Keith D. Browning - Executive Vice President of Finance and Director Thomas J. Folliard - Chief Executive Officer, President and Director Katharine W. Kenny - Vice President of Investor Relations Thomas W. Reedy - Chief Financial Officer and Senior Vice President

Scot Ciccarelli - RBC Capital Markets, LLC, Research Division William R. Armstrong - CL King & Associates, Inc. Himanshu Patel - JP Morgan Chase & Co, Research Division Rod Lache - Deutsche Bank AG, Research Division Ryan Brinkman - Goldman Sachs Group Inc., Research Division Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division Patrick Duff John Murphy - BofA Merrill Lynch, Research Division Mark D. Mandel - ThinkEquity LLC, Research Division Simeon Gutman - Crédit Suisse AG, Research Division Efraim Levy - S&P Equity Research Jordan Hymowitz - Philadelphia Financial Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Good morning, my name is Reshira, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Fiscal Year 2012 Conference Call. [Operator Instructions] Ms. Kenny, you may begin your conference. Katharine W. Kenny: Hi, it's Katharine Kenny, thank you all for joining our fiscal second quarter 2012 earnings conference call. On the call with me today, as usual, are Tom Folliard, our President and Chief Executive Officer; 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 facts that could affect these expectations, please see the company's annual report on Form 10-K for the fiscal year ended February 28, 2011, filed with the SEC. I'll turn it over to Tom. Thomas J. Folliard: Thank you, Katharine. Good morning, everyone. Thanks for joining our second quarter conference call. Well, despite a decrease in used unit comps of 2% we reported strong financial results for the second quarter. While we were disappointed by this moderate decrease in sales, we believe it was largely due to the weak economic environment and lower consumer confidence. Factors that contributed to our results included the following: total gross profit for CarMax increased by 1.5%; gross profit per unit was relatively flat at $2,178; our wholesale business was again a strong contributor to our results; unit sales grew by 23%, largely due to a continuation of the increase in appraisal traffic that we've seen in the recent quarters; our appraisal buy rate was also at a historical high of around 30%; and wholesale gross profit per unit grew by $71 to $921 per unit. Our CarMax Auto Finance also reported a substantial increase in quarterly income. Tom Reedy will give some details in a moment. The average selling price of our used vehicles increased over 7% compared to last year's second quarter, largely due to a continued increase in wholesale prices. Our mix of vehicles sold was relatively stable for the quarter. And now I will ask Tom to share some information about CAF and our finance business. Tom? Thomas W. Reedy: Thanks, Tom. Good morning, everyone. As you saw in the release, CAF income this quarter increased $11 million or 21% compared to the second quarter of fiscal 2011. Overall, the CAF portfolio grew 9%. Net loans originated was up 27% versus Q2 of fiscal 2011 due to higher CAF penetration and an increase in average selling prices. As mentioned last quarter, we are retaining a greater portion of loans that CAF historically approved but in recent years have been purchased by third-party partners. As a result, CAF's net penetration for the quarter was approximately 39% versus 32% in Q2 last year and 34% last quarter. Obviously, we expect this approach to make more money for CarMax over time, but there is a negative on impact third-party's finance fees relative to last year. CAF's interest margin expanded to $86 million or 7.5% of the average amount of receivables versus 6.9% in Q2 last year. Interest in fee income grew by approximately $4 million as the increase in the volume of managed receivables more than offset the decline in interest income as a percent of managed receivables. Portfolio interest expense is down $9 million year-over-year, as older higher cost securitizations paid down and deals with lower interest cost become a greater portion of our financing. Second quarter interest expense also benefited because we delayed in accessing the public ABS market for funding. Consequently a higher portion of our managed portfolio was financed in warehouse facilities, which are short term and lower cost. As you may have seen, we priced our 2011-2 term securitization last week. The white interest margin environment we've been referencing before continues. Our provision for losses in the quarter was up approximately $2 million year-over-year. This is in line with our expectations given we are back to retaining a full spectrum of credits. As far as credit availability in the stores, about 85% of our customers who applied for financing received an approval from at least one of our in-house lenders. This is as high as its ever been similar the last quarter. Sub-prime penetration was consistent with last year at approximately 7%. Finally with regard to liquidity and funding, [indiscernible] has been quite busy over the past several weeks. In August we closed a 5-year, $700-million unsecured revolving credit facility which replaced the inventory secured facility set to expire in December. We also renewed the $800-million warehouse facility that expired in August, and as you may recall, our other warehouse facility which is $800 million as well, expires in February. Tom? Thomas J. Folliard: Thank you, Tom. Also during the second quarter we opened our Escondido store. this is our second store in the San Diego market, and we expect to open North Attleboro, Massachusetts and Chattanooga, Tennessee in the third and fourth quarters. In addition to the 3 stores we previously announced that will open in the first quarter of our next fiscal year, we also reported on our planned openings for the second quarter. These include 2 stores in new CarMax markets in Florida, Fort Myers and Naples, and another store in our existing Los Angeles market in Oxnard. We plan to open 8 to 10 stores in fiscal 2013 and at the end of this fiscal year, we expect to report on our plans for the future. At this time, we'll open it up for questions.

