車美仕 (KMX) 2016 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q1 FY2016 conference call.

(Operator Instructions)

Thank you.

Ms. Katharine Kenny, you may begin your call.

Thank you and good morning.

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 risks and uncertainties that could cause actual events or 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, 2015, filed with the SEC.

And as always, I hope you will all remember to ask only one question and a follow-up before getting back in the queue.

Tom?

Thank you, Katharine.

Good morning, everyone.

Thanks for joining the call today.

We had a great first quarter driven by strong performance in all our key business areas and with the continuation of our store opening plans.

I'll give you some of the highlights for the quarter.

Used unit comps increased by 4.9% and total used units grew by 9.3%.

Gross profit per unit relatively flat at $2,200 compared to $2,220 in the first quarter of last year.

Total wholesale units grew by 4.7%.

And gross profit per wholesale unit of 1,032 was similar to 1,046 in the first quarter of last year.

Other sales and revenues increased 14% year over year.

And CAF income grew 15% to approximately $109 million.

I'll now turn over to Tom to talk about finance.

Tom?

Thanks, Tom.

Good morning, all.

As Tom mentioned, CAF income grew by 15% compared to first quarter FY15.

And average managed receivables grew by 17% to $8.7 billion.

As mentioned in the release, results for this quarter were again positively impacted by favorable experience at CAF.

The weighted average contract rate, that rate we charge to the customers, was 7.4%, up slightly from last year's first quarter at 7.2%.

Our allowance for loan losses grew to about $84 million or 0.94% of managed receivables.

CAF net penetration was 42.2%.

0.5 point of that came from the loans originated under our subprime test and that compares with 41.3% in last year's first quarter.

Net loan dollars originated in the quarter rose 10% to $1.4 billion, due to the combination of CarMax unit sales growth and CAF's modestly higher penetration.

And during the quarter we repurchased 1.8 million shares for about $120 million.

That's down from the pace in recent quarters reflecting the increase in stock price.

Tom?

Thank you.

SG&A for the quarter increased approximately 11.6% to $350 million.

Contributing to this growth was the addition of 16 stores since the beginning of the first quarter of last year and a $7.9 million increase in share-based compensation expense.

On a per unit basis, SG&A increased $51 to $2,098, compared to $2,047 in the first quarter of FY15, $39 of which was related to the stock-based compensation expense.

During the first quarter we opened three stores, two in new markets for CarMax, Minneapolis and Gainesville, Florida.

We also opened our third store in the Philadelphia market.

After the first quarter ended we opened our third and fourth stores in the Denver market -- that was actually yesterday -- and added a second store in the Providence market.

We plan to open one more store in the second quarter in Tallahassee, Florida, which will be a new market for us.

Our comp unit sales were driven by improved conversion and continued growth in customer traffic.

Our web traffic was up almost 10% compared to the same period last year.

Monthly web visits grew to nearly 16 million.

And now over 60% of our business are coming from something other than a laptop and a desktop, so either a mobile device, through our app or on a tablet.

With that, we'd be happy to take your questions.

Operator?

(Operator Instructions)

Your first question comes from the line of Craig Kennison of Baird.

Good morning.

Thanks for taking my question.

This is more of a long-term question but we have this view that millennials might respond to your hassle-free business model better than prior generations.

I'm curious what CarMax is doing to target this group any differently, whether it's from a marketing perspective or what your technology spend might look like going forward.

That's a good question, Craig.

And we're in the middle of investing in continued capabilities on our website and mobile devices.

And I don't think that's just for millennials.

I think that's really for all consumers.

If you look at consumer behavior over the last several years it's clearly shifting towards wanting to do more and more of whatever shopping process they're involved in online.

And we see that continuing to shift, and then within that continuing to shift towards mobile.

So, we're working hard on our app and trying to have fantastic pictures on there.

We've added zoom capability.

We've added high definition and zoom capability.

We've given customers the ability to transfer a car from any store to any other store.

We've given them the ability to pay for that online if it's a pay transfer, via credit card.

They can fill out a big chunk of the paperwork online.

And I think there's a lot more to come there.

It's an ongoing process and trying to stay out in front of technology.

But continued investments in the website and our mobile device I think will attract not only millennials but other customers, as well.

Thanks, I'll get back in the queue.

