車美仕 (KMX) 2013 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q4 FY 2013 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.

I would now like to turn the conference over to your host, Ms. Katharine Kenny.

Ma'am, you may begin.

Thank you.

Good morning.

Thank you for joining our fiscal 2013 fourth-quarter earnings conference call.

On the call with me today, as usual, 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 associates about future events, that involve risks and uncertainties that could cause 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 ending February 29, 2012, filed with the SEC.

And our new 10-K, of course, will be out shortly.

Before I turn the call over to Tom, let me once again request that everyone stick to asking one question and feel free to jump back in line if you have follow-up calls -- questions.

It just seems like the most fair way to let everyone have a chance.

Thank you.

Tom?

Well said, Katharine.

Good morning, everyone.

Welcome to the call.

We are very pleased to announce a record year of both revenues and earnings for CarMax.

Total revenues grew to nearly $11 billion.

Retail used vehicle unit sales increased 10% to over 447,000 cars.

We continued to implement our new store growth plan in fiscal 2013 as well, during which we opened 10 stores.

That's the most stories we have opened since fiscal 2008.

I will go on to some other highlights, first for the year and then the quarter.

For the year, used unit comps increased by 5% compared to 1% in the prior year.

Net earnings up 5% to $434 million.

Wholesale units increased by 3% on top of a 20% increase in fiscal 2012.

CAF income up 14% to nearly $300 million.

Tom will talk more about that in a second.

Also, we talk about market share at the end of each year.

Our data indicates that we increased our share of zero to six-year-old used vehicle -- zero to six-year-olds used -- we increased our share of the zero to six-year-old used vehicle market by approximately 3% in the markets that we serve to a total of nearly 6%.

Also, more recently we have looked at our share on a broader basis since that's where our inventory and our sales have moved.

And on a zero to 10-year-old basis, we estimate that our share has grown the markets that we serve by about 6% to a total of approximately 4%.

Now for the fourth quarter, used unit comps increased by 6% compared to 4% in the prior year.

Total used vehicle gross profit grew by 12% and total wholesale gross profit grew by 11%.

Wholesale units increased by 7% on top of a 13% increase the prior year, largely due to the increase in our store base.

Appraisal traffic did grow modestly and, at nearly 30%, our appraisal buy rate was slightly higher than last year's fourth quarter.

CAF quarterly income also grew by a strong 15% this quarter.

On to SG&A.

SG&A for the fiscal year increased 10% from $941 million in 2012 to right at $1 billion in 2013.

More than half of the increase was related to new stores and growth.

On a per-unit basis, SG&A remained flat on a year-over-year basis despite our 10 new store openings.

For the fourth quarter, SG&A increased 9% to $265 million, but on a per-unit basis SG&A declined by $53 to $2,212 per unit.

Our year-end inventory increased by a little over $400 million compared to the end of fiscal 2012.

Approximately a fourth of this increase was due to our new stores.

The remainder was due to comp unit growth and a faster ramp up in units in anticipation of tax season this year.

With that I will turn it over to Tom to talk about customer finance.

Tom?

Thanks, Tom.

Good morning, everybody.

So for the full year CAF income increased $37 million, or 14%, to $299 million, as Tom said.

This is in line with the growth in average managed receivables, which was up 16% during fiscal 2013.

In the fourth quarter, CAF income grew $10 million, or 15%, compared to Q4 of fiscal 2012, and our portfolio of average managed receivables increased 17% to $5.7 billion.

For the quarter, interest margin after the provision for loan losses increased 13%.

Our growth in managed receivables was largely driven by strong origination volumes over the last two years, which were supported why the expansion in CAF penetration, CarMax's sales volume growth, and the increase in the average amount financed.

Net loans originated during the quarter increased 37% year over year, driven by the same factors.

As we discussed last quarter, we saw customers respond favorably to our finance offers.

That momentum seems to have continued in the fourth quarter and CAF's net penetration in Q4 was 43% compared to 37% in FY 2012.

