America's CAR-MART Inc (CRMT) 2008 Q3 法說會逐字稿

Good morning, everyone.

Thank you for holding.

Welcome to the America's Car-Mart's third quarter fiscal 2008 conference call.

The topic of this call will be the earnings and operating results for the Company's fiscal third quarter ended January 31, 2008.

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 website at www.Car-Mart.com.

As you all know, some of the management's comments today may include forward-looking statements, which inherently involve risk and uncertainties that could cause actual results to differ materially from the 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 information regarding forward-looking information, please see item 1 of part 1 of the Company's annual report on Form 10-K for the fiscal year ended April 30, 2007.

And its current and quarterly reports finished to or filed with the Securities Exchange Commission on Forms 8-K and 10-Q.

Participating on the call this morning are Skip Falgout, Car-Mart's Chairman of the Board; Hank Henderson, the Company's Chief Executive Officer and President; and Jeff Williams, Chief Financial Officer.

Now I would like to turn the call over to the Company's Chairman of the Board, Skip Falgout.

Good morning, and thank you.

Most of you have already seen our press release this morning of our third quarter results.

We are pleased to announce that this morning weve reported net income of $3.4 million, or $0.28 per diluted share, versus a net loss of $50,000, or basically flat for the prior second year quarter.

Revenues were up 19.9%, same-store revenues were up 18.7%, and retail unit sales were also up from the prior year quarter by 17.1%.

Our downpayments, credit losses, collections, and delinquent accounts all showed significant improvement, resulting in strong cash flows for the quarter.

Jeff will go into more detail on the numbers in a minute.

Although the quarter over quarter comparisons certainly are extremely positive, I believe the more important aspect to our performance this quarter and year to date is the continued improvement in the key metrics of our business.

And each major component of our operations, purchasing, underwriting, sales and collections, we have, as you know, invested considerable time, money, and personnel to reestablish our core operations and build a platform for sustainable, profitable growth going forward.

We are making progress in that regard.

As I mentioned in the press release this morning, we have strengthened our core competencies and at the same time, significantly improved our capital position to take advantage not only of our strengths and market presence, but also of our competitor's weaknesses.

Hank and his management team have done a great job this quarter, and while all of us know there's more to do, we are very pleased with our progress so far this year.

Now I'm going to turn it over to Jeff to go over the financial results.

Thanks, Skip.

As mentioned, our top line revenues for the quarter increased 19.9% compared to the third quarter of last year.

The increase was the result of a 17.1% increase in retail unit volume, a 6.1% increase in our average retail selling price, a 5.6% increase in interest income, offset by a $600,000 decrease in wholesale sales.

Same-store revenue increased by 18.7% for the quarter, as we continue to see sales volume benefits of our increased advertising efforts and numerous other sales initiatives.

We are pleased with our 5.2% downpayment percentage for the quarter and it was right in line with our expectations.

We significantly expanded our tax refund anticipation sales efforts in the third quarter and we expect fourth quarter special payments, which coincide with the timing of actual tax refunds, to be strong and that has indeed been the case through the end of February.

Excluding the effect of our expanded tax refund anticipation sales, down payments for the quarter were over 1% higher last year.

Down payments for the entire fiscal year are up a full percentage point as compared to last year and closer to 1.5% higher when excluding the effect of our increase in tax refund sales.

For the quarter, our average initial loan term was right at 25.5 months compared to 25 months for the third quarter of last year.

The initial term was up slightly, due to the 6.1% increase in average retail selling price for the quarter.

8801 compared to 8293.

The average retail sales price for the quarter was up 3.6% from our second quarter's average of 8496.

Sales revenue generated by our Payment Protection Plan product, increased efficiencies in our retail pricing, as well as increased car costs led by higher than expected demand for more expensive vehicles, as well as cost pressures on the buy side, which are more pronounced during this time of year, contributed to the increase.

Going forward, we expect to see some continuing growth in our average retail sales price when compared to prior year results, and we will continue to work hard in our efforts in pushing for a leveling off of the increases we've seen.

The increase in unit sales for the quarter was broad based across most of our dealerships.

Management continues to spend a significant amount of time working with individual lots to ensure that each unit on a stand-alone basis is on a path to producing economic profit, if not already there and maximizing economic profits for those lots that are producing.

We saw good results for the quarter with our smaller, newer lots in getting their sales levels up to an acceptable range and we saw solid volume increases in most of our larger, more established dealerships.

We feel that we can continue to see increases at the top line, while maintaining the quality of the deals at the same time.

