車美仕 (KMX) 2012 Q4 法說會逐字稿

Good morning.

My name is Bettina and I will be your conference operator today.

At this time, I would like to welcome everyone to the Quarter 4 Fiscal Year 2012 Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you.

Ms.

Kenny, you may begin your conference.

Good morning.

Thanks for joining our fiscal 2012 fourth quarter earnings conference call today.

On the call with me today are Tom Folliard, our President and Chief Executive Officer, and Tom Reedy, our Executive Vice President and CFO.

Before we begin, let me remind you that our statements today regarding the Company's future business plans, prospects, and financial performance are forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are based on Management's current knowledge and assumptions about future events that involve risk and uncertainties that could cause actual events -- actual results to differ materially from our expectations.

In providing projections and other forward-looking statements, the Company disclaims any intent or obligation to update them.

For additional information on important factors that could affect these expectations, please see the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2011 filed with the Second.

Tom?

Thank you, Katharine.

Good morning, everyone.

Thanks for joining us today.

While we were pleased to report another year of record revenues and earnings, we achieved some major milestones this year including total revenue of over $10 billion for the first time, and retail used vehicle sales of over 400,000.

Some other highlights for the year include used unit comps increased by 1% compared to a very challenging 10% in the prior year; net earnings up 10% to $414 million; wholesale unit sales increased by 20%, to over 300,000; and total wholesale gross profit grew by 26%.

CAF income up 19%, and we ended our managed receivables at nearly $5 billion.

We also estimate we increased our market share of late-model used vehicle sales by approximately 3%.

Highlights for the fourth quarter -- used unit comps increased by 4% compared to 12% in the previous year; total used gross profit grew by 8% and total wholesale gross profit grew by 20%.

Wholesale unit sales up 13% due to strong appraisal traffic; our appraisal buy rate was similar to the last several quarters and last year's fourth quarter, at a little over 29%.

CAF quarterly income was also a strong contributor, growing by 22% to $66.1 million.

During the quarter, sales of five-year and older vehicles as a percentage of our total were over 25%, similar to what we reported in the third quarter.

Sales of SUVs and trucks remained about the same as a percentage of our total last year, but fell from 31% to less than 27% of our sales sequentially.

As we've discussed before, our mix of vehicles will vary depending on the needs of our customers.

And now I'll turn it over to Tom Reedy.

Good morning, everyone.

As Tom mentioned, CAF had a strong quarter with income up $12 million or 22% compared to the fourth quarter fiscal 2011.

Our portfolio grew 14% to nearly $5 billion, and net loans originated increased 36% compared with the fourth quarter of fiscal 2011.

While the increase in unit sales and average selling price contributed to the portfolio growth, it was largely driven by the cumulative impact of our decision to retain more of the loans we had historically approved, but in recent years had been purchased by third-party providers.

As of January this year we have transitioned back to retaining all of these loans.

CAF penetration for the quarter was approximately 37%, up from 29% last year.

Interest margin as a percentage of average receivables increased to 7.3% compared to last year's 6.9%.

While we have increased the retention of higher-risk loans with higher APRs, we've also been providing more aggressive offers to attract and retain higher FICO customers.

So, while interest and fee income grew about $10 million year over year, it was down modestly as a percent of average receivables from 9.7% to 9.4%.

Interest expense has continued to decline as higher-cost securitizations pay down and deals with lower interest expense continued to become a greater portion of our financing.

As you may have seen, we closed our first 2012 ABS deal in mid-February.

At this claim to the market for auto paper seems to be quite healthy, as we saw strong demand for the deal and were able to upsize the transaction to $970 million.

Our provision for losses grew by $2.2 million year-over-year.

That is a product of favorable loss experience dampening the impact of retaining more loans with greater credit risk and the growth in our receivables.

Access to financing for our customers continues to be very strong, with 85% of applications receiving an approval.

While the fourth quarter is always our highest for subprime mix, subprime penetration grew to 15% of sales in the quarter.

That's versus 9% in the fourth quarter last year.

Some of this may be due to the strong tax season and mix through the door, but we have clearly seen our partner with continued experience and comfort in the CarMax origination channel begin to provide more attractive offers to our customers.

Additionally, we believe we've improved our in-store execution around subprime sales and applications.

Before I turn the call back over to Tom, let me touch on the correction in lease accounting.

