America's CAR-MART Inc (CRMT) 2009 Q4 法說會逐字稿

Good morning, everyone.

Thank you for holding and welcome to America's Car-Mart's fourth quarter and full year 2009 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 30th, 2009.

Before we begin, I would like to remind everyone that this call is being recorded and it will be available for replay for the next 30 days.

The dial in number and access information are included in this morning's press release which can found on America's Car-Mart Web site, 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 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 the forecast or estimate nor does it undertake any obligation to update such forward-looking statements.

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

Thank you.

We are pleased to announce this morning that the net income we reported for fiscal '09 rose 19% to $17.9 million or $1.52 per diluted share, versus net income of $15 million or $1.26 per share fiscal '08.

As you know, included within 2009 earnings per share is an $0.08 reduction in income from a change in fair value of our interest rate swap, which is a non-cash charge that will reverse itself by the end of the term of the swap.

Also, top line revenues increased 8.9% to almost $300 million, all in the face of many challenging macro-economic issues adversely affecting the economy in general and most of our customers directly.

Jeff will get in to the specific numbers for the quarter and the year in detail in a second, and Hank has some very important information about our people to share with you.

But what I'd like you to do today during our conference call is put down your pens and get off the keyboard and just listen to all the positive things going on at Car-Mart that are producing these solid results we're announcing today and that we expect to continue to report in the future.

You can all listen to the recorded version of this call to get all the details you need or feel free to call us.

I know when I was reviewing our prepared remarks today I got excited thinking about the huge improvements we've made over the last 2.5 years and are continuing to make in all areas of our business.

There is hardly a single aspect of our business, whether it involves our core areas of purchasing, underwriting, sales or collections, or our support areas of IT, human resource, accounting, middle management, that hasn't been analyzed, examined and improved upon.

And we aren't finished yet.

This will always be a work in progress.

But I can tell you, and the financial results bear me out, that the progress we have made is significant.

So, when you listen to Jeff talk about the financial results and balance sheet, and the good news we have on the Arkansas interest rate situation, and when you hear Hank talk about our many talented associates that will allow us to embark upon a solid growth plan, including growth of existing stores and adding new stores, I believe that you, too, will understand the excitement and enthusiasm we feel here at Car-Mart.

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

Thanks, Skip.

As mentioned in the press release our top line revenues for the quarter increased by 1.7% compared to the fourth quarter of last year.

The increase was the result of a 2.2% increase in average retail sales price, $149,000 increase in wholesale sales, offset by 0.3% decrease in units sold and a 1.4% decrease in interest income.

Same store revenue increased by 0.9%.

Our down payment percentage for the quarter was 8.6% compared to 7.5% for the fourth quarter of 2008.

As previously discussed, our zero down tax promotion during our third fiscal quarter was a big success this year, with realized actual down payments, including the zero down deferred portion, ending up at just over 11%, compared to just over 8% for fiscal year 2008.

As a result, total cash collected for down payments during our third and fourth quarters combined, including the realized portion of the deferred down payments, resulted in approximately $2.7 million, in additional cash collections in 2009.

We will continue to build on the success of our zero down tax promotion program, and of course continue to push for higher down payments outside of this program.

Every dollar we collect on down payments is one less dollar we have on the street which has a significant positive impact on our cash on cash returns.

In addition to the down payment, the average loan term is very important to the ultimate performance of the portfolio affecting money on the street and frequency of sales to our repeat customers.

For the quarter, our average initial loan term was right at 26 months, which is flat for the fourth quarter of 2008.

Our weighted average note term for the entire portfolio, including modifications, was 27.6 months at April 30th, 2009 compared to 27.2 months at April 30th, 2008.

Considering the increase in the average retail sales price, the initial term is actually slightly down in prior years.

This is an indication that our lot managers continue to do an outstanding job of keeping the terms in line which is so important in insuring that our customers have equity in their vehicles, even in the face of increased prices.

The average retail sales price increased 2.2%, to $9,189 from $8,989 in the fourth fiscal quarter of 2008.

Sequentially the average retail sales price was basically flat, increasing about $23 or 0.25%, from our third fiscal quarter.

