America's CAR-MART Inc (CRMT) 2016 Q2 法說會逐字稿

Good morning, everyone. Thank you for holding and welcome to America's Car-Mart's second-quarter 2016 conference call. The topic of this call will be the earnings and operating results for the Company's fiscal second-quarter 2016.

Before we begin, I would 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 last night's press release, which can be found on America's Car-Mart's website at www.Car-Mart.com.

As all of you 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. The statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cannot guarantee the accuracy of any forecast or estimate, nor does it undertake any obligation to update such forward-looking statements. For more information regarding forward-looking information, please see Item 1 of Part 1 of the Company's annual report on Form 10-K for this fiscal year ended April 30, 2015, 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 Hank Henderson, the Company's Chief Executive Officer and President, and Jeff Williams, Chief Financial Officer. Now I'd like to turn the call over to the Company's Chief Executive Officer, Hank Henderson.

Good morning, everyone. Appreciate you joining us today. As you saw in our press release, credit losses came in higher than anticipated for the quarter and therefore the need for the increase to our allowance for credit losses to 25%. We did see some improvement in losses for the latter half of the quarter, which does make us optimistic for the second half of the year. But clearly with the level of competition due to the very aggressive financing available at this time, the lower delinquency levels have not translated as directly to lower loss levels as we've typically seen in past years.

We've said before that this financing out there has been putting a squeeze on us by competing for upper tier customer, but the reality for this past year is that we have seen this become increasingly more aggressive to the point of going after even our core customer, which has impacted our loss rates and of course added more pressure to sales as well.

All of our lack of sales growth for this most recent quarter is not, however, all attributed to competition. Some of that was self-imposed. We moved forward during the quarter with some very significant initiatives on underwriting and inventory that we knew would have some short-term adverse effects on the results, but were necessary to curtail rising loss rates and to assure better future results.

We also chose not to run as aggressive of a promotional campaign in October as we have in the past few years, and while it would have resulted in more sales, it may not necessarily have resulted in better quality sales, which is our big focal point right now. It would have made results look better for the short term, but that is not our primary objective. And one of the challenges in our business is the reward for doing the right thing today doesn't show up until sometime down the road.

In this past quarter we've revised our purchasing guidelines and implemented more stringent quality expectations on our inventory, which did actually result in the wholesaling of some vehicles that would have otherwise been retailed. While this did impact results negatively for this immediate quarter, as Jeff will give more detail on in a moment, we believe it was the right move to assure the quality of our portfolio going forward.

Also, in September we rolled out our updated scorecard along with some other new underwriting processes and more advanced screening tools, and this provides increased scrutiny over deals by our underwriting department. And this increased screening and review realistically cost us a few hundred sales, but again these are initiatives that we believe strongly to be the responsible moves necessary to assure our long-term success.

We are as excited and as optimistic as ever about the future growth of our Company. We have been through challenging times before and understand that sometimes we have to make adjustments that can be a bit painful in the short term to stay on track for our long-term goals.

So I'll go ahead and turn it over to Jeff to give you more detail on our recent results.

Okay thank you, Hank. Total revenues were basically flat at $133 million, same-store revenues were down 3.4%. Revenues from stores in the 10-plus year category was down 6.8%. Stores in the 5-year to 10-year category was down 9.3%. Revenues for stores in the less than 5-year category was up about 14% to $34 million.

The overall average retail units sold per month per lot for the quarter was 25.3. That's down 14.5% from 29.6 for the second quarter of last year and down from 28.9 sequentially. At the end of the quarter, 46 or 32% of our dealerships were from 0 to 5 years old, 25 or 17% were from 5 to 10 years old, with the remaining 74 dealerships being 10 years old or older. Our 10-plus year lots produced 27.1 units sold per month per lot for the quarter, and that compares to 31.2 for the prior year quarter. And lots in the 5-year to 10-year category produced 24.5; that compares to 29.5. And lots in the less than 5-year age bucket had productivity of 22.4 compared to 26.5 for the second quarter of last year.

