America's CAR-MART Inc (CRMT) 2008 Q4 法說會逐字稿

Good morning, everyone.

Thank you for holding, and welcome to the America's Car-Mart fourth quarter and fiscal year end 2008 conference call.

The topic of this call will be the earnings and operating results for the Company's fiscal fourth quarter and fiscal year ended April 30, 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 few 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 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 risks and uncertainties that could cause actual results to differ materially from management's current 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 forecasts or estimates, nor does it undertake any obligation to update such forward-looking statements.

For more information regarding the forward-looking statement, please see item one, of part one, of the Company's annual report on Form 10-K for the fiscal year ended April 30, 2008.

And its current and quarterly reports furnished to or filed with the Securities and 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.

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

Please go ahead, sir.

Good morning, everyone, and thank you, operator.

We're pleased to announce this morning that we've reported net income of $6.048 million or $0.51 per diluted share for the fourth quarter of fiscal '08 versus $2.1 million or $0.17 per share for the prior period quarter, and $15.033 million or $1.26 per diluted share this year versus $4.232 million or $0.35 per share for the prior year.

In addition, overall revenue increased 29.1% for the quarter and 14.3% for the year with same-store sales up 30.3% for the quarter and 13% for the year.

But most of these increases coming in the third and fourth quarters.

On an all-important credit side, actual charge-offs decreased significantly as did delinquencies and our provision for credit losses, which were down to 20% of sales for the fourth quarter compared to 26.6% last year.

And on an annual basis at 22% versus 29.14% last year in.

Jeff will get into a lot more detail about these numbers in a minute.

As I was thinking about our prepared remarks today before we address your questions, I took the time to review our previous conference calls this year.

In each call we discussed the initiatives we were or had implemented to improve each of the core elements of our business; purchasing, underwriting, sales and collections.

I can tell you now that our management team and all of our associates have worked diligently to make sure these initiatives were properly introduced, tested, refined and woven into our basic business model.

And the steadily improving metrics by which we measure our day-to-day operations as well as the improved quarter-over-quarter and year-over-year financial results are solid evidence that we are gaining traction.

We believe we are a stronger, more resilient Company by virtue of what we've gone through in late fiscal '07 and during '08.

We are better prepared than ever to continue our growth and profitability.

Hank will address and update you on many of the things we've done, all of which we believe add to Car-Mart's competitive advantage.

Also, since we know it will come up, we recognize that higher costs of living for our customers will make for a challenging macro environment for us.

However, that is exactly the environment that our core customer base has endured since our inception as a business in 1981, and arguably, this core group of customers will increase in number in the future.

Times have always been difficult for the paycheck to paycheck individuals and families, and it is in this type of environment that Car-Mart has historically and will in the future thrive on.

As Hank said in the press release today, although we are not immune to this difficult macro environment, we are not as directly affected as other retailers and lenders since we sell basic transportation where there really is no alternative but to have a car or truck.

Our success has generally been more the result of our proper execution of our business model and less as a result of the external macro situation.

We will have to continue to improve all aspects of our business.

This is also a huge opportunity for us as the number one "buy here, pay here" dealer in America.

We truly have no peer, and we believe what we have done and are doing internally will strengthen every aspect of our business.

And we are positioned to make the most of this opportunity.

Hank will discuss this further, but I would like to say that he and his team have done a great job of implementing the initiatives and building our infrastructure so that we can continue the progress we made internally this year into fiscal '09 and beyond.

Now Jeff will discuss the fourth quarter and year-end results.

Thanks, Skip.

As mentioned in the press release our topline revenues for the quarter increased 29.1% compared to the fourth quarter of last year.

The increase was the result of a 25.3% increase in retail unit volume, a 7.2% increase in our average retail selling price, a 6.8% increase in interest income offset by a $200,000 decrease in wholesale sales.

Same-store revenue increased by 30.3% for the quarter as we saw solid sales growth from virtually all of our dealerships.

Sales levels in the fourth quarter were higher due to our increased advertising efforts and numerous other sales initiatives, as well as stimulus rebate anticipation sales made throughout the month of April.

Our down payment percentage of 7.5% for the quarter was right in line with our expectations but was slightly below last year's percentage only because of the stimulus sales efforts in April.

Down payments for the entire fiscal year were up significantly to almost 7%, compared to approximately 6% last year.

For the quarter our average initial loan term was right at 26 months compared to 25 months for the fourth quarter of 2007.

The initial term was up due to the 7.2% increase in the average retail selling price quarter-over-quarter; $8,989 this quarter compared to $8,384 for the fourth quarter of last year.