During the quarter we determined, along with our auditors, that we should utilize the financing method of accounting for sale-leaseback transactions.

As a result, we made revisions to our financial statements to correct the accounting for transactions entered into between fiscal 1995 and 2009.

In simplest terms, certain assets that we were treating as rented are now treated as owned and financed.

The net effect is the assets are added to our balance sheet and the financing liability is created.

Depreciation is increased with those new assets, and rent expense G&A is reduced.

And payments on the sale-leaseback transactions are now recognized as interest and a decrease in the financing liability.

We've determined that these revisions do not materially affect our financial statements.

They generally impact our income statements by approximately the same amount, $0.02 a share each year including fiscal 2012.

However, our total earnings growth is not affected.

For your reference, we have included revised quarterly income statements for the past two years in our press release.

Tom?

Thank you, Tom.

As I mentioned, we estimated that we grew market share this year in the zero to six-year-old vehicle market by approximately 3%.

Given the strength and the unique quality of our consumer offer, we are confident we will continue to expand our market share, especially as we continue to grow our store base, and as late model vehicles began to increase again as a percentage of the overall used vehicle inventory.

Also remember that currently about 15% of our sales are vehicles that are outside of 1 to 6 years old, older than 6.

We are also very excited about our store opening plans over the next several years.

As you know, during the fourth quarter we opened our fifth store for fiscal 2012 in Chattanooga, Tennessee.

In today's press release we included the complete list of our currently projected store openings for fiscal 2013, including our expected opening of a second store in Jacksonville, Florida in the fourth quarter.

All right.

At this time, we are happy to take your questions.

(Operator Instructions).

Brian Nagel, Oppenheimer.

So, the first question, Tom, more of a qualitative one; but we look at the sales trend, the used unit comps and clearly that metric continued to improve here in the fourth quarter with the 4%.

I assume the numbers got better through the quarter.

But the question I have for you is -- and we talked a lot about this in prior calls and other conversations, but how would you characterize the overall tone of your customer now?

Are you seeing a larger number of customers, better traffic, better conversion?

How is that basically playing out?

Well, in the quarter our traffic was up.

And I think we talked about this some on the last call that, because of our really high volume of appraisals recently, particularly appraisal-only customers, over the last couple of years we have kind of gone back and looked at our conversion and tried to segment out customers who are really and specifically just coming to buy a car from us.

And when we do that, we're really comfortable and confident that our conversion continues to increase, and that it did once again in the quarter and it also went up some for the year.

Our traffic was up about 6% in the quarter.

But that includes -- that's total traffic, which also includes appraisal traffic.

So I think the customer flow that we're getting is solid -- good quality customer flow that wants to buy cars, and we are converting them at a pretty good clip.

We still would like to see a higher flow of customers overall, but we're pretty pleased with how the quarter came out.

So I guess just to follow up on that, if we look at how the customer tracked through the fourth quarter, were there significant differences between them, say Q4, then Q3, Q2, for you guys?

How should we think about the changing dynamics of the customer?

Well, we don't talk about any movement during the quarter.

The last two quarters were a little disappointing from a sales and customer flow standpoint with a -- I think we were a negative 2% and negative 3% on comps in the second and third quarter, so clearly this was a better quarter with a plus 4%.

And I'd say that is the biggest difference.

We were down the last two quarters; we're up this one.

Okay, fair enough.

And the second question I have on SG&A spend, we talked -- you guys are clearly ramping up growth again.

We saw a higher SG&A spend in the fourth quarter related to that growth.

How should we think about SG&A spending as we look into 2012 related to your more aggressive unit expansion?

Well, we are going to have some more expenses around store growth, we are either opening or preparing to open more stores in this year than we did last year.

And we talked about coming out of the recession having a controlled build of store growth.

We opened up three stores two years ago; five stores last year.

We said we are going to open 10 this year and 10 to 15 the next.

So, there's some spend that goes along with that on pre-opening expense; on staffing up to be prepared to open up those stores; relocation, all those kinds of things.

So we expect SG&A to go up.

And hopefully we can get some comp sales to offset it.

So is there any -- do you want to give any parameters of how much higher SG&A spending should be in 2012?

No, we're not going to give any guidance on that.

We are providing a table for SG&A.

Where did we put that?

In the 10-K.

