CarMax, Inc. (KMX) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Quarter Four Fiscal Year 2011 Conference Call. [Operator Instructions] Ms. Katharine Kenny, you may begin the conference.

Thank you. Good morning. I'm not going to talk about the weather today. I guess I'll just introduce everyone who is on the call today. I'm Katharine Kenny, obviously, Vice President of Investor Relations, and I want to thank you for joining the call. We have Tom Folliard, our President and Chief Executive Officer on the call; Tom Reedy, our Senior Vice President and CFO; and Keith Browning, our Executive Vice President, Finance. 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 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, 2010, filed with the SEC. Let me also take a moment to remind all of you that we do have an Analyst Day coming up here in Richmond on April 14, and we would love to have you join us. Now I'll turn the call over to Tom Folliard.

Thank you, Katharine. Good morning, everyone. I do have to say we almost had to cancel the call today with all the excitement in Richmond over the VCU Rams in the Final Four, so go Rams. I'm going to talk about the year and the first quarter. I'll first give you some highlights from our fiscal year and then I'll talk about the fourth quarter a little bit and turn it over to Tom for some finance highlights. We're pleased to report another record year for CarMax. We reported net earnings of $381 million, an increase of 35% over the record results achieved in the previous fiscal year. Our used unit comps increased by 10% for the year compared to a 1% increase in fiscal 2010. This was largely due to the increase in traffic, but also to an improvement in sales conversion. We estimate that we increased our share of the late-model used vehicle market by approximately 7%. We achieved an important milestone by recording over $1 billion in annual wholesale vehicle sales. And even though we restarted our growth plan this year, we still reported some modest SG&A leverage. Onto the fourth quarter. Highlights included used unit comps increased by 12%, despite facing the toughest comparison of the year. This was due to our continued growth in traffic. Total gross profit for CarMax increased by 21% and we achieved gross profit per used unit of over $2,000 for the ninth consecutive quarter, and our wholesale unit sales grew by 41%, largely due to a significant increase in our appraisal traffic, while at the same time, our appraisal buy rate remains higher than historical averages at nearly 30%. All in all, a very good quarter and an excellent year. I'll turn it over to Tom to talk about the finance side of our business.

Thanks, Tom, and good morning. CAF income for the quarter remains strong. For the year, it was higher than we originally anticipated due to the factors mentioned in this morning's press release. First, the continuing environment where the margin between APR charge to the customer and our funding cost remained high relative to historical norms. Additionally, we had better-than-anticipated loss experience, which drove reduction in our allowance for loan losses and our loss provision. Our in-house lending network continued to support sales this year. Credit availability during the quarter and all year was greater than in fiscal 2010. More than 80% of customers applying for credit received enough from CAF and/or one of our lending partners. The share of sales financed to our subprime lenders in the fourth quarter remained consistent to a year ago at 9%, reflecting the normal spike in subprime lending during tax refund season. For the full year, subprime accounted for approximately 8% of our sales versus 6% in fiscal 2010. As you know, we do not normally give guidance, and don't plan on giving guidance in the future. However, given that this will be just the second year under the new accounting rules for CarMax Auto Finance, we chose to provide a range of guidance for CAF income in fiscal 2012. Underlying our estimate of $205 million to $235 million is an assumption that during the quarter or during the course of the year, the margin between APR charge to the customer and our funding cost will compress for new originations, but not all the way back to historical levels. Also we anticipate that our provision for loan losses will be approximately 1% of managed receivables. Next month when we release our fiscal 2011 Form 10-K, we plan to begin providing some additional metrics relating to cash loan originations, which we hope you will find useful. Tom?