The average retail selling price was an increase of $757 or about 8% compared to the prior year, and it increased about $282 or 2.8% sequentially. The increase from the prior year relates mostly to the effect of our 12-month service contract and the increase to the pricing of our payment protection plan product, and to a lesser extent on an increase in overall selling prices for the quarter. The increase sequentially relates primarily to an increase in overall selling prices, as we are trying to improve the quality of our vehicles, and to a lesser extent to the increase due to the effect of the price increases on our add-on products.

We remain hopeful that decreasing wholesale prices, while painful in the short term for credit losses, may give us an opportunity to buy a better car that's more affordable. We do currently anticipate some increasing overall sales prices as we move forward as we work to improve the quality of our offering, but at the same time try to keep the payments affordable. Our down payment percentage was relatively flat at 6.4% compared to 6.7% last year.

Collections as a percentage of average finance receivables was 13.7% compared to 14.1%. Our average initial contract term was up to 28.4 months compared to 27.5, and was up slightly from the first quarter's 28.2. We remain very aware of the downsides with longer terms, but we are continually trying to balance the terms against the competitive landscape.

Our weighted average contract term for the entire portfolio including modifications was 30.6 months, which was up from 29.6 at this time last year and up from 30.4 months sequentially. The weighted average age of the portfolio was 8.5 months at the end of the current quarter compared to 8.4 months at this time last year. Due to the increasing selling prices and for competitive reasons, our term lengths may continue to increase some into the future, but we're committed to minimizing any increases.

We continue to fight the battle on keeping our terms down, and continue to try to educate our customers on the benefits of our product offering compared to those offerings with longer terms. Interest income was up $1 million for the quarter due to the $24 million increase in average financed receivables, and our weighted average interest rate for our receivables is 14.9%, which is flat with this time last year.

For the quarter our gross profit margin percentage was 39.2% of sales, that's down from 41.2% sequentially and down from 42.9% for the prior-year quarter. The decrease sequentially relates to higher wholesale volumes and losses at about 100 basis point effect and higher expense levels, some of which related to wholesales and some of which related to inventory improvements that were necessary. That was another 100 basis points, as inventory levels were brought down to address some quality issues and some inconsistencies between dealerships. Also a higher selling price carries a lower gross margin percentage, and the challenges that we saw at the top line also had a negative effect on overall gross profit margins for the quarter.

We will continue to work hard at reducing vehicle related expenditures, but the high level of repossession activity is continuing to have a negative effect on margins as the number of cars we have to handle in the process has increased. We expect gross margin percentages to remain under pressure over the near term, but we are expecting improvements over recent results.

For the quarter, SG&A as a percentage of sales was 18.9%, compared to 17.3%. The $1.6 million increase in overall SG&A dollars related primarily to higher payroll costs and other incremental costs related to the growth in the average number of stores by eight and the growth of our younger dealerships and some infrastructure costs to support the growth. We did see a reduction of about $900,000 in SG&A expenses sequentially. We are aggressively managing our expenses, and we continue to expect some longer term SG&A leveraging over time as we grow our revenues.

For the quarter, net charge-offs as a percentage of average finance receivables was 7.8%; that's up from 7% for the prior-year quarter and flat with the first quarter sequentially. The increase for the quarter related about equally to a higher frequency of losses and an increase in the severity. The higher severity of losses resulted from lower wholesale values at repo.

Our wholesale value recovery rates continue to come under pressure. Our recovery rates continue to be around 25%; that's below what we saw at the low point back in 2010. The increase from the prior-year period and the smaller increase sequentially were concentrated in the dealerships in the 10-plus year category, as competitive pressures, both at the point of sale and at default point, continue to be very high especially in our more established markets. But we continue to believe that our operational performance is below where it should be.

