Carvana Co. (NYSE:CVNA) Q3 2019 Earnings Conference Call - Final Transcript
Nov 06, 2019 • 05:30 pm ET
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Rajat Gupta with JPMorgan. Please go ahead.
Thanks for taking my question. Just wanted to follow up a little bit on the retail GPU number in 3Q, which was down from 2Q levels, a little more than what we sold last year despite a higher mix of retail sourcing. Is that -- is there a lag of the benefit that we could expect from retail sourcing or is that just normal seasonality that we should be expecting going forward? And I had a follow-up. Thanks.
Sure. So we certainly benefited from retail sourcing from consumers in the third quarter relative to the second quarter and also year-over-year. That said, there were a number of offsets if we look sequentially. Those offsets included high wholesale prices in Q2 and the early part of Q3, followed by relatively high depreciation rates in the latter part of Q3, which definitely had an impact on our vehicle margin.
Moreover, another sequential change was a reduction in delivery revenues on a per unit basis that came along with us scaling inventory on the eastern half of the US with our Indianapolis, Cleveland and Nashville IRCs coming online. And so, those are some of the offsets in sequential retail GPU. Obviously, we're very excited about our progress overall in retail GPU. It's up about $170 year-over-year with buying cars from customers, definitely contributing that -- to that. I think as we look forward, we see a lot of upside as we continue to source more retail cars from customers and continue to optimize our bidding and pricing algorithms where I'd say, we're at a very early stage in doing that so far and look forward to a lot of upside in the future.
Got it. That makes sense. And just on the other costs even the SG&A, that did not lever up as much as expected and it's probably also the biggest bucket of opportunity longer term for your SG&A per unit targets. So you talked about some technology investments in the release. Was that more of a one-time step-up that should not repeat going forward or was it related to the retail sourcing initiatives? Could you just give us some color on that and how should we expect that to lever going forward? That's it. Thank you.
Okay. Let me open it. I think Mark will come in with a little more detail. I think the simplest way to think about this is just that we really have grown this business of buying cars from customers largely over the last 12 months. And I do think -- that doesn't show up in our revenue as clearly many of those cars end up going to wholesale. And we basically only see the gross profit portion of those in revenue, and then many of those cars go to retail and they basically show up as lower COGS. So when you're looking at kind of