It will be in the 10-K.

And we break it down a little better in there, so that will be new.

Perfect.

Well, thank you.

Thank you, Brian.

Good quarter.

Scot Ciccarelli.

This is actually Austin on for Scot today.

A question, just to follow up on the previous question on SG&A, I understand that the expenses will be ramping up as you ramp up store growth.

But I did notice in the press release you talked about lower advertising expense, which I guess seems a little bit counterintuitive.

I would think that you would ramp that up as you grow stores and grow into new markets.

So, could you maybe talk about advertising and how you expect that to trend in the coming year?

Yes, I think for the quarter that was just -- we didn't do Super Bowl this year and we did last year.

That's a pretty over-priced thing to do.

(Laughter)

Okay, fair enough.

So that was just for this quarter, but I guess in the coming year, should we expect advertising to ramp up along with the other expenses related to new store growth?

Yes, we tried to think about advertising on a per unit sold basis.

If we get the sales we expect, we would expect to spend more money on advertising.

And then we're going to have some pre-opening advertising that will be larger than it was last year because we'll open more stores.

Okay, understood.

And then just one last question on a different topic; obviously, we've all seen gas prices rising in recent months.

I'm curious; is that impacting your mix at all?

Are people looking for smaller, more fuel-efficient cars?

And I guess I am kind of thinking about that in the context of ASPs, which were still up, I think 4% year-over-year.

So, just curious how the mix is trending and how that will impact ASPs going forward.

Thanks.

Yes, we talked about -- I mentioned that in my opening remarks.

Our SUV mix was down 4 points sequentially year-over-year, but it's not -- and the sub -- I mean, I'm sorry, midsize and small cars were up about the same to offset that.

So we have seen it.

But just from a -- how does it feel, it doesn't feel anything like it did back in May of 2008 when gas hit $4 and we saw a dramatic shift in consumer behavior.

I'd say this has been a little bit more gradual, and people seem a little more settled into the high $3s on gas prices.

But you know, I think one of the best things about that CarMax consumer offer is we are pretty nimble and we can adjust our inventory to whatever the consumer is looking to buy.

It doesn't make any difference to us.

We're happy to sell smaller calls; we're happy to sell SUVs.

And as we've talked about before, our margin is more on a per-unit basis and is not really driven off of ASP.

The only place where ASP really has an impact is on average amount financed and CAF.

And I also think that ASPs over the last couple years have been driven far more by the changes in the wholesale market than they have been by anything to do with our mix.

Okay, got it.

Thanks, guys.

Craig Kennison, Robert W.

Baird.

Thank you, can you hear me now?

Yes.

Okay, sorry.

Market share -- I want to thank you for the additional detail you shared with us.

Could you help us clarify more detail on that in terms of the overall size of the zero to six-year-old market?

Yes, the overall -- the zero to six-year-old market had shrunk again during the year.

A few points to remember about the way we report market share -- one, we only report market share in the markets that we're in.

We're only in half of the US markets.

We're talking about our share of one- to six-year-old cars.

We do it on annual basis because the data that we buy and we get, although it's been very consistent for a long period time, it is actually very inconsistent if you look at it over shorter periods of time.

We feel pretty comfortable reporting it annually.

And we feel very comfortable that we grew our share of one- to six-year-old cars.

And then remember that 15% of our retail sales are older than six years old, so they're not even included in the number.

And that makes it a little bit challenging.

But if we said, well, we sell all the way out to 10-year-old cars, so let's look at our share of one- to 10-year-old cars, that chunk of the market is so big that if we -- our retail share of that would drop down to just a miniscule number.

So that's the reason we keep reported on a consistent basis.

Additionally, we sell very high-quality cars at retail.

And we wholesale stuff that is older.

So you've seen our wholesale business grow pretty dramatically over the years.

When you look at those two numbers combined, we sold over 300,000 wholesale cars during the year.

Lots of those cars are in that older segment, the six- to 10-year-old.

So, we try to look at our total business.

We run our business a little different than some of the other retailers.

Most others don't have such a big wholesale business.

So we look at our participation in the total used car market.

We sold 400,000 retail cars.

But we also sold 300,000 wholesale cars.

And we really like our positioning there.

But we are going to keep reporting share the way we do.

We think it's important.

We think it's an important measure for our business.

