CarMax, Inc. (KMX) Earnings Call Transcript & Summary

Good day and welcome to the CarMax, Inc. 2020 Annual Meeting of Shareholders. I would now like to turn the conference over to Eric Margolin, Executive Vice President, General Counsel and Corporate Secretary. Please go ahead.

Thank you. Good afternoon, and thank you for joining us today. It's my pleasure to welcome you to CarMax' 2020 Annual Meeting of Shareholders. This year, for the first time, we are holding our meeting virtually. In light of the public health concerns and restrictions resulting from the coronavirus outbreak, the Board decided a virtual-only meeting would best allow us to protect the health, safety and welfare of our associates, directors and shareholders while ensuring our shareholders have an opportunity to participate in this important annual event. At the Chair's request, I now officially call the meeting to order. Let me remind you any statement made today regarding the company's future business plans, prospects and financial performance are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve risks and uncertainties that could cause actual results 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 29, 2020, filed with the SEC. The policies and procedures for today's meeting can be found in the virtual meeting portal. I hope you took a moment to review them. There will be times during today's meeting when we'll open the meeting to comments and questions from shareholders. [Operator Instructions] At the Chair's request, I will serve as parliamentarian for the meeting. The Board of Directors has appointed a representative of American Election Services, LLC, as the inspector of election for this meeting. Their representative is Linda A. Piscadlo and is attending today and has taken the oath of inspector of election. The list of registered shareholders entitled to vote at this year's annual meeting is available to shareholders on the virtual meeting portal. We have received an affidavit signed by Broadridge Financial Solutions that notice of this meeting, along with related proxy and annual report materials, was mailed or made available commencing on May 8, 2020, to CarMax' shareholders of record as of the close of business on April 17, 2020, our record date. The inspector of election has informed us that there is a quorum present or represented by proxy for the transaction of business. We are also joined today by representatives from KPMG LLP, the company's independent auditors. They are Jim Phillips and Andre Evans. They will be available to respond to shareholder questions later in the meeting. Now it is my pleasure to introduce Tom Folliard, a nonexecutive chair of the Board of Directors. Tom will introduce the members of the CarMax Board.

Thank you, Eric, and thank you to everyone attending our Annual Meeting of Shareholders. I wanted to start out by offering my heartfelt thanks and appreciation to all of our associates who have remained dedicated to our company and to providing an unrivaled customer experience, especially during these challenging times. I'm missing you all in person and look forward to being together soon. We have an outstanding set of director nominees. Their broad business experience is described in our proxy statement. So today, I will simply give the length of their service on the CarMax Board. Pete Bensen, a Director since 2018; Ron Blaylock, a Director since 2007; Sona Chawla, a Director since 2017; Shira Goodman, a Director since 2007; Bob Hombach, a Director since 2018; David McCreight, a Director since 2018; Bill Nash, CarMax' CEO and a Director since 2016; Mark O'Neil, who joined the Board last October; Marcy Shinder, a CarMax Director since 2015; Pietro Satriano, a CarMax Director since 2018; Mitch Steenrod, a CarMax Director since 2011 and our lead Independent Director since 2019; and I have been a CarMax Director since 2006. Ladies and gentlemen, these are the nominees for election to the CarMax Board of Directors for the coming year. We will now proceed with the business of the meeting. The polls are open. Shareholders who have already voted by proxy do not need to cast ballots in the voting today. However, if you voted by proxy and now wish to change your vote or if you did not previously vote and would like to do so today, please do so by clicking on the Voting button on the virtual meeting portal and following the instructions there. Today, we have 4 items of business to bring before the meeting on behalf of the CarMax Board of Directors. As each item of Board business is brought before the meeting, I will briefly review the proposal. I will then have Eric summarize the voting results on all proposals. Please note that we will give shareholders an opportunity to comment on the proposals themselves after all proposals have been presented. The first item of business brought before the meeting is the election of directors. The Board nominates the following 12 Director nominees: Pete Bensen; Ron Blaylock; Sona Chawla; Shira Goodman; Bob Hombach; David McCreight; Bill Nash; Mark O'Neil; Pietro Satriano; Marcy Shinder; Mitch Steenrod; and myself, Tom Folliard. In accordance with the company's bylaws, the nominations are closed. The second item of business brought before the meeting is the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm. KPMG served as our independent auditors for fiscal 2020, and the Audit Committee has again selected the firm to perform the audit of our financial statements in our internal controls over financial reporting for fiscal 2021. The third item of business brought before the meeting is the advisory vote on executive compensation. CarMax' executive compensation program is designed to reflect the company's pay-for-performance philosophy and to support the company's key operating and strategic objectives. The program is discussed in detail in the proxy statement. The fourth item of business brought before the meeting is the approval of the amended and restated CarMax 2002 Stock Incentive Plan. The proposed amendments to the stock incentive plan are each described in detail in the proxy statement. We will now address any questions or comments on any of the proposals before the meeting, and we will respond to general questions later. I will now ask Stacy Frole, our Vice President of Investor Relations, to read aloud any questions or comments on the proposals. Stacy, have you received any comments or questions on the proposals?

No, we have not received any comments or questions on the proposals.

Thank you. The polls are now closed. Would the Secretary please summarize the preliminary voting results on the applicable proposals?

Mr. Chair, we have been informed by the inspector of election that the preliminary results indicate that each nominee for the Board of Directors has been duly elected. The ratification of the appointment of KPMG has been approved. The nonbinding advisory vote on executive compensation has been approved. And the amendments to the CarMax 2002 Stock Incentive Plan have been approved. We will report the final vote results in a Form 8-K to be filed within 4 business days.