All of our dealerships, but particularly our newer dealerships have significant capacity to increase sales volume, GAAP profits and economic profits going forward.

Interest income was up 5.6% for the quarter, as the effective interest rate was 12.8% compared to 12.6% in the prior year period, combined with an increase in the average finance receivable balance.

For the third quarter of this year, our gross profit margin percentage was 43.2% of sales, which is up from 41.4% in the third quarter of last year, and up from 42.1% from this year's second quarter.

The sequential and prior year increase gross margin percentages have resulted from significantly improved results for wholesale sales, which for the most part relate to cash sales of repossessed vehicles at or around break-even and increased efficiencies in retail pricing, as well as the gross margin generated from the new Payment Protection Plan product.

Demand for our core vehicles is very much local in nature and remains very high, especially at this time of the year.

We will continue to focus efforts on purchasing costs, retail pricing, and repair and transport costs, and expect to continue to see solid gross margin percentages going forward.

In the third quarter of this year, SG&A as a percentage of sales decreased to 19.2% from 19.7% in the same period last year.

The overall dollar increase related to a 4.4% increase in the average number of stores in operation and the associated incremental costs of those stores.

Increased advertising expenditures, increased insurance costs, and higher payroll costs.

The higher payroll costs included a $500,000 increase in noncash stock-based compensation during 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 in our support functions.

We were able to leverage these infrastructure investments during the quarter and we will continue to leverage these investments going forward.

For the current quarter, net charge-offs as a percentage of average finance receivables was 6.9% compared to 9.2% for the prior year's quarter.

We expect net chargeoffs for the remainder of this year to be significantly below levels experienced during the last quarter of 2007.

Collections as a percentage of average finance receivables increased to 16.6% from 16.2% for the prior year quarter and to 50.4% from 48.2% for the nine-month period.

The higher percentage equates to more than $4 million in increased collections for the nine-month period.

The quality of the portfolio, the steady average loan term, higher downpayments and better collection efforts have led to increased collections and significantly better performance compared to last year.

The average percentage of finance receivables which were current during the third quarter was 82.3% compared to 80% last year.

We believe that the increase in the quality of the portfolio is reflected in the higher current percent, the higher downpayment percentages.

At January 31, 2008, our 30-plus past due accounts were at 3.7% compared to 3.8% at January 31, 2007.

The positive trend on our 30-plus past due accounts continues, continued past the end of the quarter.

The historical average for 30-plus at the end of the third quarter has been closer to 4.5%.

Our allowance for loan losses remains at 22% of finance receivables at January 31, 2008.

The provision for credit losses was 23.4% of sales during the quarter compared to 30.6% for the third quarter of last year.

We've seen significant improvement in our credit losses this year and we are working hard to bring the losses down further as we move forward.

We have seen a significant increase in cash flows from operations this fiscal year.

In an effort to maximize our economic profit, we have reinvested this cash flow in an additional $19.3 million in finance receivables, $2.2 million in Car-Mart via stock repurchases.

We bought back approximately 187,000 shares all during the third quarter and some upgrades to existing facilities so that those locations can continue to grow.

Debt increased by about $3 million for the third quarter to $40.5 million, but actually decreased by $333,000 for the nine-month period.

Total debt is down by $8.5 million from its high point in October of 2006.

Our debt to equity stood at 30.7% and our debt to finance receivables was 20.5% at the end of the quarter.

We will continue to view our future investment decisions from an economic profit perspective, which includes analyzing returns on invested capital, on a location basis, as well as potential future investments through our stock repurchase program.

We remain very proud of our extremely healthy balance sheet and are excited about the opportunity to continue to leverage our strengths into the future.

Our loan leverage and asset-based lending agreement have allowed us to remain unaffected by this recent turmoil in the credit markets.

We are currently at prime 6% on our revolving credit facility.

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

We anticipate a decrease in our prime rate -- in our rate to prime less a quarter, as trailing six and 12-month financial ratios continue to improve.

Excess availability was $19.3 million at the end of the quarter.

If we continue to adjust to our expected operating run rate, we will ensure that the credit side of our balance sheet gives us the best possible capital structure, while maintaining the proper level of conservatism.

Now I'll turn it over to Hank.

Thanks, Jeff.

As I said in the press release today, one of our major goals this year was to increase the profitability of our existing store base and to do that, we slowed down our new store growth to allow us to implement the numerous initiatives that we discussed in our previous call.