But again, there's a lot of caveats there because of the lack of data that's available.

And the 3% to which you refer, is that a percentage point gain in share of the market you are addressing?

That is 3%, not 3 percentage points.

So it is 3%.

It's a small change.

And again, it is of one- to six-year-old cars, remembering that 15% of our sales are not even in that segment.

And we still grew share.

And a couple of other pieces I didn't mention -- as our store base ages, we have slower growth in our bigger, older stores, as you would imagine.

We are now starting to put newer stores back into the base, which should help.

We'll also be adding stores into existing markets, which helps share; doesn't necessarily help comps right away it, but helps share.

So you have those factors as well.

And then historically, we have -- our performance has been stronger in one- to three-year-old than it has been in say, four to six.

And one- to three-year-old has shrunk even more than one to six, because of the lack of new car sales.

So when that starts to come back and we've seen the SAAR start to come back some, then that one- to six-year-old share number also should benefit a little bit from that.

That was my last question.

When do you think we'll see the bottom in your addressable market as SAAR picks up?

Is that a 2014 bottom?

We have no idea.

Hopefully, we already saw it.

But it's hard to judge.

But if you look at the supply chain and you look at what's been sold over the last couple of years, we are still a year or two away from seeing the supply come back in one- to three-year-old cars.

And it's one of the things I'm really proud of, that we've been able to do is move our business model around with the changing conditions in the marketplace.

And you know, our businesses really a diversified profit model between retail and wholesale and financed.

And I think we take advantage of whatever is available to us at the time.

Great.

Thanks for the additional color.

Matt Nemer, Wells Fargo Securities.

Just a follow up on market share; the 3% change in share was a little bit lower than it has been in previous years.

And I'm wondering, was that pretty consistent through the year?

Or do you think that there is a point in time where maybe you went negative, or you were lower than 3%?

And if so, what do you attribute that to?

Well, one, Matt, you've been asking questions long enough to know we don't talk about trends during the year.

It was 3% up for the year.

All the reasons I just mentioned I think are contribute in factors to a share gain that isn't as strong as the last two years.

Last year I think it was around 7%, and the year before we were in the double digits.

But I'm pretty happy with our share growing every year.

I'll take share gains every year.

Understood.

And then just in terms of subprime, the increase in subprime, how much of that do you think was incremental and helped the comp this quarter?

Or is there a way to think about the impact that may have had on used unit comps?

Matt, it's Tom.

I think a great amount of it was incremental.

I think you can see the step up.

It was 9% last year, 15% this year.

As I mentioned, we did see credit quality through the door down, but our partners, because they've gotten more experience with us, our origination channel, and how their portfolios perform, have been delivering offers to our customers -- offers that the customers are more likely to accept.

And namely, that means better down payments.

So we've seen a definite step up in that.

And it was impactful for the quarter.

Okay, thanks.

And then just lastly, I know that you don't give guidance, and you'll probably say that again.

But as you look at 2013, is it possible that wholesale units will be down?

How are you thinking about wholesale given the strange comparisons?

And then do you have any feeling for whether we'll see net gains in -- on a reconditioning -- from a reconditioning standpoint?

Well, the first part you are absolutely right about, which is we don't give guidance.

What I will say about wholesale is, wholesale is driven by appraisals and appraisal buy rate, and the number of cars we get through the lane that don't meet our retail standards.

We do expect that if SAAR grows, that our appraisal lane traffic will grow.

It's not exactly correlated and I couldn't tell you what that's going to be.

But if we saw a big movement in SAAR during the year, we would expect to do more appraisals.

That would benefit us on the wholesale side; it would benefit us on the retail side, because we buy more of those cars as well.

Our buy rate can move with how the wholesale market moves.

Whether there is an appreciating market or depreciating market, we been able to manage pretty well through it.

But there is no question that in an appreciating market, buy rate is helped.

So there's just a lot of variables there that will yield whatever wholesale will yield this year, which is why we don't give any guidance on it.

But I would say, as SAAR moves, we would expect appraisals to move.

And what was the second part?

Just recon, your reconditioning savings expectations for this year.

Yes, so we feel really good about the $250 that we've gotten so far and that is sustainable.

I've said all along that if there was any left it was going to be the more difficult part to get.

I think we originally talked about $300 and we've said the last $50 would be a lot harder than the first $250.