We are pleased with the sequential results, as we were able to maintain quality and mix and keep prices down even though wholesale used vehicle price trends have shown significant month over month increases for the last several months.

Demand for the used vehicles we are purchasing remains high.

Our lot managers, their purchasing agents and our corporate purchasing support team led by Jon Sims are doing a super job on the buying side and are focused on minimizing our purchase costs to keep the vehicles affordable for our customers.

We cannot overstate the importance of maintaining affordability and it all starts when the vehicle is purchased.

The average retail units sold per month per lot, of approximately 27 for the quarter was basically flat for the fourth quarter of 2008, but up sequentially from the third quarter which was 25.

The overall economic situation was, of course, better during the fourth quarter of 2008 and we did receive some benefit from the prior year quarter from the additional stimulus program making our fourth quarter comp a little more difficult.

As to sales volumes, we continue to focus on pushing this number up above 30 units sold per lot where it has historically been prior to our significant lot expansion.

We have significant leveraging opportunities with our existing footprint.

Interest income was down 1.4% for the quarter due to decreases in the rates charged to our customers in Arkansas.

The average finance receivable balance was up about $27 million, offset by a decrease in the overall effective interest rate of 10.6%, from 12.2% in the prior year period.

This decrease is a result of decreases in the federal primary discount rate, the base rate used for loans generated in Arkansas.

For several years the maximum rate allowed in Arkansas has been the discount rate plus 5%, which is currently 5.5%.

The rate in Arkansas has steadily decreased beginning in August of 2007, when it was 11.25%.

The weighted average interest rate at April 30th, 2009 for all Arkansas loans was approximately 6.7%.

Late last week congress passed the Supplemental Appropriations Act of 2009.

Within this legislation is a section which will allow us to charge up to 17% for sales to our customers in Arkansas.

The bill is currently awaiting the President's signature, which is expected, at which point the legislation would go into effect.

This bill does have a sunset clause, and will expire on December 31st, 2010.

The reason for the sunset is that voters in Arkansas will be voting in the fall of 2010 on a state constitutional amendment which will effectively accomplish the same result.

Should the voters not approve the constitutional amendment, the Company will again be subject to a maximum rate of the discount rate plus 5% effective January 2011.

We do not anticipate going to 17% on our loans placed in Arkansas, as we believe that we benefit from our customers' ability to maintain equity in the vehicle during its full term.

Our current plan is to charge 12% on Arkansas loans, effective upon the President's signature.

For the fourth quarter of this year our gross profit margin percentage was 42.7% of sales, down slightly from 43% in the fourth quarter of last year, and down from 43.1% sequentially.

Wholesale sales, service contract repairs and lower margins earned on our payment protection plan product all had a negative effect on margins for the quarter, offset by improvements in pricing efficiencies and slightly lower expenses.

We continue to focus efforts on holding down purchase costs, air and transport costs, and we expect to see gross margin percentages around the 43% level on a go forward basis.

In the fourth quarter of this year, SG&A as a percentage of sales increased to 18.4% from 17% in the same period last year.

The overall dollar increase for SG&A related to higher payroll costs.

At the corporate level the higher payroll costs are concentrate in the Human Resources, IT and collections areas.

Within HR is our manager-in-training program, which is where our lot managers begin.

We have significantly increased our investment in the MIT program throughout fiscal 2009, and currently have a sufficient level of qualified associates in this group to support growth, and to cover any attrition needs.

Additionally, we have increased the investment in our training department during 2009, to ensure our associates possess the appropriate skills and are well trained in serving our customers.

At the lot level, we made market based pay estimates for certain positions, in an effort to reduce our turnover and to attract qualified associates.

We will continue to review our infrastructure to ensure we are positioned to support growth.

For the current quarter, net chargeoffs as a percentage of average financed receivables was 6.3%, compared to 5.9% for the prior year quarter.

Collections as a percentage of average financed receivables increased to 17.7% from 17.5% for the prior year.

The increase in the collection percentages between years relates to favorable results from our zero down efforts offset by slightly longer overall weighted average note term.

At April 30th, 2009, our 30-plus past due accounts were at 2.8% compared to 3.1% April 30th, 2008.