These initiatives address each area of our business, purchasing, underwriting, sales, and collections.

We knew it would take some time for the results of these efforts to become evident and we are just recently beginning to see their positive impact.

The improved year-over-year results are basically on the same store base as last year.

Our existing stores are on average selling more vehicles and we believe the improved quality of the transactions, along with improvements in collections, should allow us to continue to increase growth and profitability at our existing stores, as well as successfully open new stores.

And when I say the quality of the transactions, primarily I'm referring to three components of the deal.

First, the vehicles are better to start with.

We are stocking our dealerships with the best possible cars, trucks, and SUVs and the overall mix of our inventory's better than ever.

Second, our underwriting has improved and will continue to improve as we build on our database and customer profile information.

And third, the terms of each deal are geared to increasing our success and reducing credit losses by tailoring the terms of each deal to not only our customers' ability to pay, but also the expected longevity of the vehicle.

Now, these are items we focus on every day and are constantly under review.

While we are seeing some great results, not all of our dealerships are yet performing at a level that we want, but the number of underperforming lots is down substantially from even just our past quarter.

We do have specific plans for each underperforming lot to get them up to par, and as we carefully considered each dealership's prospects, it became evident that it would be better to close a few of our locations, which we did this past quarter, beginning with Wichita, Kansas.

It did not fit into our growth plan geographically and it was a location that drained resources that could best be used otherwise.

Additionally, we're in the process of closing down two locations in Texas.

Gainesville, which is currently a satellite location for Sherman, Texas, and then Greenville, which is a satellite of Sulphur Springs, Texas.

There may be one other closure prior to year end, but I can tell you that otherwise we are entirely committed to the individual profitability of each store.

On the other hand, it is important to note that all three of the new dealerships we've opened this fiscal year are performing well and are on track with our expectations.

And in fact, Mountain Home, Arkansas just this past month had the biggest grand opening we've ever had, with record turnout despite 29-degree weather.

As we've previously discussed, we have improved our new store opening strategy and procedure, and have allocated the necessary resources to better assure the success of our new stores.

We plan to open at least four new dealerships in fiscal '09.

We are confident we can have at least this level of new store growth, as we are seeing increasingly positive results of our existing stores, and also, as we are effectively rebuilding our management bench strength.

Our manager in training program currently has over 20 trainees at various stages of development.

And having this number of quality trainees will allow us to adequately staff our new store locations as we accelerate that growth in the future.

As Skip and Jeff both indicated, it was a solid quarter for us, but we are not resting.

To the contrary, we are following through with great intensity on each of our current initiatives so that we can continue to build upon our success.

With that, that concludes our prepared remarks.

So now we would like to move on to your questions.

Operator?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Dennis Telzrow from Stephens, Inc..

Good morning, Skip, Hank, and Jeff, great quarter.

What a difference a year makes, right?

You got that right.

Lot of hard work in between, I understand that.

Maybe a little comment on competition and the credit markets as they impact your competitors and whether you're seeing any customers coming in the door who have been squeezed down, so to speak, by the Americredits and credit acceptance and that vein?

Dennis, I can tell you it's just more anecdotal.

I heard some of that from some of our managers.

I don't really have any way to quantify that or know how much of our business that is right now, but, yes, I have, again, heard from a few managers that they have experienced some of that.

And then on competitive front, any of the mom and pops getting hurt by this current credit crunch so to speak, availability of credit, or having to sell paper at much higher rates, so to speak?

Yes, I've got to believe they are.

Again, I couldn't tell you to what extent that impacts us.

Right.

But I would assume that that's the case.

And these two other lots you're going to close, Gainesville and Greenville, I assume there will be a little incremental financial cost like we saw with Wichita or less or greater?

It really shouldn't be as significant as Wichita because as we mentioned, these are smaller satellite stores in close proximity.

Do you want to expand on that a little bit, Jeff?

Yes, we're not expecting a significant loss from closure on any of the lots other than Wichita at this point.

So should be pretty minor.

Yes.

And Wichita, was there something other than the geographical location that made it more challenging?

Well, primarily I think a big part of it was kind of out there on its own and as we know, when our lots are in closer proximity, we have better support.

We do tend to do better.

That was a lot that had been opened a long time ago and our growth plans right now don't include Kansas and so we thought we would best just to go ahead and pull out now.

And I would tell you we can make excuses or whatever, but it was a store that just did not do well for us.

Yes and then the other two in Texas, sort of the same thing?

They just never worked out, or?

