America's CAR-MART Inc (CRMT) 2008 Q1 法說會逐字稿

Good morning, everyone, thank you for holding and welcome to the America's Car-Mart first quarter fiscal 2008 conference call.

The topic of this call will be the earnings and operating results for the company's fiscal first quarter ended July 31, 2007.

Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay for the next two days.

The dial-in number and access information are included in this morning's press release which can be found on America's Car-Mart's web site at www.car-mart.com.

As you all know some of management's comments today's may involve forward-looking statements which inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view.

These statements are made pursuant to the Safe-Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

The company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements.

For more information regarding forward-looking information, please see Item One of Part One of the company's annual report on form 10-K for the fiscal year ended April 30, 2007, and its current and quarterly reports furnished to or filed with the Securities Exchange Commission on Forms 8-K and 10-Q.

Participating in the call this morning are Skip Falgout, America's Car-Mart's Chief Executive Officer; Hank Henderson, the company's President; and Jeff Williams, Chief Financial Officer.

And now I would like to turn the call the company's CEO, Skip Falgout.

Good morning, everyone and thank you, Operator.

Most of you've already seen our press release this morning of our first-quarter results.

This release is posted on our web site and is available on the usual financial sites, as well.

Jeff will file the related 10-Q here in the next few days.

This morning we reported income of $2.1 million or $0.18 cents per diluted share.

Revenues and retail unit sales were down from the prior-year quarter, but more importantly, down payments, credit losses, delinquent accounts all showed significant improvement, resulting in strong cash flows for the quarter.

Over the last few conference calls we have highlighted certain of the operational initiatives that we have instituted to strengthen our sales efforts and improve the quality of our loan portfolio.

As expected these initiatives are beginning to show positive results, but because of the nature of our business over the long term, only then will the results be truly evident.

However, I would tell you that we're please with what we've seen thus far.

In our discussions today, Jeff will go into more detail than perhaps we've done in the past with respect to various measurements that we use in the evaluation and manage of our portfolio.

I believe this information will be helpful to our investors to get a better feel for the quality of our loans.

There's been so much negative news regarding the subprime credit markets, that we think it's important for you to understand our portfolio, how it does not necessarily have a direct correlation with the traditional credit markets, including not only the high-end auto loans but also the mortgage and credit card markets.

Then after Jeff speaks, Hank will discuss certain ongoing initiatives, the Payment Protection Plan that you've heard about, and -- and other things that we have going on.

Now I'll turn it over to Jeff.

Thanks, Skip.

As mentioned in the press release, top line revenues decreased 5.6%.

The decrease was principally the result of a 14.9% decrease in retail unit volume offset by a 6% increase in the average retail selling price, [lap] interest-- interest income, and a $1.3 million increase in wholesale sales.

Same store revenue declined by 8.3% for the quarter, as we continued to emphasize underwriting and collections, and generally stronger deals including higher down payments and shorter terms.

Our average retail sales price per unit was $8,407 compared to $7,913 in the first quarter of last year.

The average retail sales price for the quarter was up 0.3% from the fourth quarter of 2007.

Which average was $8,384.

The revenue generated by our new Payment Protection Plan product primarily accounted for the increase in retail sales price from the fourth quarter of 2007.

Going forward, we expect to see some continuing growths in our average retail selling price when compared to prior-year results, although we do expect to see some continua-- continuation of the leveling off of the increases we've seen.

The declining unit sales for the quarter was due primarily to the fact that we continued to focus on underwriting and on making good deals during the first quarter.

Management is spending a significant amount of time working with our smaller, newer lots, and getting their sales levels up to an acceptable range.

With increased focus on these newer lots, we feel that we can once again begin to increase the top line and maintain the qualities of the deals at the same time.

Interest income was flat for the quarter as the average finance receivable-- receivable portfolio balance was right at $10 million lower than the first quarter of 2007, offset by a higher effective interest rate.

Our effective interest rate earned on financed receivables for the quarter was 13%.

This compares to 12.3% in the prior year.

It should be noted that the recent discount rate decrease by the Fed will have a negative effect on our affected interest rate going forward.

For the first quarter of this year, our gross profit margin percentage was 40.3% of sales, which is down from 44.4% of sales in the first quarter of last year.