And it's really tough to say what will happen during the year and whether or not we will get it.

But that's about all I can say there.

We're really pleased with the progress that we've made so far.

One benefit that we've had over the last couple of years that we are now not having is we really didn't see a lot of inflation in parts and things like that a couple of years ago.

And over the last year, we've started to see inflation a little bit more.

So we've got to think about inflation-adjusting how we talk about reconditioning costs.

But that's just been -- something that clearly we don't expect to be true going forward is that we don't really see any inflation in cost.

Okay, great.

Congrats on a great year.

Thank you.

John Murphy, Bank of America Merrill Lynch.

This is Elizabeth Lane on for John.

What kind of inventory levels do you guys currently have in stores compared to what your ideal levels would be?

And do you have a projection for US new vehicle sales this year, and how that increase in trade activity could help inventory?

Well, one, we don't have a projection.

We've always felt really good about our ability to react and adjust to whatever happens.

That wouldn't -- our view is that if SAAR went up a bunch, that traffic would benefit and potentially sales would benefit.

And we would move our inventory accordingly.

So it's not like because SAAR goes up that that's going to change our inventory level.

We'll move our inventory along with sales.

Inventory year-over-year was roughly flat, probably up just for the new store difference.

Our inventory turns for the quarter were a little over 8 compared to 7.5 last year.

So turns were (technical difficulty) in the quarter.

So turns were up.

Is that right?

For the quarter.

Yes.

Okay, great, thanks.

And Matt just asked my question about reconditioning, so I'll leave it there.

Thanks.

Good quarter, guys.

Thank you.

Sharon Zackfia, William Blair.

A few questions.

I know it's still relatively early, but it appears that the new stores that you opened last year got off to a relatively good start.

So, just wondering how you feel about the new store productivity and whether there's any predictability there yet.

And with price elasticity of demand, I know this is something you and I have talked about quite a bit over the past few years.

Are you seeing any indication of price elasticity of demand coming back with the consumer?

So, on the first one, it's still a little early for new stores.

If you -- we opened up to Cincinnati, Dayton, and Augusta which would now be in the comp store base.

And then the five we opened last year, none of those would be comp stores, and it's still a little early to talk about that.

I think over the next couple of quarters we'll start reporting on -- we'll start thinking about reporting on new store performance as a group.

And then the last question was -- oh, elasticity.

It's still not like it was before.

And as you know, we're constantly adjusting and moving our prices and our margins to try to capture what we think is the optimum amount of both sales and margin.

But in terms of moving price down a couple hundred bucks and seeing it -- getting it all back in sales, we still don't see it.

Okay.

Just one follow-up question.

I guess on CarMax Auto Finance, I know you don't give guidance specifically for it.

But would it be reasonable to expect the contribution from CarMax Auto Finance to grow a little bit less quickly this year than last year?

Sharon, I don't think that's an unreasonable assumption.

As we mentioned, during the course of fiscal 2012 we were taking back volume that we used to be selling off to our partners, which means our penetration was increasing during the year.

And as I mentioned, we are back to the full spectrum of what we had bought historically.

So, as far as opportunity to take additional sales and support them with CAF without doing something different from a credit perspective, we pretty much moved to where we were historically.

And then remember, too, Sharon, it's not like the old accounting where if we got an 8% or 10% comp during any given year in the past, because of the way accounting worked, CAF would grow along with it.

And now that's going to get dampened because of how you recognize earnings.

Right.

Sharon, one other thing.

If you remember, at the beginning of the year we mentioned that we had significant favorability in losses, and we saw some of that this quarter as well.

So, obviously, we have baked into our loss provision everything we think we're going to see over the next 12 months from a loss perspective.

So, one thing to keep in mind, though, FY 2012 was helped by a favorability in losses.

And obviously we're not projecting that, or it would be into our reserve.

Thank you.

Simeon Gutman, Credit Suisse.

Tom, have you given any thought to maybe selling an older mix of cars at retail?

And that gets to your point earlier.

If you combine the retail in the wholesale business, you're probably taking share in all classes of -- or all ages of vehicles.

Yes, I talked about this last quarter and I mentioned it in the script.

Our percentage of inventory that we retailed that was between 5 and 10 years old -- now, I'm going to go back to June of last year, roughly -- our percentage of inventory was -- about 15% of what we retailed was between 5 and 10 years old.