Thanks, Tom. I'll mention just a few other points before we go on to questions. As you know, we're continuously looking for ways to enhance the customer experience and respond to customer needs. In December, we launched our new mobile version of our website and it's off to a great start. Currently, it accounts for approximately 10% of our website visits and an even higher percentage of our leads. We'll continue to monitor customer feedback, and our Web team is already prioritizing the development of a variety of enhancements to our mobile website. We also recently launched a test of what we'll be calling CarMax EasyShop in two of our stores. This initiative offers customers more capabilities online before going into the store. Those include: They can now set up an appointment with a sales consultant. They could put a car on hold from home. They could begin to complete their paperwork. They can apply for credit and receive financing decisions. They can also initiate a transfer of any vehicle, whether it's free or paid and have it transferred to either Raleigh or Fayetteville. If it's a paid transfer, we can take their credit card information over the Internet and start the transfer process before they even get to the store. We will continue to strive to allow our customers to shop in whatever way that they choose. One other thing to note, we have seen a change in our mix of vehicles sold over the course of the year, during which time the percentage of customers that purchased an SUV or truck fell from a little over 35% to around 30% at year end. And over that same period of time, we've seen compact and mid-sized car sales grow in a similar percentage in the other direction. And while there are several reasons why this could occur, the increase in gas prices is the most obvious one. But one of the great things about our business model is we can quickly adjust our inventory to offer consumers exactly what they're looking for at any point in time. And as we've mentioned before, our margin performance is not dependent on our mix of vehicles sold. Let me also note that in today's press release, we included a list of all five stores that we plan to open in fiscal 2012, four of which will be in new markets for CarMax. And we also now believe that we'll be in a position to open between eight and 10 stores in fiscal 2013. And with that, we'll open it up for questions.

[Operator Instructions] Your first question comes from Simeon Gutman from Crédit Suisse.

Onto used car stuff, first on the top line trends. There was some speculation that the sales strength moderated during the quarter and whether or not if that's true, curious what that dynamic is if you think that pricing for nearly new vehicles is at a point now where customers are gravitating more towards new. Or was it some other variables?

We were pretty happy with the quarter at 12% comps on top of 12% the year before and more importantly, we're real happy with the year. I mean, we had 10% comps in a really tough environment. We felt really good about our performance. We grew our market share by around 7% for the year on top of a double-digit gain last year. So we don't focus as much on a couple of points in a quarter. We were really, really pleased with our performance for both the year and the quarter, and again it was our toughest comparison of the year.

And the access to desirable inventory, I mean that's still the same. And then the conversion within your store, meaning the traffic levels, I mean, any changes there?

Well, I mentioned a few -- on the, when I talked about it at the beginning, most of the fourth quarter was driven by traffic if not all of it. But during the year, we saw an improvement in conversion over the full year. So it was a lot of different factors in there. There's all kinds of movement in credit. The fourth quarter tends to have a little more volatility because of tax return season and our movement in subprime. And it just makes the comparison over a couple of points a little more difficult to really gauge. So we tend to look at it over a longer time period.

But in general, it's not like we're at some tipping point here where customers might be going more towards new because either the incentive spread is making it such that used car pricing has hit a certain point where it just makes sense?

I mean, we haven't seen -- when you look at the specific car data, we really haven't seen the spread tighten as much as you might think. Even though used car prices have been rising and kind of an unnatural depreciation or appreciation curve over the last couple of years, the spread is still what it used to be. The average new car is up around $28,000. So when you look at it on average, our average retail and the average new car price, the spread is as big as it's ever been.

Okay. And then second, in the past couple of weeks, we've heard from a couple of the new car dealers that they're adjusting their pricing strategies, anticipating some supply shortages. I think some of them said that they're trying to sell closer to MSRP, that margins are already moving up now in anticipation of that. And so granted that if that happens to the entire supply chain, your acquisition costs may keep going up, but I mean should that translate into higher margins or spreads on the used as well?

Well, we can't comment on the last couple of weeks, so we'll only talk through the end of the quarter. And in terms of the some of the behaviors you talked about, those would only help us. If people are keeping their prices up closer to MSRP, that -- back to the spread we talked about earlier, that would only kind of support the spread. And if you look at our performance over the last couple of years and very high appreciation and depreciation environments which are largely driven by supply, we've been able to maintain our margins during that time. So I don't know that. It does make it a little bit easier if the market's appreciating, and we've talked about it before a little bit of a tailwind on margins. But it's not like we'd look at this as an opportunity to really spike up our margins. We're just trying to maximize and optimize the sales and profitability of the business.