Principal collections as a percentage of average finance receivables for the quarter was 13.7%. That's down from 14.1% for the prior-year quarter. And the decrease in the percentage of principal collected between periods results from the longer average contract term, which was up about a month, offset by lower delinquencies and a slightly higher level of early pay offs. On a positive note, the average percentage of AR current for the quarter was 82.5%, that's up from 80.5%, and our accounts over 30 days past due was at 3.5% compared to 4.4% at this time last year and 3.8% at the beginning of the quarter.

Obviously, we had anticipated that lower delinquencies would translate into lower losses by now, and we do expect that to be the case as we move forward. Efforts are under way to ensure that we are saving as many accounts as possible and working with our customers to get them back on track. Unfortunately, when a competitive landscape is intense, it makes it much harder to save accounts, but we can and must do better.

Also delinquencies in our 3-day to 29-day past due bucket was 11.1% at the end of the quarter, compared to 15.3% at the end of April and compared to 12.6% at the end of October. Credit losses on the income statement, excluding the reserve increase, was 28.3%. That compares to 26.3% for the prior year. And again, the increase was concentrated in our 10-year plus older dealerships. We are disappointed with our credit results, and will stay focused on cash-on-cash returns and lowering loss levels across all dealerships.

As mentioned in the press release, we are at a point where the infrastructure investments we have made over the last several years are in place and are functioning well and we are in a good position to leverage these costs as we move forward. We have literally spent tens of millions of dollars in the areas of IT, compliance, training, including our manager-in-training program, the centralization of non-core lot level functions, GPS technology, HR support, credit reporting. It's time to see the benefits from these investments, and we certainly have to see the top line improvements together with better credit results.

We will continue with our good, solid expense management and helping as many customers as possible succeed. The current bottom line results are certainly not where we would like them to be, but we would like to highlight the fact that over the last 12 months, we've opened nine dealerships, repurchased about $14 million of our common stock, completed the infrastructure investments that we've discussed, grown our receivables by about $16 million, and actually paid down $2.1 million in debt for the last 12 months. So it is time for us to produce some better bottom line results, but our focus on cash flows and cash-on-cash returns is allowing us to be very healthy in a hyper competitive market and poised to take advantage of opportunities.

At the end of October our total debt was $104 million. We actually paid down $1 million of debt during the quarter. We've repurchased almost 44,000 shares of our common stock for $1.7 million. Our current debt-to-equity ratio was 45.3%, and our debt-to-finance receivables ratio was 24.4%. We had $38 million in additional availability under our revolving credit facilities at the end of the quarter.

And one final note, as we've discussed previously we are a larger participant and we are subject to CFPB supervisory authority for non-bank auto finance companies. The CFPB has notified us that they will conduct a supervisory review beginning in January, the purpose of which is to assess our compliance management system. They've indicated that they expect their review to conclude with an exit interview by the end of February.

Now I'll turn it over to Hank.

All right thanks, Jeff. As Jeff just explained our cash flows remain strong and our balance sheet is as solid as ever. During the first half of year we've grown our receivables by over $10 million and have added about 1,300 active customers, which equates to significant growth in cash flows going forward. So in those regards, we are continuing to head in the right direction.

Also we've added five new stores so far this fiscal year, three of which came online just in this most recent quarter: Rolla, Missouri; Brunswick, Georgia; and Macon, Georgia. And then we also have Burlington, Iowa. It opened in November just this month, and Burlington is our first location in Iowa which now puts us in 11 states.

Our new stores are doing well, getting off to great starts, and nevertheless we will likely not be as aggressive for the remainder of the year on store openings as we have for the past couple of years to help channel more of our resources, support, and focus so to some of our older more mature stores, which is where we've seen the bulk of the negative impact from the changing environment.

Many of those have experienced a decline in sales as many as four or five per month, which does add up significantly and especially when coupled with some increases in loss levels. And we need to make some adjustments and provide better support there to make up for as much of that as possible on both fronts in the near term. And with some of these adjustments we do expect to see some top line growth for the last two quarters of this year.

Well that concludes our prepared remarks. We would like to now move on to your questions. So, Operator?

(Operator Instructions)

Our first question comes from David Scharf of JMP Securities.