Your next question comes from the line of Scot Ciccarelli of RBC Capital Markets.

Good morning, guys.

Can you talk about subprime penetration?

It stills seems to be bouncing around a little bit and it was down from 1Q last year.

What I'm wondering is how much of that drop is from business being picked up by Tier 2 lenders and how much of that is maybe from some changes that the Tier 3 guys are making.

Thanks.

We talked about this a little bit last quarter.

We've seen pretty stable performance from our Tier 3 lenders.

If you look at what they're approving and the quality of their offers, it's been pretty consistent for the last several quarters.

And as we've talked about, you've got to remember that their performance is a byproduct of both what they're doing on the credit front and what they're seeing coming through the pipeline.

I think it's fair to say that their behavior's been consistent and we're seeing a little bit more assertiveness in the Tier 2 space.

All right.

So, no change in terms of thought process regarding the Tier 3s, they're probably just seeing less product because of the Tier 2 activity.

I can't speak for them, but if you look at credit quality of applications this quarter, it's up about 2 points year over year.

That moves the mix a little bit.

And I think we've done a lot of work to build a good stable of Tier 2 lenders that each brings something different to the table from a credit perspective, and that adds incremental sales.

Like I said, I think we're happy with the performance of our Tier 3 lenders.

We've seen consistent aggressiveness out of them in the last several quarters.

I wouldn't attribute it to anything but things moving around.

But just to be clear, the Tier 2 guys that may be picking up some share, we should assume that's a much more profitable transaction for you; correct?

As you know, we pay $1,000 per car in the Tier 3 space and we make $300 a car from the lender in the Tier 2 space.

So, every time we are shifting that volume, we're going from $1,000 out-of-pocket to $300 in.

So, it's good.

And you saw that reflected in the other margin this quarter.

Our third-party finance net income, which is actually an expense, was actually flat year over year with 9% sales growth.

And that's a direct result of the mix of Tier 3 being a little bit lower.

Got you.

Many thanks.

Scot, as you know, one of our main goals at CarMax is to make sure that when customers show up at the store that they have access to credit.

And we always talk about global approval rating which is, of applicants, how many get an approval from one of our lenders, starting with CAF and then heading down through all of our other partners.

And that number is over 90%.

So, we're pretty pleased with the credit offering that we have for our customers when they show up at our store, whether it's through CAF or one of our partners.

Got you.

Thanks a lot, guys.

Your next question comes from the line of Brian Nagel of Oppenheimer.

Good morning.

I have a question and a follow-up that I'll shove into one here.

For the question, on the buyback, and, Tom, you discussed this a bit in your prepared comments, an explanation why we saw a lower buyback number here in Q1 versus the prior quarters, but can you give us a little more color there on how you're thinking about that buyback relative to the stock price?

And maybe how should we consider the cadence of buybacks in coming quarters?

We're not really going to be in a position to get into what we're going to do in future quarters.

But I can tell you that our intentions are very much that it's a priority for us to return capital to shareholders, and as we've talked about the last couple quarters to move our capital structure towards one with a little bit more leverage in it.

And that is something we're committed to do over the medium to long term.

In any given quarter we might see some bouncing around because rather than having a trading mentality we're trying to take a programmatic approach to buying back stock.

We set up a program and we let it run for a period of time.

That program's going to have guidelines in it that allows for more share repurchase at lower stock prices and dialing it back as the stock goes up.

So, we're just looking at it from a longer term perspective.

We'll adjust those parameters as it is appropriate going forward, but that's pretty much as much as I can say about it.

We had a program in place that dialed back at higher stock prices.

We saw the stock price increase significantly over the last several months.

And as time goes forward we'll adjust it as appropriate, but keeping an eye on the fact that we do want to keep making progress towards more leverage in the capital structure.

Okay, that's helpful.

And then my follow-up question, unrelated, just an update from a marketing perspective.

Is CarMax still listing cars on autotrader.com and cars.com?

Is that still a marketing vehicle you utilize?

At this time it's not, Brian.

We have gone on and off testing with cars.com and autotrader.com and we'll continue to test on whatever listing sites that add incremental sales and that are worth the investment.

With the growth of CarMax.com, up to 16 million hits a month, we're a pretty prominent website, particularly in all the markets that we operate in, and we haven't found that there's incremental value there.

So, at this time we're mostly just using our own website.

