America's CAR-MART Inc (CRMT) 2010 Q1 法說會逐字稿

Good morning, everyone. Thank you for holding and welcome to America's Car-Mart's First Quarter 2010 Conference Call. The topic of this call will be the earnings and operating results for the Company's fiscal First Quarter ended July 31, 2009. Before we begin I'd like to remind everyone that this call is being recorded and will be available for replay for the next 30 days. The dial-in number and access information are included in this mornings press release, which can be found on America's Car-Mart's website at www.car-mart.com. As you all know some of 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 statements information please see Item 1 of Part 1 of the companies Annual Report on Form 10-K for the fiscal year ended April 30, 2009 and its current and Quarterly Reports furnished to you 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. And now I'd like to turn the call over to the Company's Chairman of the Board, Skip Falgout.

Thank you, Operator, and good morning, everyone. We announced earlier this morning outstanding results for the first quarter of fiscal 2010, which is our tenth consecutive quarter of solid profits and is a continuation of our 28 plus years of profitability. Included in that announcement was a 33% increase in net income, the $7 million or $0.60 per share versus net income of $5.3 million or $0.45 per share for the prior year first quarter. Our top-line increased by 10.7% to $83.8 million on strong retail unit sales increase of 11.3% and same-store sales increase of 8.5%. As a reminder, last year's first quarter sales were bolstered somewhat by economic stimulus checks that our customer base received in April and May of last year. When you consider that incentive to benefit our customers, I believe this year's first quarter sales and revenue increases are even more impressive. And not to take away from Jeff's discussion to follow, but we were able to achieve the sales gains this quarter while at the same time continuing to not only maintain but significantly improve our delinquency and credit loss metrics.

For example, our over 30 day delinquencies improved over last year's first quarter to 3.5%, net charge-offs decreased by -- to 5.1% or 5.7% and provision for credit losses as a percentage of sales was well below 20%, the best level in recent years. Folks, this is a cornerstone and harbinger of solid, good and growing earnings. As Hank and Jeff mentioned in today's press release and they will elaborate on more in a moment, we have continued to make huge strides in building our Company for maximizing our results at our existing store base and laying a strong foundation for accelerated but controlled future new store growth. I am very confident we will continue to build on the momentum we've generated over the last two years of positive growth and you will see sustained strong growth in results here at Car-Mart in the future. Now I'll turn it over to Jeff.

Okay, thanks, Skip. Once again, as mentioned in the press release, our top-line revenues for the quarter increased by 10.7% compared to the first quarter of last year. The increase was the result of an 11.3% increase in unit volume, a 1% increase in average retail sales price, a $300,000 increase in interest income offset by a $360,000 decrease in wholesale sales. Same store revenue increased by 8.5%, our down payment percentage for the quarter was 7% this year compared to 6.5% for the first quarter of last year. Our initial loan term was approximately 26 months, which is flat with the first quarter of 2009. Our weighed average note term for the entire portfolio, including contract modifications, was 27.6 months at July 31, 2009 compared to 27.5 months at July 31, 2008. Considering the slight increase in average retail sales price the initial term was actually slightly down between years.

This is an indication that our lot managers continue to do an outstanding job of keeping the terms down, which is so important in insuring that our customers maintain equity in their vehicles. The average retail sales price increased slightly to $9,041 from $8,952 for the first quarter of last fiscal year. Sequentially the average retail sales price was actually down $148 or 1.6%, something that we're very happy about. A demand for used vehicles we are purchasing remains very high. Wholesale price trends have been increasing for several months now. To be able to hold down purchase prices and resulting sales prices and to maintain required quantities, quality and mix in this environment is a testament to our lot managers, their purchasing agent and our corporate purchasing support team lead by Jon Sims. We will continue to leverage our purchasing strengths as we move forward with our growth plans.

We realize that minimizing our purchase cost to keep the vehicles affordable for our customer is critical to our success. We cannot overstate the importance of maintaining affordability and it all starts when that vehicle is purchased. The average retail unit sold per month per lot, approximately 29 for the quarter, was up almost 7% from last year's first quarter. Please note that this is the average lot volume across our entire store base and we do have some lots selling around 100 units per month. As we have mentioned in previous calls, we have significant leveraging opportunities within our current footprint to increase sales and volumes and profits. Our continuing focus on insuring that all individual lots are producing strong economic profit based on our investment in that lot is being reflected in our increased sales volumes. We will continue to focus on pushing this number up above 30 units sold per month per lot.