And down from 42.3% for the full fiscal year 2007.

The lower gross margin percentages resulted from higher operating expenses, mostly repair costs.

Significantly higher volumes and prices for wholesale sales, which for the most part relate to cash sales of repossessed vehicles at or near break even.

The effect of selling a higher priced vehicle offset somewhat by gross margin generated by the Payment Protection Plan product.

Our purchasing agents continue to work hard to keep our vehicle purchase prices down.

We have seen recent success.

The demand for our core vehicles remains high.

We will continue to focus efforts on purchase costs, retail pricing, and repair costs, and expect to see future gross profit margin percentages above levels experienced during the first quarter.

Additionally, the Payment Protection Plan is being very well received by our customers and will contribute to the revenue and gross profit lines going forward.

In the first quarter, SG&A as a percent of sales increased to 21.2% from 18.6% in the same period last year due to the decrease in sales between periods.

A 6% increase in the number of stores in operation, and the associated incremental costs of those stores, increased advertising, and slightly higher payroll costs.

The actual SG&A dollars were right in line with our internal projections for the quarter.

We are for the most part finished with our infrastructure investments, which have been made over the last year and a half.

These investments were made to strengthen controls and improve efficiencies within our support functions.

We are now poised to leverage these costs into the future by being able to support higher sales and loan volumes.

As Skip mentioned, we will begin highlighting certain performance measurements surrounding our loan portfolio, which we believe give us along with other operating data, including at some point our new scorecard, the best metrics in analyzing the quality of our loan portfolio at any point in time.

While these measures are not perfect and will change somewhat over time, we feel that they will give us good indications as to the quality of our portfolio as we move into the future.

For the first quarter, net charge-offs as a percentage of average financed receivables was 6.4% compared to 6.1% for the prior year's quarter.

The increase related for the most part to quicker reposition decisions at the lot level this year compared to last.

We fully expect net charge-offs for the remainder of this year to be significantly below levels experienced during the last three quarters of 2007.

Collections as a percent of average finance receivables increased to 17.1% from 16% from the prior year.

Quality of the portfolio, the shorter loan-- loan terms, and better collections efforts have led to increased collections when compared to last year.

The average percent of financed receivables which are-- which were current during the first quarter was 81.7% compared to 79% during the first quarter of fiscal 2007.

The average down payment percentage was 7.6% for the quarter, compared to 5.3% for last year's first quarter.

Again, we believe that the increase in the quality of the portfolios is reflected in the higher current percentage, and the higher down payment percentages.

At July 31, 2007, our 30-plus past due accounts were at 4.1%, compared to 5.6% at July 31, 2006.

And compared to 5.4% at October 31, 2006, 3.8% at the end of January, 2007, and 3.4% at the end of -- of April, 2007.

The percentages for August are actually lower than the quarter-end percentages as we continue to make significant progress at the lot level in our underwriting and collection efforts.

Also, our allowance for loan losses is at 22% of financed receivables compared to 19.2% at July 31, 2006.

This increased percentage equates to approximately $5 million in additional reserves to cover future credit losses on a net receivable base, $10 million less than at the end of the first quarter of 2007.

The provision for credit losses was 21.8% of sales for the quarter compared to 22.5% for the first quarter of 2007, and 26.6% for the fourth quarter of 2007.

We saw an increase in total financed receivable principle of $2.3 million or 1.3% during the first quarter due to the sales of our Payment Protection Plan product, which began May 1 of-- May 1 of Fiscal 2008.

Our debt decreased by $7.2 million for the quarter to $33.7 million, due to strong cash flows from operations reflecting the lower sales levels, higher down payments, shorter terms, and better collection rates as well as benefits from the improvement in our cash management processes.

Debt is actually down by $15.3 million from its high point in October, 2006, as we focused on cash flows and underwriting.

Our debt-to-equity stood at 27%, and our debt-to-finance receivables was 19% at July 31, 2007.

We've gone through a tough time financially over the last year and a half, and we're very proud of our healthy balance sheet and are excited about the opportunity-- opportunity to leverage our strengths into the future.

We are currently at prime plus 75 on our revolving credit facility.