We are continuing to test but we don't have any cars on cars.com or autotrader.com at this time.

Thanks a lot.

Your next question comes from the line of Sharon Zackfia of William Blair.

Hi.

Just two really quick questions.

Tom, can you talk about why average selling price was down?

I don't think I've ever seen that before at CarMax.

And then, secondarily, the stock comp, the $7.9 million, is there going to be accelerated stock comp all year?

And how do we think about that in the G&A line?

The first part, I think we were down -- I'm getting the number here -- I think we were down a couple hundred bucks.

And I'm with you, Sharon, I don't generally expect ASPs to go down.

I don't have a great explanation for it.

I think lower prices are better for our customers.

I don't think, really, it's an indication of much of anything because the move was so modest.

What was it last quarter?

We were roughly flat last quarter.

I think we were up $100.

I haven't really read to much into it.

It's such a small change in price.

And then your second question, Sharon?

The stock comp -- I think you had $7.9 million of incremental stock compensation this quarter.

I'm just trying to figure out if there's accelerated stock compensation all year, and how we should think about that in G&A.

That's largely going to be driven by how the stock performs.

A big chunk of that is in our restricted stock units that go to the vast majority of the associates who are in the equity program, largely in our stores.

And that's a cash-settled expense for us and it's subject to variable accounting.

So that's going to be largely based on how the stock performs and a number of other factors.

Okay.

Great.

Thank you.

Your next question comes from the line of Matt Nemer of Wells Fargo.

Good morning, everyone.

I wanted to just piggyback on Craig's question around mobile and web capabilities.

Just wondering if you can gives us an update on the EasyShop program and what we can expect in terms of future web capabilities over the next year or two.

Matt, we originally called that out as a test and EasyShop was a branded thing within the website.

We're really not calling it that anymore.

It's now really just expanded capabilities throughout the website.

And we'll continue to test those capabilities and when we find something that works we'll roll it to the whole chain.

So, the things I mentioned earlier -- the ability to transfer a car, the ability to pay for a car, the ability to make an appointment, the ability to put a car on hold remotely -- all those things are rolled throughout the Company now but we've stopped branding it.

We just realized it worked better as just part of the capability of our normal website.

I really can't give you what I think the other things will be, the capabilities that we'll add going forward, other than we're working really hard to try and make sure that customers can do -- whatever part of the transaction that they want to do from home, we want to make sure we give them that capability.

So that's where we're focused.

And we want to improve their experience.

We want to make sure we have the best search engine, we want to make sure we have the best touch screen experience, and we want to make sure we have the best mobile experience.

The other thing I would say is we need to hold ourselves to a standard of the experiences that people have in other parts of their lives and not just their experiences they have when they're shopping for a car.

The bar's definitely been raised as it relates to experiences online and experiences with mobile devices.

But we're working real hard to stay out in front of it.

And just a quick follow-up.

I'm just wondering if you can give us a quick update on the small store, small market format.

I think we mentioned we were going to open five stores, read the results for some period of time and then evaluate our plan going forward.

On the last call I mentioned that we feel very confident in the way we've performed so far.

And if you look at our growth plans going forward, the 13 to 16 stores over the next few years, embedded in that will be small-format stores.

We've identified right now at least 80 markets that meet that criteria and that will be part of our regular growth program going forward.

Last month the store that I mentioned in Gainesville, Florida is a little bit of a hybrid.

It has a small-format front end which means we operate it with the overhead structure that we've created for the small-format stores but we have a full production shop in the back.

We're always going to be working on our formats and try to find out what's the most efficient way to run a store at various volumes.

We have incredible variation and incredible capabilities as a Company to be able to go after just about any market now.

We can open a market with selling as few as 75 cars a month and we can run stores that sell as many as 1,000 cars a month.

I'm really proud of what we've accomplished in being able to address all kinds of market sizes.

Sounds like they're working.

That's great news.

Thanks so much.

Your next question comes from the line of Matthew Fassler of Goldman Sachs.

Thanks a lot.

My primary question relates to the wholesale business.

Obviously units will show volatility from time to time and the profitability of the wholesale business was terrific.

But the unit growth and the ratio of wholesale to used sold was a little bit lower than we have seen.

So any insights as to what drove that this quarter and how you're thinking about the wholesale business generally this year.