[Operator Instructions] Your first question comes from Simeon Gutman with Crédit Suisse. Simeon Gutman - Crédit Suisse AG, Research Division: 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 sounds like most of -- you're attributing most to versus what's competitive or secular? Thomas J. Folliard: You know that 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 stay 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 consumer 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're 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 - Crédit Suisse AG, Research Division: Okay, and 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, was the -- 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? Thomas J. Folliard: Yes, we're -- as you said, we don't do a lot on geography and we're not going to start now. Simeon Gutman - Crédit Suisse AG, Research Division: Okay, and then second on pricing gross profits. So used ASPs were up and I think actually they accelerated in terms of the growth rate versus the Q1, but you had a per-vehicle gross profit decline on a year-over-year basis. And it wasn't -- it was a fine number. It may have been a little bit lighter than what we were looking for, but if you look back over the past 8 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, does it -- should we read anything into that? Thomas J. Folliard: I wouldn't read anything into it. It's such a small change year-over-year. I mean, I've talked about this before and the $20, $30, $40 range on the product that we're selling, it's -- we can't manage it that tight within $20 or $30. So the -- 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 - Crédit Suisse AG, Research Division: Okay, and 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 sale stimulant? A stimulant or is it just the shift mix of financed vehicles within a given period? Thomas W. Reedy: Yes, I think I've said the net penetration was 39%, that means after 3-day payoffs we're retaining 39% of the business. So pre-that, coming out 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 in the business that we've historically gone into, that we were previously letting partners purchase from us. So not a sale stimulant but more of a profit play for us.