The rate going forward will fluctuate based on our financial performance.

We currently don't anticipate the rate going any higher, and we should see some decreases as our trailing six and 12-month financio-- financial ratios improve.

We have ad-- adequate excess availability on our revolving credit facilities at this point, as we adjust to our expected operating run-rate we will continue to review the credit side of our balance sheet in the coming months to ensure that we position the company with the best possible capital structure.

Now I'll turn it over to Hank.

Thank you, Jeff.

In our first quarter, our new Payment Protection plan was launched in Arkansas and Alabama.

For the customer that elected to purchase the Payment Protection Plan in the event the vehicle is totaled or stolen, we will waive the remaining balance.

Our associates did an excellent job of supporting the product.

And it has been extremely well received by our customers as it clearly provides a much-needed benefit for them.

Since the launch date in June, sales levels of the Payment Protection Plan have been in excess of 85%, and we're very pleased with this strong start.

We believe in this product as it provides an excellent benefit to the customer and also serves as a very effective sales tool.

And obviously it also is very beneficial with regard to customer attention as it provides a means to work through some difficult situations.

We're also very excited to announce that beginning this next month we will be rolling out the product to our 10 dealerships in Missouri, as well.

Now with regard to our sales, despite the fact that unit sales were lower for the first quarter than last year, we're very encouraged with our sales in general.

As I believe we discussed on our last call, our goal is to increase the number of quality sales, not just overall sales numbers.

And although obviously that is part of our ultimate goal, we believe that the increased down payments and improved terms are indicative that we are realizing some success in our efforts to improve the quality of our sales.

And the recent improvements in credit losses and delinquencies also seems to indicate that as well.

As we have put measures in place to improve the quality of our sales, we have also stepped up our efforts to replace sales that can be lost as a result of tightening up our underwriting.

Throughout the first quarter, we've addressed every aspect of our sales.

Our IT department has continued to streamline the administrative elements of our sales process to make it much more efficient, and we hope what is a better experience for our customers.

Our associate development department has worked diligently at providing improved sales training and retraining at all of our dealerships, and our purchasing department has done an excellent job in regards to both quantity and quality.

And we're now carrying an increased level of inventory at most of our dealerships, and also we're maintaining a better inventory mix.

We're also continuing with what we believe to be an aggressive advertising schedule.

All of these sales efforts seem to be paying off as we just finished August with very strong sales, and that was very encouraging for us.

As for expansion pro-- projects, which we're frequently asked about, we are continuing to hold off entering into new markets at this time.

However, we did recently open a satellite location this quarter in Springfield, Missouri, to better serve that area.

And we will continue to take advantage of similar opportunities to expand successful dealerships as they present themselves.

And we currently have three expansion projects underway to provide larger fatili-- facilities for some of our dealerships that have outgrown their current locations.

There is another very important matter that I would like to share with everyone.

This past month, Nan Smith passed away.

Some of you listening on this call may have had the good fortune to have met her.

Nan spent 23 years as the guiding force of the values and principles of our company.

Our values of integrity, respect, compassion and excellence were instilled in our company by Nan and we strive to uphold them today.

On countless occasions throughout the years, Nan would say "Just do the right thing." Nan's passion and commitment to doing the right thing made our company what it is and so many of us better people for it.

Of these values, compassion always comes first to the mind of anyone who knows Nan when you think of her.

She was truly one of the most compassionate and generous people most of us have ever had the privilege of knowing, and hopefully through her example we will all pass some of that along.

Appropriately, our Associate Assistance fund is named in her honor.

We call it the Nan fund, as it well represents what she did on innumerable occasions out of her own pocket.

She had a tremendous positive impact on so many people and I consider myself extremely fortunate to be counted among them.

And, she will truly missed by many America's Car-Mart associates.

As I mentioned in the last call, one of our primary focuses currently is to revitalize the culture and values of Car-Mart.

As we've grown, it seems to be more difficult to do, but certainly it's no less important.

And we believe that our efforts to do so are not only very necessary for the continued future success of our company, but I believe it's also a very appropriate way for us to remember and honor Nan.

And just wanted to take time to mention her.

So with that, I will turn it back over to Skip.

Thank you, Hank.