At the same time, based on the significant infrastructure investments we've made over the last few years, we will continue to add new lots to meet our growth projections. Interest income was up 4.8% for the quarter due to an increase in average finance receivables outstanding of $22 million offset by lower rates. The weighted average interest rate for all finance receivables at July 31, 2009, was 11.7% compared to 12.4% at July 31, 2008. The weighted average interest rate in Arkansas was 7.2% at quarter end compared to 8.7% at July 31, 2008 and 6.7% at April 30, 2009. The decrease in rates between periods results from previous decreases in the federal primary discount rate, the base rate used by loans -- used by us for loans generated in Arkansas prior to June 26 of 2009. The passage at the federal level of the Supplemental Appropriations Act of 2009 in June we are now permitted to charge up to 17% for new loans in Arkansas.

We began charging 12% to our Arkansas customers on June 26th and we anticipate charging this rate on a go forward basis for new sales. The federal legislation does have a sunset provision and the voters in Arkansas will be voting in the fall of 2010 on a State constitutional amendment which will effectively accomplish the same results. Should the voters not approve the State constitutional amendment the Company will again be subject to a maximum rate of the discount rate plus 5% effective January 1, 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 and our credit losses in Arkansas are lower. For the first quarter of this year our gross profit margin percentage was 44.1% of sales, up from 43.6% in the first quarter of last year and up from 42.7% sequentially.

The improvement from the prior year period relates primarily to the effect of lower wholesale volumes and lower operating expenses, namely gasoline. Sequential improvement relates to lower wholesale sales as well as higher margins earned on the payment protection plan product. We also received a benefit from selling a slightly lower price vehicle during the current quarter. We'll continue to focus efforts on holding down purchase costs and we expect to see the gross margin percentages in the 43% range on a go forward basis. However, higher top-line sales levels together with lower wholesale volumes resulting from improvements in credit loss experience should have a positive effect on gross margin percentage in future quarters. The first quarter of this year SG&A as a percentage of sales decreased to 18.1% from 18.5% in the same period last year. The overall dollar increase in SG&A related primarily to higher payroll costs.

At the corporate level a higher payroll costs are concentrated in our HR, IT, and collections areas. The investments in personnel for these critically important support areas are allowing us to grow the top-line at a more accelerated but controlled pace. We expect to continue to leverage our infrastructure investments into the future via higher sales volumes. Within HR is our manager in training program where we have significantly increased our investment in recent months to have a sufficient level of qualified associates in this program to support growth and cover attrition need. At the lot level, market based pay adjustments for certain positions have been made and we continue to offer a benefits package that is unique in our industry. Additionally, many compensation arrangements at the lot level are based on profitability and as such, payroll costs have increased in step with increased profits.

For the current quarter net charge-offs as a percentage of average finance receivables was 5.1% compared to 5.7% for the prior year's quarter. Collections as a percentage of average finance receivables increased to 16.6% from 16.4% for the prior year. At July 31, 2009, our 30 plus past due accounts were at 3.5% compared to 3.6% at July 31, 2008. The historical average at this time of the year is closer to 4%. Our allowance for loan losses remains at 22% of finance receivables. The provision for credit losses was 19.5% of sales compared to 20.9% for the first quarter of fiscal 2009 and 20.8% sequentially. Several factors are contributing to our improved credit loss results, including the fact that the competitive landscape has shifted to our favor further solidifying us as the market leader in our service areas.

The credit constrictions are affecting vehicle consumers and our competitors as evidenced by significantly lower indirect loan volumes in the subprime ABS market, as well as credit tightening related to inventory lines of credit for many if not all of our competitors. With our healthy balance sheet, we continue to improve our vehicle selection, quantity, quality, and service levels and with our focus on affordability are picking up market share which has a direct positive effect on collection results. Being the clear market leader gives us more collections' leverage with a customer base in need of good, basic, affordable transportation. While unemployment levels in our service areas have ticked up, the rates are still significantly below national levels and most of our customers are receiving new tax credits and benefiting from lower withholding rates when compared to this time last year.