Your next question comes from John Murphy with Bank of America Merrill Lynch. John Murphy - BofA Merrill Lynch, Research Division: Just a couple of questions. First, I mean, as we think about the new store openings, we appreciate the 8 to 10 store guidance for next year and don't really need any detail beyond that, I know you're not going to disclose that right now, but as we look at the recent weakness in these same-store unit sales, does it have any impact on how you think about that store opening strategy going forward or do you think that this is just some short-term weakness, it doesn't harken back to what we saw in the last 3 years where you stalled the store openings? Thomas J. Folliard: Yes, I mean, if you look at our financial performance, with a negative 2% comp, we still comped our earnings over last year. When you go back to the recession when we went down 17%, down 24%, down 26%, our earnings were obviously going south in a hurry, which caused us to make different decisions. That's clearly not the case here. And comp sales are only one piece of what our business has become and we've talked about being a diversified profit stream and wholesale and CarMax Auto Finance are doing really well. And from a financial perspective, we feel very well-positioned to continue to go after the growth that's out there in front of us. So it is not -- we have not wavered one bit in terms of looking at growth looking going forward. John Murphy - BofA Merrill Lynch, Research Division: Okay, that's great. Second question, Tom, I think you kind of alluded this to this in the previous question -- questions, but is there any priceless elasticity to demand that you're seeing out there at all right now when you're doing these tests? Thomas J. Folliard: Very little. I mean still with the -- these average retails that we've seen in the -- throughout this fiscal year are all-time highs for us and the marketplace just because of the supply-demand imbalance has been driving all the price change, and when you look at our margins and you think about a movement of $100 or $200 on a $19,000-car, it really doesn't -- it really hasn't made much of a difference. John Murphy - BofA Merrill Lynch, Research Division: Okay. And then on the unit sales as we go forward, if the new vehicle sales environment improves, the Toyota and Honda get restocked, do you think if we get a SAAR that clips above 13 million units in October or November, that may help stimulate some trade-ins and really get your unit sales going in the secondary market? Thomas J. Folliard: Yes, and we can't guarantee that, but it's always been our belief that a high SAAR is good for us and it's is not just because of trade-ins, it's an indicator of consumer confidence and demand. I think if consumers are out there in bigger numbers and they're looking for a car and they're looking for a new car average price well over $20,000, a lot of them realize that they can get a great deal on a used car or get more than they thought they could get by coming over to CarMax and every time we've seen an increase in SAAR of any significance, we have benefited from it. So there's 2 pieces, just you mentioned the trade-in piece, but we think it's an indicator of demand and that will benefit as well. But we'll have to wait and see. John Murphy - BofA Merrill Lynch, Research Division: And then just lastly on CAF, the 39% penetration, can that go significantly higher? And if you, guys, could just give us a rough idea of what the collateral spread was on the last securitization. Was it above 7%, maybe between 7% and 8%. I'm just trying to gauge where that's... Thomas W. Reedy: Yes, on the collateral spread, adjusting for the stock that we've hedged, it's just below 7%. And I'm sorry, on the 39%, that's -- as we mentioned, that's about as high as we've ever been. We are buying the full spectrum of loans that we historically have bought. We are still allowing partners to purchase some of those loans that we originated in the past, so there may be a little upside in the event we elected to curtail that program fully, but things are pretty robust for CAF right now. John Murphy - BofA Merrill Lynch, Research Division: But do you think that I could get to 50% or something like that? I'm just trying to understand what the magnitude of the potential penetration increase could be. Thomas W. Reedy: Given our current approach to credit, I wouldn't imagine that. Thomas J. Folliard: We'd have to change our credit profile that we go after to get that high.

Your next question comes from Ryan Brinkman with Goldman Sachs. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: You started a slowdown in traffic and conversion trends in the press release and you attributed to the slowing macro, just now you spoke to low elasticity of demand, but I was wondering if you think that the record ASPs in the quarter could also be contributing to the comp slowdown as consumer suffer from a sort of sticker shock? Thomas J. Folliard: I mean that's one thing we've been concerned about. I've talked about our prices being higher than we would like them to be. I think right now just because of the lack of supply, it's -- used cars are at an all-time high, new cars are at an all-time high, so sure that could have been a factor. And I think that's what we talked about earlier with the external environment, consumer confidence is down and when you look at the product that we sell, it almost always requires a loan and somebody has to still go out there and be confident in their job and be confident in signing up for -- loans are 6 and 7 years long now on cars. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: Okay. And this quarter you have an even stronger wholesale ratio, the ratio of wholesale sales to retail sales, I think it was 83% this quarter. And can you speculate as to what's driving this? It really seems to have departed from the sort of 55% to 65% range we had become accustomed to seeing until recently. Is it sustainable in your view? Thomas J. Folliard: I don't know if it's a sustainable, and you're right it's been -- there's been a dramatic difference in the growth rate in wholesale and retail and it's been very difficult for us to figure out exactly why that's happening. We talked about at last quarter, I said, "My belief is I think a lot of people are just getting out of an extra car to turn them into cash." Again the growth rate has surprised us also. Last quarter we were up 30%, that was on top of a 50% growth rate in wholesale, the year prior. With a negative 2% comp this quarter, our wholesale sales obviously we're up another 23%. It's one of those things where we run a terrific wholesale business. We have a great marketing team to have an extremely high dealer of ratio at our auctions, so we get excellent price realization. And we're going to keep running that business the best we can and we are prepared to handle big comps in that business, but in terms of trying to figure out why it's happening or why there's been a disconnect it's been very difficult. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: Okay. And then you guys in the past, you've been less quick to blame the weather, right? You say that it's always a push over the longer term and that's to your credit. But I was wondering, there was a major hurricane in the quarter, it was at the end of the quarter, what kind of impact did that have on your same-store sales? Could that explain some of the slowdown? Thomas J. Folliard: Yes, we're still quick to not blame the weather. So I mean the hurricane did hit. It went pretty much right up the East Coast that's where our highest-volume stores are. Our store teams did a phenomenal job of getting our stores prepared to make sure that our assets and our employees were all protected. But in terms of how much power loss and how -- what's the length of time our stores were closed, it would -- really, it wasn't very long. Now that doesn't mean that consumers did not shop during that time because of wind and rain and just not a good time to go out and try to buy a car, but it happened at the very end of the quarter. We still have always believed that if there's any sales loss, we get it back later. We don't really look at it as terms of its impact over the quarter. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: Okay, definitely my last question then. It seems like most of the publicly traded new vehicle dealer groups they've been trying to ramp up their used sales effort over the last couple of years, but this year especially maybe as the interest bid recovery and SAAR has been pushed out. And they seem to be having a good degree of success at this. Does their increased focus on used vehicle sales impact in anyway what you do from a marketing and/or other perspective and could that explain some of the comp slowdown as well? Thomas J. Folliard: It's possible, but it doesn't impact what we do as long as we believe that our consumer offer is -- continues to be superior, and our volumes would say that that's still true. And one thing you have to remember is that the whole total of all the publicly traded new car dealers makes up less than 2% of 1- to 6-year-old used cars sold in the marketplace. So it's one measure, but it's a very, very small measure. They're not in every single market that we operate in and there's not a consistent concentration of one of the big publics in any of the markets that we're in. They're kind of spread around. So we look at it more broadly across all independent dealers and all consumers that are selling cars, and we'll talk about market share at the end of the year, but we have continued to have market share gains in this environment.