This is the lowest level we've seen in recent history.

Our allowance for loan losses remains at 22%.

The provision for credit losses was 20.8% of sales compared to 20% for the fourth quarter of 2008, but down sequentially from third quarter's 22.4%.

While the loss percentage was up slightly when compared to the fourth quarter of 2008, we have seen solid overall improvement in our credit losses with the 2009 full year ending at 21.5%, compared to 22% for 2008.

Static pool performance from recent loans has been good and we attribute the improvements to better cars, better underwriting, and better execution of collection efforts at the lots.

We saw strong overall cash flows again during the current quarter reflected in the $6.4 million reduction in our total debt.

Our total debt stood at $29.8 million at year end.

For the year, we reduced debt by $10.5 million, while at the same time growing finance receivables by over $23 million, repurchasing stock of $1.2 million and adding $2.7 million in capital additions.

At April 30th, 2009 we had $30.6 million in additional availability under our revolving credit facility.

We want to continue to insure we maintain adequate availability, so as to not be in a position of having to slow down our growth.

We will continue to consider buying back stock under our repurchase plan, but our foremost concern currently is ensuring that we have adequate funding to grow our business well into the future, which will benefit our shareholders over the long-term.

We will continue to view any future investment decisions from an economic and profit perspective.

Our current debt to equity ratio of 19%, and our debt to finance receivable of 12.9% are very low, and a testament to our commitment to maximizing cash flows.

Now I will turn it over to Hank.

Thanks, Jeff.

Obviously we are extremely pleased with the year we had.

It's very satisfying to see the hard work paying off.

Throughout our past several calls we've begin to somewhat repeat ourselves as we continually talked about how we have been working to assemble the right team and build up the infrastructure needed to both better manage what we have and take us to the next level.

It will always be a work in progress as we make necessary additions and changes as we grow.

However, I am pleased to say that at this moment I feel we are in the best shape we've ever been in this regard.

The improved systems and controls we put in place are of tremendous benefit.

We successfully increased efficiencies in many areas throughout these past couple of years.

While all of these additions and enhancements help us to better manage our daily business, we do have to remember and remind ourselves they are only the tools.

They are not the decision makers and the leaders.

That all lies within our people, and that is the true source of my high level of confidence right now.

We have assembled a very impressive team that combines much needed experience from within Car-Mart, with the additional skills, new perspectives and creativity from certain outside talent that we have recruited.

And today I would like to take a few minutes and run down the roster to help give you a little more and deeper understanding of what I'm talking about.

I'm going to start off with Eddie Hight, our Chief Operating Officer and my right hand.

At a recent year end meeting we had here in Bentonville this past May, we had a special presentation recognizing Eddie for 25 years of service to Car-Mart.

Eddie served as a very successful general manager for 11 years prior to coming to the corporate office so he truly has a deep understanding of what it takes to make each individual lot successful.

Throughout his years of experience he's seen what works and what doesn't, and he does know the difference.

There is no question that Eddie's years of experience are a tremendous asset to our company, as is his high level of passion and drive.

Eddie I know you are listening on this call right now, and again I just want to express to you my thanks and appreciation for all you've done for Car-Mart and for me.

Our four regional VPs, John Harrison, Tracy Teller, Drew Clark, and Leon Walthall, all have tremendous Car-Mart experience.

They average over 20 years of experience among them.

I believe strongly that having a solid top management team that's been through the fire themselves is imperative to leading each of our general managers to building each of their own stores to its full potential.

Each of these regional VPs were extraordinarily successful general managers themselves, and their task at hand is to do everything in their power to help each general manager under their charge realize the same.

We presently have ten area operation managers.

Within these ranks we have tapped some outside talent throughout the past couple of years to gain some new perspectives, management styles and practices, and to help insure better oversight.

Several of our area managers came to us with substantial prior multi-unit management experience from various types of businesses -- auto parts, food services, auto rental, auto service, retail and others.

It's also probably noteworthy to mention that within this group are combined over 30 years district manager level experience with Wal-Mart.

The skills and experience they bring to the table are very beneficial as we develop our own practices and navigate our way to determining how to most effectively manage our business at its present size and to accommodate our future growth.