The allowance for loan losses grew by $14 million, or 32%, to $57.3 million and, as a percent of ending managed receivables, it increased 0.1% to 1%.

This increase also reflects the growth in our portfolio as well as that shift in the credit mix as we returned to our prerecession origination strategy.

While that program of selling loans at CAF had historically retained to third-party providers ended last January, it will take some time for the portfolio to fully reflect the change in origination strategy.

Third-party subprime providers accounted for about 15% of sales in the fourth quarter, which is consistent with last year.

There is no new news regarding access to financing.

It remains very strong, with over 90% of applicants receiving at least one approval from CAF or one of our partner lenders.

Now I will turn it back over to Tom to wrap up before questions.

Thank you.

I will just touch on a couple things before opening it up for questions.

I'll talk some about the web and then store growth for the coming year.

For our website in the fourth quarter, we achieved a milestone of over 10 million monthly Web visits.

For the fiscal year, traffic grew over 15% to an average of 9 million visits per month.

Visits to our mobile site now represent 20% of total visits to CarMax.com, while visits utilizing iPhone or Android apps represent over 6% of our traffic.

As far as growth, for fiscal 2014 we plan to open 13 stores.

That will be a record number of openings for us.

We're very excited about the variety of superstores that we plan to open and the variety of markets that we will enter.

Two of our new stores will be small format models; one of which we have already opened in Harrisonburg, Virginia, and the other will open in the third quarter in Jackson, Tennessee.

We will also open two stores in new midsize markets in Columbus and Savannah, Georgia, and we will enter two new large metro markets with two stores each in Philadelphia and St.

Louis.

Then we will also add a number of stores in some of our more successful markets including Baltimore, Sacramento, and Houston.

We expect to end fiscal 2014 with a total of 131 superstores.

With that, Katharine, we will open it up for questions.

Thank you.

(Operator Instructions) Simeon Gutman.

So my one question on traffic and conversion.

It sounds like conversion has been a bigger driver of the comp the past few quarters, traffic not as much.

So, Tom, as you think about traffic coming back, we speak a lot about [sentiment] and macro.

Is it just that, or do you think, as the volume of some of the late-model vintages start to improve, will that be a traffic driver in and of itself?

Yes, I think that's a possibility.

We have always thought about when we think -- when we project what we think our sales will be we always think roughly in terms of comp sales that will get about half from traffic and half from conversion.

And that's largely true over the long haul.

It's not always true in a specific quarter.

So in the fourth quarter it was driven more by conversion than it was by traffic, but we still think over the long haul we will get about half from both.

But we are extremely pleased with the execution in our stores.

We have a lot of initiatives we worked on over the last couple years with training and other things, and it looks like it's really paying off.

Our store teams are just doing a great job executing with the customers that they have.

Okay, thanks.

Matt Nemer.

Good morning, everyone.

Congratulations on a great year.

My question is did you see any impact your business from the delayed tax refund season in terms of the cadence of sales?

Then, if I could sneak in a quick follow-up, which is any competitive response to lower CAF rates from either your lender partners or other lenders that you are not partnered with?

Thanks.

So on the first part, we don't really talk about cadence in a quarter, but what I will say is every year tax season is an approximation.

So it happens but it moves around between the end of January and all the way into March.

This year there was a delay, but a lot of times the tax season is going to straddle the fiscal year for us anyway.

So to us I don't think it really matters.

I think at the end of the day we will get all the sales that we expect to get, but it's really difficult to figure out without some more time passing and being able to take a look back exactly how it felt.

But we sold a lot of cars.

In terms of competitiveness to the rate --

Yes, I can speak to that a little, Matt.

With regard to the partners, as you know, we get the first look at the customer as they are coming through the door.

So they really don't have the opportunity to respond and compete with us in the system unless we have conditioned the offer somehow and it passes down to them.

With respect to others, people -- it's a competitive environment in general.

I think what we've seen happen and what we have been doing over the last couple quarters is we have seen our better customers being warmer to taking us up on more aggressive rate offers.