Your next question comes from Matt Nemer with Wells Fargo Securities. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Tom, could you talk to how you're thinking about advertising plans for the next few quarters given the negative comps you reported? Thomas J. Folliard: Yes, I mean, so far, at this point, we haven't -- we try to manage our advertising on a per-unit-sold basis. So if we had a much bigger comp number, we might be spending a little bit more money, but in terms of a consistent program of getting our message out there, we have no plans to change it. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: And then as a follow-up to that, any change in plans to the way you're thinking about investing in kind of new strategic opportunities. If we comp negative or if you comp negative for the next couple of quarters, does it make you rethink some of your investment plans? Thomas J. Folliard: Again, the comp is not the only variable that we have to look at, but again with a negative 2% comp and -- you have a positive earnings and strong performance in other aspects of our business, including margin per car, CarMax Auto Finance and wholesale, no, we have -- right now, we have no plans of changing our investment in our future and no plans of changing our going after growth. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Okay. And then this is more of a housekeeping question, could you talk to the impact of the reduction in third-party finance fees? Thomas J. Folliard: You mean the dollar magnitude? Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Yes. Thomas W. Reedy: Yes, the way I'd look at it is it's a very minor impact overall net to CarMax. I mean, we'd see a reduction in third-party increasing CAF in the given quarter, that doesn't quite offset it for the year. We expect it to be kind of a neutral play and obviously over the long term much more profit to CarMax. Thomas J. Folliard: Yes, so, Matt, you really got to think about it as the trade off is not -- we don't really care what the impact is on the quarter. We are making a trade-off for a much more profitable piece of business and the fact that we get it over time because of an accounting rule, doesn't impact our decision to do it. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: I guess what I'm wondering is because it's 100% gross margin and has really high flow through but did it have a material impact in the quarter that you reported? Thomas J. Folliard: No. Thomas W. Reedy: No. Thomas J. Folliard: Because [indiscernible] the switch is, Matt, the switch to CarMax Auto Finance is we don't -- we still get a portion of that income in that quarter. So you take that portion of the income and you offset what you didn't get and then the difference is immaterial. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Got it. Okay. And then lastly, any change in thinking regarding a share buyback program? Thomas J. Folliard: No, not at this time. We still believe it's in our best interest and our shareholders' long-term best interest to invest in growth. There's still a lot of uncertainty in the economy. Like a lot of other companies, if we end up with a little more cash than we have had in the past, we think that's a good position to be in right now. We do plan on going out and looking aggressively at land for our future growth and we've talked about that in the past and we're going to continue down that path.