Additionally, gasoline is about $1.50 per gallon less this year compared to last, which is putting additional money in our customers' pockets. Also, we continue to make significant strides with our operational improvements within collections and these improvements are continuing to show up in our positive results. With collections up, charge-offs down, and our 30 plus category lower than at this time last year, we're very happy with our results thus far in the year. We saw strong overall cash flows again during the current quarter reflected in only a slight increase in overall debt levels, with finance receivables growing by over $13 million and over $1 million in capital additions during the first quarter. At July 31, 2009, we had $29.6 million in additional availability under our revolving credit facility. Our current debt to equity ratio is 18.6% and our debt to finance receivables ratio was 12.5%, both at historical lows and a testament to our increasing committment to maximizing our cash on cash returns.

As the credit markets collapsed around us, our healthy balance sheet and strong operating results have allowed us to really take advantage of our strengths at existing dealerships and to benefit from attractive lease rates and outstanding locations for our new lot additions. Now I'll turn it over to Hank.

All right, thanks, Jeff. Well, I guess I can start off by stating the obvious. We are very pleased with our first quarter results. We've continued to see steady improvements in every facet of our business and our task at hand right now is to continue to build on our success. Too often there's a tendency to press harder when things are not going so well and to relax somewhat when results are good. We know, however, that it's time to press harder when performance is at a high level and that is our intention at this time. A couple years ago we weren't producing at the level we knew we were capable. We talked quite a bit about how our less than satisfactory performance at the time was in part the result of opening more stores than we were really equipped to handle at the time. And being mindful of that we can appreciate any concerns anyone may have as we begin to open more stores. It is very important to understand that we're not at all looking today at the same situation.

As we've discussed on our last few calls, we've made extensive improvements and now have far more support and oversight in every area. We're now well positioned to effectively deliver the necessary support and oversight to several more stores. There's no question that with every decision to open an additional location we must ask the question if we have in place the people, structure, and resources necessary and we feel very confident that the answer to that question right now is "yes" we do. The continually improving numbers we've seen over the past several quarters and certainly the impressive results posted this past quarter are evidence of that. Much of the increase in sales and improvements in collections are a result of better execution at all of our stores. Virtually all of our younger stores have improved significantly.

Our objective has been to reduce the number of stores that we believe have not been producing as we know they should and this effort has served us well as we see what a difference it makes when we have each store carrying their weight. I wouldn't say we're at 100%, but we are much closer to that than we were just a year ago. I think it's also important to note that while it does feel very satisfying to see that the improvements we've made are paying off, I want everyone to understand that we still have several more projects in the works that have not yet been fully implemented and I can't say enough good things about the work our IT department has done. Our IT Director, Rick Combs, has just done an excellent, excellent job with that group. They recently begun the rollout of a new system that ties our phone system into our collections module and our operational software and this will significantly enhance the management of our collection efforts.

Equally exciting is a project under way that will give our purchasing agents immediate access to our purchasing data while in the field. There's no question that each of these projects are very significant advancements. Both projects will be fully in place for the second half of this fiscal year. We're very excited about getting them started. Also important to note is our management training program is going very well. We're very pleased with the quality of the trainees in the program, as well as the training they are receiving. Our associate development team is doing a great job. And we've already realized a lot of benefit from this program and it will continue to be vitally important to our future growth. So for now I guess that concludes our prepared remarks, so now we would like to move on to any questions. Operator?

(Operator Instructions) We'll take our first question from David Burtzlaff with Stephens Incorporated.

Good morning, guys, and congratulations on a great quarter.

Hi, David.

I have a couple questions. First, can you comment at all about the sales trends in August? Do we see any kind of drop off from where it was at the end of the quarter?

They're still falling. We're satisfied, pleased with the continuation on our sales.

Okay. And what percentage of sales were from Arkansas?

Revenues were about 50% in Arkansas for the quarter.

Okay. And did you see -- I mean some of the growth, I mean, was that a lot -- was there more sales in Arkansas this quarter at all or has that been pretty stable?