Hello; good morning. Thanks for taking my questions.

I'd like to get a little better sense of perhaps strategically how you're thinking about your end market and how you define your core borrower and maybe the near term strategy. And specifically related to your comments, that seems like some indirect sub-prime lenders are competing even deeper down the credit spectrum, going after more of your core borrowers.

It looks like part of the response from your recent metrics is a little higher average selling price, a little lower down payment, a little longer term. And obviously those are all necessary to retain those customers, but they present challenges. Can you talk a little bit about how you're viewing those tradeoffs near-term?

Yes, I think so. We're obviously never going to be completely competitive with this type of offering on terms and that sort of thing that are out there. And I do have to tell you, important to what we do with the number of stores we have is, we learn a lot from our general managers, too. And we do have some out there that -- everyone has had to make adjustments, and some of these guys are figuring it out.

We have one particular store in Central Arkansas -- surprisingly, he's on pace to have the biggest year we've ever had. So when we say our older stores have gotten hit, most of them have, but not all. And one of the big things we see is that we believe we do have to make some adjustments with our inventory, and we talked about that and we feel like that's going to have a lot to do with our ability to gain some new customers.

One good thing that occurred in this recent quarter that I didn't mention in the earlier remarks; to try to help get an understanding on this is, we actually saw our sales to repeat business extremely high, particularly in this past month, even. We weren't as aggressive going after the new business. As we said, when we're struggling with our credit losses we tend to get a little more conservative and retrench a bit as we have, but we have done a good job retaining our good customers. So we actually had looking at repeat business as a percentage of overall sales, it was very high.

So I think we're learning how to do a better job there. But I think it will -- we've had to give up a little bit on term, probably -- there might be a little bit more we have to do there to be a little more competitive, but also think just an offering with the quality of our inventory has a lot to do with it as well.

Got it. And then, maybe more of a general macro question -- based on everything you're seeing and payment patterns and the like, at this point would you characterize the increased loss rates and challenges as being entirely related to increased competition? Or are you seeing anything out there in terms of broad-based consumer stress in your markets?

When we look at -- looking at the macro issues, certainly the competition has the biggest effect, I believe. I don't think we necessarily have any areas depressed in that regard. But I would tell you that -- and Jeff mentioned it somewhat earlier -- some of this rise in our credit losses, while we feel like the bulk of it was related to competition, we did have some operational issues on a few of our stores that were significant and have hurt us that we don't really feel like had to do with other areas other than we had some poor management of those stores, just to tell it like it is.

But the bulk of it I think is, there's somewhat of a -- not sure if decline in ethic is the right word, but for lack of a better way to say it -- but right now when people have a little pressure to pay a bill and there's someone right down the street trying to sell them a new car, and they can have a repossession and still go get one somewhere else -- that's not the way this business is supposed to work. And that's what we're up against right now.

Okay, got it.

And then, lastly, you mentioned the losses were concentrated in your oldest units or those that are 10 years and older. When we look at just same-store sales, is there a percentage of your units that actually experienced year-over-year increase in monthly volumes?

Yes, a few did. It was pretty much across-the-board decrease, though, but we did have a few that did show some increases for the quarter.

Got it, thank you.

Thank you. Our next question comes from J.R. Bizzell of Stephens.

Good morning. Thanks for taking my questions.

Hank, I guess building on that CFPB comment that Jeff made, I'm wondering if you can add a little more color there? Any other piece of information that you received from them to prepare for what they're going to be looking at or what they're going to need from you all as they come in on January 1?

I think we're well prepared. We started a few years ago building up our compliance department. We brought in someone to head that up beginning a few years ago. We've invested heavily in it, developed the staff, I think we've taken it very seriously at all levels, and I think we've developed an excellent compliance management program. All of the various training that goes along with that has been integrated into our training systems or video systems, so forth. So we feel good about this.

And it is a supervisory review, which has been expected and it is specific to assessing our compliance management system and how we've rolled that out and how we monitor our compliance. And as Hank said, this is something we've been working on for quite some time.