As we view that and as the combination of the decrease in the APR they receive plus the increase in sales and the increase in amount of CAF penetration all combines, we're looking at that constantly to determine what the optimal mix is, if that's possible, and try to optimize profit for CarMax all-in going forward.

But it's very difficult to see if there's any kind of competitive response to what we are doing because that world is going on whether we are there or not.

But, back to Tom's point, I think what we are doing has been working and we have been sticking with it.

So there have been times in the past where lowering rate to our best credit customers hasn't necessarily delivered in terms of incremental sales, whereas now it's working pretty well.

Thanks so much.

Brian Nagel.

This is Rupesh Parikh for Brian Nagel.

Congrats on a very strong quarter.

So our first question, or I guess our only question, has to deal with new store productivity.

How have the openings trended so far for the stores you opened in 2011 and 2012 versus your internal expectations?

If you take the total, so since we have restarted growth, our new stores as a group are performing at the least at our expectations.

Okay, thank you.

Mark Altschwager.

Good morning and thanks for taking the question.

My question is on the subprime piece.

It seems appetite for subprime loans has improved quite a bit recently, and I think, based on past calls, CarMax has said they are paying about $1,000 for each subprime loan originated by the third-party partners.

I'm wondering is there an opportunity to renegotiate that rate, or could CAF underwrite more of the subprime loans to lower the percentage going to third party.

I think the rate that we pay those partners is something that we look at on an ongoing basis.

And as we look at our business and the volume of subprime and what we believe the economics they might be achieving are, we will consider that on a go-forward basis.

As far as CAF, we are very comfortable with the book of business we are buying today.

That doesn't mean we don't look for ways to expand it on an ongoing basis.

We are always doing testing to see where we can pick up incremental business, and to the extent that makes sense, we will look at it.

But at this point we are very comfortable with what we are buying, the spectrum of risks that we are buying.

Also, at the end of last year we saw some movement with our third-party providers.

If you see the fourth quarter this year as a percent of sales was the same as last year, so we don't see that same step function that we saw in the fall last year.

Great, thank you.

Sharon Zackfia.

Good morning.

I know you don't give guidance, but with being more aggressive on the prime loans and the rates coming down for CAF on the loans that you are kind of generating, could you give us any idea on how you expect those spreads to progress throughout fiscal 2014 and whether or not we should see direct lending income growth lag your retail sales at this point?

Or is that differed more into fiscal 2015?

As far as timing, I can give you an overall feel for what we expect.

If you look at the contract rates that we give in the origination metrics, you see that it has trended down to 7.1% this quarter.

It was 7.7% last quarter and I think it was 8.7% last year, so clearly we are trending downward with respect to the APR of the portfolio and what we are originating.

That has got to get combined with cost of funds, which has also been trending down over the last year, but seems to have stabilized a little bit most recently.

As I think we talked about either last quarter or the quarter before, it does take a couple of years for the impact of any kind of changes to get baked into the portfolio.

So I think the expectation would be that if we continue on the same path you would see a compression in the overall spread of profitability for financing; however, we would expect to have more volume as well.

And it's hard -- since we have been saying for two or three years that we expect spreads to shrink and they really haven't, and now they kind of have started to.

But we expected that a couple years ago.

And you see our total profit per unit earned over the life of the loan has moved dramatically over the last five, six, seven years.

We were down around $900 or $1,000, up to around $2,000.

We always expected that to settle back in some.

And as Tom mentioned, the good news is, despite the fact that it has settled back in, some of the rate testing we have done have delivered in terms of some extra sales.

But in terms of projecting forward, it's very difficult.

Yes, and obviously our primary goal with the CAF business is to provide a competitive offer for our customer, because we have that first look.

One thing we do know is that we are going to make more money doing it ourselves than farming it off to a partner.

So whatever that spread is doing, if it's driven by the competitive marketplace, I think it's better for CarMax for us to be doing it ourselves.

The bottom line is, Sharon, it's a great time to buy a car.

Rates are cheap and we have lots of inventory.