I can tell you that overall in Texas, we are beginning to see some very promising results.

Things are getting better there.

These are a couple of locations that since open, they just really have not had the volume of sales for us and we have struggled.

Again, as mentioned, these were lots that were in close proximity to existing locations anyway, and so just kind of to lighten the load down there and focus more on the stores we feel like have better, longer-term prospects, we just made that decision to do that.

Last question, any comment on inventory availability, cost and such, sort of a quirky news item that the people in Mexico now only going to buy 1998 cars, so don't go buy any of those?

Yes, we got that.

Or even the ones we repossess might have more value.

Yes, send them south.

Yes.

Any trends on inventory buying?

I will tell you, it's interesting.

As we go into the tax time each year, we always feel the heat and the costs go up, but it's really offset.

I have to tell you, our purchasing department, we're really gaining in that area.

Our guys are doing such a better job that although it may be a tougher environment, I think our guys are working harder and smarter and really we're seeing a lot of improvements in how we're able to source cars and what we're able to offer to our customers.

Okay.

Thank you very much.

Thank you, Dennis.

Your next question comes from the line of [Darren Maloney] with [Maradore Funds].

Hi, gentlemen.

Great quarter.

Thank you very much.

I just had a few questions.

I wanted to better understand the Payment Protection product and I think in your last quarter's transcripts, it mentioned that the bulk of your cars were sold with this product.

Is that correct?

Yes, currently we, we currently sell the Payment Protection Plan in three states, Arkansas, Alabama, and Missouri, and we are working, hopefully we'll be expanding that to a couple of more states.

It's a product whereby the customer pays us a fee for this, obviously, and if their vehicle is stolen or totaled, we waive the balance.

And so for our customers that can't afford full coverage insurance in particular, it's a great benefit because it does give them some protection, where in essence they end up paying us in the range of 15 to $20 a month for this, whereas full coverage might be cost $150 a month or so.

So it is a good benefit, where we do offer it.

Our penetration rate is in excess of 90%.

Customers want it, and, again, I hope that we'll be able to expand that throughout the Company.

So that's an insurance surrogate product, then?

Does that meet the state minimum liability requirements and such?

No, it doesn't have anything to do with liability.

I want to be very clear.

It is not an insurance product.

That's an issue we're very careful with.

It is definitely not insurance.

It is a debt cancellation agreement.

Okay, and then I guess is that booked through the Colonial unit?

No, that's a Car-Mart product.

Okay, it's a Car-Mart product.

And I guess where do you book the losses or anticipate the losses?

I mean from a summary financial standpoint, is that in your loss provision, is it bundled there?

The losses are flow-through cost of sales.

The product sales, or in sales, in the costs associated with those losses is in cost of sales.

Okay.

And -- okay.

I guess I'll, maybe I'll take it offline.

I don't want to get too detailed here, but I appreciate your color on that.

I guess one last question here, I guess with the fiscal stimulus package, given it's probably a little bit different than maybe just the normal tax refunds that people might see, I would assume that that's probably accretive for your business?

We expect it will be.

It should be a benefit to both sales and collections.

Okay.

Excellent.

Thanks for your time, gentlemen.

You're welcome.

Thank you.

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

Hi, thanks for taking my questions.

Question related to credit, I mean, in contrast to kind of national statistics where we're seeing credit performance deteriorate on most asset classes, you guys have shown very stable, if not improving credit trends.

I know you took measured steps over the last several quarters to deal with this.

But can you kind of pinpoint or give us a little bit of information of where you're seeing the credit improvement from?

Is it from a better transaction?

Is it from the seasoning of the weaker performing stores that you kind of contained over the past several quarters?

Can you kind of highlight where you're seeing the benefits come from?

I think it's all the things that you mentioned and the fact that it's something we talk about here every day with our managers.

As we said, we feel like we're doing a better job on the purchasing and certainly in our business, the quality of the cars that you have out there impacts that.

Another component, as I mentioned earlier is that we have been much more disciplined throughout this past year, with with regard to our downpayment requirements and our, the structure of our term, being careful not to have a term on a vehicle that's too long and that makes a difference.

And, and we're also working harder to better educate our managers ourselves on our underwriting decisions and to tighten up on those where appropriate.

John, I would tell you, for the most part, this is the same customer base.

I think we're just doing a much better job at the selection process and the underwriting and the collection on the back end.

And Hank's right.

If you look at the quality of the cars we have on the lots there, they are really good cars and it all starts there.

And there's one other thing that you mentioned that's right.