The average retail selling price for the quarter was up 2.1% from our third quarter's average of $8,801.

Sales revenue generated by our payment protection plan product increased efficiencies in our retail pricing, as well as higher car costs due to the continuing high local market demand, as well as some mix changes to more expensive vehicles contributed to the retail selling price increase.

It should be noted that we are seeing increasing income levels overall on our completed applications to support our higher average selling prices.

Going forward we expect to continue to see some growth in our average retail sales price when compared to prior year results, but we will work hard to minimize increases while ensuring that we continue to provide our customers with the quality and mix of vehicles that they need.

The increase in unit sales and the improved financial results were broad-based across almost all of our lots, including our smaller and newer lots.

This excludes the three lots in Texas that were closed during the fourth quarter.

We were pleased to report that during the fourth quarter only a handful of lots did not produce positive economic profit on a stand-alone, fully loaded basis.

Management will continue to spend a significant amount of time working with individual lots to ensure that the focus remains on producing real economic profit, if not already there and maximizing economic profits for those lots that are already producing.

Subject to various macro factors out of our control, we continue to believe that all of our dealerships but particularly our newer dealerships have capacity to increases sales volumes, GAAP profits, and most importantly economic profits going forward.

We will focus on writing good deals on the front end, including ensuring that we receive adequate down payments and that the terms are set to match the economic life of the vehicle.

Interest income was up 6.8% for the quarter as average finance receivable balance was up about $23 million, offset by a decrease in the effective interest rate to 12.1% from 12.7% last year.

For the fourth quarter of this year our gross profit margin percentage was 43% of sales.

This is up from 41.5% in the fourth quarter last year and the 43% is relatively flat with the third quarter.

The recent increased 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 breakeven, increased efficiencies in retail selling prices.

Gross margin generated from the payment protection plan product was slightly less than overall gross margins during the fourth quarter but slightly above overall margins for the entire year.

We will continue to focus efforts on purchase costs, retail pricing, and repair and transport costs and expect to see gross margin percentages around the current levels on a go forward basis.

In the fourth quarter of this year SG&A as a percentage of sales decreased to 17% from 19.4% in the same period last year and from 19.2% sequentially.

The 240 basis point positive swing from the prior year demonstrates the significant leveraging opportunities available to us as we look forward.

The investments we have made in the corporate infrastructure over the last year and a half have allowed us to increase the topline and support a higher revenue base on lower percentage based incremental costs.

We will continue to look to leverage these investments into the future.

The overall dollar increase in SG&A related to higher payroll costs, a larger percentage of which related to performance-based incentive compensation at the lot level and the increased insurance costs.

Additionally, there was a $500,000 or 71 basis point increase in non-cash, stock-based compensation during the quarter.

We will continue to review our infrastructure needs to ensure we have adequate support for our associates in the field but feel that at the current volume levels we have a good, solid structure that can continue to be leveraged.

For the current quarter net charge-offs as a percentage of average finance receivables was a very low 5.9% compared to 8.5% for the prior year's quarter.

Collections as a percentage of average finance receivables decreased slightly to 17.5% from 18% from the prior year quarter, but increased to 67.9% from 66.1% for the full year.

The increase in the collection percentages between years equates to right at $3.4 million in additional cash receipts in 2008, and this is on top of the $1.7 million in additional down payment dollars collected during 2008 based on the increased down payment percentage.

The quality of the portfolio, the steady average long-term, higher down payments and better collections efforts have led to increased cash receipts and significantly better performance compared to last year.

The average percentage of finance receivables which were current during the fourth quarter was 84% compared to 83% in 2007.

We believe that the increase in the quality of the portfolio is reflected in the higher current percentage and the higher down payment percentages.

At April 30, 2008 our 30+ past due accounts were at 3.1% compared to 3.4% at this time last year.

Our allowance for loan losses remains at 22% of finance receivables at April 30, 2008.

Because of the low level of charge-offs during the fourth quarter, the provision for credit losses was 20% compared to 26.6% in the fourth quarter of last year.

We have seen a significant improvement in our credit losses this year and are very proud of the efforts from our associates in the field.

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

We reinvested this cash flow in an additional $29.6 million in finance receivables, $3.5 million in Car-Mart via stock repurchases for approximately 293,000 shares or 2.4% of the outstanding shares, all during the third and fourth quarters.

And upgrades to some existing facilities of $2.6 million so that those locations can continue to grow.

Total debt decreased by about $159,000 during the fourth quarter to $40.3 million and decreased $500,000 for the entire fiscal year.