Can I sneak in a follow-up?

The more aggressive rates, do you think that's just increasing CAF penetration or you actually think it's incrementally kind of benefiting sales?

Just to clarify.

I think it is benefiting sales.

It's not easy to discern exactly how much because, as Tom mentioned, we are executing very well in the stores.

It also depends a bit on credit quality coming through the door, which is up a bit year over year, so CAF is going to naturally get more customers.

But, yes, we do believe it's helping sales because the CAF offer is typically a more attractive offer than what they will get from another partner.

The other factor is three-day payoff, so at a more aggressive rate you see less of that.

So that, ultimately, helps net penetration.

Okay, thank you.

Scot Ciccarelli.

Another CAF question actually.

We saw subprime flatten at 15% here this quarter, but CAF continues to increase its penetration rates.

What is the right way to think about kind of CAF and subprime trends, call it a year or two down the road?

Is there some sort of guideline you guys are trying to adhere to?

No, we don't have a view to the future and, as you know, we don't really talk about where we think the world should be going.

But we don't have any indication from our partners that we should expect a change in behavior from them as far as subprime and their aggressiveness.

And, as I mentioned before, I think we're pretty comfortable with the buybacks we are in with CAF.

We will look at that on an ongoing basis.

We will test all the time, and as things evolve we will make sure that we are communicating it.

But, Scot, it's not like we pick a number and say we're going to get CAF penetration to 42% and then we're going to stop.

We are not -- we're looking to optimize total sales and profit.

So if we could do more penetration on CAF and we thought it was a net positive for the business overall and that we could get it funded effectively, we would do that.

Right now we have kind of spilled into what looks like prerecession levels and, as we have talked about, subprime lenders have been a little bit more aggressive in the last couple years, so that's how it came out for the year.

But who knows what will happen next year.

Now, I apologize for the follow-up here, but a lot of the press releases that we have seen, or news articles I should say, about even longer loan terms, at least on new cars.

You may have seen the article; 97-month leases, or excuse me, car payments.

Could we see CAF, because of the flexibility that you have, actually extend the length of loan terms as well?

Again, we will look at the market and what is going on and what we need to do to stay competitive.

To the extent we started feeling competitive pressure or when we are unable to satisfy customers by not offering that product, it might be something we consider.

At this point we have not moved the longest term that we will offer to customers.

Scot, we haven't found that to be a deterrent for sales.

People aren't asking for a mortgage.

Okay, got it.

All right.

Thanks, guys.

John Murphy.

Good morning, this is Liz Lane on for John.

What are the limiting factors for store growth after fiscal 2014?

Because it seems like you have a solid store growth plan of 13 stores for the year, and after that you've maintained your outlook of 10 to 15 stores per year.

But what, if anything, would limit that growth toward the lower end of the guidance range as opposed to the higher end?

Well, mostly unknown factors -- whatever could happen in the economy, unemployment -- macroeconomic factors that we don't have any control over.

We feel pretty good about the way we are executing our business right now.

We feel pretty good about real estate availability and how well our teams have built back up the pipeline.

We feel pretty good about our management bench, which we've spend time building up and we've done it progressively over the last few years as we have, I think in a very controlled manner, ramped back up our growth rate.

So we feel pretty well positioned to continue to deliver the range that we have talked about for the next three years.

I don't see any reason why it would go back down to the low end unless something happens that we are not aware of.

Okay, great.

Thank you.

Matt Vigneau.

Good morning.

During the quarter, did you see any shifts in the growth rate for the zero to six-year-olds vehicles, or even any shifts within this range?

And related, where there any components within mix that had a notable impact, perhaps on ASP, which looked pretty strong?

Thank you.

We only talk about share for the full year because the data, one, is lagged and, two, it's not very accurate on the short term.

So I can't really comment any movement within the quarter.

In terms of our mix of inventory -- mix of sales for the quarter, we did see some shifting within, like, zero to four slightly over towards zero to two away from three to and four.