Okay. And let me just make one last -- just kind of specific on Toyota, and I know -- I heard your comments that nothing really in the mix moves the margin. But it seems like there was some margin pressure in Toyota in import last year, at least on the new side, and maybe that's starting to reverse around now. Are you seeing any changes because supply at least has been alleviated on that side a little bit where margins are starting to move up on some of the imports?

Yes, we don't talk that specifically about our margins. We've never talked about manufacturers in particular. But remember where our cars are generally three years old and so some of the pressures you hear from specific new car sales don't -- they don't go all the way down to where we sell. We haven't really seen anything in particular.

Your next question is from Sharon Zackfia with William Blair. Sharon Zackfia - William Blair & Company L.L.C.: Curious, as the appraisal traffic has been so healthy and your buy rate so much better. Could you give us an update on kind of where your sourcing is now as a percent of the retail cars that you sell coming from appraisal?

Yes. That stayed a little over 40% in the quarter, and we ended around there for the year. So a lot of our appraisal traffic, it's been a little unusual, a lot of our appraisal traffic pickup has been on wholesale vehicles. So one of the reasons you see our wholesale unit sales so far outpacing our retail sales is that piece of appraisal traffic has come back a whole lot faster than the other side. And I don't have a great explanation for you, but it's very noticeable. Sharon Zackfia - William Blair & Company L.L.C.: Okay. A separate question, just an update on where CAF's market share is now as a percent of the cars that you sell or the percent that's financed in-house?

CAF is still running about 35%, a little bit over 35% of sales. Sharon Zackfia - William Blair & Company L.L.C.: Of all the cars that you sell or the ones that are financed internally?

That's of all the cars that we sell.

Your next question is from John Murphy with Bank of America.

Just a quick question. Tom, you had a really good trend in showroom traffic for the past couple of quarters. I'm just wondering how much of that you think you is really just from the general recovery in the economy and demand and how much of that is being driven by your increased spend on advertising?

Well, I have a couple marketing people in the room and they're looking at me like it's obviously all our spend. I would guess it's probably a combination of both. When we talked about variable SG&A coming back over the last year or two, one of those pieces is obviously advertising, and we talked about moving that along with sales. When we cut our advertising back a couple years ago by 30%, 35% which was in line with our sales drop, we thought we could do that in the short term, but we're big believers that getting our name out there and building brand awareness is very important to the long-term health of the company. So we're pleased to be able to get back up in some of our spending and really drive our brand name out there, particularly in some of our lower awareness markets. But even in the high awareness markets where we've been around for 10 or 15 years, you can't keep running at a significantly lower level of advertising, at least we don't believe that. So in terms of our traffic, I would have to say it's probably a combination of both and maybe even more so a little bit of the economy coming back some.

Okay. And then the second question on financing. I just wonder if you could remind us the terms of the Santander agreement, the length of the term on that agreement to you, the subprime financing. And also just wondering if there would be an opportunity for CAF to potentially push down the credit spectrum as the ABS market seems to be pretty strong and demanding of auto ABS and there might be an opportunity for you guys to push further down in the credit spectrum in CAF?

I can comment on that. First with regard to Santander, I mean, it's a pretty much a short-term relationship. And the way it works, we allocate them a round of distribution of the loans that we originate or we used to originate and they pay us a negotiated fee. So that's pretty straightforward. As far as CAF taking on more of that business, it's really a balancing act between the economics of that business, our ability to finance and relationships with the partners. And while the market has been a lot stronger as of late, it's hard to predict what it's going to be like in six to eight months which is actually when you have to arrange the financing for the loans you're originating today. So it's obviously something we're continuously assessing. We're assessing our approach, and it's business that we like. So if it makes sense to do it, you can expect us to, but we can't really give you any guidance as to when that's going to happen or how much.

There's nothing technically to preclude you moving down the credit spectrum in your securitizations?

No. It's just a matter of getting the deals done in the cost.