And then at the end of the third quarter, that number was closer to 30%; you know, north of 25%.

So, clearly, in a short period of time, about six months, we responded to consumer demand and we've shifted our inventory to that older mix.

The reason it gets a little confusing is because we report 1 to 6; I just gave you 5 to 10, so that includes 5 and 6.

And then in this last quarter, the one that just ended, that mix of sales was similar.

So if you said what is your mix of 5- to 10-year-old sales this year compared to last year, it's up pretty significantly.

So we absolutely have shifted towards older stuff.

And because that is what the consumer is looking for.

Got it, okay.

And I know it's early days.

Can you just give any initial thoughts on Chattanooga?

Because I know it's a slightly different format in a couple respects.

I'm curious what some initial takeaways may be.

Well, it's a really good-looking store.

We have a bunch of technology in there that we're excited about.

And it's all working, so that's a plus.

(Laughter)

And it was a pretty enthusiastic store opening because of all the exciting uses of technology and social media and some of the other stuff that we are using in the store.

But in terms of results, it's just way too early to even talk about.

What about anything on the labor model there, or in the smaller markets stores that you can apply to either other stores now or other, bigger stores?

Yes, we didn't really -- there's nothing there -- especially not this early.

One thing to remember is this is -- it is an evolutionary change for us.

It's a product of 18 years of history and adjusting our model accordingly.

But we didn't reinvent the consumer offer in that store.

We changed somewhat the way we deliver it, but we're still doing the same high-quality cars.

We're still doing a 30-day warranty; still doing a five-day money back guarantee; still paying flat commissions to all our salespeople, so that our incentives are lined up in the consumer's best interest.

We're still making a cash offer on every car.

We're trying to do a better job delivering that in the store.

But you know, the basics of the CarMax consumer offer are all still there.

And a lot of the components that we have designed into the store are pretty modular, and we can roll them back into the existing stores if we see them working.

But again, it's awfully early to be talking about sales in one store.

Okay, and then second or third on CAF, is it fair to assume that -- does the loss rate tick up because you're expanding the mix, or the mix of subprime is going up?

Or are there some offsets?

And then any update -- I think there was talk about potentially adding another subprime partner to the mix.

Well, the mix of subprime has nothing to do with CAF loss rate, because those are done by a different lender.

And we're always testing other partners in both the prime -- or the tier 2 space and the subprime space.

And as soon as we have one that is enough of a critical mass, we'll talk about it.

And the change in loss rate in total is absolutely just a change in the mix, and taking back the stuff that we were doing -- that we used to do and then didn't do and now do again.

That's right, okay, thanks.

Thank you.

Rod Lache, Deutsche Bank.

It's Dan Galves in for Rob this morning.

Just to ask a question on CAF, versus Q3 it looked like the net interest margin as a percent of managed receivables declined a little bit.

And the loan loss provision also declined somewhat.

We had expected loan losses to stay similar to Q3 on your broader credit spectrum.

Wondering if you could provide any color on trends in those two -- what you expect in trends in those two margin numbers going forward.

Yes, I can't give any visibility of what we expect in trends.

But as far as during the quarter, we did see some favorability in our loan loss experience.

Our wholesale recovery rate is still high; around 60% like it's been going.

But what we've seen this quarter is a higher frequency of people paying to get current.

It wasn't enough to be material of a number, but we do see some favorability in the quarter on losses.

And as far as the APR, as I mentioned, in addition to taking back the higher-risk and higher APR paper, we've also been pricing more aggressively with our higher FICO customers, so there's some offsets there on the top line.

Got you, thanks.

And then on SG&A per unit, is there any rule of thumb we should be looking at in terms of what level of comps, same-store comps you need for that SG&A per unit number to stay flat or not go up?

Yes, I think we've historically said it is in the kind of the mid-single digits which -- and it's probably -- in the current environment, since we're adding incremental stores vis-a-vis last year, we are adding 10 this year versus 5 last year -- I'd look to the higher end of that kind of range.

Okay, got you.

And then one other one -- in terms of more later-model vehicles, obviously used prices are pretty strong right now.

Also, we're seeing a lot better fuel economy and conductivity, technology in some of the new vehicles that have come out in the last year.

What are you seeing?