As our smaller stores season more, they begin to roll in some of our repeat customers, which obviously are proven and we have a better sense of the risk there and obviously our repeat customers, our repeat business is something that we track and we talk about a lot and we've taken good care of those folks and good customers come back to see us helps in the long-term.

I mean you guys have always suggested your customers are stressed from an economic perspective.

Are you getting the sense that there they are any more or less stressed?

Obviously you're improving your underwriting and your management of credit, but are you getting the sense from the customer level that there's an increased amount of stress at all out there?

Yes, I wouldn't -- it's not a short-term thing.

This is not anything new, but over time, yes, they are.

The car payment amounts to a bigger part of their paycheck than it did many years ago, so, yes, it is tough.

And that's why we try to adapt to that as best we can.

But at the same time, we can't get too carried away and stretch it out too far.

We try to do the best we can to assure that they can get into an equity situation in that vehicle as quickly as possible.

And, Hank, you did refer to the automated underwriting system.

Can you guys give a little bit more color on sort of the deployment of that and anything to do with your Copart relationship?

Well, just speaking strictly to our scoring model that we've been working on and have discussed somewhat, I would tell you it's still in some -- in more of a testing phase.

We do have it live, on a few live.

We are testing I think in all 13 of our locations right now and we're still in the process of learning ourselves how to best use that.

It does enable us to see the quality of the deals we sell in a given time period and to more quickly address any concerns with managers.

But it's not what you would consider fully deployed at this time.

Okay.

We think it will be helpful.

This is a learning process for us.

And the Copart relationship?

I'm not--?

On the wholesales that we--?

Yes.

I guess, Hank, we obviously still have a relationship?

Yes, (inaudible) vehicles, primarily.

We do sell a lot of cars and our wrecked cars for the most part do well through the Copart auction process, actually do better than local auctions for the most part.

So they are still part of our disposal process of wholesales.

Okay, and I appreciate you guys answering my questions.

One more is that you guys have obviously a big kind of uptick in demand related to the normal seasonality of tax refunds.

Are you still seeing that demand persist, or was that more of a, just a brief pickup related to the specific tax refund season?

No, I think it -- we've got some momentum that seems to be carrying forward.

Yes, I think it's beyond that.

I really do.

A lot of the things that we started months ago, John, I mean the advertising, the quality of the cars, the retraining and supplement of our sales staff, all of those things are kind of coming together that we feel internally that this is more than just a tax refund season.

We really do.

We're tracking more customers, more traffic at most of our lots, which gives us a better selection process and what we've seen so far in the first month of the fourth quarter is some continuation of that kind of traffic.

So we think it's more than just a short-term deal.

Okay.

Thanks very much, guys.

You bet.

Your next question comes from the line of [Brandon Offman] with [Heyman Capital].

Hey, guys.

Congratulations on a great quarter again.

Thanks.

Thank you.

I was just wondering if you could give some color on how many modifications or deferrals were performed in the quarter and how that trended out over the past year, have we seen any uptick or decrease for that matter?

Of course we track deferrals monthly and the deferral percentages for the quarter were right in line with our expectations and all of our internal metrics.

They were in line with some historical standards, so, all in all, the quarter was good from a deferral or a refinance standpoint and actually in the fourth quarter, we're starting off with slightly lower numbers on deferrals, so we're in good shape on that side.

Okay.

Trended in line with historicals, meaning, I assume, like some sort of uptick just seasonally, but then coming back down after January?

Yes.

Is that fair?

You'll see some leading up to tax refunds that spike a little bit, but we didn't see anything that we don't see every year and in fact, it was a little lower than historical averages and then we've seen some good progress after the end of the quarter.

Okay.

Well, that's helpful.

And also, what percentage of your portfolio or inventory are kind of fall in the truck/SUV camp, and are you experiencing any pressure on recovery values or retail sales price on that portion of the inventory?

Well, actually, yes.

We track -- we have a group of vehicles we consider are premium vehicles, which includes our SUVs, pickups and some imports and right now that's, I think we're 39% of our inventory would fall into that category, whereas a year or so ago it was substantially less than that.

Obviously it helped sales with having the better selection out there and I will tell you that despite the gas prices and all that, those are the popular vehicles.

People want the SUVs.

They want the trucks, and we also know from experience that being able to put a customer in a vehicle that they are happy with, that they are able to buy something that they want does help assure the success of that and ultimately benefits our credit losses.

So right now we feel really good about our current inventory selection.