Great. And just one last question. There was some scuttlebutt around the Dodd and Frank rule-making that there might be some higher risk retention needed in securitizations. Have you heard anything about that? Or have you done any work on that as potentially retaining more risk in the ABS pools?

It's something that we've been keeping track of and monitoring. But it's -- we really believe it's still too early to tell what it's going to turn out as and how much risk retention it's going to require. But obviously, we're keeping a close eye on it.

But one thing to note, John, is even if it's -- we talked about what you hear is 5% retention, and at that level regardless of how it's sliced up, it's not a deal breaker for us. It's something we can handle easily.

Your next question is from Rod Lache with Deutsche Bank.

This is Dan Galves in for Rod. I just wanted to follow up a little bit on the question about used supply. If new vehicle inventories, especially Japanese vehicles go down, we're hearing reports that new car dealers are already kind of scrambling to try to get as much used inventory as possible. How does that impact your ability to acquire enough used vehicles? And I guess what's the relationship between potential increases in acquisition price versus what you can get in the market? How do you think about that going forward?

If that's really true and there's a shortage in supply and demand stays the same, then obviously, we're going to have to pay more for those cars and so will consumers, but we've been through that in a much, much bigger scale in my opinion than what this could possibly create when the SAAR went from 16.5 million down to 10 million, and we saw -- in a three-month span, we saw our average retail went up by $2,000 in three months. And we were able to improve our inventory turns and maintain our margins. So I feel like we've been through it, and we know how to manage through it. And if there is a shortage, I feel like we're really good at finding the inventory necessary to meet the consumer demand. One other thing to note is we have a very small market share, one- to six-year old cars nationally, less than 2%. So even if there's a big rush out there, we're still not buying a number of cars that I think is at the level that would cause concern. On average, our market share one- to six-year old cars across our markets is only 5% or 6%. In our more mature markets, it's closer to 10%. But again nationally, it's only around 2%.

Okay. On CAF, one thing, the loan loss provision I think was 0.7% in fiscal 2011. You're saying it could be 1.0% in fiscal 2012. What's the reason for that going up? And also you mentioned that on the collateral spreads, you expect some compression in the new originations. On the total pool, do you think -- would you say that the collateral spread on the total pool would be up or down versus fiscal 2011?

With regard to the loan loss, I think you can -- the lion's share of it is the result of us having to adjust the loan loss provision downward last year. So if you look at FY '11 versus what we're expecting in FY '12, it's not really an increase in expected losses from where we stand today. It's really the fact that we had adjust downward in the first quarter of FY '11. With regard to that, your second question, could you repeat the...

I guess, I'm just saying like the collateral spend on the total pool, you have newer pools that have much higher spreads than the older pools. As those fall -- as the older pools fall off, combined with potential compression in the newer pools, what do you expect for the kind of the average collateral spread that you'll be booking in interest income in FY '12?

We can't give you what we expect the spread to be because we really can't tell. There's a lot of factors that go into it. As you kind of pointed out, it's portfolio where things roll off and come on to the portfolio. And the majority of the paper in that portfolio is out there in public transactions where you can kind of -- we have a lot of information between SEC filings and between our monthly reporting. It can give you information about that. And I think going forward, we're going to give you some metrics about new originations, so you'll have information about that, which you don't have and what you don't know and we don't know is how much is going to roll off, off of each of those portfolios. So we can't tell you that. We don't know what our future funding costs are going to be on the portion of loans that are not yet in a public deal. So you're going to have to make assumptions on that. And we don't really know losses, but we've given you some guidance on that for FY '12. So I can't give you guidance on what the overall portfolio is going to do, but I think you could look at what's out there and you're going to have to make some assumptions on what's going to roll off and what is it that we're putting in.

And obviously, it's baked into our guidance that we gave for the year. It's in the range there and you'll have to have -- some of that detail is we're guessing at some of it as well.

Okay. And just one other one. Can you give us an update on your expected CapEx per new store going forward?

