Managing Director

Good morning, guys. A question as we think about the competitive dynamics in the market -- and, you've kind of talked about this a little bit, but I wanted to put it all together. Are there any specific markets where competition is being disruptive or any markets you can point to that you're being disruptive? Really, what I'm trying to get at here is there's an increasing focus by new vehicle dealers, there's obviously some digital competitors that are out there, but at the same time, as you launch your omnichannel efforts and coalesce what you're doing online and within home delivery, you might be disruptive. I'm just trying to understand the competitive dynamics and if you can give us any examples in markets where you see market share shifts or opportunities. It just seems like there's a lot going on right now. You're probably going to be one of the big winners, but I think there's a lot of concern out there.

Bill Nash -- President and Chief Executive Officer

John, you're right. The competition is robust from a lot of different angles, whether it's digital players, whether it's brick-and-mortar players, stand-alone players, that kind of thing, and we're focused on all of them. I'm not going to talk specifically about any particular markets because I can tell you -- it's a very complicated analysis when you try to dial into an individual market, looking at all the different competitive sets that are there. What are those competitors doing? What are we doing differently? You have to take into consideration the age of our stores. There's a whole bunch of things that you have to look at.

What I would just tell you is that we're really positioning ourselves to be that solution for the customers and allowing the customer to really drive the transaction on their terms, individualize every single customer interaction. That's what our focus is on, and less so about what's this one player doing. We think that this omnichannel solution is going to be the future of where customers want to go.

John Murphy -- Bank of America Merrill Lynch -- Managing Director

Just a really quick follow-up -- when you think about that competition, and the ramp-up, and the focus on this specific channel on the market or used vehicles in the market, is the upward pressure on pricing because of that, or is it because of the end-market consumer, meaning is there an increasing acceptance that maybe lower grosses by this increasing competition might be what's driving up the used vehicle pricing in a way that just seems very counterintuitive to supply and demand and normal depreciation curves?

Bill Nash -- President and Chief Executive Officer

The way I think about it, John, is I feel very good about our pricing and the competitiveness of our pricing. As you know, we look at it all the time, we test it all the time. I think what happens is because there's a focus from a lot of different areas, there is -- in any given market, there's probably some confusion out there because a lot of different competitors are advertising, so I think there's some confusion there, but I'm less worried about the pricing at this point because there's a lot of different things we can do to improve our price without, say, changing what our gross profit per unit is. So, I think more right now -- there's just a lot of awareness out there or confusion out there of a bunch of different competitors.

John Murphy -- Bank of America Merrill Lynch -- Managing Director

Thank you very much.

Bill Nash -- President and Chief Executive Officer

Thanks, John.

Operator

Your next question comes from Rick Nelson with Stephens. Your line is open.

Nicholas Zangler -- Stephens, Inc. -- Analyst

Hey, guys. Nick Zangler in for Rick here. More of a strategic question. From your early findings, can you talk about the importance for a customer to physically see a vehicle in person before they commit to a purchase? What's your view there? And then, related, I think the value of delivery in general can be debated, but do you foresee a capability that allows a customer to conduct virtually the entire vehicle transaction online and simply come into the store, verify the vehicle condition, and pick it up there? Does the consumer desire that capability as well? Thanks.

Bill Nash -- President and Chief Executive Officer

On your first question, do they want to see the car -- absolutely. The majority of our customers want to see the car. On your second question, the value of delivery -- listen, what you described is what we're talking about when we say "expedited" or "express" delivery. That's our first attempt into that foray where the customer can do most everything online, and then they come into the store just to test drive if they want to test drive it, understand what the options are. Again, the customer will determine how much time they want to be in the store. If they want to be in and out in 15 minutes, they can be in and out in 15 minutes. If they want to take it for a test drive, obviously, it'll be a little bit longer than that, but most of what we see on the customer side is that they still want to see -- and, in a lot of cases, test drive -- the vehicle.

Nicholas Zangler -- Stephens, Inc. -- Analyst

Great, thanks.

Bill Nash -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Matthew Paige with Gabelli. Your line is open.