As I said in our last conference call, our goal for fiscal '08 is to focus on increasing the profitability of our company.

We believe we are well on the way to doing that.

The pieces we have put into place are beginning to have positive results, so expect to continue to increase our bottom line throughout this year and beyond, and to begin to increase the top line by prudent growth mainly at our existing dealerships.

As I'm sure you've noticed in the press release today, I'm going to step down as CEO next month and Hank is going to assume that role and title.

This is something that we've planned for some time, and I'm sure that Hank will do a great job going forward.

He's been with Car-Mart all of his professional life and there's no one who understands-- understands the nuances of our business any better than Hank.

And he has the skill and vision to lead Car-Mart as we continue to grow.

I'm going to remain as chairman of the board and will continue to be active in certain aspects of the business, including working with Hank and our Board of Directors on our long-term strategic initiatives, as well as investor relations and capital structure issues.

I'm excited about working in those areas, and I look forward to maintaining and expanding the great relationships I've had with our shareholders.

And in that regard, we've just mailed our 2007 annual reports and proxies, and if you haven't yet received yours, you should in the next few days.

Our annual meeting is set for October 16 in Bentonville, and you are certainly invited to attend in person.

And if any of you have any questions regarding the proxy or the matters to be voted on, please feel free to call Jeff or me.

That actually concludes our prepared remarks, and so now we would like to move on to your questions.

Operator?

At this time, management will now answer questions from the callers.

I would like to reiterate that my earlier comments regarding forward-looking statements apply both to management's prepared remarks and to anything that may come up during the Q&A.

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Matthew Hines of Jefferies, Inc.

Good morning, guys.

Good morning.

Have you seen the -- I guess with regard to your more mature Arkansas lots, have you seen any shift in consumer demand trends in terms of foot traffic and I guess with all the -- all the headlines we see about potentially slowing consumer -- are you still seeing plenty of traffic?

Yes, we are.

Actually, as I mentioned, we just finished a good sales month.

I think we're-- we've had a pretty aggressive advertising campaign.

And as I mentioned, our purchasing guys are doing a great job.

So if you drive by our lots, we've got a good inventory mix.

And so yes, our traffic-- we feel good about it right now.

Okay.

Thank you.

You're welcome.

Your next question comes from the line of John Hecht of JMP Securities.

Good morning guys.

Good morning, John.

First of all, I want to know -- I know this succession plan has been in the works, but I want to congratulate Hank for -- as soon as Skip rolling-- Skip, wish you the best in any new endeavors you pick up in your free time.

Thanks, John.

I think my golf game might improve.

We all could use that at times.

A couple questions.

Can you comment in terms of-- particularly in sales, the performance at some of the newer stores-- in respect to sales and credit, particularly the Texas stores and you guys dialed that back and are more focused on quality sales.

How are we seeing the stores ramp up versus your expectations, and what should we see those stores in terms of comps-- start hitting reasonably easy comps, and start showing positive same-store comps?

Okay.

I think very recently, I would tell you that we've put a lot of focus, I think Jeff mentioned that -- we're very -- very encouraged by what we're doing at our smaller lots.

I think that there was kind of a -- a cycle we go through.

Several months back we really tightened up.

And I think any time you -- you tighten up your minimum down payment requirements and things such as that, initially, you -- you see sales drop and we did.

But I think we've moved through that, and I think now we -- our guys have learned that we can sell vehicles with a higher requirement.

We certainly have to have a little better selection.

We've done that.

So I would tell you that in general, we-- as we sit here right now, we are very encouraged and pleased with what's happening on those smaller lots with regard to their sales levels.

Okay.

Is it -- on a monthly basis, a little more predictable now in terms of the unit sales, or is that -- tend to follow-- customer demand?

Or are you able to drive more traffic and more deals at this point given your marketing?

I think we are able to drive better traffic right now.

And I think we've got some things in place that we're going to be able to maintain a higher level with those lots.

Okay.

John, one thing that's consistent is our customers do need a car and do need an affordable car.

And as we've driven them with the advertising and have a really better inventory-- these folks want a car, they can afford at an $8,000 to $9,000 range.

And if we have that available, I think we'll have sufficient traffic to deliver the sales.