Those positions I've just mentioned work directly with general managers on a daily basis.

They are involved in all aspects of operations and for quite a while that did represent, for the most part, our entire management team.

However, in recent years we've added more talent to focus on each specific area of our business to ensure we have a strong driver working to continually determine and implement best practices and provide more specialized training, and to more intensely monitor more targeted areas.

In purchasing we have John Sims.

I think Jeff's already mentioned John once on this call.

John will have been with us three years this August, and since joining Car-Mart his team has worked diligently to improve vehicle quality, cost, assortment, procurement efficiencies and to greatly improve the productivity, knowledge and skill of each of our purchasing agents.

John has done a great job in all those regards and has developed and better refined our systems, comp plans and practices to assure greater control and efficiencies as we grow.

Prior to joining Car-Mart, John had a 20-plus year career with Wal-Mart, with over 10 of those years as a regional VP for both US and international operations.

His full resume is too extensive to describe entirely but suffice it to say that his prior knowledge and experience of helping to grow and manage the world's largest retailer is very helpful as we adapt and prepare for our future growth.

Our VP in our people division is Rob Hay.

I'm sure I've mentioned Rob several times on previous calls.

He also came to us with over 20 years of experience with Wal-Mart where he served as VP of Merchandising Systems, VP of Operations Development, Director of Operations, as well as Operations Manager and at one time a business analyst.

Rob first came on board four years ago as our IT director to build and create our IT department with an understanding that he would not be limited to that realm.

He did an excellent job, and this past fall took over our people division under his charge as our HR Director and Director of Associate Development, and he's already made a big difference.

Today we have the best group of managers in training we have ever had and they're creating pressure from within for us to open more stores.

I should also mention our HR Director [Don Knot], as he works directly with Rob on a daily basis.

Jon joined us about three years ago.

He came to us with over 25 years experience in recruitment and training.

Prior to a stint as a private consultant, Don worked in the restaurant industry for Sbarro, (inaudible) and Long John Silver's, and he also has some experience with Holiday Inn, as well.

In collections, we now have Bill [Elezando].

He is our Director of Collections Practices and Review.

Bill joined us in October bringing a great deal of knowledge and expertise which he gained while working for Wells Fargo Financial for many years.

While at Wells Fargo, Bill opened several successful new locations and completed numerous transactions with buy here/pay here and financial services throughout the United States.

I've been very impressed with how quickly Bill acclimated himself to Car-Mart and began making a difference very quickly.

As Jeff noted earlier, we ended this year with some very impression delinquency numbers, seeing the impact Bill has already made.

There is no question that Bill has been excellent addition to our team.

Joe Easton.

I'd like to mention Joe.

Joe Easton is our loan portfolio analyst, joined us this past March.

In this role, Joe is responsible for all aspects of the analysis of our loan pools.

Additionally Joe performs operational analysis and monitoring duties while working directly with managers on process improvements.

Before joining Car-Mart Joe spent 11 years at GMAC Insurance in St.

Louis.

There at GMAC he played roles as team and project leader while at the same time serving as a top analyst within the IT department.

Joe's analysis leadership is best demonstrated with his frequent selection by executive staff to lead strategic projects and initiatives.

Joe is beginning to gain a very solid understanding of our portfolio and will no doubt be making a significant impact.

Another very critical member of our team and addition within this past year is Rick Combs, our Information Systems Director.

Rick has over 16 years of operations and information systems experience with Wal-Mart, where he was responsible for running the world's largest NT network server.

After leaving Wal-Mart, Rick spent eight years opening and operating a successful IT consulting business with multiple locations.

Rick's technical knowledge combined with his entrepreneurial spirit make him a tremendous asset to Car-Mart.

He's continually looking not only for ways to improve efficiencies and provide better information, but ways to accomplish it all much more cost effectively.

And I am really looking forward to seeing a lot of Rick's ideas come together within these next few years.

I've shared some with you.

That's not all.

Sorry if I left some out.

But I think you should get the idea that we feel really good about the team we have in place.

Each of the individuals are not only highly skilled and driven, but importantly they are good people, and they are really good fits both for Car-Mart and I think for each other.

