CarMax, Inc. KMX
Q2 2012 Earnings Call Transcript

Operator: Simeon Gutman, Credit Suisse.

Simeon Gutman - Credit Suisse: Tom, reflecting on the 2% decline in the unit comp, when you strategize how to reverse that going forward, how do you separate out what's the macro or cyclical component, which it sound like most of – you're attributing most to versus what's competitive or secular?

Tom Folliard - President and CEO: It's always a challenge, just based on our experience and evaluating the variables that we've dealt with in the past, we felt like this was more external, particularly with what you've seen with consumer confidence and all the other troubles in the economy. We stayed focused on our consumer offer. We want to make sure our consumer offer is the best in the business, and we continue to invest in the things that will improve our customer offer. Our average store still sells over 330 cars a month a negative 2% comp is not a big drop for us in volume. If you look at what the average new car dealer sells, it's somewhere between 30 and 50 cars a month. So, we stay focused on what we're doing internally, we are obviously going to closely monitor what we see in the competitive environment, but we haven't seen anything that leads us to believe that we're heading down the wrong path.

Simeon Gutman - Credit Suisse: I know you don't provide a lot of, I guess, color on geography, but I guess it would help us sort of diagnose what's going on. I mean, can you help us a little on how broad-based the minus 2, or are there certain competitors in certain markets that – or macro situations?

Tom Folliard - President and CEO: Yeah, as you said, we don't do a lot on geography and we're not going to start now.

Simeon Gutman - Credit Suisse: Second, on pricing and gross profits, so used ASPs were up and I think actually they accelerated in terms of growth rate versus the Q1, but you had per vehicle gross profit declined on a year-over-year basis, and it wasn't, a fine number may have been a little bit lighter than what we were looking for. But if you look back over the past eight years this dynamic where the ASP is up year-over-year but the gross profit is down, that's only happened a handful of times, and so does that tell us something about competition whether you're doing more on discounting, should we read anything into that?

Tom Folliard - President and CEO: I wouldn't read anything into it. It's such a small change year-over-year. I mean, I have talked about this before in the $20, $30, $40 range on the product that we're selling. We can't manage at that type within $20 or $30. Although you can look at some changes year-over-year or sequentially we're still running our margins at all-time highs and we've talked about that in the past, and we've also talked about, if we could we would trade margin for sales, we still don't see that as viable in this market. But in terms of the change year-over-year, I wouldn't read into it at all.

Simeon Gutman - Credit Suisse: Just one last one for Tom Reedy. On CAF's total penetration of financed vehicles, can you say what that was, and then should we think about that, is that a sales stimulant, a stimulant or is it just shift the mix of financed vehicles within a given period?

Tom Reedy - SVP and CFO: Yeah, I think, I said the net penetration was 39, that means after three-day payoffs, we'll retain 39% of the business. So, (pre-WAC) coming out of the door, that means CAF is getting about 45% of sales, and I think the way I would characterize what we've been doing recently is going back into business that we've historically gone into that we were previously letting partners purchase from us; so, not a sales stimulant, but more of a profit play for us.