But our mix of older stuff, from, say, five to 10, remains pretty stable and pretty high as a total percentage.

So I think we're all expecting, as supply comes back, to pick up sales in a place where we have historically done very well, which is the kind of zero to four bucket.

But we have seen more movement in the zero to two than in the, say, three to four.

And I think that's just a reflection of how cars have sold over the last four or five years.

Now with the SAR backup over 15 million in the past year and projected to go up again next year, I think you will see the benefit of that in later model inventory over the next few years.

Great, thank you.

Anything that drove the strong ASPs within the mix of inventory?

No, I think our ASPs were only up a few hundred bucks.

That's kind of -- what?

4%.

I would just consider that a little bit noise.

Okay, great.

Thank you.

Not mix related, right.

James Albertine, Stifel.

Thanks for taking the question and congratulations on a strong quarter and a strong year.

Just to shift gears to the gross profit per unit, it looked like it was relatively flat year over year.

I just wanted to understand, as that late-model resurgence starts to work its way into next year and then you noted the zero to two-year shift, what we should expect from a gross profit per unit basis going forward.

Thanks.

We have addressed this a bunch on the call.

As we shifted older I think there were some concerns that gross margin per unit would decline because of the shift to older.

But, as we've talked about, that's not really how margin works.

So we are not anticipating some big change in our margin per unit because we shift to newer stuff.

I'm hoping we can continue to be a big player in older stuff as well, so --

Great.

Thanks for taking the question.

Ravi Shanker, Morgan Stanley.

Good morning, everyone.

This is actually [EJ] in for Ravi.

My question is on acquisition costs and supply, and more specifically off-rental supply.

So the rental industry seems to be moving fairly aggressively towards risk vehicles, and in addition also moving towards selling more directly to dealers and consumers versus wholesaling their cars.

What kind of impact, if any, are you guys seeing from this dynamic from both a used -- retail and wholesale perspective?

Well, rentals -- the rental industry, when it comes back to market, is generally one-year-old car with around 30,000 miles on it.

There are tons of those cars at the auction.

It doesn't really matter whether they go back as buybacks and the manufacturers run them at the auction, or they are at-risk cars and the rental car agencies themselves run them at the auction.

Despite lots of efforts to do the things that you mentioned, there's still tons of those cars out there at the auction.

That being said, that's not a very big percentage of our sales begin with.

So, again, that only represents one-year-old cars.

Got it.

And just as a very quick follow-up to that, what are you guys seeing in terms of -- in real-time in terms of off-lease supply and just late model use?

Thanks.

There has been a lot of movement in leasing as a percentage of total sales, and I think you've seen some numbers recently up over 30% of -- I know Honda and Toyota were both over 30% of vehicles sold or leased.

We won't see the impact of that for two or three years when they come back off of lease.

I can't really predict what's going to happen in the short term, but what has historically happened as leases, as a percent of sales, have moved quite a bit over time.

And we have seen it over our 20 years in the business.

Sometimes that's 30% of sales; sometimes it's 15% of sales.

It just means there's a different avenue for us to go and get those cars.

So if there is more -- if a higher percentage of cars are leases, they are a little bit more organized when they come back to the auction, because usually it's the lease provider that will run the cars.

And if they're not off-lease, then customers are still going to trade in and out of cars.

They'll just be a little bit more fragmented in terms of the way the supply comes back to market.

All right, thank you very much.

Clint Fendley, Davenport.

Thank you.

Good morning, guys.

My one question -- I believe you said that your data shows about a 4% total share of all used.

I wondered if you could provide any color for how that share might vary across your store base, especially for some of your older stores.

Well, we don't get into too many specifics and we are talking about only zero to 10-year-old cars, so the market is obviously much bigger than that.

When we expand and start -- and talk about share on zero to 10, clearly there are many cars that are in that six to 10 range that just don't meet our retail standards.

They still count as sales, they are still in the denominator, but they are not in our share growth.

So we saw that percentage, that share of zero to 10-year-old cars for the year grow by about 6%, ending at a total of about 4%.