Particularly the smaller lots that tend to have customers that need that $8,000 to $9,000 car.

So-- notwithstanding what's going on throughout the world, most of our business really is local.

And if we can provide the product locally-- we'll have good traffic.

And then turning to inventory, I mean, I know it's -- the last couple of years, you've been -- times when it's been -- the wholesale opportunities to buy cars have been tight, and other times where it hasn't, it's -- it's [varied] geographically-- .

What [sort of commentary] can you give me-- us on your inventory selection?

And pricing at this

Well, I -- I would tell you that-- from region to region, it can kind of change on its own.

I -- I would really have to say that our purchasing department has just gotten a lot better.

So John Simms is the director of our purchasing department.

Been with us for a while now.

Got his feet under him.

He came to us with a lot of management experience, and he's learned his way there.

And I think his -- we're starting to see a lot more of his impact.

I know that we've increased the average number of purchases for each of our buyers out there.

They're doing a better job.

And I would just have to say that in general, I think we're just doing a much more efficient job.

We've increased our number of resources where we buy vehicles and so I think that -- as we -- as I go round and visit our lots, seeing just better selection, I think better quality in general.

I think just really we're doing a better job, quite frankly.

So you're doing a better job.

In addition, is the selection and-- the environment at the auctions improving for you where you have sort of better opportunity, or is it really just an execution that's allowing you to get -- ?

I would say right now it's more of an execution.

Yes, I wouldn't take any -- I wouldn't say it's gotten easier.

I think that it will get better and we learn as we go.

And -- yes.

I think we're just doing a better job.

Okay.

And last question before I let others ask-- you mentioned-- you guys referred to heightened charge-offs in the quarter related to-- maybe more rapid response to retailing cars and wholesaling them and that you expected that activity to wane.

Should one take from that commentary that you kind of used the opportunities kind of to clean out some of the more vulnerable counts, and you feel better about the overall portfolio, or is there something else going on in there?

Yes.

I would tell you particularly in the last fiscal year, we did go through our portfolio pretty dramatically.

And you're still seeing some of that-- in the first quarter.

But minor -- I think what -- I think you can take from that is-- yes, we do feel better about our portfolio.

We feel better about it every month.

There's those [low ones]-- we still have a situation where-- that half our loans go bad in that 11th, 12th month.

We still have some of those that are in the portfolio.

But I will tell you as each month go by-- goes by, I think, Jeff you'd agree and Hank, that the portfolio we believe is improving in quality.

Right.

Well, thank you very much.

Thanks, John.

Your next question comes from the line of Dennis Telzrow of Stephens, Inc.

Good morning, and I concur with John's comments on congratulations, Hank.

And --

Thank you, Dennis.

Thank you.

A follow-up on just a little bit of gross profit margin.

I know Jeff mentioned it -- it's a little wide from what I expected.

You mentioned higher repair costs.

Was that just a short-term event, or do you think that's ongoing?

Well, the last several quarters when we compared to prior years, our expenses have been up a little bit.

We're actually getting closer to -- to not being able to talk about expenses as a negative anymore.

So it's not a big -- it wasn't a big item for the first quarter.

Most of -- most of the decrease in gross profit related to our retail sales pricing based on the cost of the car.

And also the level and volume of the wholesale sales.

Okay.

So it had to do with the way you're doing the terms now on the pricing?

Is that a fair -- ?

Well, as the price of our -- as the cost of our cars go up, our pricing guidelines dictate a lower gross margin percentage.

The last -- the last few years, the price of our cars has gone up to a point where the retail pricing off the lot just provides us with a lower gross margin percentage.

And that continued in the first quarter of this year.

Yes, but the -- sequentially, the margins seemed to deteriorate a little bit more.

And your average price in the fourth quarter wasn't that different from where it is now.

So -- ?

Yes.

And the biggest change from the fourth quarter to the first is just the level and the results we had on the wholesale side.

Okay.

The retail -- with the retail line coming down the way it did, and the wholesales going up at the same time, it -- it really stung us on the gross margin percentage.

Okay.

Part of it was the math or just lower retail sales.

Lower retail sales.

Yes, there you go.

I got it.

You'll see some improvement we believe going forward in that margin.