Great; thanks for the color there.

I guess switching gears, could you go into a little more depth around the inventory issues that you referenced in the release and talked to earlier in the prepared remarks? And then, what you all did to address that and what you're doing to address that moving forward?

Okay, it's a quality issue, and really to be hands-on, I think one of the -- we've seen a rise over time in the number of repairs that we're having to do to our vehicles before we get them front-line ready, so to speak. And that in general is a reflection of the selectiveness -- of how selective we're being.

And these are somewhat growing pains, too. As we grow we try to get a little bit more sophisticated in how we benchmark what we're purchasing against book values and all that sort of thing, but to make sure that we're not spending too much. But I think even as you do that, there's a lot that goes unaccounted for in those kind of systems.

And so what we have developed -- and we really didn't have it before and it will be a work in progress, this is new to us -- but we have really good visibility on the quality of our sales, with the terms we are putting out there. We have better visibility than ever with the quality of the customer, our updated scorecard and all of that. But one critical component of credit losses and just the health of your business, too, is just the quality of that car, grading that car. These A cars are what we expect to sell.

And so while we've increased our visibility in the past few years on those things, it's still hard to see what's on paper to know the quality of what you have out there. So we have devised a system whereby we have a group that's inspecting a number of vehicles at every store each quarter and giving us the feedback with a grade. And if that grade isn't at a certain level, then that means we're going to go in and there may be some vehicles wholesaled; there will certainly be retraining, and some help and support given to those. But I think that over time this is going to help our business significantly, both on the sales side -- I think we'll have better cars in general -- and for the longer term I think it will greatly help our credit losses as well.

Great; that was very colorful.

And then maybe pointed towards you, Jeff, on this one -- can you speak to recoveries, what you saw? I know you spoke to that in the release; and just wondering how you're thinking about recoveries moving forward and maybe the used car price factor as we move into next year?

Well, we are not anticipating any improvement on recovery rates, and that was part of the equation to raise the reserve. We don't see it getting any better over the short term or even the mid term. There's a lot of cars out there, especially the low end car that still runs but is really rough. So we don't expect any relief there. And so maybe somewhere around 25% recovery rate is just where it is for awhile. And that's what we are planning.

Okay, great. Thanks for taking my questions.

Our next question comes from John Rowan of Janney.

Good morning, guys.

Good morning.

Sorry to beat on a dead horse, but recovery rates: is the lower recovery rate -- would you say it's more of a function of longer duration in the portfolio or weak values in the wholesale lanes?

It's mostly just the weak values. Of course the longer term doesn't help any, but it's more a function of just the weak wholesale values out there at that low end.

Okay. And as far as you said also that frequency is up. Is there any defining factor regarding the consumer that's defaulting more frequently? We've heard some anecdotal evidence that it's a sub 550 FICO score consumer who is defaulting quite a bit more frequently. I was curious if that's what your experience is.

Yes, our customer -- only about half of them have a FICO and that FICO averages about a 500. So it's a customer that certainly needs what we do. And the frequency of losses is not so much anything changed drastically in their lives; it's just excess competition. And if you have a stumble or if we try to collect, then they've got so many different options right now. And it certainly seems like that has not gotten any better in the recent couple of quarters, and the customer has not changed much in the last couple of years. It's just the environment that we're having to deal in.

I know you guys mentioned the maintenance that you're putting into the vehicles after you purchase them, getting them ready for the lot. I was curious, however, if some of the maintenance -- the increased maintenance costs that you guys cited -- had anything to do with the longer contract term, the longer service terms?

No, not necessarily. We have a certain level of expectation that we're going to have before we're going to sell that vehicle, and I wouldn't say that having longer terms has impacted that.

Well, I meant the service contracts. Didn't you go out longer on the service contracts? That's what I was getting at.

Yes, of course we adjusted the pricing on that product, too. So the gross margins we're earning on service contracts is pretty similar to what it was; no negative effect there.