If you look at it market by market, we are going to have higher share in older markets.

So places like Richmond or Baltimore-Washington or Raleigh or Atlanta, South Florida, places where we have been for a very long time, our share is going to be quite a bit higher than it is a new market.

But it's pretty varied, but in general the older markets are going to have higher share.

Is your rate of share growth for some of the older stores significantly different from this 3% average that you seen have across the base?

Yes, if you just think about it, over the long haul, the way we expect sales to fall, we're going to get faster comp growth and, therefore, share growth in the early years of a store's life.

Then that is going to slow as a store matures.

So if we have a store that is 15-plus years old and it's selling up in the Baltimore market or in some of our bigger stores 800, 900, 1,000 cars a month, even a very small percentage gain there is a really, really big deal.

So, although we expect it to slow as the stories get older, it's still very, very valuable growth for us.

Got it, thank you.

Nice quarter.

Rick Nelson, Stephens.

Good morning, this is Joe Edelstein in for Rick.

How should we think about your ability to lever as you continue to ramp the new store base?

Are we still looking for kind of a mid to high type single-digit comp number?

Yes, in general we still are thinking like that, but we are going to invest in the initiatives that we think are most valuable for the business long term.

So when you look at the fourth quarter, we had a robust set of openings.

We have kind of a difficult comparison when you look at the weighting of -- new stores are very SG&A inefficient, yet for the quarter we leveraged our SG&A on a per-unit basis by, what was it, $40 or $50 bucks?

So we are pretty pleased with that, and that was with a 6% comp.

So I couldn't tell you exactly, but if we had flat comps we probably wouldn't have leveraged and if we had higher comps we would have leveraged a little bit more.

But we think we need in the mid-single digits to leverage, if we are going to be continue to be aggressive with both growth and spending on initiatives.

That's helpful.

Just separate question as a follow-up.

Can you give us some detail around the ESP allowance and why exactly that increase -- obviously the revenues are going up.

But is it just simply kind of a step function where you had to allocate more in there, which then costs the penny to the quarter?

Yes, I can give you a little more color around that.

The ESP product is one that the customer can return, and if they return it, the partner that we -- partners that we deal with have to refund them the money and we have to refund a pro rata portion of the commission that we receive.

So every time we sell an ESP we apply a reserve for returns.

We look at that reserve on an ongoing basis.

We observed an increase in return activity in recent months and quarters, and it was appropriate to step up the reserve based on the experience that we had.

So I wouldn't consider this an extraordinary item and I wouldn't consider $0.01 material for CarMax, but the fact that it does distort the other gross margin line was the reason that we called it out.

And it was about $0.01, but it does represent essentially resetting the reserve for ESP returns.

Thanks for taking the questions.

(Operator Instructions) Bill Armstrong, C.L. King & Associates.

Good morning.

In terms of supply trends, are you already seeing improved supply in that zero to three or zero to four-year-old range, or is that sort of more anticipated as we move through the year?

Related to that, are you seeing any major difference between the auctions and the appraisal lanes in terms of improvement in zero to three-year-old supply?

As I said, if we look at zero to four, we've seen some shifting from three and four-year-olds to zero to two year olds.

In terms of the zero to four in total, it really hasn't changed much.

Didn't change much for the quarter; some movement for the year.

So it has started some, but, again, I think it's going to be more of a delay based on what happens with the SAR.

That's what we've seen so far.

In terms the difference between the auction and the appraisal, I don't really know the answer that.

My guess is it's going to be somewhat similar.

Okay, great.

Thank you.

David Whiston, Morningstar.

Now that the fiscal year is over, for the past couple years your competitors, and particularly the franchise dealers and rental agencies, have been becoming a bit more efficient and more aggressive in used retailing.

So at this point do you and the Board think that that threat is stronger and more of a threat to CarMax, or do you think the market is still so fragmented that it really won't affect you guys?

Well, if you look at the publics in total, all six of them combined, it represents about 2% of zero to six-year-old used cars sold.