As a matter of fact, that's what the advertising that we're running right now is related to, letting people know that we do have a good selection.

Okay.

And then what percentage of your customers are repeat customers?

I don't know if you said that earlier.

If so, I missed it.

30, 33.

Yes, it's about a third.

About a third?

Okay.

And keep in mind that that includes a lot of newer stores that really don't yet have the -- that people paying off the cars and getting back (inaudible) so our more mature stores actually run a number higher than that.

Over 50% or so.

Okay.

Well, that's very helpful.

I appreciate you taking my question.

Congratulations again.

Thank you, Brandon.

Thank you.

Take care.

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

Yes, nice quarter.

Thanks for taking my questions, guys.

Everything's been pretty much answered.

Just one quick question, I don't know if you gave it out or not.

Can you give the dollar amount for the average down payment for the year and the same number for last year?

Around $600.

Yes.

This quarter and about 560 last quarter, last year.

Okay.

I mean historically--?

That's a little misleading.

We did highlight and push tax refund sales a little earlier in the quarter--.

Which are zero downs, Dan.

Which are zero downs for the most part.

We're quite pleased with that 5.2% for this year, but it's a little misleading in the fact that we, we've got more special payments coming in the fourth quarter related to those sales.

And that's zero down?

Yes.

Okay.

All right.

That was it.

We don't include in the down payments the special payment that's made up.

Some people might, but we don't.

So you have a fair number of zero down payments going into that first quarter number that we expect to see, when the customer gets his tax refund to make up that downpayment or more.

Okay, I see.

Very helpful.

Thanks a lot, guys.

Thanks, Dan.

Take care.

Your next question comes from the line of Bill Armstrong with CL King and Associates.

Good morning, Skip, Hank, and Jeff.

Great quarter.

Hi, Bill.

Your average term went up about half a month during the quarter, and I guess that was due partially to higher average selling prices.

Any concerns there?

Because you had worked hard to get that average term down and so I was just curious how you're looking at that now?

Well, you're exactly right.

The increase in the term was entirely correlated to the increase in the average price.

And actually this is the part of our business we feel like we're doing a much better job with.

We're still following the same guidelines that we began about a year ago and so we're still on track with that.

I will tell you that the average term for the entire portfolio is pretty much flat with last year's third quarter, even though we were up just a little bit for the third quarter by itself, as far as the original terms, the portfolio is pretty much flat on a term basis at the end of the quarter.

Do you feel that the, you can handle a slight increase in average term because the cars should last longer than maybe a year ago?

That, that would be what we're hoping for, yes.

So I think we're doing a good job with our pursing.

I think we're doing a good job getting the cars bought right, so I think that as the price moves up a little bit, it's a good assumption for us as it is a slightly better car.

Right.

I hope for the customer, the deal, the transaction is a slightly better deal, too, all aspects of it.

Okay.

With the tax stimulus, with the rebates, there was -- the government did that earlier in the second, I think it was 2001 or 2002, I forget the exact year.

Do you recall how your business reacted to that stimulus package back then?

I can't give you any specifics.

We talked about that.

As I recall, it was, it was quite a bit less money at the time.

I think it was $300 at the time.

I'm sure that it was helpful particularly to collections at that level.

I think that this time it's going to be more significant and I think, we're expecting to see some benefit there to sales in addition to the help it can bring in collections.

Okay, and then finally, so that Wichita store, that was your only store in Kansas, right?

That's correct.

Okay.

So I guess, just trying to maybe get into your thinking a little bit, so you exited that market.

What, what was it about Kansas that maybe, -- I know you have just this one store out there.

Why not fill up that southeastern quadrant of Kansas with more stores rather than exiting the market?

Was it just not a good market, or what was your thinking along those lines?

Well, actually when you look at the size town that we target, believe it or not, there are really not that many towns in that area that suit us.

You have a good question.

I think if there were, we would have done exactly that, but it just wasn't an area that we had a lot of options to really build up the support in that area and we feel like we've got a lot better options ahead of us and a lot more towns that do suit us better.

So we felt like if we weren't going to be committed to expanding that area, that we should just go ahead and get out now.

So just towns that are either too small or too big basically?

Yes, for the most part in that area, when you move outside Wichita, yes, they were mostly too small.

I think we looked at it once and there's only about four towns really that work in the whole state.

And they would be spread out.

Yes.

Which is not ideal for us.

And if you have ever driven through Kansas, you can understand part of this decision.