It's been fairly stable. A lot of the -- the revenue increase was from the smaller lots and several of those were outside of the State of Arkansas.

One of the good things, I think, it is from across the board increases really. Some of the lots that a year ago were not selling enough. A lot of things have been done to improve their sales levels and they are producing. So, yes, across-the-board that's what's exciting about it.

Okay. And then one more. Did you have any -- are you seeing any difficult right -- difficulty right now in-sourcing cars given the cash for clunkers program?

No. I'd say the challenges we have finding inventory aren't related to that and really we're not. We've actually increased our inventory. I think anybody that drives by any Car-Mart location today, inventory looks as good as it ever has. Well stocked and we have a good mix and as Jeff discussed pretty thoroughly there, we're very pleased that we're keeping the cost about where we need to on that. So no, we're still doing a good job there.

Okay, thank you very much.

Thank you, David

We'll take our next question from Bill Armstrong with C.L. King & Associates.

good morning, Hank and Skip, and Jeff. I'll add my congratulations. Just to follow-up on that last question, so you aren't seeing any impact from the -- all these cars that are being taken out of circulation because of the cash for clunkers program? You aren't seeing an impact on supply?

I guess I would just have to say apparently not. Our purchasing team is doing a good job. I think that early on in the program, when a lot of cars are being traded for it and dealers were still trying to figure out how the program works, I think anecdotally we saw a few little challenges. But we're -- we're very pleased with the -- the inventory that we're getting and so we've not been impaired in any way by this program.

Bill, also, if you just drive around some of the new car dealerships as they're taking in these cars, they really were clunkers. If they were getting $4500 tax credit, most of those cars, probably 99% of them we wouldn't have bought anyway.

I think it's also is we just ask -- a lot of our business is in Arkansas and we know that for whatever reason, actually it was a very small percentage of the clunker money went to Arkansas, so we didn't see a whole lot of it in our area.

Okay. And how about inventory pricing trends, pricing trends for the cars you're buying at wholesale? Is that -- is that continuing to go up?

Actually, we've -- as evidenced by the sequential sales price decrease, the purchasing group was actually able to show a slight decrease in purchase prices the first quarter versus the fourth, which we're extremely excited about.

Bill, I think if you look at the Manheim Index it's gone up, for what, the last 11 months, I think, or so.

Yes.

And I would pay you to our competitors, the mom and pops that have no choice but to go to the auction every Tuesday or Wednesday night and have really a single source. They probably have felt it more than we have, but the way we purchase, as you know, I think has given us this advantage over -- over those that kind of have single source purchasing and so we're getting the benefit of that.

I think too, as you mention, there were a lot of these cars that did qualify for the program and be taken off the market. They were pretty rough and they would be below what we have out there for our customers. So, we might actually realize some benefit on the side of when we liquidate trade-ins or repossession. I wouldn't say necessarily that we are, but if some of that trail that maybe where we see the impact.

Okay. On another topic then, I think in the past few quarters you've mentioned that you've seen some increases in customers refinancing their loans with you. I was wondering if you could update us on what the trends were there.

Actually, we saw a pretty significant decrease in modifications this quarter versus the first quarter of last year, so we're -- we're very pleased with the -- with the efforts in place to -- to minimize modifications, but honestly, modifications are not necessarily bad in this business. You've got to work with these customers and -- but we have seen a decrease from last year in modifications.

Okay, so then the -- the decrease in charge-offs and the improvement in the accounts over 30 days past due that -- that did not benefit then from higher modifications? You actually had modifications decreasing?

Yes and you know the cash collections were up. The collections were up and modifications were down, so this -- we're seeing real improvement in the portfolio.

Great, okay.

Those metrics fully work together. For example, if you had contract modifications really too low and repossessions too high it might be an indication that we're not maintaining our customers. So it's -- I think right now it's kind of interesting and probably good equilibrium there. Probably could get better, but right now it's -- it's in a good place and good balance.

Okay, great. Thanks.

Our next question will come from John Hecht with JMP Securities.

