Company: KMX
Filing Date: 2025-04-11
Form Type: 10-K
Source: 0001170010-25-000024
Chunk: 76

Company: CARMAX INC
Filing Date: 2025-04-11
Form: 10-K
Item: Item 7
Chunk 76
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 tightening in April 2024.  While the loan loss reserve was adjusted for these receivables during the first quarter of fiscal 2025, further deterioration was observed during the second quarter, resulting in an additional adjustment to the reserve.  In the third and fourth quarters, losses were in line with our expectations.

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◦The allowance for loan losses as a percentage of ending managed receivables was 2.61% as of February 28, 2025 compared with 2.78% as of February 29, 2024.  The allowance percentage decreased from the prior year primarily due to the previously implemented tightened underwriting standards, partially offset by unfavorable loss performance in CAF’s portfolio of Tier 1 receivables as well as expanded investment in Tier 2.

◦We anticipate a sequential increase in the provision for the first quarter of fiscal 2026 over the $68 million observed in the fourth quarter of fiscal 2025 given the seasonal nature of the first quarter in terms of higher sales volume and a larger mix of lower credit quality purchasers.  In addition, our recapture of profitable portions of Tier 1 originations, as discussed above, will require additional loss provision.  We estimate the combined effect from these items will increase our provision by approximately 45% to 50% as compared to the fourth quarter of fiscal 2025.  For the remainder of fiscal 2026, we anticipate the quarterly provision to decrease slightly from the seasonal peak in the first quarter but remain elevated relative to our fourth quarter fiscal 2025 provision.  Despite the anticipated increase in our provision, we expect CAF income to increase in fiscal 2026.

•Loan Performance

◦The decline in net loan originations in fiscal 2025 resulted from decreases in the average amount financed and the net penetration rate, partially offset by an increase in used unit sales.

◦The weighted average contract rate increased to 11.3% in fiscal 2025, compared with 11.2% in the prior year.  The increase was primarily due to our expansion of Tier 2 originations within CAF’s portfolio, partially offset by a reduction in Tier 3 originations.

◦The decrease in past due accounts as a percentage of ending managed receivables for fiscal 2025 primarily reflects the impact of enhancements to our payment extension policy, as discussed above.

PLANNED FUTURE ACTIVITIES

We anticipate opening a total of ten locations in fiscal 2026,