These towns are spread out and would be harder to manage and we seem to be able to do better in towns that are much closer together in the south-central United States as opposed to Kansas.

It's kind of a one-off situation anyway.

It certainly made sense to make that decision.

Got it, okay.

And then so you are closing a couple of Texas stores and I think, Hank, you mentioned that you might do one more by April 30.

What state would that be in?

That's also in Texas.

Also in Texas.

So is that definitely going to close, or is it just a matter of timing?

It likely will.

We -- that decision is not final today, but our -- it likely will, but beyond that, we don't have any on the table up for discussion to close at this time.

Okay.

Are you planning to open any stores during the current quarter?

No, we don't have any during this quarter.

Okay, and then you said, my last question for fiscal '09, you're looking at opening at least four new stores.

Should we model about four, or maybe bump it up a little bit?

I think four is going to be the mark.

Okay, great.

All right.

Well, thanks.

It was a great quarter.

Thanks, Bill.

Your next question comes from the line of Daniel Furtado with Jefferies.

Hi, good morning.

Taking for taking the call.

Yes, sir, Daniel.

I just had a really quick question.

Did I hear correctly that gross margins expanded even after normalizing for the Payment Protection program?

Yes.

Yes.

I just want to kind of get a handle on what do you think is driving that?

I mean probably touches back on the competitive side, but with what we were reading in the headlines in terms of stress and just vehicle sales in general going down, I would expect that margins would be flat to down.

Could you just help me reconcile that?

Well, the biggest contributor year-over-year is the level of wholesale sales.

Last year at this point, selling 20% fewer units and our repossessions were higher, we just had a much higher percentage of our total sales that were going out at the wholesale level at basically breakeven.

So we've gotten a pretty nice bump this year from a more normalized breakdown between retail sales and wholesale sales.

We've gotten a nice increase in, and sustainable increase going forward from just that mix of sales.

And in improvement in the wholesale sales, the values.

Basically in the improved values of the wholesale sales, and at the same time.

So, and then the pricing, our pricing guide, the efficiency of our pricing at the lot level has improved and we're doing a better job on some expense management.

Excellent.

So you feel pretty confident that this should be relatively sticky going forward?

Yes, we feel like we've got a good gross margin number.

We may be able to increase it just a little bit, but we feel pretty good about the level it's at right now.

Excellent.

Thank you for your time.

You're welcome.

Your next question comes from the line of [Clark Sledge] with Sterne Agee.

Yes, good quarter, guys.

Thank you, Clark.

The U.S.

economy seems to be very near a recession, yet you all did exceptionally well and furthermore, if the economy does in fact slip into recession, how do you believe that will impact your stores?

I believe that ultimately it puts more people in our market.

I think that as people struggle, that buy here, pay here alternative to buying a car becomes a lot more attractive to several folks and I think ultimately those are pretty good customers.

Clark, in our markets, we're a brand name and those folks that are used to being up a little higher in the credit markets look to brand, better cars and I think that's where Car-Mart has a real advantage in the local mom and pops particularly.

And we're looking at that.

Somebody earlier had asked that question and it's hard to have hard evidence of it, but anecdotally, I think Hank, you said we're seeing it.

Yes, recession, like we say isn't good for Car-Mart necessarily, but our customers have always been somewhat of a personal recession on their finances and we may see more folks come to our dealerships because of their own issues.

Okay, great.

Thanks for the answer.

You bet.

Thanks, Clark.

Your last question comes from the line -- sorry.

Your next question comes from the line of [Chad McCurdy] with Intuition EQ.

Great quarter, Hank.

Thanks.

I got on the call a little bit late, so this question may have already been posed.

But for about the last probably seven years, I've averaged changing out one of my cars about once a year.

And I have consistently taken that car and always gotten a bid from CarMax on that car and they have consistently been about 15% above whatever a dealer was going to offer me for a trade-in.

I just sold one of my cars about less than a month ago and CarMax offered me 10%, a little bit over 10% below what the dealer offered me on the trade-in.

And when I talked to the wholesaler at the dealership, their explanation was that they were hearing that CarMax's inventories were full and they were backing off of their prices they were offering for automobiles.

And I was just curious if you guys were seeing that, number one?

And number two, what impact or implication do you see that having for your purchasing?

As far as us backing off our inventory?

I'm sorry?

Well, no.

I'm just -- I'm curious if -- one of the things that I had always looked at before was it seemed like that CarMax was such an aggressive buyer out there in the used car market that it pretty much created, almost seemed to create an uplift in prices across the entire used car segment and I'm just curious, if they back off of their purchasing, I'm curious if you're seeing, if you have kind of seen a decline maybe in some of the prices you're having to pay for automobiles you're acquiring?