The level of support and cooperation is excellent.

I feel we are very fortunate to have each of those folks on our team and each will make a significant contribution to help Car-Mart realize the growth and potential that lies ahead.

With that I think that concludes our prepared remarks.

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

Operator, if you can help us with that.

At this time the participants will now answer questions from the callers.

I would like to reiterate that my earlier comments regarding forward-looking statements apply both to the participants' prepared remarks and to anything that may come up during the question-and-answer session.

(Operator Instructions).

We'll move first to Bill Armstrong with CL King & Associates.

Good morning Skip, Hank and Jeff.

Congratulations on a really great quarter.

Jeff, I was wondering if you could elaborate -- or Hank or Skip -- on the sunset provision in the new legislation and what happens with the vote in Arkansas.

We actually in Arkansas, our usury law is part of our constitution so it couldn't be changed statutorily.

So we have to put this before the people in the next general election which is in the fall of 2010.

All the while these efforts were going on, we were also trying to get some federal relief where the federal law could free up the state's usury.

And it was felt that since this is going in front of the people, and with rates so low now, that they did put something in place federally that will preempt our current state regulation.

But the people have a voice and an opportunity in the fall of 2010 to vote for or against that.

I do feel very confident.

It's not over until it's over but I do feel very good about our prospects of actually getting that passed in the fall because it impacts not only consumer loans on cars and furniture and such, but it also will impact the writing of some bonds as related to energy projects, it will impact some loans available for government projects, student loans as well.

So we got some real positive things that people want to get.

And we also have a real strong coalition in place in the state to see that through.

We've already had some pretty strong commitments from significant players in Arkansas to help us see that through.

The election would be in the fall of 2010, the vote wouldn't be certified until January of 2011.

So hence the timing of that sunset.

It sounds like it would be hard to get people to vote for higher interest rates.

I would tell you yes, if we were by ourselves in that regard, but when you consider all the other benefits.

And keeping in mind, too, that even the proposed amendment is carrying for what would be a still relatively low cap as compared to other states.

It would have a cap of 17% for us which is obviously significantly better than we are now.

But it is actually a lower cap than virtually any other state anyway.

So I think it's very possible that we will be successful.

Again, it's sometimes hard to predict those things but we are going to do everything in our power to help support it and see it through.

One other question on legislation, that's the cash for clunkers.

I know you don't sell new cars, so obviously it wouldn't impact your sales, but with cars in that $4,000 range, which is where you are buying cars wholesale, basically getting taken out and crushed, will you anticipate that restricting supply of cars that you might want to buy and therefore maybe raising prices you may have to pay for cars?

I really don't think it's going to be impactful.

I think, to my understanding, and probably need to go take a harder look at it, I think it has been watered down quite a bit from when it was originally introduced.

And I think the scope of it, the number of cars we're looking at now, won't have any genuine impact.

Probably about 250,000 cars.

$40 million used car sales.

It's not going to matter.

Okay.

That's what I thought.

Could you comment on or give us any update on employment trends in the states or regions where you operate.

The unemployment rates in the areas we service have clicked up recently and but they're still significantly below the national levels.

But our service areas certainly are not immune to increasing unemployment rates.

But again, the fact that we are providing basic transportation, it's a necessity, we have not seen a negative effect yet from unemployment rates.

Okay.

Last question, looks like you are going to reaccelerate your store openings to a certain extent.

Do you see some opportunities in new markets or is it mostly going to be fill-in, or how should we think about that?

I think that right now our goal, and it will be for quite a while, is our next best location is the next closest town.

We know that we do best where we have support in play.

We do have a lot of what you can call fill-in locations.

In Oklahoma, we recently opened another.

We are looking at yet another possibility in Oklahoma, couple more in Missouri, Kentucky, Alabama.

We have no near term plans for creating a new area.

We have a significant opportunity to open a good number of stores where we already are.

So like that grass fire approach where you just add?

Absolutely.

Great, thanks a lot.

Now we will move to John Hecht with JMP Securities.

Good morning, guys.

Good quarter.

Maybe you could provide a little bit more data with respect to gross margins.

You did comment on your expectations for what that cash from congress might do.