Right.

With retail sales beginning to build.

And hopefully we'll do a better job.

We'll have fewer wholesales to wholesale.

Right, got you.

And the terms now, where are we on the length of contract versus, say, a year ago?

We are about a quarter to a half a month lower on the average origination term at this point.

Versus this time last year.

And that's on a pretty significant increase in -- in sales price.

So we're pretty proud of that.

Okay.

And I know this is the -- the sort of difficult one to answer, but you've got the loss rate, at least in first quarter down to 21.2.

What kind of range would we like it to be at?

I mean, are we -- are we there, or, you know, a tradeoff of where we wanted to be and where we get sales growth, too.

That is a good question, Dennis.

Thank you.

I would tell you we're -- we're pleased with where it is at the end of the quarter.

And that is a significant improvement over the fourth quarter which is over 26%.

Significant improvement over the whole 2007 year.

And obviously the way we want to improve it further.

But there does come a level where, you're right, it does really negatively impact sales and we are at a risk business.

We're probably within the range of that number--.

Right.

Maybe 20%.

We're just talking here.

And we're always trying to do better, but-- There is a real number in which if you got to it you're not selling many cars.

[Yes] Hank, I don't know if you know what exactly it is, but we're probably [close to that] close to it.

Yes.

And last question, Hank mentioned that August sales were better--.

Are we still seeing year-over-year declines, or is that just sort of sequentially improvement?

I would say if I understand your question right, I would say that's a sequential improvement of where we've been over the course of the [past recent] months.

We're seeing an increase.

Okay.

Fair enough.

Thanks a lot.

Thank you, Dennis.

Your next question comes from the line of Quentin Maynard of Moorhead Capital.

Hey there guys, how you doing today?

Good morning, Quentin.

Hey, Quentin.

Congratulations, Hank.

[Thank you] Just wanted to get into a couple of things with you.

As far as talking about your average price on the car kind of maintaining, I remember in the past you saying you were looking to improve the selection of cars you had down market.

Outside of-- $100 difference this way or that way, do you see a possibility of getting any more cars that you're going to be able to retail in the $5,000 range?

Is that on the horizon at all?

As far as our retail pricing, to get cheaper cars, is that what you're asking?

Right, right.

You know, as much as we would love to, I think that we have to deal with the reality that in order to get the cars down to that level, they're just not that mechanically sound anymore.

I think the costs of the car that we feel comfortable putting a customer in has gone up.

And actually with our increase in sales process, that's certainly no move for us to try to get out there and constantly increase that.

As a matter of fact, we've even trimmed off some of the very highest end cars that we sell to help keep that average down.

I think what we do is we try to buy as inexpensive a car as we can but mechanically sound and one that's appealing to the level of customer that we want.

And also along with that in order to get our sales levels to where we want, we know we have to put more emphasis, more effort into the selection that we offer customers.

So as we put more effort into giving the customer choice, obviously sometimes we end up spending a little bit more.

So though it's really for us kind of a balancing game, but no, I'm afraid that I don't see us being able to really offer that cheap car like everybody would like to see.

I guess as a kind of a follow-on to that then, as Jeff was saying when you guys go up market in the retail sales price of a car, you go down as far as the gross margin percentage on that car, and I guess if you could just kind of give me a little more color on the logic behind that in the sense that-- as those prices over the years come -- continue to increase, if we were to follow the same thing, we'd see a continually decreasing gross margin, which fundamentally just makes it a tougher business?

So -- is it just because the customer doesn't have the ability to-- pay for the car at the gross margin level or you're afraid [you'd run off sales]-- I'm trying to get a better understanding of --?

Well, I think that if we go-- depending on how far we look back, I think if we compare the wholesale car of $1,500 to $2,000 range, obviously that vehicle can handle more of a markup percentagewise than-- a $4,100 wholesale price that we're selling today.

And there's also the balance of, as you know -- I know you've [been here in business]-- a lot of our emphasis is on our repeat customers.

And we really put a lot of focus in to setting a customer up for success.

If we overprice that car or if we try to really increase that margin all up-front, well that's -- we're going to have less likelihood that we're going to be able to sell that customer another vehicle.

Right now we're very pleased with our repeat customer numbers.