Has there been any change in how people are evaluating a purchase of a late-model used car versus a late-model new car?

What are you seeing when people are making that decision, and any changes recently?

Well, I don't know that any of that stuff has had an impact as much as just the economy and people's unwillingness to get involved in a loan or a higher price car.

I think that's why we have seen the zero to six-year-old market decline for a few years in a row now.

And new car sales, although they're out and everybody is happy about it, they are nowhere near where they used to be.

The SAAR was 15 million in February; it was a little over 14 million in March.

We went eight, nine back years in a row with that number around 17 million.

So, I still think the consumer is sitting back and waiting a little bit.

I still don't think it is back to where it was before.

Despite all the things that you talked about with technology and changes in new cars that I think are all positive, the consumer is still not all the way back.

Okay, got you.

And one housekeeping, can you tell us what percentage of the retail sales came out of the appraisal lanes this quarter?

That was a little over 50%.

That's about flat from last quarter, from the (multiple speakers)

I think so.

Hold on, we'll get that for you.

Thanks.

No, it was a little bit down from the last quarter.

All right, thank you.

Thank you very much.

Matthew Fassler, Goldman Sachs.

Just a couple of quick follow-ups here.

First of all, if you could talk about the puts and takes on used vehicle gross profit per car in the current environment.

You addressed reconditioning briefly, but any other moving pieces that you think are influencing that number?

No, not really.

It was relatively flat compared to last year.

Our turns are a little bit, that helps, but nothing really unusual in the quarter.

Got it.

And then secondly, can you talk about the distribution of outcomes among your markets?

I know you don't give market-by-market performance.

But are you seeing differences between markets get bigger, smaller?

One thing that we've heard from a number of retailers is that, as the environment has improved to some degree, that dispersion has moderated some.

Are you seeing that in your numbers?

Yes, we haven't talked about that historically, Matt.

Okay, thank you.

Clint Fendley, Davenport.

I know there were several adjustments related to the sale-leaseback for the year.

I just wondered; should the depreciation run rate for fiscal 2013 be similar to what we've seen in the fourth quarter?

I think when you look at the adjusted numbers you can get a good picture for that.

(multiple speakers) It is in the cash flow.

Okay, and so we should expect a similar rate for the coming year then?

Well, obviously, we are going to be adding new stores which have property, plant, and equipment that gets depreciated.

But as far as the adjustment, it should be (multiple speakers)

We are done with the adjustment, okay.

Yes.

Yes, absolutely.

And switching gears for a second, I know we've had several questions on market share growth.

But I just wondered, is it reasonable to expect for you guys to get back to the previous growth rates, now that you've resumed your store growth?

And just wondering, how much of the slower rate here is due to the tighter or tougher consumer environment versus your lack of opening any stores for the last several years?

Well, you know, it's hard to really quantify.

That's why I think it is -- the number of factors that I talked about earlier as it relates to market share.

And we're hopeful that the gains go back up, but it's nice to be explaining gains.

So --

Good point.

Okay, thank you, guys.

Bill Armstrong, CL King Associates.

I was wondering if you could discuss current trends in the spread between new car prices and late-model used car prices.

Are you seeing that widening at all?

And if so, does that start to make your offerings a little more attractive to consumers?

You know, we haven't looked at that in a while.

That's a good question.

But the spreads, as our average retail had gone up since the depth of the recession, our average retail went up $2500 to $3000.

Over that same time period we saw new cars, average new car price go up about $4000, so it probably would have widened to spread a little bit.

More recently here, I actually don't know the answer.

But we haven't seen a move enough that we thought we should talk about it.

Understood.

And on capital expenditures, are you budgeting about $280 million?

That's a big increase from last year.

I assume most of that is new stores.

Are there any other major projects that are incorporated into that number?

No, you're right -- the lion's share of that is new stores and new land, et cetera, for future development.

If you look back to what we were talking about in 2006/2007, it's not out of line with the amount of spend we were projecting and spending at that point.

There's always a certain amount of maintenance CapEx, but for the most part, the increase is new stores.

Okay, great.

Thank you very much.

Thank you.

(Operator Instructions).

[Justin Ellstein], Stephens, Inc.

A number of my questions have already been answered, but maybe just a couple of cleanups here.

First question, just curious how much that extra day in February helped the comp.