Your next question comes from the line of Patrick Duff with Gilder.

Just kind of 2 quick ones. I don't -- I'm not going to try to get into guidance, I know that's not anything you want to talk about, but last year, there was a lot of concern in the third quarter because the gross profit per unit declined kind of roughly $100 year-over-year which had been kind of the pattern for the company over the long term, and then that deviated kind of within the '08, '09 time frame. I'm just wondering, would you, without getting into any kind of numbers, would expect the seasonal decline in the gross profit per unit in this third quarter to be more like the long-term average? Thomas J. Folliard: Yes, it's -- Pat, it's too early to tell and we're going to manage each quarter based on all the things that are happening on both external and internal, and we're going to do the best we can. So I can't give any guidance on what's going to happen from this quarter to that quarter. When you said there's a lot of concern last year, it wasn't from us.

No, I know. I'm just trying to make sure we don't have a similar experience with everything else that's going on. Listen, the only other question... Thomas J. Folliard: [indiscernible] It depends a lot what's going on in the external wholesale environment. We had some unique years in '08 and '09, and so that's one of the factors that we have to look at. We have to also look at what our current volume of sales are and lots of other variables and we're just going to do the best we can to manage it through the quarter.

Okay, the only other thing I just wanted to check, with the increase in originations, anything you can kind of share with us in terms of credit quality of the book; with the step-up, has been any change in the credit scores of the customers and your overall comfort level with the quality of the loans? Thomas W. Reedy: Yes, as we talked about last quarter, this is the spectrum of the business that we have become really comfortable with over time and CAF has been buying for several years. The reason we dialed back on it over the last couple of years has been because of the capital markets and our view on our ability to finance that business efficiently and what it would do to our overall portfolio from a finance ability perspective. So as far as the credit risk associated with it, we're completely comfortable with it. It's paper that we have been originating for a long time. We've continued to originate a portion of it during the period where we were selling pieces off to the partners so that we have experience with that pool and we're comfortable with the credit. As far as the finance ability of the portfolio, obviously we believe we can finance the portfolio in today's market with the new credit spectrum. And yes, it is lower because it's the lower end of what we used to purchase. But again it's a portfolio that the market has seen before. Thomas J. Folliard: It's the portfolio that the market is willing to buy and that's what -- that's the key is. We'll take as much as we think we can fund efficiently.

Your next question comes from Brian Nagel, Oppenheimer. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: So the first question on the used car unit comp number and, Tom, you mentioned in your prepared remarks and then in the press release that you attributed the weakness of sales to macro factors and no one's going to argue with it. We've seen a number of -- a weaker macro data points, in particular, late in the summer, but perplexing a bit is we have looked at some of the reports from you said the used car, the traditional new car dealers which are now selling more used cars and among others, we seen -- we saw a better indications of used car sales lately. Now I recognize and the market is fragmented, but what gives you the confidence that the weaker trends in CarMax are more a function of macro environment as supposed to heightened competition in the space? Thomas J. Folliard: Just our experience with running the business for a long, long time and looking at the incredibly small basis that others are reporting on. Somebody's average used car sales are 30 cars a month then it goes up 10%, that means their sales went up by 3 cars in those individual stores. And our stores have much bigger sales volumes, I mentioned average around 330. I'm not saying that, that isn't a factor. I'm saying, based on our experience in the business, we think this quarter was mostly macro-related. But we're always paying attention to the competition. We're always trying to sharpen our consumer offer and make sure that we're the #1 choice for our consumers in every single market that we operate in. We have a lot of things that we continuously look at in terms of customer satisfaction and why people are choosing us or not, and I can just tell you from all of those -- all of that data we feel very confident that our consumer offer is still superior. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: Is there anything, if you look across your chain across the country, is there anything -- was there more volatility geographically here in Q2 than in Q1 or in last year? Thomas J. Folliard: Yes, we're not going to split out geography. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: Okay, and now the follow-up question on the gross margin per used vehicle sold, it wasn't that weak but it was weaker here in Q2 than it had been. How should we think about kind of the factors behind that? Thomas J. Folliard: I wouldn't think about it at all. We think it was a really strong quarter, our margin per unit. I mean compared to last year, what was the change? Katharine W. Kenny: $27. Thomas J. Folliard: $27 is just not a -- that's not even a manageable number for us. I just wouldn't -- I wouldn't read into it at all.