It's always a focus of ours.

And so I think, again, it's a balance.

We certainly have to -- we have to make money, but at the same time, we have to stay in business.

So--.

Absolutely.

As far as just a couple of quick numbers, any idea where you are on inventories dated out right now, as far as what level of days and inventory do you have?

Short-term inventories --

Around 11, 11.5 turns a year overall inventory turns.

Great.

And as far as when you said the average new contracts a half month lower than it was last year, where is that?

Just a number?

Right around 25 months.

25 months.

Great.

You know, congratulations.

I'll look forward to seeing you next quarter.

Thanks so much, I'll turn it over to someone else.

Appreciate it.

Your next question comes from Bill Armstrong of CL King & Associates.

Good morning, Skip, Hank, Jeff.

I would like to offer my congratulations also.

Condolences as well on Nan.

How-- what is the plan to get sales improving given the hard-fought progress that you've made on the collections and credit losses front.

How do you -- how do you get sales back up there without sacrificing those gains you've made on the loss side?

Well-- that's what we kind of spoke to a little bit earlier.

And I do feel like we're doing that.

We're -- we're approaching that with all the aspects that affect sales.

And really we're still a size where we can really do that.

We really focus what's needed on a lot-by-lot basis.

On some of our smaller lots over the past couple of months, we -- we've -- we know that it's been inventory and for some of those we've increased the selection and such.

For some of our larger dealerships, it's been the quality of the staffing, and there have been some staffing changes.

We actually now have a couple of sales managers on some of our bigger dealerships that we didn't have before.

The training side, there's been a lot of training, retraining.

So, I would tell you that there's kind of an approach on all fronts, and I do feel good about it.

I think we're seeing the results.

And as far as which factor is impacting us the most, I think it's really on a lot-by-lot basis for us.

And we try to -- we try to provide whatever we need in each area.

And I do think that we're -- we have fewer lots now that aren't carrying their weight on sales.

So we feel good about it.

Okay.

Are you seeing any migration of subprime customers who-- may have historically been customers of-- the new -- the used car department of a franchise dealership no longer being able to get financing from those dealerships as we've been reading about and maybe migrating to the "buy here-pay here" lots?

Are your lot managers reporting that -- that any kind of migration there?

Yes-- obviously it's just anecdotal.

Here and there.

And certainly more from some areas than others.

And so yes, that -- that happens.

And I would say lately probably more so than usual.

But as far the overall impact that that has on us, I couldn't tell you exactly.

But -- but yes, we do see more of that.

And also obviously as we have mentioned, we feel better about our selection of inventory.

And so with the more attractive inventory, I think we-- that could be as big a component of that as anything.

That -- that we more cust-- those customers that notice us.

And realize we're an alternative for them.

Okay.

And just-- I was wondering if maybe we could just get get a quick explanation on the accounting of the deferred revenues on the Payment Protection Plan.

How-- how should we look at that?

Cause now I see some new items here on the -- on the receivable side?

Yes.

The -- the product is a debt cancellation product as Hank described.

And the accounting for the product basically on the front end, the entire-- the entire amount is deferred.

And then it's recognized to income in proportion to the amount of loan outstanding that could be canceled at any point in time.

So we're using what's called a -- the rule of 78's, amortization method for that liability, which basically means you take more of -- more of the amount up front and less at the end because you have more principle outstanding at the front end.

So it's more or less a reverse amortization of that deferred revenue.

Okay.

And then it's amortized over the lifeti-- life of the loan?

Yes.

Yes.

It is.

Okay.

So, then the reported revenue number we saw-- does not include the -- the cash,if you will, that you bring from these Payment Protection Plans?

The reported sales numbers for the quarter does include the amortization of the appropriate amount of that product for the first quarter.

Got it, got it.

Based on the rule of 78.

Not the full amount, but --

The partial amount.

[125th on the rule of 78].

Yes, exactly.

Okay, and then there's going to be a liability on the balance sheet?

Yes.

Okay, all right.

I think that's all I have.

Thanks.

Thank you, Bill.

(OPERATOR INSTRUCTIONS).

Your next question comes from the line of Daniel O'Sullivan of Utendahl.