Total debt is down by $8.6 million from its high point in October 2006.

Our debt to equity stood at 29.4%, and our debt to finance receivables was 19.4% at April 30, 2008.

We will continue to view our future investments and 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.

As we have previously discussed, our low leverage and our asset-based lending agreement have allowed us to remain unaffected by the recent turmoil in the credit markets.

We are currently at prime less one-quarter, 4.75% on our revolving credit facility.

After the end of our fiscal year in an effort to take advantage of our relatively attractive current interest rate structure, we did enter into a $20 million, five-year interest rate swap agreement with our primary lender.

Under the swap agreement we will pay an initial effective interest rate right at 6.4% subject to change if our underlying tier pricing changes.

Excess availability was $19.4 million at the end of our fiscal year.

Now I will turn it over to Hank.

Thanks, Jeff.

As Skip mentioned we have made significant improvements to each of the core areas of our business.

Our increasingly improved results throughout the year are indicative of what we've accomplished in purchasing, underwriting, sales and collections.

Through the improvements we've made in purchasing we're doing a better job than ever stocking our lots with quality inventory.

We have more of the vehicles that our customers want.

In addition to the basic transportation vehicles we also have a better selection of trucks, SUVs and smaller, more fuel efficient vehicles, as well.

Since the prices of trucks and SUVs have come down in the last few months we have been able to obtain an adequate supply of these vehicles and their sales remain strong.

We are working hard to ensure that the customers we put into these vehicles can not only afford the payment, but also the gas costs, as well.

And our internal scores have been higher for our customers buying the SUVs and trucks and our credit losses on these vehicles have historically been much lower.

We will continue to focus primarily on providing basic transportation, as we have for the last 27 years.

However, we realize that a significant portion of our customer base prefers trucks and SUVs, and we're doing a good job of maintaining an attractive inventory of these type vehicles.

We've also increased our efficiency in acquiring inventory.

Currently only about 10% or less of our vehicles come from auctions where costs do tend to be higher.

And we don't have the opportunity to check out the vehicles as thoroughly as we would like at an auction.

We have increased our number of local sources, allowing us to acquire better inventory at less cost.

We have significantly lowered our acquisition costs per vehicle this year.

That is obviously helped to increase our gross margins, and we believe will improve on us even more this year.

On the underwriting side we are obtaining great information and continuously building our database and our new credit scoring system.

This tool has been extremely helpful in testing the quality of the loans we are making.

And in fact, we're seeing a steady rise in the loan quality and score since we first started using the system.

The scoring system has been in use on select lots for the past six months, and it is presently being rolled out companywide.

The scoring system is proving to be a very beneficial tool for our managers in helping them approve the quality of their deals.

And this companywide rollout should be completed by the end of July.

In our efforts to improve our underwriting, we have hired an in-house portfolio analyst to continuously scrutinize the data and to work with the scoring system information to continue to improve its predictability.

This system, which is unique to Car-Mart is a tremendous competitive advantage, which will further set us apart from our competitors.

As Jeff mentioned, our sales have been steadily increasing throughout the year.

Our sales staff, the training, merchandising, advertising are all much improved from a year ago, and along with the improved quality of our inventory we have seen an increase in traffic and our sales at our dealerships.

Our advertising in which we have invested a significant amount for television commercials this past year has really begun to pay off.

This advertising stresses our Car-Mart brand, our quality vehicles, experienced staff and large numbers of repeat customers rather than simply being promotionally driven.

We believe this is one reason we are attracting more quality customers that may have been previously able to obtain conventional financing, but now are in the buy here, pay here market.

Car-Mart offers to those customers a reliable name brand, which our competitors can't offer.

And also, our payment protection plan product has been a factor in our sales, as well.

This product has been tremendously well received with penetration of over 94% of new sales where it is available.

This product is now offered in Arkansas, Alabama, Missouri, Oklahoma and Kentucky.

So it is now available in states that make up approximately 85% of all of our sales.

We did very well with our sales in April and May and with we believe some help from the economic stimulus checks, we had a promotion similar to our annual tax refund promotion, this one being $199 down with the balance of the deferred down payment being payable upon receipt of the customer's stimulus check.

We were definitely ahead of all of our competitors on this promotion, and were able to generate strong traffic across nearly all of our locations.

Now we have seen a little slowing of sales after this promotion ended but with the strong level of sales during the promotion we brought in many good customers that might not have bought a car without this extra help.

As Jeff mentioned, all of the metrics related to credit losses were dramatically improved from last year and have been getting better all year long.