Well, it's a little complicated. Our CapEx guidance for the year was $225 million and our average CapEx per store is in the $15 million to $25 million range, depending on the size of the store. What's really difficult is to figure out the timing of when the capital is actually spent. So we've talked before, it's about a three-year lead time from the time we decide to go to a market to the time we actually open the store, and from the time we actually commit to a piece of property, from the -- to when we pay for it and when we start construction. It's kind of all stretched out. So when you look at the $225 million we set for this year, that's not really just to build the five stores this year, it's also investments in the next couple of years as well.

Your next question comes from Scot Ciccarelli with RBC Capital.

This is Austin Pauls on for Scot. My question is on the reconditioning costs. I think you said that U.S. rate added $250 per vehicle. If I'm not mistaken, I think you'd said $200 in the past. Are you seeing additional efficiencies there?

Well, when we first started this, and I don't remember the exact time but I think it was in the fall of calendar '08. We said we thought we had about $300 of waste that we could go after in our reconditioning process. And over the last couple of years, as we've achieved those savings, we have -- and then we felt like they were sustainable going forward, we've gone ahead and announce them. At the end of last year, we said we had achieved $200 worth of savings. At that time, we were actually above that, but we wanted to make sure that the dollar amount was sustainable. So as this year has gone on, we now feel really good about the $250 and that's a cumulative savings going back to the fall of '08 that we have now achieved that and it's sustainable and it will be reflective going forward. You could almost see it in our changing margin performance over the last couple of years. And in terms of getting the full $300 that we mentioned, we really feel like the last $50 will be harder than the first $250. So that could take even longer because now you're really starting to get into very like kind of minutiae and very detailed refinements of the process to save a couple bucks here and a couple bucks there.

Your next question comes from Ryan Brinkman with Goldman Sachs.

Could you speak to the potential impact on same-store retail unit sales in 4Q, related to changes in tax refund anticipation loans year-over-year?

Well, that's a factor in every year's fourth quarter. I think the only thing that really makes much of a difference is the timing of the tax refunds, and they were a little bit different this year. But by the end of the quarter, I'd say it was about what we expected.

Okay. And then also, could you talk about the fact that wholesale ASPs increased quarter-over-quarter to a record, which is a good thing, but retail declined sequentially. Is this reflective of higher prices at wholesale and potential inability to pass on wholesale price inflation at the retail level or is this a quirk?

I didn't even actually notice that. You're talking about ASPs and not margins, so if you thought about passing on price, I would look at it more on margin than anything else, and our fourth quarter margins were fine. And then wholesale, as I said, it's outpacing our growth in sales, but our margins are also very strong.

Okay. Great. Then just last one. I appreciated your three comical Super Bowl ads in the quarter. Does this portend a shift toward more national advertising? And what is your thinking right now as to advertising expense as we head into 2011?

It does not change anything about our view of national advertising. The Super Bowl is a very unique event for us. And to do that -- to do two ads on the Super Bowl nationally cost a couple million extra dollars. To do national advertising over the course of the year is significantly more expensive. So we did it for a specific reason to get our name out there, to get some brand awareness. In terms of a steady diet, we're still not at the size where it makes sense. It's really just a mass gain for us. When we get to a point where national advertising provides leverage, then we'll do that. But at this point, it doesn't. This year, for the first time though, we will have a little bit of national advertising in radio and some parts of cable. But the savings from that will be immaterial.

Your next question is from Patrick Duff with Gilder.

Can you guys give an update on the number of sales associates and associates at year end and whether or not you feel the stores are appropriately staffed or your level of business you have at the current moment?

I don't have the exact numbers on sales consultant and total staffing. I can tell you though that you may have seen some press releases we had during the fall about hiring up. A lot of that was in the sales consultant side, as well as technicians and detailers. We made a ton of progress through the fourth quarter, and we feel pretty good about where we are right now. Sales consultant staffing is always a challenge for us. It's a full commission job. It's nights, it's weekends. It's a little bit higher turnover than some of our other positions. So for the most part, we’re where we want to be. We have a few stores that are understaffed. This is always a busy hiring time for us heading into the spring.