And then just maybe lastly, you mentioned that repos were higher. Just ballpark, what type of percent year-over-year increase are we talking about as far as the repo rates? Because some of the credit reporting bureaus actually stopped putting that data out. So I wanted to get somewhat of a more realistic understanding of how much more repos we're seeing?

Just the number of cars -- we took back about 300 more cars during the quarter than the prior year.

And on a percentage basis, what would that be year over year?

5% maybe?

Okay. Thank you very much.

Your next question comes from John Hecht of Jefferies.

Yes, thanks.

You guys talked about there's some attribution of weaker than expected sales to competition as well as to just controlling the quality of sales. So there's kind of two factors there. I wonder how much would you attribute to one versus the other in terms of just calling back on what you recall with your quality sales versus losing sales to comp?

John, I'm sorry we lost you for a little bit on the first part of your question. I'm going to have to ask you to say that again, please.

Oh, sure. I'm sorry. Yes, the question is, there's two factors that are inhibiting sales. It seems that one is losing opportunity to competition and the second is you're actually -- to control credit quality you're orienting yourself toward higher quality sales. How much of the weakness is one versus the other?

Yes, for this past quarter, I would have to say it was about half of it -- self-imposed. We did -- and not to break down the months entirely -- but September was extraordinarily weak on the sales side. And so I certainly wouldn't attribute all of the shortfall in September -- and oddly this is not the first time we've had such a weak September. That has been a weak month before.

But overall, I guess, just talking about this most recent quarter, I think it's pretty easy for us to attribute at least half of the shortfall to some of the things that we did.

Just thinking about the next few quarters, to the extent that you're going to sustain your quality improvement drive going forward, just from a comparative basis, that should persist through the same-store sale metrics for at least a few more quarters, or might that reverse out in the near term?

I think it will reverse out as we make these adjustments. And as I said, I think we have our sights set on seeing some top-line growth over these next couple quarters. And to be specific, we've got a number of our older stores that their average here these past couple of quarters has been four or five down, which we had been accustomed to.

When you break it down to a store-by-store level it's not so overwhelming that we do feel like that there's some things we can do, some of it with better more effective promotion, sales training, improved inventory. And that's why we said we want to put some better focus back on some of these older stores, because we do have quite a bit of opportunity to recover some sales, if you go there. And we feel like we can do that.

Okay. And final question is, I guess you're starting to prepare for the big selling season this weekend, tax refunds and stuff. How do you feel about your inventory? And given the weakening wholesale prices, does that give you more opportunity? I know you did comment on this, but maybe a little bit more color on, does that give you the ability to stock a better car at a lower price in preparation for the upcoming selling season, in the context of also trying to improve the loss issues and so forth?

Well, for the car that we're competing with, we never see any real relief, particularly this time of year. But we do have a large purchasing team with a good number of buyers out there. And so we certainly have the ability to ramp up our inventory.

I'd tell you that a lot of the initiatives that we started this past quarter was a good start, but we're not there yet. So these guys do have their work cut out for them because we're looking to increase some inventory levels as we get into the tax time. At the same time we're looking to increase quality. So we make it a little bit harder, but we do feel like we can do that. And currently we do have plenty of cars in inventory, so we're not short.

Okay, thanks very much for the color.

(Operator Instructions)

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

Good morning, Hank and Jeff.

Good morning.

So you had a $757 year-over-year increase in the ASP. To what extent do you think maybe you're perhaps pricing some of your customers out of the market, just because maybe these vehicles are a little bit less affordable?

I don't think the change we've been through recently has really pushed more out. I think, as we said over a year ago, for us it always helps to have a good range available, a good mix across the spectrum so we can service any customer that might come up. But I don't think that what we've seen recently and, as Jeff had mentioned about how much of this increase is attributable to the service contract which gives them more protection anyway. So I don't think that any recent change we have has really any impact on that.

The payment, the one month term extension has allowed that payment to stay about where it was. So affordability for our customers is about where it was 1 year, 1.5 years ago, 2 years ago.