The 3.1% delinquency rate and the 20% of sales credit loss in the fourth quarter, the increase in receivables that are current and our significant drop in net charge-offs indicate that we are structuring better deals, selling better vehicles, and we're doing a better job in our collection efforts.

We have many things on our plate for this '09 fiscal year, but probably the single biggest item is to continue to increase the profitability of each of our stores.

As part of this effort we are enlarging a number of our existing locations to increase their capacity.

Expansion projects are currently underway at several existing stores, El Dorado, North Little Rock, Magnolia, Arkansas; Muskogee, Oklahoma, just to name a few.

Also, we had taken and will continue to take strong measures to improve our underperforming dealerships.

We have a high level of confidence because all of our dealerships can meet or exceed their internal economic profit goals and individually support our investments.

Essentially our plan this year is "no lot left behind" -- and I will update you throughout the year on our progress.

In addition, as we mentioned back in March, we plan to open four new stores this year, mainly in fill-in locations and presently we have no plans to close any existing stores.

Finally, let me follow-up on what Sip mentioned regarding the cost of gas and the rising cost of living generally, and how that affects our customers and their ability to buy and pay for a vehicle.

Car-Mart was founded on the principle of providing quality vehicles at a reasonable price with affordable terms.

Our customers have always had to stretch to make ends meet.

And we believe we know how to serve this market better than anybody, as evidenced by our high repeating customer percentage, which is well over 30% companywide, and it is in excess of 40% at most of our mature stores.

As this demographic grows we have a huge opportunity to increase our business.

Now granted, there may be some that will drop off and not be able to buy a Car-Mart vehicle, but we believe we have an opportunity to add to our business as new customers look for financing and buy here, pay here becomes a much more viable alternative for them.

Importantly, remember the large majority of our customers probably 80%, are the same core customer group that we've always had.

The many improvements and enhancements we've made to our business have made us a stronger company than we were two years ago.

This makes us better prepared to not only succeed during more difficult times, but also to take advantage of the growth opportunity as more customers are attracted to Car-Mart.

Most importantly, we believe our success is more the result of proper execution of our best business practices than the effect of an economic cycle, and we've seen quite a few since we first started back in 1981.

We have a deep appreciation and understanding of how to succeed and grow profitably in any business environment.

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

(OPERATOR INSTRUCTIONS) Dennis Telzrow.

Good morning, Skip and Jeff.

Obviously a fantastic quarter, to say the least.

And a couple questions, which I'm sure you probably expect or actually one, you mentioned your income levels are actually higher on applications.

How much of that do you think is driven by some of these customers who are being pushed down in category versus just your advertising?

Because some people would be surprised at that trend.

I think it is a blend of a couple of things.

I think we are anecdotally for managers I am hearing about certain customers that they are seeing that are higher than typical income levels.

But I think the shift is also in that we are being a little bit more disciplined and we are probably having a few more turndowns on the folks with the lower income levels.

And so I think a few of those turndowns also bring that average up overall.

But I think it is a combination of the two.

And you mentioned that June was a little slower than April or May but my sense is it is still a decent month; obviously you probably borrowed some sales with those promotions.

You're exactly correct, and that is the term we've used ourselves.

We were very aggressive in April and May through a promotion.

And so yes, we went ahead and I am sure we sold some in May that would have spread over to June.

So you are on target there.

And last question, I'm sure the loss rate issue is a big sort of going forward, but is my -- would I be correct in assuming that you are seeing a sort of 22 plus or minus 100 basis points would be reasonable expectations for this year, or what are you guys thinking?

Yes, plus or minus that is a pretty good range.

Okay.

Thanks a lot.

Bill Armstrong.

Good morning.

I will add my congratulations also.

Really great quarter.

Just to clarify, then, the stimulus promotion that you did, that was in April and May and it ended what like around Memorial Day?

It ended right at the last day of May.

Okay, so was that a sort of a rebate anticipation check promotion or were the customers walking in with those checks already in hand?

No, it was structured very similarly to the way we do our typical income tax returns promotion each year, although this wasn't the zero down.

We did the -- it was a $199 down where they buy the car and then set up a special payment when they get their check later to go ahead and get the jump on it.

Okay, so we should -- since that ended May 31, you will get a little benefit of that in the first fiscal quarter also.

Yes.

That's right.

SUVs and pickups, you've increased your exposure in that category; prices or values of those vehicles have really dropped very sharply in recent months.

It looks like it didn't really have any impact on your gross margin unless the other things that helped your margins just masked that.

Could you talk about the impact on your margins from the prices of these vehicles going down so fast?