Matthew Paige -- Gabelli and Company -- Assistant Vice President

Good morning and congrats on a nice quarter. I wanted to ask potentially a longer-term question. Obviously, full EVs are a small but growing piece of the U.S. market, but have you learned any lessons or had to make any changes to your CarMax appraisal system to deal with those kinds of vehicles that might have a potentially different depreciation schedule?

Bill Nash -- President and Chief Executive Officer

I'm not exactly sure what you're asking, Matthew.

Matthew Paige -- Gabelli and Company -- Assistant Vice President

EVs don't have a historical basis for how your appraisal system likely does other kinds of cars. How have you dealt with new entries into the market?

Bill Nash -- President and Chief Executive Officer

If you're talking specifically about EVs, obviously, I think the industry as a whole would have thought that EV sales would have been a bigger percentage as compared to where it is today. That being said, we do get EVs through the appraisal lane. We buy them offsite. Because of our dataset, because we look at so many cars both in the appraisal lane and offsite, we've honed that muscle as well, just like with the traditional cars. So, so far, even though it's a small subset, we feel very comfortable in being able to price that type of vehicle, and again, because of the data that we have and the number of vehicles that we look at on a weekly basis, we learn very quickly, and then we can react to those learnings.

Matthew Paige -- Gabelli and Company -- Assistant Vice President

Great. I appreciate you taking my question.

Bill Nash -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from David Whiston with Morningstar. Your line is open.

David Whiston -- Morningstar, Inc. -- Analyst

Thanks. Good morning. My question is on the digital omnichannel and the whole e-commerce platform that you've been working on. Have there been some real big challenges in states where the laws are really behind the times tech-wise, and do you think those issues are resolved? And if you can just talk about those issues a bit. Thanks.

Bill Nash -- President and Chief Executive Officer

From a regulatory standpoint, there's a couple different things. Some states still require that vehicle sales occur at the dealership physical location and that the customer has to actually visit the dealership, and we call that darkening the door. Other states, you have to have a physical location, but you don't necessarily have to have the customer come in and do the transaction in the store. And then, other states, obviously, are more liberal, and you don't have to have either one of those requirements. So, as we continue to work through this, we'll obviously make sure that we follow any applicable laws, and again, our goal is to meet the customer on their terms, and we'll do that in a legal way.

David Whiston -- Morningstar, Inc. -- Analyst

Okay, thank you.

Operator

Your next question comes from Jacob Moser with Wolfe Research. Your line is open.

Chris Bottiglieri -- Wolfe Research -- Analyst

Hey, everyone. This is Chris Bottiglieri at Wolfe Research. I had a couple questions -- well, one and one follow-up to follow Katharine's rules. Given that store traffic was challenged but you saw higher appraisal traffic, maybe just connect the two. Are you starting to see the 8-to-10s improve or some of your digital efforts driving increased appraisal traffic? If you can talk about that.

Bill Nash -- President and Chief Executive Officer

I think the appraisal traffic is probably a combination of things, whether it's some of the stuff that we're doing marketing, online. I also think it's a very favorable pricing environment where, as I talked about earlier, acquisition prices are higher. We can put more money on people's vehicles, and when you can do that, that certainly helps your buy rate. On the opposite side, if there's a depreciating market, that generally hurts your buy rate a little bit. So, I think a lot of it is based off the environment that we're in in addition to a lot of other things that we're working on.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got it. Then, really, my follow-up -- I assume it's connected, but can you just give an update on your self-sufficiency ratio and how that's been trending more recently?

Bill Nash -- President and Chief Executive Officer

Sure. Self-sufficiency -- we've typically talked about the range 40-50%, and right now, we're in the lower end of that range.

Chris Bottiglieri -- Wolfe Research -- Analyst

Okay, thank you for the help. I appreciate it.

Bill Nash -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Sharon Zackfia with William Blair. Your line is open.

Sharon Zackfia -- William Blair and Company -- Partner

Hi. Just a follow-up question. I know market share data is hard to get until you get to an annual basis, but how do you feel like you're likely to shape up this year? Do you feel like you are continuing to gain share in the marketplace? Secondarily, there's been a lot of discussion about disruption in the marketplace, and you've been a disruptor over the years as well. I guess I'm curious if you've seen anything, particularly in Atlanta, which is where Carvana's oldest market is.