Or if you think that could potentially have an impact somewhere down the road if this trend continues.

Well, obviously we would love to see the prices go down.

I would tell you, we're really not in the same market as CarMax, speaking specifically to them.

We are in typically smaller markets and we do try to buy locally and our purchasing makeup is more kind of a composite of how the new car stores are doing in all the towns that we're in, which are primarily smaller towns.

What we really see is when the local guys are -- when their sales are up and they are trading for more cars, there's more on the market and that tends to help our prices, but if your question is specifically this move with CarMax seem to impact us, I really haven't -- we haven't seen that correlation.

I think, Chad, what you are seeing, I have read some of this and talked to a few folks too.

The demand for the late model used car in the big cities, which is essentially where CarMax sells, is dropping off somewhat.

Probably not as much because of a lack of demand, but a lack of financing for those cars and that's sort of a follow-up to an earlier question.

Some of those folks that perhaps would look at CarMax for a later model used car, the financing's not available and that's the customer that, not necessarily geographically because we're not in CarMax's backyard, but that is the type of customer that may then be at a buy here, pay here lot where that financing is in house and available.

I think CarMax has some big inventories because for that reason, is on the financing side.

So you wouldn't see that as much of an impact as say I don't think it's any big secret that, you know, First Cash Financial had bought AutoMasters back a couple years ago and I think Stephens brokered that deal and then they recently put out a report saying AutoMasters is destroying the earnings of First Cash Financial.

I believe most of their lots, if not all of their lots are in direct competition with you guys, aren't they?

About 12 I think?

About 12 of their stores are in the same market as we're in.

So I mean if their stores are experiencing difficulty, obviously they thought they had the same customers, what they have got at the pawn shop, but if their stores are experiencing difficulty, do you think that you're getting a benefit from that, or is it too early to tell?

I really couldn't say.

I couldn't say how that would necessarily benefit us.

I think we just try to do the best we can with our customers and move forward.

We can't necessarily always speak to what the other guys are doing.

Yes, I understand.

All right.

Well, I appreciate you taking my questions.

Thank you, Chad.

Great quarter.

Appreciate it.

Your next question comes from the line of [Quinten Maynard] with [Moorehead Capital].

Good morning, Quinten.

Well, congratulations on a great quarter.

Almost all my questions have been answered.

Just two quick things.

One, when you're looking at the four new stores next year, have you given any guidance on where you're expecting those to be, even in a region?

We haven't, but it's no secret.

Alabama is definitely a market that we like and that we will continue to expand there and we also have a couple of, what I guess we would call them fill-ins where we already exist both in Oklahoma and Kentucky.

We do have several towns that we've targeted and as we move forward throughout this next year, it will be the best four prospects of those.

Great.

Other things, I got on the call late, can you tell me what your average price was this quarter?

8801.

All right, guys.

Thanks so much.

And again, congratulations on some great work here.

Thanks.

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

Yes, just a quick follow-up.

Your expansion for next year, you are talking about opening up four dealerships.

Just curious, given the current environment in the market, are you seeing any acquisitions that might be attractive?

We're always, keep that as one of our alternatives, but for the most part I would expect these to be new stores, Car-Mart, ground-up, but we're always looking at that, but we haven't seen any prospects necessarily to go forward on.

Okay.

Thanks, Skip.

Just real quick, too, do you guys -- you closed a dealership this quarter and you're looking to close a few more.

Are you maintaining a watch list, if you will, do you have a number of dealerships on a list that you're looking at for potential future closures?

Well, I think that's kind of what we spoke to, beyond what we just announced, that we are closing.

We have one other that's in consideration, but beyond that, we feel committed to all the other stores and to get them all up to the level we believe they can be.

Obviously as things happen throughout the future, we'll -- if it becomes necessary to consider such, we will, but today we don't have any others on the table to consider closing.

Okay.

That's helpful.

Thanks, Hank.

Again, great quarter.

Thanks, guys.

You're welcome.

There are no further questions.

Okay.

Well, thank you all very much.

It was a good quarter and we look forward to our fourth quarter, which we're over a month into and continue these good results and look forward to talking to you in a couple of months.

If you have any other questions, feel free to call us.

Thank you.

Thank you for participating in today's America's Car-Mart fiscal third quarter fiscal 2008 conference call.

You may now disconnect.