Yes, basically our retail pricing is set on, based on the cost of the car, and as these vehicles have moved down in cost, we are able to maintain or even get a slightly higher gross margin on the same vehicle.

So it has been a positive for us so far.

So you didn't get caught -- I don't know if you heard CarMax's call a week or two ago, but they had kind of gotten squeezed where the SUVs and pickups that they had in their inventory -- the values had dropped while they were still sitting on the lots.

And therefore they had to mark them down just to move them and that hit their margins.

You didn't experience anything similar to that?

No, our inventory time on our trucks and SUVs is less than 30 days.

We don't hold them like that.

They don't stay on our line very long, and then they are gone.

So it really a different situation.

We've actually benefited conversely from what CarMax went through, as those things have come down the pipeline we have been able to see some pretty reasonable pricing on SUVs and trucks.

Interesting.

Okay.

That is all I had.

Thanks.

Daniel Furtado.

Good afternoon.

Obviously it goes without saying you guys had a great quarter.

I just wanted to clarify an earlier comment.

Did you say June sales are relatively flat with last year's?

Like we said, we came out with a strong May, and we have seen a lag this June.

I didn't catch that one part of it.

Help me understand how, because there seems to be so many positive things going on in your business, how a slowdown in the sale of new cars either does or does not impact your sourcing ability for inventory?

Because I would imagine that as people turn in less used cars there is just less inventory out there, or is there something that I am missing?

No, you are exactly right.

We buy locally, so it happens on a very local basis.

But sure, as trade ins, the new car stores get fewer trade-ins than a little bit less on the market.

But again, the way we approach our buying we are not auction buyers, and so we have guys out there running routes, beating the bushes every day sourcing the cars.

And we have particular buyers that we made into a couple of dealerships, that they are able to find the number of cars and of course, again, we are very selective about what we buy.

I think as you know we don't do all the reconditioning, so we buy ready to sell stuff.

So it may mean we have to work a little harder, but we are certainly able to find plenty of vehicles that we need to accomplish those goals.

And am I correct in assuming that as used vehicle prices fall that allows you guys to source higher quality inventory and keep the prices relatively --

That's right.

That is the real benefit for us is, as the prices come down and there are more cars out there, you are exactly right, our quality can improve.

We can see lower mileage vehicles, that sort of thing, which it is the better quality car the more likely it is to get paid for.

So if I understand this right, your customer base is expanding; margins are holding in because of what we just talked about for used cars, it just seems like there are so many positive things going on with the business.

What is the risk to growth?

It seems like your stock is a pure counter recessionary or counter cyclical --.

Our biggest risk to growth is our sales.

We've seen that.

That is what our experience tells us.

Getting ahead of our sales, maintaining control while we grow the business.

Okay, and I guess from the sales standpoint then since you start a business in 1981, what tends to happen to unit sales when we get into recessionary?

I mean, do you see a slowdown in unit sales or do you see a slowdown when the economy is expanding?

What typically out of those several cycles that you've seen tends to happen in recessions to unit sales?

Frankly, it tends to be pretty steady.

We are not tremendously affected either way, as long as we can source adequate inventory.

This demographic, the unbanked and credit impaired customer base is a huge customer base, and still need these cars in the markets we are in.

We've got to emphasize that what they are buying is a necessity.

Understood.

Thanks for your time, guys.

Congratulations again.

[Gene Musette]

Congratulations, guys.

How many shares do you all have outstanding now?

11,650,000.

Okay.

That's all I had, and much congratulations.

Thanks for your hard work.

John Curti.

Good morning.

I have a couple of questions.

First question is on your sales mix.

Is your percentage of pickups and SUVs as a percentage of total sales mix going up, and what kind of implications does that have for your weighted average selling price?

I would tell you the mix over actually the past two years goes up, and a lot of that is just the natural mix of what is on the road.

If you go back in the time five or six years ago, and even a little further, there were more and more SUVs being put on the road so there is more and more traded in today.

So partly what we sell is a reflection of just what is out there, so that goes up somewhat.

Again, remember we are across the South and trucks and SUVs are popular.

A lot of our customers are rural folks, and also, very frankly, what we find to be true is that people are more inclined to pay for a vehicle they like.

So we try to balance the, knowing that they need to put gas in it, but also we want to sell the customer something that fits their needs and what they like.

And with all that the number we carry has gone up.

And on balance are you seeing a vehicle that is maybe has a little bit fewer miles and in better shape than a few years ago?

I would tell you very recently yes, and obviously because a lot of people are shying away from SUVs, we know that the price of those has dropped, so that enables us again going back to what we said earlier as prices come down, we are able to get better quality.