Your next question comes from Craig Kennison with Robert Baird. Craig Kennison - Robert W. Baird & Co. Incorporated: First question, to what extent did your consumer sourced ratio drive your gross profit per car? Did that mix change much?

It did not change much, so it didn't really have any impact in terms of like third to fourth quarter. Craig Kennison - Robert W. Baird & Co. Incorporated: In terms of your subprime mix, any changes materially there?

No.

No, subprime. Same year-over-year and -- up year-over-year, but similar quarter-over-quarter. Craig Kennison - Robert W. Baird & Co. Incorporated: What was that number, 8%?

9% in the quarter. Craig Kennison - Robert W. Baird & Co. Incorporated: And with respect to the new stores you plan to add, is there any change or tweak to your format? Or are you comfortable with the footprint you've got?

Well, we're constantly tweaking and adjusting. I think we've done a really good job over the last 10 years of being able to do more out of a smaller box. So I think we've refined our satellite store to be I think pretty efficient and, but in terms of from when we were just most recently opening stores, no, not very much at all.

Your next question is from Matt Nemer with Wells Fargo Securities.

So a quick question on the inventory. We noticed during the quarter that the inventory levels instead of -- they typically would go into the spring, it seemed like they were actually coming down in February and into March. And I was just wondering if there's anything going on there specifically, in terms of less inventory per store or more inventory productivity?

Our inventory in the quarter I think, Matt, was up a little over 20%. And our store sales were up 14%. And if you adjust for average retail, you’d probably knock about four points out of that. So I don't know what number you're referring to.

We were just looking at total cars for sale on the site from kind of January or December into February or March, it looked like it was sort of ticking down sequentially. Maybe we're not doing that the right way, but it seems like it would typically go up into the spring.

When we report our inventory, we report all inventory, everything that we own. So that includes all of our WIP inventory as well, the work-in process stuff that's not salable. So I haven't actually looked at it the way you just said. But I can just tell you from an inventory standpoint, we're about where we want to be. We've felt better about our inventory in the fourth quarter this year than we did the fourth quarter last year when we actually talked about how we were under inventoried.

Got it. Okay. And then secondly on the CAF guidance for the year, does the high end of that range -- does the entire range assume a 1% loss rate? Or is there some variation in that? And can you talk to what you're expecting in terms of spread degradation within that range?

The range incorporates potential changes in losses and spreads and everything going on in the business. So you can take that for what it is. As far as the spread compression, we've talked about this -- I don't like calling it this way, but this margin between the APR we charged the customer and our funding cost being abnormally higher, higher than historical levels for some time. As we've said last quarter, it's been in the ballpark of 7% or a little higher, the last several ABS transactions seen in the public market. It was in that ballpark of just under 7% in the deal we closed a couple weeks ago. And history has been that's in the 4.5% to 5.5% range. So one thing I want to plan here is we don't know what the new normal is. Because we're frankly in a new world after the capital markets were in disarray. But we are assuming that we're going to move south on that spread a bit less than halfway to where it used to be over the course of the year. Remember, that's on new originations only because everything else is locked down in the public market.

And then lastly, I realize it's only been a week or two, but on the EasyShop program that you're testing right now, what kind of time do you think you can save per transaction with some of those changes? How much time can you take off of a typical transaction?

Well, it is too early to read any results, but depending on the customer's needs, a significant amount of time could be taken out. I mean, a customer could now select a car. Let's say that car needed to be transferred. They could initiate the transfer from home without speaking to anybody. They could pay for that transfer with a credit card payment. They could apply for financing, get approved, fill out pretty much all of their paperwork and then set an appointment to see a sales consultant at the store. And when they -- and if there's not a trade involved, when they show up at the store, I mean, they're pretty much done if the car is there and ready. And in terms of once they get to the store, having them in and out the door, I'm sure we can do that in less than an hour. And I don't know how much time they would have spent at home on the Internet, but again, our main goal is to let the customer do whatever it is and shop however it is that they want to shop. If they want to do more from home, we want to provide them that capability. So I mean we're real excited about the components that we're allowing consumers to do from home, but the results are yet to be seen. But in terms of time savings, it could be enormous.