Matt, I've talked about this a number of times.

I really don't worry about the wholesale business in any given quarter.

We think about it over a very long period of time.

If you look at it over a long period of time, it has essentially grown with unit sales.

We're not worried at all that it grew 5%.

I'm glad that it grew 5%.

It's a very big business for us, it's a very profitable business for us.

It requires an incredible amount of effort in the stores.

You think about every time we open up a new production store even in a new market, we've got to run another business within it.

We have to have great customer service.

We have to attract dealers to our auctions every day and we have to give those dealers a great experience because they have other choices and they can go other places.

Again, it's a big business.

It grew 5% in the quarter, not quite what the retail growth was.

But, as you've been following us for a long time, you've seen that number dramatically in the other direction, as well, sometimes.

We're really thinking about that business over the long haul.

And, also, as you know, that business is not an independent business.

It's attached to retail.

Almost all the cars sold in wholesale are direct acquisitions from consumers, many of those who are buying cars from us.

So we have to make sure that we're competitive.

I was very pleased with the quarter for wholesale.

That's helpful.

Katharine, hopefully you won't count this follow-up as an actual question, but the stock comp, you now disclosed three or four subcategories within SG&A.

Is the stock comp number spread amongst the four of them or is it focused in compensation?

It's all in compensation.

Great.

Thank you so much, guys.

And, Matt, one more point on that.

Almost all the variability in our stock-based compensation expense is non-executive comp, just to make that point.

And it seems like, since you offered, it seems like on a per vehicle basis when you exclude stock comp the delta was actually quite favorable, pretty well controlled year on year.

Exactly.

And, remember, that's with 16 more stores in the base than were there last year, which, as you know, in the early part of their lives stores are very SG&A inefficient until they grow to where we expect them to grow.

We've always said we think we need mid to high single-digit comps to get some leverage there.

I was really pleased with the way SG&A ran during the quarter.

Thanks so much.

Your next question comes from the line of Michael Montani of Evercore ISI.

Hey, good morning.

Just wanted to ask first off on vehicle demographics if you could share the penetration of zero to four-year-old vehicles.

I think it was 75% last quarter and growing pretty nicely.

Could you just update us there on what you're seeing?

Yes.

For the quarter it was 76%.

You mentioned 75% was in the fourth quarter and that's on top of 73% the year prior.

I think pre-recession that number was 85% and then coming out of the recession it was 70%.

So yes, we've seen some shifting back towards.

We've been expecting this with the shifting in supply, with the change in the SAAR.

But From quarter to quarter it was relatively flat from the fourth quarter to this quarter.

Thanks.

And just to follow up on that, if I could, you mentioned that the buy rate was a little bit lower this quarter.

Can you just share with us what's going on to drive that?

Is there anything from a pricing dynamic that's impacting you in any way there?

And also what the penetration is of retail used units that were from the appraisal lane this quarter.

It was still a pretty good number.

We're buying around 30%.

That's pretty good for us.

Modest fluctuations in the buy rate.

We called it out only because it was there but it's not something that I really can add any color to it because I don't think there was much to it.

Thank you.

Your next question comes from the line of John Murphy of Bank of America.

Good morning.

This is actually Liz Suzuki on for John.

With the loan charge-off rates running lower than expected, do you think CAF would be comfortable taking on a little more risk and expanding that subprime test even further?

I think the two actually are unrelated.

We're looking at the subprime test as almost a different line of business.

It's a different pool of credit.

And as we talked about before, we're constantly testing within our core CAF business different pockets of credit, both pricing and what we'll approve on an ongoing basis.

And to the extent it makes sense and we keep the loss profile of the portfolio intact then we roll those things out.

As far as the current environment having an impact on that, these are anywhere from five- to six-year loans.

I think the result in any one quarter or couple of quarters aren't a reason to go out and swing your credit policy for what you're going to be collecting in five years.

Makes sense.

What do you attribute those lower loss rates to this quarter?

The losses are really a combination of how many people are going bad and how well we're doing recovering funds from those ones that have gone bad.

And we've had some success and doing a little bit better on the recovery side.

But the vast majority of what we're seeing in loss performance is that just fewer people are going bad.

And I think that's not inconsistent with what's going on in the lending industry in general right now, at least at the higher credit level.

Great.

Thanks very much.