But if I heard you right, there was a small compression in margins in the quarter, somewhat related to purchasing costs and maintenance contracts.

Can you delve into that a little bit more and tell us where the primary changes came from?

We went from 43 to 42.7 on the margins.

It was a slight decrease, and really it was, like we said, a combination of slightly higher claims on our PPP product, slightly higher volumes on the wholesale side which mathematically brings that margin down a little bit.

In looking forward, 43% looks like a pretty good number, and with a volume increase, if we do continue to push volumes up and maybe we could garner a little higher margin than that 43%.

But just for the quarter we did have a little higher rate on the claims under that payment protection plan.

And those wholesale volumes were a little higher.

So the cost of inventories, it seems like a smaller issue than the claims and wholesale activity.

The cost of the car and our pricing efficiencies of those cars were actually just a little bit positive for the period.

So it was the other two items.

Wondering if you could shed some thoughts on the current sales environment, what kind of upcoming promotions do you guys intend to embark upon?

Is there any portion of the stimulus program, reduction in tax rates for some of your customers, is that impacting sales positively as well?

I don't think we have any sense, or feel slightly that that's really impacting our sales.

Again, anything that's going to leave a little more cash in the customer's pocket has to be a good thing, probably more related to payments than it would be to sales.

With regard to our promotions we do continue to run the standard promotions that we have for years that work at an on lot basis.

Our advertising still continues to be very much geared to branding and we feel like that's working for us.

One thing that we have done very recently with regard to advertising that we have not done before, is we have done some targeted television advertising on some of our stores where we seem to struggle a lot more to get our sales volumes up.

We have produced a few TV commercials that actually feature the location.

In some cases, actually each of these, these are smaller, newer stores, and we're running these on local cable just to try to create some more awareness in the towns, that, "Hey, we are here." This has only been in place for a couple of months, still a little too early to tell.

But we felt like it was the right thing so we are making our best effort.

Then, real quickly, I know your branch expansion in fiscal year 2010 is about one a quarter.

Is that accurate, and do you anticipate moving that upward in the intermediate term at all on a quarterly basis?

Realistically we recently just opened three.

We opened 11 in Missouri, Oklahoma and our additional location here in northwest Arkansas.

Realistically we are looking at probably another five locations this year.

And then perhaps if we look out even longer, in the eight to 10 range next year.

Back to that one for ten that Hank mentioned in the press release.

That would be for fiscal 2011, I take it?

And on a go forward basis.

Okay.

Thanks very much, guys.

(Operator Instructions) We will now go to Adam Deland with Morehead Capital.

Congratulations on a great quarter.

Jeff, you mentioned that margins were down slightly in part because of the payment protection plan and higher claims on that.

I was hoping you could give me a little more color on that and how that is going.

It's still a great product for us.

It produces a lot of incremental profit.

But we did see a small spike in the level of claims in the fourth quarter.

But the overall the margins were 42.7, down from 43.

A portion of that related to this product, so I think in prior conference calls we mentioned that that product was level or maybe even a little bit higher than our overall gross margins.

In the fourth quarter it was just slightly below our overall gross margins, but it wasn't a drastic change, it was just one factor in that slightly lower margin.

We should mention that starting September 1st we will have that product available for our sales in Texas.

We got that approved and that is slated to go into effect September 1st so we should see some continuing benefit in new areas for that product in future periods.

That's the only question I had, thanks a lot, guys.

Thank you.

(Operator Instructions) We will now take John Langston with Hodges Capital Management.

Hi guys, great quarter.

I've got a couple of questions about last quarter you talked about having a little bit of difficulty finding some inventory.

and what's gone on with Chrysler and GM this quarter, could you talk a little bit further about that.

Have things changed and what's your outlook there?

I think that some of what we may have talked abut before was somewhat seasonal.

Through the tax time it always, you've got a few more buyers out there for the same car.

But I would tell you that right now we are leaning toward very well stocked, and not just with regard to the number of but I think our selection, quality, it all actually has improved and looking very good.

Jeff had mentioned it earlier, our purchasing team we feel like is doing a good job and right now that is one of our strengths is maintaining the inventory.

Are you having to go more to actions?