Good morning and reiterate the earlier comments about congratulations on a successful quarter. Can you guys give us the inventory levels now or maybe discuss what you've done with the inventory levels? And in that context are you keeping the inventory turns similar to where you have been historically?

I think it's remained fairly consistent. Really, obviously, our sales have began to increase and so we have had to carry more cars. I would say in probably long about June, we raised that number by about three to four hundred units during June and it continued to do so and, as always, we've adjust accordingly and so we're carrying, what, 3500.

We want our purchasing agents to not pass on any good cars, so if -- it turns go down a little bit in this environment that's not necessarily a bad thing for us with the supply issues.

Okay. And sales growth and then you mentioned gaining market share gets indirect lenders and actually in market mom and pop competitors sounds like just general sales execution. I'm wondering if you could highlight some of the promotions you've recently undertaken and maybe some of the near-term promotions and then finally on that topic is when do you anticipate doing some of the tax rebate promotions as we get toward the end of the year?

Okay. We -- we remain consistent with our branding campaign and I would say that that still remains the heart of our advertising in a business that's traditionally been very promotionally driven and we have ran some promotions through the summer. We've done our time on the job sale and right now we have our Sizzling Summer back-to-school sort of sale going on. We feature certain cars and offer a few reduced (inaudible) like vehicles. The big promotion of the year is the tax returns and it's funny, every year it's earlier and earlier. Last year we launched that in as early as November and our intention is to do the same this year. We're -- we're already in preparation for that. Okay.

And we did, John, we did expect that tax promotion -- promotion to be bigger and bigger each year. We're going to do better internally with the logistics of running that program. This will be the second -- I guess, the third year we've been associated with our tax preparation Company we work with and are very excited about the opportunities that provides to us, not only on the sales side in the third quarter, but on a collections side in the fourth quarter. So it's a great promotion. We plan to really push that hard in the coming years.

I think it's probably also worth mentioning, you asked the question about the promotions and advertising, we've taken a little different turn this year. As we mentioned, we're really focused on identifying the lots that we believe can produce more, really not selling the number of vehicles they should. And so we have actually gone to those towns and really customized some advertising just -- just for that town. Instead of just providing the blanket corporate television campaign or radio spot that we've had, we've actually gone in, produced just on that lot in that town, specifically running it on local cable to keep it affordable and we are seeing some benefit from that.

And the rates we pay are quite low. In fact, our overall marketing spend in total dollars is about the same as it was three years ago, so it's come down as a percentage of revenue. We're actually doing a lot more of this branding even at the local level. You can get more bang for the buck out of it.

When you keep in mind that we're primarily located in small towns in the south, we aren't having to pay the rate of these large markets and so we can put out a lot more spots for a lot less money.

Okay. And then the wholesale revenues were down. Is that purely a function of lower, I guess, repo inventory?

Yes, it is.

Okay. And then the final question is could you guys -- I think you talked -- you talked about unit development. What is your goal for -- I think you probably mentioned sort of one to two units per quarter of growth. Is that -- is that continue to be accurate and what regions are you looking to here? And then on that topic, are your new units continuing to mature or ramp up at a similar rate to historical rates or are you seeing improvements there as well? And thank you for answering my questions.

Right. With regard to the new store openings, as Jeff mentioned, we have already -- we did open a few at the start of this year during our first quarter and we will open a few more throughout the remainder of this fiscal year. It's just very steady and again asking ourself every time is this the right thing to do and we certainly know we have the capacity for several more stores right now than we have today. We're also -- has a benefit of right now there are so many towns that are located just right down the road from where we already are. We still have towns in Missouri, a couple more in Oklahoma we've identified, Alabama, Kentucky, so we're not going out anywhere and starting a new area, these are all fill-ins and we have tremendous -- really for the next couple of years, there's plenty of locations without going too far from home to do that. As far as the growth of the new stores, want to comment on that?

Yes. I would say that our recent new store openings are actually producing a little higher volumes out of the gate than we saw a few years ago, which is nice. We've got good new -- good new locations, great inventory to start those lots, good new managers out of that manager training program, and our expectation is just higher than it was on a new lot opening than just a few years ago.