Bill Nash -- President and Chief Executive Officer

You're going to be disappointed Sharon, because on both of your questions -- the first one, on the market share -- to your point, when you look at it in the short term, it's not as valid, which is why we look at it on the annual basis. As you probably recall, last time we reported on it, it was last year's calendar year, which we saw one of our biggest comp market share gains that we've seen in a while. So, I don't have any updates on that front at this point. The other thing, as far as disruption in a specific market -- again, I really don't want to get into talking about any individual markets or, for that fact, any individual competitor. Our competitor set is huge, and that's what we're focused on. We're focused on overall competition. I know neither of those answers are satisfying to you, but that's what I've got for you.

Sharon Zackfia -- William Blair and Company -- Partner

All right, thanks.

Bill Nash -- President and Chief Executive Officer

Thank you, Sharon.

Operator

Your next question comes from Michael Montani with MoffettNathanson. Your line is open.

Michael Montani -- MoffettNathanson -- Analyst

Hey, guys. Just wanted to follow up on maybe an alternative revenue channel and just get your thoughts here. But, when you think about the growth and maturation we're seeing from Uber and Lyft, and then, some of the partners they have like Hyrecar and Fair, just wondering if you can provide any updates or thinking about the potential growth opportunity in that channel just because it would seem potentially to be substantial.

Bill Nash -- President and Chief Executive Officer

Yeah, Mike. What I'd say is I think this is an exciting time to be in the automotive industry outright because of so many different things that are changing. I think there's lots of opportunities for CarMax. I wouldn't take anything off the plate at this point. We're constantly looking at the business and how we can continue to improve, as well as make sure that we plan for the future as the business changes. So, I would just tell you we're pretty much open to a lot of different options, and we're working with some different strategic partners, trying to do different things, and when we have something material to talk about, we'll talk about it at that point.

Michael Montani -- MoffettNathanson -- Analyst

Got it. Thank you.

Bill Nash -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Matt Fassler with Goldman Sachs. Your line is open.

Matt Fassler -- Goldman Sachs -- Managing Director

Thanks a lot. Thanks for having me back on. I have a couple follow-ups on the numbers. The first relates to ASP. Your new-car ASP -- sorry, your used ASPs were up slightly year on year, and that would be consistent, presumably, with what we saw in the market broadly. Your wholesale ASPs were under a tad of pressure -- not pressure per se, but just down a little bit. What was going on in the wholesale ASP realm in terms of mix that was different from what was transpiring in the market more broadly?

Bill Nash -- President and Chief Executive Officer

If you mix-adjust the wholesale, our prices -- because it is a stronger market, our prices actually went up, but we did have a mix shift where we had more older cars, which generally will bring the price down, as well as the mix -- we had some more compacts come through, which will change the pricing as well. So, you have different factors going in different directions. And then, on the used side, again, acquisition price was higher, and it was partially offset by the shift into older vehicles.

Matt Fassler -- Goldman Sachs -- Managing Director

Understood. And then, the follow-up relates to your other overhead spending. There's been a lot of talk on this call about innovation, and presumably -- and a whole lot of things you're doing, presumably, that manifest in the P&L in any given quarter as the "other overhead" line, and I think you alluded to that in your press release. So, that spend is up 24%, which is as big as it's been since late '16 and about as big an increase as you've typically had. I know you don't guide on a go-forward basis, but should we expect that this line item remains a big focus for you as you potentially accelerate some of the innovation on your end?

Bill Nash -- President and Chief Executive Officer

Well, keep in mind a couple things. The total SG&A was up. Part of that was because of the advertising and the timing of the advertising. In the "other other" category, where we do have some investments in our strategic initiatives, I've said all along this year that we're continuing to invest and put back into the business, and I think some of the increase that you saw there -- there's some consulting, there's some contracting, there's software-as-a-service. Some of those things will stick around, but some of those things will go away, though, as certain projects come to completion, that kind of thing. So, I think there's some timing in there, but again, this is a year that I've said all along that we're going to continue to invest in the organization.

Matt Fassler -- Goldman Sachs -- Managing Director

Totally understood. Thanks so much.