So I would tell you that we feel like certainly now and as we go forward in the near-term we're going to have opportunities to buy better quality SUVs than we were the past couple of years.

That is just a benefit for our customers.

Then I had a question on your lot capacity.

You mentioned that you will be expanding a few.

Wondering how many of your lots are capacity constrained and unable to be expanded.

This is always, since we first began, this is always kind of part of how we grow.

When we first open a store we typically will open in a small location, with not more space than we need and as it grows at some point, we will either expand at that location or we actually move.

Some of the ones I mentioned earlier like, for example the North Little Rock store, when I say expand, that one is actually moving to a larger property with a higher traffic count.

But yet still in the same town.

So this is something we've always done.

We always have half a dozen projects, at least, in the works and just as the stores grow we expand their facilities.

And then just a question on personnel turnover and training.

I know a few years ago you were in the process of upgrading standards, upgrading training and all that.

What has been the outcome there?

Our training has definitely improved quite a bit.

Certainly much more structured.

So relatively young in the process.

I would tell you that the turnover continues to be somewhat of an issue for us.

We are focused on and it is something we are talking about a lot here and hope to see some more strides in that we are not satisfied with it, and we do have a lot of room for improvement there.

And just lastly, as the economy kind of slows and everything, are you seeing the opportunity?

Are you picking up marketshare at the expense of the independent operators who maybe are having a hard time sourcing cars or just doing enough volume to stay in business; so that is providing you additional marketshare?

I would tell you it is such a big market that marketshare is hard to define, really, but our increased levels of sales we know we are getting some sales that probably would go to other dealers in part because of their credit limitations, either internally the dealer doesn't have credit available or the customer doesn't qualify for some of the credit that was available.

So we think we're getting a benefit from that.

But you know the small town they might have 10, 15 dealers.

And it is hard to -- if we grab four or five more sales it's insignificant to us, but it is hard to measure marketshare.

Okay.

Thank you very much.

Daniel O'Sullivan.

Good morning.

Thank you for taking my questions, and congratulations on a great quarter.

Jeff, I don't know if you gave the number out.

Can you give us the revenue from the payment protection plan during the quarter?

We have not disclosed that number yet.

It is an add-on sale as part of the sales process, just like a service contract is, and we have not disclosed that number separately yet.

Okay, and wanted to discuss inventory levels a little bit.

I guess it sounds like people are probably preferring to stay in their used vehicles a little bit longer as opposed to buying new.

Are you guys pretty comfortable with where you are with inventory going into the summer selling season?

Absolutely.

We definitely have plenty of vehicles going in.

Okay, and just to quantify a little bit I think you made a comment the customers you are putting into the trucks and SUVs, how do you go about understanding or quantifying if they are able to afford gasoline at $4 per gallon?

It is pretty basic stuff here.

When we sit down with a customer and we're going over their bills and here is how much the payment is going to be and here is likely what it is going to cost.

And of course a lot of these customers keep in mind, the significant number of our customers are repeat customers so we have a relationships with them and able to talk to them about this.

And we hope that together the manager and the customer are making wise decisions.

Okay, thanks.

That's helpful.

And one last one, Jeff, you know you guys have seen a vast improvement in your net charge-offs.

Do you think there is more room to improve that, or would you guys be cautious given the current climate out there for the consumer?

Yes, I think we had an exceptional spring on charge-offs, and we are coming into some months which historically have been a little higher on the charge-off side.

So that it is not going to surprise us at all if it doesn't come up a little bit.

And the previous question was the range, and 21 plus or minus 1 point either way is kind of what we are thinking.

So that is where we think it will settle down in that range.

Okay.

You've implemented a lot of things in collections, in your scoring model and things like that.

I guess what I was getting to, are we still in the middle innings of those programs, or do you think you can continue to tweak those and improve upon those if you keep charge-offs down?

I think you can continue to improve on them, but there does come a point when you're dealing with this customer and a used car that we still have some risk in any deal we make.

And there comes a point where you almost give up some profitability by not taking a certain amount of risk.

It is a fine line there.

We will never use this tool to sell less cars.

That is not the point.

Trimming off the bottom customers or trimming off the ones that are going to be less likely to pay is certainly the point.

But more than anything, just predictability of the pools and making sure that the distribution of scores is right by lot is what the tool is going to be used for primarily and to assist the lot managers with another tool in his toolbox.

Okay.

I see.

All right.

That's it.

Thanks a lot, guys.

[Jeff Mintz].

You all have instituted this payment protection plan recently.