So I would tell you in general the market is very fragmented.

We are constantly trying to pay attention to any competitive threat, whether it's in an organized way from a dealer or it's through kind of third-party providers who provide dealer services.

So there's lots of online services that are making it easier for dealers to do various functions like offer financing or offer extended warranties and things like that, and we pay attention to all of them.

We are very focused on continuing to improve the CarMax consumer offer so that we are competitive against any threat that we might see regardless of where it comes from.

So related to your point, do you guys need to do -- dramatically increase your IT spending for your website or are you pretty happy with the investment level there?

We are pretty happy.

We have been spending quite a bit on it and we have done so for several years and we will continue to going forward.

I talked about just some movement in some of our -- where the volume is coming from.

Obviously, like everybody else we are seeing lots of people come to the website via a mobile device.

Whether it's through our app or just through the mobile website, we have made lots of advancements there.

We introduced an app just in the last six or eight months.

We just released our Android app, which had some bugs and we pulled it, and we just re-released that.

But visits through the app are at about 6%.

Visits through the mobile website are about 20% of our total hits.

We have had some outstanding growth in our website of about 15% for the year.

We hit 10 million hits for the month for the first time ever, so it looks like some of our investments have been paying off but we understand we have to keep making those investments if we want to keep up.

Great, thank you very much.

Efraim Levy, S&P IQ.

It's Efraim Levy at S&P Capital IQ.

Could you provide some color on some trends in terms of mix, whether it's luxury versus non-luxury, car versus trucks, or brand shifts?

Yes, we didn't have much.

There's not much to report there.

About 25% of our sales are in sport utilities and trucks, just to give you one big number, and that number remained pretty consistent year over year.

We didn't have a lot of shift in terms of what we are selling.

Then the same for appraisal mix?

I'm not sure -- yes, it would be the same for appraisal mix because that's a big chunk of what we are selling, so --

Okay, thank you.

Sharon Zackfia, William Blair.

Just a follow-up, I think the other --

Sharon, thank you for following the rules and getting back in the queue.

You're welcome, Tom.

I did ask a follow-up earlier, though, so I actually broke the rules before following the rules.

But the other SG&A bucket, it actually went down in dollars year over year.

I was just wondering if there was any year-end true-up there or anything that you would really call out, because it actually was kind of material on a year-over-year basis.

I will let Tom answer that one.

That was too much detail for me.

The answer is, no, there's nothing in there to talk about.

All right.

Well, that was quick.

Thank you.

Scot Ciccarelli, RBC Capital.

I was also following the rules, just for the record here.

We have about 32% inventory growth last quarter and 39% growth this quarter.

I know you commented that you are relatively comfortable with it and obviously sales have been pretty good, but I guess the question is how should we think about inventory growth going forward?

And is there any kind of direct correlation we can find between inventory growth in sales or is it less scientific than that?

It's less scientific, but it does change our confidence in how aggressively we would build.

And that's really what you saw in the quarter.

First of all, about a fourth of the growth was new stores, so that's pretty easily explained.

Comps are up 6% so that is going to take another chunk of it if it was just linear.

But last year second and third quarter we had negative comps.

Normally we are building for tax season coming through November, December, and January.

We were definitely consciously less aggressive last year building inventory, whereas this year we were a little more confident.

We built inventory more aggressively.

So it's kind of a little bit of a double whammy.

We weren't as aggressive last year.

We were more aggressive this year, so I would say last year we were slightly down from where we wanted to be.

This year we were more in line with where we want to be, but it makes for a bigger spread after you take out roughly 25% for new stores and comps.

Okay.

So going forward, now that tax season is kind of behind us, do we start to see the year-over-year inventory growth start to moderate going forward?

That will really depend what happens with sales.

Also, another factor for inventory for us is paying close attention to what has happened in the wholesale market and appreciation and depreciation.

It's another tailwind or headwind depending on which direction it's going in terms of how aggressive we want to be with building inventory.

Okay, got it.

Thank you.

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