Probably roughly 1/90th.

(Laughter)

Yes.

Okay.

On the receivables balance, now that we are kind of caught up to the point where you are retaining all of the lower-quality credits, just how --

The lower of the high-quality.

Yes.

Yes, remember.

Just how quickly do you think you can grow that receivable balance going forward?

Well, we -- go ahead, Tom.

I was going to say, there is a number of things that are going to drive that.

All else equal, if the interest margin stays the same, over time you would see that portfolio grow similar with sales and which makes sense.

But in a period of escalating growth, it might lag a bit because, remember, we recognize the profit on these transactions over the life of the loan, not upfront.

It is a portfolio.

Our penetration, average selling prices, interest margin, those things all impact income.

But all else equal over the long-term, it should grow with the business unless we change our approach.

Sure.

And can you just tell us what the total delinquencies were at the end of this quarter?

Look at our monthly --

Yes, why don't you get back with Les and Katherine?

We'll get you that up.

Okay, I'll just go on to the next question.

Given supply constraints still likely for this year, what kind of pricing benefit are you anticipating that we could see?

I'm not sure we see a pricing benefit in supply constraint.

That generally, in the past, has led to higher prices.

But we don't know what's going to happen with SAAR and the supply chain.

I'm not really sure what your question was.

Well, with limited supply in units, I mean, are you anticipating any benefit in pricing?

Do you think you can raise prices again this year?

I'm not sure.

We manage it on a pretty short window of time.

We are managing our inventory and pricing pretty much every day.

So we are going to do whatever the market allows us to do.

Okay.

Well, great, thanks.

And I'm showing no further questions at this time.

I apologize; you do have a question from David Whiston from MorningStar.

I'm sorry if I missed this at the beginning.

Did you give the appraisal value rate yet?

Yes, it was a little over 29%.

And to each of the Toms, in your investor presentations you used to have what you called your iceberg slide, where you laid out your five components of sustainable competitive advantage.

And in -- for each of your opinions, I'd just like to hear what do you think is the single most important contributor to that business model?

Well, in my opinion, I don't think there is a single one.

I think it's a combination of all of the factors together that differentiate us from the competition.

And I think one of the reasons we showed the iceberg like we did is to just give a visual understanding of how complex the behind-the-scenes stuff is in this business to do and do well.

And I think that we're continuing to learn every year and we're continuing to make strides every year in those areas.

But the whole idea behind that slide was that what you see, what the consumer sees, what competitors see, what investors see -- from the look and feel of the building, from walking in, from shopping our store, is only a small piece of actually delivering the consumer offer.

So, to me, there is no one thing.

Yes, I guess I would echo that.

But I would add that over time, I think a competitive advantage for us, I think Tom mentioned is, we've evolved into three real strong businesses that are complementary and deliver.

We've got the retail business with all of the add-ons that go with that; the wholesale business; and a very strong finance business.

And the iceberg really doesn't capture that.

It's more our competitive advantage from an operating perspective.

But I think that's key, that over time we've grown into a pretty diversified set of revenue streams.

That's a really good point.

If we redid our iceberg, we'd have to put wholesale and CarMax Auto Finance under the water line, and make the bottom bigger.

Yes, I agree.

You guys just kill your competitors in wholesale.

How long can you keep those margins up?

I think -- we don't look at it as what we're doing against the competition.

It's a business segment for us that has customers.

And we market to those customers; we provide great customer service.

Our dealers are loyal.

They are consistent.

I think we have the highest dealer attendance ratios in all of the -- in auctioning.

We are now the third-largest auction chain in the United States.

Again, we have really consistent attendance.

We have phenomenal ratios.

And we're pretty upfront with both customers.

They know what they're buying from us.

We stand -- we, for the most part, stand behind what we sell.

We make announcements on the condition of those cars, and I think it has allowed our business to continue to grow.

We run that business as a separate business, and we run it differently than what the competition does.

So --

Okay, thanks.

Very helpful.

Okay.

And I'm showing no further questions at this time.

All right.

Thank you again for joining us.

And as we close the year and start a new one, I just want to once again thank all of our associates for all your hard work, all your dedication.

And I'd also like to express our thanks for the support and confidence of our customers and our investors.

We'll talk to you again next quarter.

Thanks.

And this does conclude today's conference call.

You may now all disconnect.