Your next question comes from Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Most have been answered, but maybe on the housekeeping side, could you address your direct source mix, your buy rate and the percentage of sub-prime sales? Thomas J. Folliard: You mean percent of cars sold that we buy through the have appraisal lane? Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Yes. Thomas J. Folliard: That we've retailed? Yes, that number in the second quarter was all the way up to 50%. So that's a number that we haven't achieved in several years. I think we're in the low 40s at the end of the first quarter. So what you've seen in wholesale where we've continued to see this big increase in units sold, it also moves over to retail as well because we're buying lots of cars in the appraisal lane. Some of those are wholesale and some of those are retail, and the percentage that we're buying has continued to increase during the year. So that number is around 50%. Our sub-prime percentage for the year was 7% which is similar to last year. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Do you have a sense for what the direct source mix contributes to your gross profit dollars per car? Thomas J. Folliard: We do. It's a more profitable source for us and it can help if, by just shifting the mix, but we manage margins across the board. So if that mix went up we have to make a decision whether or not we want to just keep the margin that we get as a benefit of a shift in mix or do we want to take some of those margin dollars and lower prices on off-site purchased cars to try and drive some incremental sales. So when you see the margin relatively flat through the first quarter and you see our cars -- our sales sufficiency go up to about 50%, then there was some of that are happening in the quarter. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And lastly, can that 50% number move higher or do you think it'll be more correlated to slower trends or slower growth rates in the wholesale business? Thomas J. Folliard: If you asked me at the beginning of the year, I would have said we wouldn't have continued the wholesale growth rates that we've had. If wholesale continues to outpace the growth of retail sales at the rate that it has been going and then along with that, the cars that we appraise in the appraisal lane for retail also continue to go up, then the number will continue to go up.

Your next question comes from Scot Ciccarelli with RBC Capital Markets. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: I guess my question, Tom, is could you remind us broadly what you saw happen to your business back in 2008 when comp started to massively decelerate, and maybe compare and contrast what you're seeing today with the consumer versus what you started to see in early 2008 as that sales decline accelerated? Thomas J. Folliard: Well, the biggest difference is the sheer magnitude of the drop. Negative 2% is relatively flat for us, but I'd say one of the other biggest changes is between then and now. We're running our business a lot more profitably on a per-unit basis than we were then. Not just on margin per car, but on contributions on CarMax Auto Finance and wholesale as well. So we're a different company than we were pre-recession and the diversified profit stream that we've built over time is helpful. And when things dropped the last time, everything dropped. Finance profits dropped, wholesale profits dropped, margin per car dropped, sales dropped. What we're seeing now is a little more moderate in terms of the sales drop, obviously at a negative 2%. The second quarter of the recession was a negative 17%, but the thing that continues to give us confidence is the profitability in the other parts of our business it's -- and margin per car is more profitable than it was then. So there's a lot of differences between then and now. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: But what about the consumer impact? I mean you talked about slower traffic and lower conversions. Did you have a similar experience back then? Was it both traffic and conversions and just to a greater degree? Thomas J. Folliard: If you remember then, it was pretty much all traffic. The consumer just stopped coming to the store. That's not been the case in these last couple of quarters if you look at comp traffic. It's been pretty close. Then you could almost -- it was almost exactly the drop in sales was traffic. So when you get to the fourth quarter, we were down 26% and our traffic was down about that number and we haven't seen a traffic drop like that. Now, look, the other change here is these average resales are at their all-time highs and they haven't moved. When -- in '08 our average resales went all the way to down $16,000 by November. And we're pretty much, we're selling the same stuff. It's a little bit older now, but that same car now is $3,000 more expensive because of the supply- demand imbalance. And one other thing I want to remind everybody is there has been some questions about what other new car dealers are focusing on used cars. We have a full spectrum of used cars available and have a bigger selection of cars at the lower price range in terms of 1- to 6-year-old used cars than anybody else in the marketplace. So it's a little deceptive to look at our average resales up over $19,000 when you don't look across our 35,000 cars in inventory and look at the price selection that we provide for consumers. I still think we have the best selection of lower-priced cars of 1- to 6-year-old cars at the quality level that we sell them. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: Okay, that's very helpful. And then with Manheim data is starting to indicate at least some moderation or softening in used vehicle prices, obviously it's been a long time coming, but how quickly do you think that starts to impact your ASPs and what's the implication for the gross profit dollars per unit? Thomas J. Folliard: I think it all depends on how quickly the SAAR moves, and again what happens with the consumer. So to see depreciation to fall is nothing new. It's just we hadn't seen it for the last couple of years. In terms of its impact on margin, we'll manage it the best we can in each quarter and hopefully we can keep it pretty stable. We've been able to do that in the past with much bigger swings in both depreciation and appreciation, so I'm confident in our ability to manage through it.