Yes, good morning.

Thank you for taking my questions.

I'd like it echo my congratulations and condolence, as well.

Not sure if you guys mentioned it.

Can you give us a sense of future growth in dealership maybe over the next 12 months-- where you see that number being, 12 months out?

We're currently at 93 dealerships.

As Hank mentioned we have opened in this quarter, last quarter actually, one in Springfield, Missouri, which is a satellite.

I would suggest to you over the next six months or so, we won't see any significant or any growth in new dealerships but quite a bit of growth, hopefully in our existing dealership base, both from a revenue standpoint.

As Hank mentioned some of the dealerships in particular are going through physical expansions which for the most part will allow them to sell more cars and handle their customers better.

But, in the new store base, you won't see anything really in this fiscal year much more than what we have today.

We do have one location in Alabama that we already have, but we have not decided to open that just yet.

Okay.

That's very helpful, thanks, Skip.

And also one quick other question.

I know you guys in the past, I know you had some problems in Texas with some dealerships.

Can you give us maybe a sense -- on a more of a market basis-- a market base where-- some of the dealerships are maybe still behind where you would like them to be?

And maybe-- which markets are-- at or ahead of-- where you'd like them to be?

Well, obviously our Texas market still remains behind where we'd like it to be as compared to when we first opened those stores.

Clearly we've got catching up to do there.

That as a group, I was specifically referring to them as we talked about how we really tightened up our requirements in that area, we're -- we're getting and have for the past few months now significantly higher down payments in Texas.

So that brings us a much higher level of comfort with what we're selling down there.

We also kind of went through that cycle that I mentioned where when we first tightened up [felt it down].

And I guess that -- sometimes things get a little worse before they get better.

I think we're moving through that.

And I think that with the higher down payments, the better terms, it's-- as Jeff had mentioned several times, the cash flow is improving there.

And along with that, we're improving inventory.

So I think with the improved inventory also-- some of the managers are becoming a little bit more seasoned now.

Have learned more.

Some of it's been some-- an expensive education.

But I think that we know a lot more.

And I would actually -- I feel like I can say today that things are improving in that area, we struggle with it for some time.

But I certainly feel better about that area right now today than did I six months ago and certainly much more than a year ago.

So, I think we're headed the right direction.

As for the new stores in Alabama, specifically, we've just got three out there that's the new market.

And certainly whether we start opening additional stores that is a market we will really be working on.

And I can tell you I feel great about our experience in Alabama so far.

We love Alabama.

So we're -- and we look forward to getting some more new managers trained and thoroughly trained.

And so we know they're ready.

And so we can feel more confident that when we go to Alabama, that -- that they will do as well as these who have already opened.

Yes, we feel good about that.

Okay.

That's very helpful.

Thanks, Hank.

And one last quick one.

Can you give us a sense -- I know over the last several quarters, you've seen a better margin in some of the wholesale vehicles, or using different channels to dispose of those vehicles.

Is that-- continuing to strengthen or what are your thoughts there?

You know, for a time, it -- it continues to strengthen.

And some of that could have also been a matter of timing.

We know typically during the spring wholesales tend to do better early spring particularly, tax time and such as we call it.

I wouldn't say that we -- that here just recently we -- we've seen it continue to improve, but it's certainly a focus area for us.

And we certainly need to continue to improve in that area.

So, [I guess I can answer it right.] Just here lately, it's kind of flattened out for us, and we need to do better.

Okay.

Thank you, and again, congratulations.

Thanks, Dan.

At this time, there are no further questions.

I will now return the call to Skip Falgout for closing remarks.

Okay.

Thank you very much for listening in.

And we appreciate your congratulations.

Hank and I are both very excited with this transition that we've had in the works for quite a while.

And I think it's going to work real well for the company.

And we appreciate your questions today.

And I would like to reiterate the invitation to come visit with us.

Certainly next month is our annual meeting.

Or any time, if you have any questions.

Again, the proxies are out, there are a couple of matters in the proxy that relate directly to new compensation plans we put together.

So if there's any questions there, please feel free call us.

Again, thank you very much.

Thank you, that does conclude today's America's Car-Mart first-quarter fiscal 2008 conference call.

You may now disconnect.