Okay, got it. That makes sense.

And with the sub-prime financing competition really concentrated mostly in the upper tier of your customer base, would it make more sense for you to maybe start moving down in the price-point range, or maybe older, higher mileage cars than you've been, rather than maybe to avoid some of that competition?

Really, beginning about a year ago, we did do some of that, some more offering. So we tried to work a little harder to make sure that all of our stores have a broader spectrum of the price range, which we have done that. It doesn't necessarily show up entirely in the averages because we do sell some of where it still has some higher-dollar sales as we call them. So we have done some of that. I think the reality now, though, is, we don't really have room that we want to go down farther in that.

There is a level where it helps and certainly the lower-end vehicles are great for cash flow and good starter vehicles and all that, but in order to maintain the kind of sales level that we do, we really need to have an offering across the spectrum. And again, with better inventory being a little bit more selective, not that it's a radical change, but just making sure that we aren't setting out any less-desirable vehicles out there. And that all works together and we can do that at all the levels.

Got it. And Jeff, in your opening remarks about the gross margin, you indicated that they will remain pressured but they ought to improve over the current levels, or the second-quarter levels. What might drive some improvement in the near term versus where they are now? In what areas would you see some improvement do you think?

Well, certainly, as Hank mentioned, we are seeing repos come down in total, so we're hoping to see a lower volume of wholesales as we move forward, especially if the top line starts going the other way. So that mathematically has a positive effect on gross margins. We are looking at expenses very hard, as Hank mentioned, and trying to minimize expenses, and buying a little better car allows you to not have as much tied up in expenses on those cars.

And as we mentioned, in looking at the quality of the overall inventory by location we ended up wholesaling off some cars that otherwise would have been retail during the quarter. We still have some of that to do, but we've taken care of a portion of that problem. So all those factors contribute to us thinking we're going to see some improvement there as we move forward.

And I'd mentioned too along with the benefits, better inventory could also equate to better residual values in the future as well.

Right, that makes sense. And mixing all that together, then, it seems like it's going to be difficult for you to drive positive same-store sales in the near term. Is that a fair conclusion or not necessarily?

Not necessarily. I just said that I think that we've got some moves that we can make that we'll get back some of those, and we certainly -- you're aware we've opened a lot of stores in the past few years, so we do have such a good number of stores two and three years old. So there's a lot of capacity there for year-to-year growth.

We're getting tired of saying this, but if we ever get any relief at all on the competitive side, we've got 75 dealerships that have been out there for over 10 years that could show some nice improvement, but we're not counting on that. We certainly haven't seen any improvements on the competitive sides lately, and we'd love to think that happens at some point, but it's gone on a lot longer than we thought it would.

Got it. And then just one last question, Hank.

I think previously, you guys were talking about opening 10 stores in this fiscal year, and it sounds like you might slow that down a little bit?

Yes, we're going to slow that down. I don't have a specific number for you today because we're evaluating it. We do have another store in process, in the works, that will likely come on about January, but we are going to back off that a bit -- I hope not for too long, But for as it stands right now, that's just something we're going to revisit internally every month as we see where we are

Got it. Thank you, guys.

Our next question comes from Joseph Allen, Private Investor.

(Operator Instructions)

I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Henderson for closing remarks.

Okay, well, thank you very much. And again, thanks everyone for being on here today. I think I'm going to reiterate what Jeff just said, because I think it does sum it up pretty well.

We are doing the right things to allow us to continue to grow and have some solid performance in this environment. And as I said, sometimes we have to make some shorter-term or painful adjustments, but we are doing the right things that we can have solid performance now.

And at such time as we see some pullback from this aggressive financing that's out there, we're going to do it extraordinarily well. A lot of these things that we're doing is in response to competition and it is making us a better company. It's making us better at what we do. And so we hope that there's some relief out there someday soon, but even if there's not, I think that we have a good, solid plan to continue to grow.

So that's it for us today. And hopefully we will be talking to you guys in the future with some better results. So thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.