I would tell you John, that is by design. I mean we've beefed up all these infrastructure things we've talked about and feel more comfortable. As you know being -- following us, our Company for a while, we would start new lots selling 15, 18, 20 cars a month and our expectations are higher, but also our ability to control that and deliver that is a lot better than it was.

Okay, great. Thanks for the color.

You bet.

Our next question will come from Daniel Furtado with Jefferies.

Good morning. Thanks for taking my questions and congratulations again on a great quarter. Do you see any reason to believe the typical seasonal demand patterns will be difficult this year than other years? Considering how strong this quarter was do you think we'll go back to what we've seen from a seasonal demand pattern or do you think there's something else there?

That's a good question.

It's a great question. I guess in part in years past there have been times, certainly, when we have huge months specifically that sometimes we see a little bit of a trail-off that follows that and we question did we sell ahead a little bit or an aggressive promotion go ahead and pick up some other sales. But really, we've not seen any slacking. I think when we are able to produce at all of the stores, so you don't have one store ever to carry the weight of another, it just speaks to the capacity that we already had in place. And so right now we are not seeing this. There will always be some seasonality with us. It's not going away, but right now we can say that sales continue to hold strong.

Thanks.

Typically, August is a slower month, it's back-to-school and we answered earlier that we've seen a continuation of solid sales.

And we know coming up are typically some -- September and October is going to slowdown, but right now we feel like we've got the inventory, the selection, people are well trained and well motivated right now, so our expectations are high.

And that tax promotion from moving that forward to November has really leveled out our second or third and fourth quarters pretty dramatically. Whereas that -- and the fourth quarter used to be just -- that was the tax quarter and now it's spread over two quarters.

Got you.

So there's still seasonality but it's not quite as dramatic, I would say, as it has been.

Excellent. Thank you, that's great color. And just like mechanically, how do you think about the Arkansas impact to the portfolio yield, like kind of -- like what I'm thinking is there's about a 600 basis point increase on 50% of the portfolio, so call it a 300 basis point increase over the next two years as it feathers in. Is that -- is that the right way to think about that?

Yes, that's the right way to think about it.

Okay. And then just my last real quick question is was there anything, I don't think abnormal is the right word, but unusual in the interest and other income line item this quarter, especially as it compared to last?

Well, we did have a benefit from the decrease in the fair value of the interest rate swap.

The 390 and change or whatever that was?

$319,000, but other than that we just had lower borrowings than last year.

Okay, okay. Great. Well, thanks for your time and again, great quarter.

Thank you.

Our next question will come from Brian Rohman with Robeco Investment Management.

Good morning, thank you. A couple questions following up right away on the previous question about the flow through of higher interest rates in Arkansas. Is there any offset as you look up and down the income statement or -- because you're looking at 3% on $192 million of receivables would be the better part of $6 million of incremental revenue. I mean look up and down the income statement, is there going to be any offset to that like lower fees or lower gross margin or anything?

The offset would be a -- a slightly higher credit losses, because when an account does go bad in Arkansas, there will be a little more principal owed at that point. Okay. So on an amortization schedule of a 6% note versus a 12% and our average loss period is about 11 months, it will be about $140 extra per unit hanging out there. So, but it's a slight -- it's a small offset to a very large positive on the interest income side.

Okay, great. That's -- that's helpful. By the way, as you look at Arkansas receivables versus non-Arkansas receivables and the gentleman before asked a similar question, he said it feathers in, I think, was the expression used, over three years, is there a longer tail or a longer life or anything meaningfully different between Arkansas' duration on the portfolio versus the rest of the portfolio?

Well, not necessarily. We do have lower credit losses in Arkansas, so it takes a little longer to turn that over than the other states, but three years is a little too long.

Yes.

The average term is 27 months, it's not going to take three years to turn it over and with our collections and then the write-offs and repos, a big piece of that turn is going to happen within the first 12 months.

Okay, great. Another question, which you referenced last time on the call and you sort of put it in the text this time, but factually, you're saying the charge-off -- the charge-off rate was down and the provision rate was down. Is there any way to quantify what you refer to here, I think it's 0.3 in the sort of second paragraph, an expanding market results from credit constrictions for vehicle customers at most of our competitors. I mean, you're basically saying that you're seeing a better quality customer. Is there any way to quantify the benefit of that other than through this -- these two numbers? Can you say that there's a specific group that you didn't see before you see it now, it's expanding, it's shrinking?