It looks like the margins were down in that business or in that service in the quarter.

I just assumed it would be higher margin.

Can you kind of tell us the status of that new plan and why the margins were a little bit less in the quarter?

It is a new product for us, so coming into it, we weren't exactly sure how the margins on the product by itself would work out for the entire fiscal year.

The margins on that product were slightly better than our overall margins, but for the quarter, it was a little less.

And that just was a reflection of some claims under the policies or under the program.

And it is going to take us a little while to see what the true run rate of the product on its own is going to look like.

So we are just still in the initial stages of having that product out there and need a little more time to see how it is going to work out.

And then you have installed this new software, both on the front end on the application side and then the back end on the collection side.

Can you expound on what exactly you're looking for and how that has helped you I guess choose better loans?

Like we said, we are kind of, for a time, testing it behind the scenes, really scoring sales that are being made so we can learn more about it.

We have been testing it live on a select number of lots and as we said earlier, we will have it rolled out to all of our stores by the end of July.

So we haven't even completely got it out there.

It does score the loans.

And really what we are doing is we are feeding back to the manager their own information and giving them the tool that they can use to make much better decisions upfront and each month, we can sit down and look and as Jeff said, look at the mix of how many really strong or how many maybe somewhat weak deals were made, so we know where we need to tighten up.

It just really gives us -- put us in a lot better position to control the quality of sales we have out there.

Separate from that, we also mentioned that we added our collections module, and that is something totally separate, but that is something that our collectors use to collect much more efficiently and also gives the managers a lot more information than they had in the past on the individual performance of each of their collectors.

So it seemed like you are taking in better loans, and I guess one of the risks that remains is the loans that you have on the books.

Any trends at all there other than the metrics that we see?

No, even though our loan terms are 26, 27 months, if you have issues in your pools, they do pop up pretty quickly.

And we have not seen anything significant to date that indicates that the quality is not improved.

And we've got a good, solid portfolio there.

Yes, I would add the things that we started doing over a year ago, tightening the loan terms and requiring higher down payments in and of itself has improved the quality of the pool starting back I guess -- when did we start that back?

About a year ago.

And even before the scoring system, which is actually just being rolled out, those tightening of the loan terms are really slowing down the growth of new loans for a period of time to improve the quality I would tell you, and the metric show it, with lower delinquencies and lower credit losses that the portfolio, the existing portfolio is in pretty good shape.

Thank you.

[Peter Portal].

Hi, Skip.

How are you today?

Just fine, Peter.

Good.

Congratulations on being added to the Russell again.

Listen, just a couple quick questions.

Can you give some color on staffing the new lots and how that is going?

Hank?

Yes, as was mentioned earlier, we have expanded our training.

Specifically a lot of our efforts right now with training are with regard to our future managers.

We have really beefed up our managers-in-training program.

We've structured all the various testing of the different components of the things that they need to learn.

We feel very, very good about that.

And of course, we also have efforts in place to continue to do a better job of our hiring process, selection process.

And so yes, I think we continue to do better.

And as I mentioned, though, we still have some issues with turnover.

We still have a lot of room for improvement there and that is a big focal point for this next year.

But overall, I think our staffing is continuing to improve.

But not completely where we want to be.

Hank, I missed part of the beginning of the call.

Did you talk about the Arkansas litigation and how we're going on the rate increases there?

The last time we talked, you said you were getting a bit of traction.

With regard to our [usual limit], that is actually at the federal level.

There are people in Washington working on that.

We get updates every week, and it is my understanding that it is drafted, and they are still just in the process of trying to figure out what it is going to be attached to.

There is not actually, for folks -- there is not actually a live bill out there today.

Okay, all right.

Well, thanks.

Appreciate it, guys.

Bill Armstrong.

If you are not using auctions anymore, or less than 10% anyway, what are your primary sources of vehicles now?

Pretty much like it has been for quite some time, and I would tell you that auctions have never been really a big part of our buying.

We kind of go back in time.

At the time we were buying from auctions was zero.

As we did go through when the Katrina hit Louisiana, it really regionally, that was probably the biggest really shortage of vehicles we had ever seen because there was such a demand for used vehicles across the South that during that time period we probably bought more from auctions than we ever did, and we were able to get our vehicles.

But the transport costs, the auction fees and all that, it is not as efficient for us.

So we do a better job in the management of our purchasing.

And so we continue to scale that down.

Really our auction use is primarily just to supplement in specific areas or to try to get certain types of vehicles.

We have buyers that run routes every day that call on new car stores buying their trade-ins and also a number of wholesalers that we deal with.