Thank you, Eric. The annual meeting is now adjourned. At this point, I'd like to turn the floor over to Bill Nash, our Chief Executive Officer and member of the Board of Directors.

Thank you, Tom. Good afternoon, everyone. FY '20 was truly an exceptional year. We achieved record sales, record earnings, grew our market share and achieved our highest ranking ever on Fortune Magazine's 100 Best Companies to Work For list coming in at #20. Our success in FY '20 laid a solid foundation for us to face the unprecedented challenges brought on by the coronavirus pandemic. Our associates, as always, have been the key to our success as we've overcome adversities and incredible change across the entire organization. Their flexibility, hard work and dedication have helped us put extensive safety measures in place, meet ever-changing requirements from health officials and government agencies, and roll out brand-new customer offerings to ensure we exceed customers' expectations no matter the environment. Now before talking more about the business, I'd like to take a moment to address the significant problem we are facing in our country regarding racial injustice. We are proud to be an organization committed to diversity and inclusion, and our values have always guided us to do the right thing and treat everyone with respect. But that's simply not enough. CarMax is committed to helping address racial injustice and being part of positive change. And I am personally championing this commitment. We have a lot of hard work ahead of us, but we are determined to make a difference. Together, we will stand united against injustice, hatred and violence. Now looking forward for our business. I'm very excited for what's ahead and our ability to gain market share in any environment. The pandemic has accelerated a shift in consumer buying behavior, and we are well positioned due to the significant investments we've made in technology and our associates. We believe we have the best omnichannel experience in the used car industry. We provide a personalized multichannel experience that empowers customers to buy a car on their terms, all while taking steps to keep our customers safe across their car buying journey. It is designed as a world-class in-store experience, a world-class online experience and a seamless combination of the 2. No other used car retailer is in the position to deliver this iconic customer experience the way we can. We are very positive about the future as we continue to leverage all of our capabilities while also advancing with new innovations. In closing, to our associates, I am incredibly proud to work alongside you. Living our purpose and our values has never been more important, and I want to thank you for taking care of each other, our customers and our communities. Please know that we are steadfast in our commitment to you to putting people first and to continuing to provide an exceptional workplace. I also want to recognize our Board of Directors whose experience, support and guidance have been a critical strength of our company as we have navigated these unprecedented times. And finally, I'd like to thank all of our shareholders for your continued support and interest in CarMax. At this time, we would be happy to entertain shareholder questions that have been entered today on the web portal. If we are unable to get to your question today during the allotted time, we invite you to submit them to our Investor Relations team. You can do so by e-mailing them to [email protected]. I will now ask Stacy Frole to read out any questions that have been submitted.

Thank you. Our first question we've received is, "On your website, you've published the results of a study on the feasibility of achieving a net-zero greenhouse gas goal by 2030. Is CarMax going to adopt this goal? If so, when? How will renewable energy purchases play a role in meeting this target?"

Great. Thank you for the question. The study was done to help us understand what it would take, and we continue to look at different tactics and levers as we want to do our part to protect the environment. The study looked at energy used by both our facilities but also used by our vehicles, the trucks and cars that we use in the business. We've absolutely been making some strides. For example, we initiated a substantial lighting enhancement project across our stores, building -- both building new stores and in retrofitting existing ones with exterior lighting, the LED lights. Those retrofits are anticipated to drive more than 20% increase in electricity usage at the effective stores. Pretty soon, all the stores will have those. That's one example. As far as renewable energy, we continually monitor opportunities to increase our use of renewable energy. And we've entered into contracts to purchase renewable energy via certified renewable energy certificate. And as of January 1, 2020, approximately 10% of our electricity was from renewable energies, with most of our use in Texas tied directly to a wind farm in that state. So we'll continue to progress on this initiative.

Great. Thank you. Our second question is a 2-part question. The first is, "How might autonomous driving impact CarMax' business if it becomes mainstream?" And their second question is, "Can you provide some color on how CarMax handles customer complaints when they are received from a social media platform?"

Okay. On the first question on the autonomous. The autonomous has been an interesting story because I think most people 3 or 4 years ago would have thought that this would be in place in the next year or 2. I think everybody's realized that it's a very complicated technology. And now I think, really, from having a major impact on CarMax, I think we're probably 8 to 10 years out at least. I've driven in autonomous cars. They have several different layers, several different levels, with 5 being the most autonomous. And I think we're several years before we see that any type of mainstream that would have any impact on us. And I think we're trying to make sure that we position our company. Even though it's a ways out, we want to make sure we're looking at different opportunities to be able to realize that when autonomous vehicles hit, that we've positioned ourselves to capitalize on that type of thing. But please keep in mind with the hundreds of millions of used cars that are on the vehicles that are being sold, they just won't go away overnight. So we think that we'll be in a great position from autonomous. But again, it's a ways out. And the second question -- I'm sorry, Stacy?

The second question was if you could provide some color on how CarMax handles customer complaints when they are received from a social media platform.

Yes. So first of all, we take customer satisfaction very serious. The whole CarMax experience is built off of providing exceptional customer experience. We take it very seriously. We've got a dedicated customer relations team who is constantly monitoring the social media queues and are constantly in touch with those type of folks. And we try to provide a very quick turnaround time on the experience. And so that's the group that monitors constantly. And then, of course, I get reported out on it as well.

Fantastic. Thank you. And it appears we do not have any more questions.

All right. Well, thank you for the questions. Again, thank you for your support. This concludes our meeting. Thank you for attending today, and please stay healthy and safe.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.