Bill Nash -- President and Chief Executive Officer

Thank you, Matt.

Operator

Your next question comes from Scot Ciccarelli with RBC Capital Markets. Your line is open.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Hey, guys. I don't think you had enough CAF questions just yet, so I had one. I think during Tom's brief remarks earlier, he referenced weaker performance in the Tier 3 space. I guess I was wondering -- is that just referencing the mix being down a touch, or did you actually see tighter lending standards there?

Tom Reedy -- Executive Vice President and Chief Financial Officer

I guess I wasn't clear enough. As I mentioned in my prepared comments, we saw application volume up pretty much across the spectrum in all credit grades. It may have been a little more robust in the middle space where the Tier 2 is, but it was up across the board. The degradation in Tier 3 resulted... There's a combination of increased volume, but a decrease in the performance by the lender, so we've seen conversion in the Tier 3 space over the course of the quarter, actually, deteriorate.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

So, if it deteriorates during the quarter, does that suggest maybe that will continue as we roll into third quarter then?

Tom Reedy -- Executive Vice President and Chief Financial Officer

Well, we'll see how that progresses. We've talked about -- we've got a number of lenders in there, this one in particular, we're looking at our alternatives, and as the third quarter materializes, we'll tell you how it went, but obviously, we're looking at it carefully.

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Understood. Thank you.

Operator

Again, that's *1 if you would like to ask a question. Your next question comes from Seth Basham with Wedbush Securities. Your line is open.

Seth Basham -- Wedbush Securities -- Analyst

I also have a question on CAF for you. As it relates to the lending outlook, the tightening we've seen at the subprime level, do you think that's indicative of something we might see on a wider basis going forward? And, as it relates to your CAF portfolio loss rate performance specifically, how would you characterize that right now? We're seeing it tick up a little bit more than historical seasonal averages. Would you expect it to maintain the current level, or do you expect it to increase a little bit going forward?

Tom Reedy -- Executive Vice President and Chief Financial Officer

I'll start with your second question, Seth. We're not seeing anything in our Tier 3 lending that is surprising us, so it's... Obviously, it's a different animal than what we do in the prime space, and it's a different customer relationship, different expected losses, but we haven't seen anything there that is giving us any pause. As I mentioned, it's really performance by one lender, so I can't speculate on whether it's something that could be global in the future, but that's why we have multiple partners, because different institutions have different credit committees, they get different leadership at different points in their evolution, and they can change their mind about how they want to behave.

Seth Basham -- Wedbush Securities -- Analyst

Okay, thank you.

Operator

There are no further questions. At this time, I will turn the call back over to Mr. Nash for closing remarks.

Bill Nash -- President and Chief Executive Officer

Thank you, Jamie, and thank you all for joining the call today. As Katharine mentioned when she first started out, it was our 25th anniversary as a company last week, and that truly is a testament to our associates. I'm once again reminded why our associates are a differentiator for CarMax, and it's because of the way they live our values for each other, our customers, and our communities. I want to thank them all for everything they do. They have absolutely been the key to our success in the past, and they will continue to be the key to our success in the future. Thanks for your time and interest in CarMax, and we will talk to you again next quarter.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 45 minutes

Call participants:

Katharine Kenny -- Vice President of Investor Relations

Bill Nash -- President and Chief Executive Officer

Tom Reedy -- Executive Vice President and Chief Financial Officer

Scot Ciccarelli -- RBC Capital Markets -- Managing Director

Sharon Zackfia -- William Blair and Company -- Partner

Matt Fassler -- Goldman Sachs -- Managing Director

Brian Nagel -- Oppenheimer and Company -- Managing Director

Seth Basham -- Wedbush Securities -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Vice President

Craig Kennison -- Robert W. Baird -- Analyst

Michael Montani -- MoffettNathanson -- Analyst

James Albertine -- Consumer Edge Research -- Analyst

John Murphy -- Bank of America Merrill Lynch -- Managing Director

Nicholas Zangler -- Stephens, Inc. -- Analyst

Matthew Paige -- Gabelli and Company -- Assistant Vice President

David Whiston -- Morningstar, Inc. -- Analyst

Chris Bottiglieri -- Wolfe Research -- Analyst

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