Your next question comes from the line of Aram Rubinson of Wolfe Research.

This is actually Chris Bottiglieri on for Aram.

I had a quick question on the direct operating expenses within CAF.

You've done a very nice job of managing that over time.

It seemed to swell a little bit in Q4, but now in Q1 it came back down a percentage of AR.

I just want to think about how you manage that over time as you continue to grow your book.

And, two, if the subprime test proves successful, what does that mean for your direct expenses within CAF?

Thank you.

We try to manage those expenses over time as efficiently as we can.

Unfortunately, it's not only our activity that impacts that.

If you think about what's entailed in the finance business, there's a lot of activity contacting customers.

If you're in an environment where people are less delinquent and there's fewer losses, fewer people not paying, which we are today, that means you're making less calls, it probably needs less resource to do that.

If the world changes and you've got to pay more attention and be making more calls, that will have an impact on your costs.

I think the team down at CAF has done a great job of getting more efficient in both those types of environments, and will try to continue to do so.

And as far as Tier 3, as we roll that out, to the extent we roll that out, you would expect that it's a more high touch business and it would have some impact on CAF's overhead cost.

But we're not at a point where we can forecast that for you.

Okay.

Cool.

Thanks, guys.

Your next question comes from the line of Brett Hoselton of KeyBanc.

Thank you.

Good morning.

It's actually Irina Hodakovsky on for Brett Hoselton.

A quick question for you guys on the used vehicle sourcing.

We've been expecting an acceleration in off-lease supply to drive that supply of zero to four-year-old car inventory.

What I'm seeing is on the industry reports, on the certified vehicle sales, we're seeing double-digit increase through March, 11% up, and your increase is substantially below that.

And I'm wondering if you are not getting those cars yet or if there is some sort of a bottleneck in inventory supply, or any commentary you can give us on what you're seeing in terms of zero to four-year-old vehicle supply coming in.

You can't just look at CPO by itself.

You have to look at total comps for the industry.

If you look at the average of all the publicly traded new car dealers, used comps during the first quarter were at 5%, about in line with where we were.

Within that is where you see the growth in CPO.

So, there is a distinction there that you have to make.

Lease percentage right now, I think, in the new car industry is somewhere around 30%.

And when you see that supply coming back is really two and three years later after you see a high lease percentage.

I'm not sure that we've seen much of it yet but it's never been a problem for us to source cars.

And when cars are at a high lease percentage, when you look out two and three years later, generally they're more organized at the auction so it's a little easier for us actually to buy those cars when we see them come back to the marketplace.

We really haven't seen lease percentage change our ability to source cars over time, and we've been at this for over 20 years.

We actually think it's not a bad thing at all that there's a higher percentage of leases right now.

And over the next two or three years that will give us more access to those cars.

Great.

Thank you.

Your next question comes from the line of Bill Armstrong of CL King & Associates.

Good morning, guys.

Your weighted average contract rate for CAF was 7.4% versus 7.2% a year ago.

Was there a mix going on there or are you seeing overall interest rates that you're getting from consumers starting to go up?

I wouldn't really read too much into that much of a lift.

But as I've said, in environments where rates are going down, we always want to make sure we're staying with the market.

And in environments where we see rates going up, we want to be testing, as well.

We have been doing some tests with increased rates in certain pockets.

But, like I said, I wouldn't read much into the difference in the weighted average contract.

It's pretty consistent.

And remember, too, that we're very market driven with a three-day guarantee for our customers to go get a better loan somewhere else, and we unwind it free of cost.

That is a check and balance on how much rate we can actually get out of our consumers.

But we think it's a huge competitive advantage that not only CarMax Auto Finance but all of our other lender, as well, provide customers that opportunity to go get a better deal somewhere else, if they'd like, in the first three business days and get out of it at no cost whatsoever.

It's a good check and balance but it's a great offering for the consumer.

Right, understood.

And then just a quick follow-up -- could you tell us what your originations were for the quarter for your CAF subprime test?

It was about $15 million.

As we talked about at the end of last year, we're comfortable continuing at that pace of about 5% of the Tier 3 originations.

I think we're just under $90 million in total originations to date now.

Got it.

Okay.

Thank you.

Your next question comes from the line of Mike Levin of Deutsche Bank.

Good morning, guys.

