CarMax Earnings Call Nuggets: Inflexion Point and Mix of Vehicles

CarMax, Inc. (NYSE:KMX) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Inflexion Point

Simeon Gutman – Credit Suisse: Tom, one question with maybe one or two little parts, and I’ll say all upfront. First, regarding the vehicle population, the data is pointing to an inflection point in the zero to EUR5 range. Your mix comments alluded to this to some degree, but I’m curious if you can share any anecdotes of whether you’re starting to sense or see a change in the complexion of some of the vehicles that are coming through your channel? And then the second part of that question, is the store pipeline based on the press release it looks pretty robust over the next 12 months, I think it 17 stores and so unless the back half of next year is very light might you end up doing either the high-end or a little bit more than the high-end of the range of store growth?

Tom Folliard – President and CEO: So, although that was a two part question, they were two very different questions I mean. As far as the mix is concerned, we really haven’t seen much of a change. If you look at what’s happened with new cars and supply it does feel like we’re heading towards an inflection point, but in terms of reduced – divide our inventory into two big segments zero to four and five to ten there was very little change in our mix between those two segments. As I said last quarter we saw some movement within zero to four, but not as a group. So, that was very similar this quarter. In terms of the store mix we have not changed what our plans are of 10 to 15 stores including this year we said for the next three years, so that’s this year and the following two. What you see in the next 12 months is just a reflection of timing. So it really hasn’t changed at all. It will be kind of a higher volume over the next 12 months than the 12 month periods around it. We haven’t changed our projections at all.

Mix of Vehicles

Matt Nemer – Wells Fargo Securities: So I am just wondering, if the mix to compacts and mid-size vehicles impacted the gross profit per unit? Then as a follow-up can you talk about what lead to the improved conversion? I am sure it was lots of little things but maybe just the highlights.

Tom Folliard – President and CEO: Yes. As we said before Matt, the mix of vehicles by category really doesn’t have much impact on our margins and our margins were flat and it was only a few points that moved within that segment any way. So it very little impact there. What was the second part?

Matt Nemer – Wells Fargo Securities: Just (indiscernible) factors that led to a better conversion.

Tom Folliard – President and CEO: Yes. It’s pretty much the same as we talked about last quarter. We have outstanding execution in our stores. We have some good results coming from improved training programs but also we have better consumer offers from our not only CAF but our lending partners as well. So they have a little bit more to work with. We have approvals at all-time highs, which has, not really changed from last quarter of kind of our global rate of all applications that we receive in a store. 90% of applicants are receiving an approval from at least one of those lenders. So it’s very similar to last quarter. I think just great execution in the stores, very good offers and our store teams have done a really nice job of getting inventory and getting it ready and getting it up to a very high quality standard, so our customers have a great selection.