Your next question comes from Clint Fendley with Davenport. Clint Fendley - Davenport & Company, LLC: On your market share increase by 7% for this last year, if I'm not mistaken, I think that's a slightly slower rate than the 10% we saw last year. Any reason for the difference?

At that level, a couple of points. We don't really try to read into it too much. We've talked about market share data being a bit squishy. We went away from giving quarterly data because we weren't comfortable with its accuracy. There is no great measure out there for market share. We do have a consistent measure that we try to give every year. We have to buy DMV data, but that data can be very inaccurate, even when we compare it to our own actuals. Over the course of the year, we feel pretty good about it. Directionally, we're pretty sure it's right. The way I would think of it is we've grown our market share 10% and then 7%, one year on top of the other. And last year was actually a bit above 10%. So we have close to 20% market share gain in two years. We're pretty happy with that. Clint Fendley - Davenport & Company, LLC: Okay. Great. And then on the substantial increase that you saw in your appraisal traffic, I'm wondering did you see relatively higher levels of traffic at your standalone car buying centers?

The car buying centers are a very, very, very tiny piece of the puzzle for us. We only have five compared to 104 stores. And in terms of the volume of appraisal, they're not close to what one of our big stores does, and actually I don't even know the increase. My guess is it's about in line with the increase in the other stores but the numbers will be a lot smaller.

Your next question comes from Brian Nagel with Oppenheimer.

This is Rupesh Parikh for Brian Nagel. Did you see any of impact from the adverse weather during the quarter?

That's always a factor in the fourth quarter, and we did have some times when a bunch of our stores had to close for a number of days. We have always felt that in our business, different than let's say groceries, we get that business back. So our guess is by the end of the quarter, we got what we were going to get anyway.

And in terms of the wholesale side of the business, we saw that 41% growth this quarter. Were there any new drivers for that growth outside the higher appraisal rate and traffic or appraisal buy rate?

No, because that's where all of that volume comes from. 100% of those cars sold are bought through the appraisal lane. So that's where all the volume came from, is increase in appraisal traffic and our very strong buy rate and that delivered the volume that you saw.

Okay. And my final question is where are your current APR rates trending?

APR...

You mean actual APR of the consumer?

Yes.

I'd encourage you to take a look at the last transaction. In the public deal we just closed, the weighted average APR was just under 9%, between 8 1/2% and 9%.

Your next question is from Himanshu Patel with JPMorgan.

This is Vivek Aalok for Himanshu Patel. I had one question on the potential mix shift due to higher gas prices. Given the gas prices movement recently, have you noticed any constituent divergence between used vehicle prices of smaller cars with larger vehicles?

I'm sorry, I didn't understand the question.

Yes. So the question was given the recent movement in gas prices, did you notice any diverging movement between used vehicle prices of smaller cars versus larger cars?

When I talked about the movement in inventory -- in our mix of sales, that was more gradual over the course of the year. It didn't move that much in the fourth quarter. So I think there's a thought out there that this recent spike that has really changed behavior. And from the way it has flowed through for us, we really haven't seen it that way, but it's noticeable from the beginning of the year to now in the percentages I gave earlier where trucks and SUVs have gone from about 35% of our sales down to around 30% and mid-sized and compacts have gone from about 30% up to 35%. So we've seen that movement more gradual over the year. My personal opinion is people are starting to feel like, "Okay, I don't have to worry about gas prices going under $3 anymore," and it's kind of here to stay. We're starting to see that behavior, but in the fourth quarter, it was pretty minor.

Okay. And the second question was on collateral spread. Can you comment on your collateral spreads on recently issued loans versus the spread on the loans issued, let's say, six months earlier? And then, what's your sense on the collateral spread going forward? And what is the normalized spread if you're going to speak on that as well?

Were you referring to the spread between what we charge the customer and our funding cost in the auto finance business?

Yes.