Just to follow up on CAF, we've been expecting to see the collateral spread tighten gradually over time, but the last three quarters we've been holding steady at about 6.3%.

Does this feel like a near-term equilibrium that you guys are seeing or would you expect to see some contraction as we move forward and the Fed moves rates?

I think you hit the nail on the head.

It's going to depend on what goes on with rates.

As we've talked about before, our ability to manage that spread is very much market driven.

And to the extent we see cost of funds going up because benchmarks are moving up, we'll clearly test and see what we can manage that spread to.

But it's going to be driven by what the market will bear and what our competitors are doing and what makes sense for the customer.

It's very hard to speculate on it.

We have seen spread compression if you look year over year.

We just managed to outgrow that from an income perspective with growth in the portfolio overall from larger originations in those prior years and some favorable loss performance in recent quarters.

Great.

Thanks very much.

Your next question comes from the line of Rick Nelson of Stephens.

Thanks.

Good morning.

Since CFPB now oversees the large non-bank auto finance and provide CAF under their jurisdiction, is there any changes required from an operating standpoint or a cost standpoint now that you've got this oversight?

I think the short answer is yes we do expect there to be greater cost in administration.

The flip side of that is the announcement last week didn't tell us anything new from what we've been planning for, for quite some time.

As we've expected all along, CAF will be subject to the Bureau's supervisory authority as a larger participant.

The definition of larger participant isn't really that large, it's about 10,000 loans a year in originations, so a vast majority of auto lenders are subject to it.

But I think what it means for us is we're going to continue, as we have been, to refine our compliance program and meet the Bureau's expectation.

We're paying careful attention to industry developments and looking at our practices.

Every time we see, we learn more about what the Bureau's interested in, and making sure that we're doing our best to comply with what we think they want to see.

But in answer to your question, there's going be some administrative costs around that, just like we expect with Dodd-Frank Reg AB2, with extended reporting requirements, it will be a cost of doing business.

We'll let you know what it is, if it's material, when the time comes.

Got you.

Thanks.

Good luck.

Your next question comes from the line of Seth Basham of Wedbush.

Good morning.

My question's around conversion.

Tom, you mentioned improved conversion helping comps, but how did this level of improvement compare to recent quarters?

That's another one that's been pretty volatile over time.

I still think of it as you have to look at it over a much longer period of time.

I've always felt that over time we would get our comp sales improvement from a combination of traffic and conversion.

There have been quarters where conversion has outpaced traffic and there have been quarters where traffic has outpaced conversion.

In this particular quarter we said it was divided between the two to deliver the 5% comp.

But there's volatility in both of those things and I expect it to be volatile going forward.

But I think over a long period of time I expect to get improvements out of both.

I'm not sure that really answers your question but I can tell you we've had quarters where conversion improvement has been higher than this quarter, but we've had some quarters where we've been flat or behind, as well.

So, really, you have to look at it over a much longer period of time.

I don't think one quarter is a good proxy for the long term, although in this quarter we got a little from both.

Got you.

Just as a follow-up maybe, is there anything you can point to in terms of the trends in conversion rates in certain sectors of your customer population, whether it be credit tiers or otherwise, and whether or not inventory levels are affecting conversion, those types of things?

That's a really good question.

We spend a lot of time trying to figure that out.

And we don't have a lot of success.

So I'd say it comes from all kinds of different areas.

There's an argument that people are more prepared when they show up at the store because they've spent more time on our website.

There's an argument for more inventory for selection for the customer.

You can clearly see impacts from movements in credit that impact conversion, as well.

We have extensive training programs going on in our stores in all areas of the Company which I think help conversion, of course.

We can buy cars a little bit better, have the right selection at individual stores, even without having more cars.

We always say around here, conversion's a very big word and it includes lots of things.

I really can't attribute specific points to any one of them.

All right, very good.

Thank you.

(Operator Instructions)

Your next question comes from the line of David Whiston of Morningstar.

Thanks.

Good morning.

More of a strategic question for you.

We're in a rather robust part of the economic cycle.

And I'm sure you're always optimistic about all phases of the Company, but in particular, given where we are in the cycle, what parts of your business do you think you're most excited about over, say, the next 12 months?

As you said, we're excited about all parts of our business.

I think for me, it's two things.