Are you able to find the car at the dealers today?

I will tell you that no, we really try to minimize our trips to the auction.

That's always been just a little bit supplemental for us.

Over the years, I would tell you that though our numbers of cars that we're purchasing direct from new car stores is way down, there was a time, if you go back far enough to the past, where virtually all of our inventory came that way.

But we are buying more through wholesalers.

And of course we are very selective in what we buy, whereas wholesalers tend to go in and buy everything they have there.

We are picky and choose, we try to buy, for the most part, ready to sell inventory.

We are buying more from individuals than we have in the past.

I think the actual past couple of months we probably bought more from individuals than we have in many many years.

We've got some extra efforts in place there.

It will never be a main source or primary source but it's just one more area that we have.

John, it's really one of the advantages we have against the mom and pop competitors, because they are probably doing what you suggested, they're going to the auctions because they don't have the manpower and breadth of personnel that we have to beat the bushes and go out and buy cars.

So they are hitting the auctions and that's tough, that whole source of inventory.

It's one of the things we are taking advantage of right now.

Eventually we need to see new car sales improve and getting more cars going through the pipeline.

I think Car-Mart's done a better job than anybody getting inventory right now.

How far a runway?

Are we talking about a year before new car sales pick up, where you're thinking inventory might start to drive up for you?

Or is it not that long?

I'm not sure I'm good enough to predict when new car sales are going to pick up.

I will tell, it's funny, for us it's very spotty.

We are local everywhere we are, we are local.

We try to buy as close as we can to minimize the transport costs and such.

And actually in a few of our areas, I think they are picking up and doing better.

That's what I'm told.

So it's hit and miss right now.

I was more referring to if new car sales don't pick up for six months, is that whenever you may see inventory dry up?

No, I think it's way further out than than.

There is still quite a bit of cars out there.

There is.

And again, it's somewhat related to what was said earlier.

It's just such a huge market that even our piece of it, we are able to source the cars.

I know you had some success this quarter with your tax returns.

Can you talk a little bit about that?

It was a success.

We start that promotion November 1st each year.

It gets a little bit bigger and little better each year.

Basically beginning November 1st, first day of our third quarter, our customers can qualify for a zero down, down payment with the obligation to come back and actually do their taxes at our lots through our third party service provider, and then we apply part of their tax refund in the spring to that initial zero down.

That allows us to basically take advantage of our very strong balance sheet and let several thousand cars drive off for zero down in the November-December, early January time period.

And many or most of our competitors cannot do that.

And then we also attain a very nice overall down payment when that money comes in and the tax returns are prepared and those checks are printed at our lots.

So we are in that loop when that cash starts flowing in the spring.

This is a great program for us, we have a great third party provider, we will get better each year and look for great things from that program for this next season and then on in to the future.

It fits very nicely with our customer needs.

It allows us to spread out the tax refund season.

Just from an administrative standpoint, if we tried to cover all the sales in that two or three week period when the checks were coming in, we couldn't administratively handle that.

So this lets us spread out the sales and also take advantage of our balance sheet against the competition.

It really fits good with our business process.

We might also mention how going forward, as more folks coming to do their tax returns with us it helps not only sales but collections.

Right.

We had a fair number of customers that just came in to do their taxes at our locations that weren't part of the zero down promotion.

Each year that goes by, and currently we have 43,000 customers, each year that goes by, more and more of our customers outside of the zero down promotion, are going to be coming through our locations to do their taxes.

At least that's what we anticipate, and it could just be a very nice cash flow source each and every spring outside the promotion itself.

That's all I've got.

Thank you.

With no further questions I would like to turn it back over to your host for any additional comments and closing remarks.

Okay, thank you very much folks, we hope you enjoyed the prepared remarks.

I think the things Hank talked about and the people he talked about are really critical to the success of the Company.

I enjoyed hearing it myself.

These are folks that are really great additions to the Car-Mart team and will help us move forward with this growth plan we talked about.

I know that we had a lot of detail too that Jeff came up with, and went over with you.

If you have any more questions, particularly on those issues, call Jeff, and thank you very much for listening.

This concludes today's conference, thank you for joining us and have a wonderful day.