I think we've talked about that. But in recent quarters, we've experienced that spread between those two in the neighborhood of 7% perhaps a little bit higher. In the transaction that we just closed two weeks ago in March, that spread was just under 7%. If you look back to 2005, 2006 time frame, that number ran between 4 1/2% and 5%.

Your next question comes from Bill Armstrong with CL King & Associates. William Armstrong - CL King & Associates, Inc: The Super Bowl ads, could you just tell us how much you paid for them and how effective they were? I'm not sure how you would measure their effectiveness but any way that you could measure their effectiveness in driving traffic into your stores?

Yes, we're not going to talk specifically about how much we paid for them. I mean, it was widely publicized how much an ad cost, and we have good relationships with our media outlet and I felt good about what we paid. In terms of the impact, we never did the Super Bowl ads to try to drive short-term traffic. I mentioned earlier, it's more of a brand awareness play for us. Opportunity to get our name out there, and we thought it was a good opportunity to try a national spot once where -- as I said, as a steady diet, that would be too expensive for us. So it was more to build our brand. We have a new ad agency. We're pleased with the material that we've had. I think our marketing teams have done a good job of assessing what resonates with the consumer. So I mean we're really pleased with the ads. We were happy with what we wanted to accomplish in the Super Bowl. But in terms of short-term traffic, that wasn't the reason we did it. William Armstrong - CL King & Associates, Inc: So is that something you're thinking of repeating then on an annual basis?

That's a decision -- even this year we didn't make it until the latter half of the year, and we'd probably take that same approach this year. William Armstrong - CL King & Associates, Inc: Okay. And then one other quick question. I think you said your appraisal traffic buy rate was about 30% in the fourth quarter. What was it in the year earlier quarter?

I think it was pretty close.

Might have been up slightly. William Armstrong - CL King & Associates, Inc: Up slightly?

Yes, it was up slightly versus the fourth quarter last year.

Your next question comes from Mark Mandel with ThinkEquity.

Just to follow up on the reconditioning costs, can you give us some idea on what the reconditioning costs at least pro forma are on your new stores versus your existing? I know the new stores have that flow-through model I believe.

The savings we achieved, we achieved across the board still today more than -- north of 70% of everything we recondition is reconditioned in an old format store. So we never would have achieved the savings had we not done it across the board. And then the new stores that we built, some of those are satellite stores of existing stores. Some of those are satellite stores of existing stores that are in a traditional format. So Escondido, for example, this year will be a satellite of Irvine, which is a store that works in the old format. So the savings we achieved are across the board and sustainable, and we feel great about that. The new format stores in terms of their ability going forward to achieve better efficiencies, we think that it's a better format for us. But the savings we achieved were in all of our stores.

Okay. And given the long lead times, is there anything in the real estate pipeline that you can share with us in terms of store openings, say perhaps beyond this year?

Well, this year we said five. Next year, we've said eight to 10.

I meant beyond next year.

Yes, that's as much as we're going to give right now. You can see our CapEx number. We have talked about going out and looking for land opportunities which we are continuing to do. We've always been a company that's defined by growth. We're still only in 45% of U.S. markets. We still feel great about our growth options going forward. Just we've given two years of guidance on growth going forward, and there's a lot of uncertainty still in the marketplace and that's all we're prepared to give at this time.

Okay. And then my final question. Regarding the bump in the wholesale sales which as you pointed out was driven by the increase in appraisal traffic, I mean what can you speak to in terms of what's behind that increase in the appraisal traffic?

We had gone down a little disproportionately for a couple of years actually prior to the recession. But I've also always said that we felt like the SAAR where there's more activity in the marketplace, more customers out there buying and selling cars, whether it's new or used, that we would benefit both on the appraisal side and the sales side. And the SAAR is up in high teens for the year, so I think a lot of it's driven by that. Just more activity in general in the marketplace.

Okay. So you see that as sustainable then?

Yes, unless the SAAR drops by 20%.

There are no further questions at this time.

Alright. Thank you once again. I want to thank all of all our associates for all they do every day, and we will see you next quarter. Thanks. Go VCU.

This does conclude today's conference call. You may now disconnect.