It's the ability to continuously improve our existing store base, which has gotten quite large, and then our ability to enter new markets successfully, whether they're small markets or medium-sized markets or metro markets.

And then to be able to deliver a consumer offer that has all kinds of advantages against the competition, and allow us to continue to succeed.

I'm really excited about the core business.

In the last several months I visited lots of our stores that have been around for 15 and 20 years.

Some are hitting all-time highs in sales.

And then I've been to some of our new grand openings and it always gets me excited to see how engaged people are to come and work for CarMax and deliver a great consumer offer.

Again, for me it's continuing to grow the existing stores and then being able to go after new markets, as well.

That's helpful.

And then just one other question.

It's been tax refund time recently.

I was just curious, did you see a meaningful uptick in business relative to other tax refund seasons or was it a little down or flat?

We're really well past tax refund season now.

For us that's January, February, March time frame.

Over the last couple years we've seen some volatility around timing from just tax refunds in general.

But whatever you would have seen from tax refunds you would have already seen in our business through the fourth quarter and then now that the first quarter's over.

It's always a big time of year for us, particularly coming out of the winter, and we had a big year this year, as well.

Okay.

Thank you.

Your next question comes from the line of Paresh Jain of Morgan Stanley.

Good morning, everyone.

Just following up on the question on millennials and tech.

CarMax has always led with technology and transparency in this business but there is some serious money being spent by these peer-to-peer business models, and they're gaining a lot of traction with millennials, as well.

We've talked about this earlier and you said you're keeping a close eye on these models.

And while you may not see them as direct competitors, is that an opportunity missed or is it something you can pursue in the near future?

And if so, how quickly you can do that.

That's a good question and I have the same answer as before.

We're keeping a close eye on it and we'll decide if that's something we need to go after.

As of this moment we're not heading down the peer-to-peer path.

If you really think about the way CarMax works, the fact that we make a cash offer on every car, is enabling a lot of peer-to-peer transactions and some of those are coming through us that would have otherwise gone peer to peer.

A customer who normally would have put their car online before or put up in their yard and put a for sale sign on it, now a lot of those customers are bringing their cars directly to us and selling it to us.

I may not be exactly the way you're thinking of it but I think we're getting plenty of customers who would have gone through the peer-to-peer channel and are deciding to sell their car directly to CarMax.

Very well.

And just a quick follow-up, would you rule out an acquisition of that kind in this space?

Would you do it organically?

We're evaluating all different options and we're open to any way that makes our business better and delivers a better return for our shareholders.

Thank you.

Your final question comes from the line of James Albertine of Stifel Nicolaus.

Good morning and thanks for taking the question.

I was hoping -- and I apologize if I missed this in the prepared remarks or another question, I dialed in a few minutes late -- but hoping to get an update on the vehicle transfer activity, the propensity for consumers to order a vehicle from outside their home market and have it shipped to their closest store.

And then as a follow-up, any insights you can provide near term on regional activity, particularly given some of the storms and flooding that we've been hearing in the Texas and Southern region.

Thanks.

On the first question, that number's been around 30% for quite a long time now.

But that's a big number.

We sold 600,000 cars last year which means we transferred roughly 200,000 cars at the customer's request to the store nearest them and then sold the car.

We're transferring as many cars or more than anybody else at the customer's request.

When they see a great presentation of that car through our website, with 40 high-definition pictures and zoom capability, I think we'll continue to make progress there.

But the number's been relatively flat.

But again, it's a very big number.

In terms of our regional differences, we never comment on regional differences.

The only thing I'd tell you is I continue to be very proud of our CarMax team.

Whenever we have a disaster in any area that involves large-scale loss of product, we're able to be there for the consumer when they are ready to buy something else.

And we also are a place where people can get rid of their cars.

If a car has flood damage or hail damage, we still make an offer on the car and we turn around and wholesale that car.

We won't retail one of those cars but we still are there for the consumer when they need us in markets that have some trouble.

But I can't really comment on any differences in performance.

Thanks again.

I will now turn the call back over to the speakers for closing remarks.

Okay.

Being there's no further questions, I want to thank everybody for your interest in CarMax and for joining us on the call today.

And I especially want to thank our over 22,000 CarMax associates nationwide for all you do every day to make CarMax such a success.

And we'll talk to you guys next quarter.

Thank you.

This concludes today's call.

You may now disconnect.