And we also buy some from individuals, as well.

And really for us there is less cost associated with that.

But also, I go back again, we are very, very selective about what we buy.

We want to set our customer up with a solid vehicle.

And in order to do that we have to look at a lot of cars, and we actually look at a lot of cars we don't buy.

And it is just as much as the cost it is also being able to thoroughly drive and check out a car and be satisfied with it before we buy it.

And we just don't have as much opportunity to do that at an auction.

So we try to be pretty disciplined about limiting the number of cars we are going to buy through auction.

Are you seeing any impact at all either in sourcing or in demand from these floods in the Midwest that we keep hearing about?

No, we haven't seen any impact at all.

There will probably be a few of those vehicles hit the market here shortly.

And we'll do everything we can to avoid them.

We have routine -- as a matter-of-fact, we had one last week even our buyers talk frequently about those very type things.

And, of course, they are trained thoroughly on how to detect flood cars.

And so we think we do a good job of taking those off.

And just one quick question for Jeff.

In the average selling price that you give in your press releases, does that include the payment protection plan?

Yes, it does.

It does?

Yes.

So you kind of -- how do you determine -- because that is a monthly payment or a weekly payment, how do you determine what the --

It is the amount of that product that gets taken into revenue.

It is just like a service contract.

It is an add-on sale, and as we earn it, it gets taken into revenue, and that revenue is spread over the number of units we sold that month.

It is just part of the overall average sales price.

Okay, I get it.

Okay, thanks.

Russ Silvestri.

Good morning.

I was curious in terms of the impact on your recoveries that repossessions played.

I'm curious how many cars you repossessed in the quarter.

As far as percentages, historically we have (inaudible) maybe 40% of cars at some point would get repossessed, and that is about where we are at for the quarter and for the year.

A lot of those are at the very tailend of the contract, so the loss is much, much, lower.

But no significant differences there other than just generally lower levels as we work toward the end of the year.

And then in the press release I think you talked about the tracking that you've deployed.

When did that -- is that anniversarying near term, or when did that get put into place?

The tracking of what?

The tracking -- your ability to track vehicles that you've improved your ability to track and I was wondering what you might attribute that specifically to.

Are you referring to the scoring?

I thought it was more in relation to the cars.

I was wondering --

Collection module.

Collection module?

Yes.

The collection module actually started -- we began rolling that out I believe December and January, and that is on all of our stores.

And it really tracks, as much as anything it tracks the individual performance of our collectors.

And it also provides them more information and just a way to more efficiently collect their accounts.

And it is going very well.

Thank you very much.

[Kelley Wiggins]

Good morning.

I just wanted to see if you could give us more details of the payment protection plan; specifically what you're charging for it, your penetration rates and how you plan to roll this out in the future.

Right now it is pretty well rolled out.

As we said, it is in most all the states that we operate.

It is available in states where that represent 85% of our sales.

Where it is offered, our penetration rates are over 90%, virtually all the customers like it.

They take it.

It is based on the calculation of the amount we charge for it.

It is based on the amount they finance.

It is a debt waiver whereby if a customer's vehicle is stolen or totaled we waive the balance.

(inaudible)

Beg your pardon?

I am saying this is essentially a gap product?

No, not exactly.

It is better.

It actually -- this will take care of the entire balance for our customers.

It is also relatively very inexpensive.

Typically as you roll it out through the whole term a customer is probably on average spending somewhere between $15 and $20 a month to have this.

And so many of our customers don't have or can't afford full coverage insurance.

Obviously it doesn't fix their vehicle if it is wrecked, but in the case where a vehicle is stolen or totaled, this actually provides them -- it is a better situation for them because it will cover the entire balance is waived.

The customer doesn't have a deductible that they have to pay.

And again, one of the primary reasons we offer this, obviously it is a great service to our customer, but it is also -- we are about repeat business.

And over the years we have lost some customers from these situations.

This provides both the customer and us a means to get them out of that situation and hopefully keep their business.

And it is yet again something else that a customer can get at Car-Mart that they can't get anywhere else.

And just one more thing that sets us above and apart from the other guys.

At this time there are no further questions.

Okay, well, if that is all the questions, we would like to thank everybody for joining with us today.

It was a good quarter.

It was a good year.

We made a lot of progress through the year, and we look forward to continuing that progress in '09 and beyond.

As we discussed, there are certainly some issues out there externally.

We will fight through, but I think internally we are making great progress in what Car-Mart does every day.

And we look forward to a good '09.

Thank you very much.

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

This does conclude today's conference call.

You may now disconnect.