CarMax, Inc. KMX
Q3 2012 Earnings Call Transcript

Operator: John Murphy, Bank of America Merrill Lynch.

John Murphy - Bank of America Merrill Lynch: A quick question first on the pressure on the same-store sale units I'm just wondering Tom, if you have any rule of thumb for when your new car sales pickup those trade-ins become available in the market and they eventually flow into your stores in the form of sales because it seems like the pressure that we've seen from the December months and the lack of trade-ins from those depressed sales levels in the summer may actually be what's driving some of the weakness in your units now. I'm just trying to understand how that flow works and how you think about that going forward?

Tom Folliard - President and CEO: We don't necessarily have a rule of thumb and what we've always believed and still do is that directionally we'll move with SAR and if SAR continues to go up, we think that's good for our business, we think it's good for sales. The benefit you have seen from the increase in SAR is the amount of cars we're buying through our appraisal lane, which is part of the activity that goes along with new car sales and you've seen it in our wholesale numbers and you've seen it in our self sufficiency number, which is the percent of cars that we sell at retail that we bought through the appraisal lane. So again, we are not concerned for a little bit of these short-term, I would call them disconnects with SAAR because we still believe that over time, we're going to move along with SAAR.

John Murphy - Bank of America Merrill Lynch: Second question, gross profit per unit at (21.71) is holding in pretty strong. I'm just wondering if you've been running any of those (chaste) on price elasticity of demand just to see if you could maybe drop that a little bit and drive better volume, and really what the break points are as you think about those levels, as you get down to 2,000, could you get that same-store unit growth flat or maybe up a little bit? I’m just trying to understand what you guys have been seeing in the market lately on price elasticity of demand and the effect?

Tom Folliard - President and CEO: We still haven’t seen much, John. With a 107 stores now in 50 markets, it’s easier for us to run tests on a pretty continuous basis. We are pretty pleased with our ability to manage our margin consistently through all kinds of different volatility in the marketplace. Our last 12 quarters have been between 2,000 and 2,200 roughly, a pretty tight band of managing margins despite all kinds of volatility in lots of different areas. So, we're pretty pleased with our ability to do that, and we’ll always be running tests for pricing around elasticity to see if we can drive incremental sales. So, it’s always – if you ask me, if we ran at 2,000, we have sold more cars? Probably, but it’s very difficult to ascertain, and when we do run the test, it doesn’t – the elasticity is not there like it used to be.

John Murphy - Bank of America Merrill Lynch: Then just lastly, if we look at the 107 stores you have right now. If we maxed out on your store openings, you'd have 162 stores by 2016. I’m just curious as you look at the ramp-up cost and the infrastructure in your systems and your human capital or your people, I mean, do you think that you have the infrastructure in place to really support that, and there wouldn’t be big incremental sort of central costs that would come in, it'd just really be store costs to support those 162 stores?