I -- I would have to say that it's right now is for the most part feeling anecdotal as we talk with the managers. We certainly know that we've seen some more folks come to Car-Mart as a result of the credit tightening, but truly our core customers feel the same (inaudible) and that's where our focus needs to continue. We want to make ourselves ready and available to others, but our core customer base is still the large part (multiple speakers).

So -- so if the improvement is still related to the core customer, is the lower provision and the lower charge-off rate -- the economy has gotten worse , obviously. Is it a function of things we've talked about in the past, better quality cars and higher down payments?

It -- it's several different factors. Certainly, the best possible quality car that we can offer in this price range make the difference. The better we deliver a mechanically sound car that helps our credit losses, collections and so fourth. At the same time a lot of it has to do with just execution of how we know this business seems to be (inaudible) and I think we've done a better job with the training. I think we've done a better job with the hiring. We certainly have -- we've seen some reductions in our turnovers among collectors, so we're doing better there. I think all these factors come into play and the result is improved -- improved numbers there.

And also just the fact that gasoline is a lot cheaper this year than last, the fact that our customer is receiving some new tax credits from the government to individuals of $400 or families of $800 and then lower withholding rates on taxes. They're just -- the customers that we have that have jobs are actually bringing a lot more money home than they were this time last year.

I think it's fair to say too that in the areas where we are, smaller towns and so fourth, the economy has, local economy, the jobs available and all that really hasn't been as impacted as you see the numbers on a national scale, so it's less of an impact.

As you do -- as you do well on your market share in local markets, too, that does truly give you a little more leverage with that customer base on the collection side also.

And as competitors struggle with their own financing and [not] being able to carry as much inventory as they could have a couple years ago and perhaps even a handful getting out of business, that also helps.

The joys of a solid balance sheet. Thank you very much for your answers.

Thank you.

(Operator Instructions) We'll now move to Dennis Ganell of Rutabaga Capital.

Good morning, guys.

Good morning, Dennis.

Most of my questions have been answered. Just one kind of off the wall question. I did read an article in the paper a while ago about some of the GM and Chrysler dealerships that had their new dealership pulled and they were converting to used dealerships. I don't know if there was any that would be targeting the buy here - pay here kind of segment, but did you see -- do you see anybody kind of coming into your market? I know that existing competitors seem to be having some difficulties, but any of those formerly franchise dealers coming down into -- into your market at all?

Well, we have seen several dealers in our areas go out, but as far as any of those guys going into the used businesses, there's not any that I'm aware of just off hand. And exactly and I think you already answered the question and even those that may, they aren't entering the buy here - pay here.

Mostly these new car dealers are just buy - buy. Their genetics are they want to sell cars and this collection part of the business is not something they want to get into. I think they look at it, but they just don't want to do it. And then also, I tell you, there's a plus here, I'm not sure we're taking advantage of it too much, but there's some locations that will come available, and not that we want to take over a new car store necessarily, but sometimes there's extra land and it just helped us on -- and will help us on getting locations cheaper.

Yes, got you. And then one last thing, just kind of getting at the credit sets another way. Just -- just out of curiosity, did you look at -- at -- it sounds like traffic has improved and so on or is up. Have you guys -- are you guys rejecting more credit applications or -- or has that stayed -- stayed about constant?

I think overall, we're doing a better job there, I would say. Certainly some of our locations there's not been any change, but we have had some -- again we really identified and focused in on making each store do better and yes, we do have a number of stores where their number of turn downs, as we call them, has gone up quite a bit this past year and they needed to. We needed to tighten up a few places. Absolutely. Good. Great. Well, keep the good work going.

Thank you.

Thank you, Dennis.

And with no further questions I'd like to turn it back over for any additional comments or closing remarks.

Okay, well, thank you very much for listening today. It was a great quarter and, as we said earlier, a continuation of consecutive good quarters in 28 years. If anybody else has any further questions, please feel free to call us, but thank you very much for your attention. Goodbye.

This concludes today's presentation. Thank you for your participation.