Your next question comes from Rod Lache with Deutsche Bank. Rod Lache - Deutsche Bank AG, Research Division: I just wanted -- I had a couple of things here. Comps historically as you pointed out were most correlated with the new vehicles SAAR and new sales during the quarter ended August were up something like 5% for the industry, so I'm just trying to clarify exactly what you're saying about performance. I think you indicated a few times that share was more or less stable. So is this a fluke or does it say something, in your opinion, about the attractiveness of new versus used? Thomas J. Folliard: Yes, I think, our belief, is more that it's over a longer period of time. SAAR at '12-2, up 5% is a horrible SAAR. We'd like to see it $15 million, $16 million, $17 million, get back to where it was. I know nobody thinks that's going to happen anytime soon, but I'd say that in general, directionally, we believe that we'll move with SAAR. It doesn't mean that it's exactly tracked where if SAAR is up 5%, we're going to be up 5%. So I think if we saw the SAAR go from $12 million to $15 million in the next 12 to 24 months, we would expect our sales to go up during that time as well based on our performance in the past. Rod Lache - Deutsche Bank AG, Research Division: Okay. And I was hoping you might be able just to address over the next year or 2, obviously the population of 1- to 5- or 1- to 6-year-old vehicles that are available for sale is going to decline just because we had this big downturn. Can you just give us some thoughts on how that affects your business model? Does it affect the cost of preparing vehicles? Does it change the way you approach the market in anyway? Thomas J. Folliard: It does impact our business. We -- as you said, there are a lot less cars out there in the marketplace and I think that's why we've seen what we have to pay for those cars go up so much and our average retail's up so high. Now we haven't seen a big dramatic shift in the average age of cars sold, but if the SAAR stays where it is, I think it'll continue to shift in that direction. If what we sell on average is -- continues to get older and then it will. It will change -- it will affect the dollars that we spend on reconditioning because an older car with higher mileage requires more reconditioning dollars to get it up to the quality standard that we demand. So when we think about our spend and reconditioning, we mix-adjust it, so we clearly expect to spend more money on a 7-year-old car with 80,000 miles than we do on a 1-year-old car with 5,000 miles. So if our inventory was to shift, we -- I don't think -- we're not looking at it and thinking what's the big impact it would have on our business in terms of cost because we would expect those costs to go up and we manage to that number. Rod Lache - Deutsche Bank AG, Research Division: Okay, and just lastly on CAF, could you just give us some thoughts on what our objectives are for penetration rates? Or is it something that you expect to continue climbing and just a data point if you could share with us what the charge-offs were in the quarter? Thomas W. Reedy: As far as the penetration rate, as I mentioned, we're at 39% net which is as high as we have ever been and we are buying across the full spectrum of loans that we have historically bought across. That said, there's a little bit of room because we are still selling some of that CAF business to third-party lenders, but as far as deliberately increasing our penetration, we're at a level we've been comfortable with and we constantly evaluate that, and just like our mix on the inventory side and pricing, we're constantly trying to optimize based on what's going on the capital markets and what's going on with customers and we'll continue doing that going forward, but I don't see any dramatic change in the immediate future. Rod Lache - Deutsche Bank AG, Research Division: And the charge-offs? Thomas W. Reedy: We'll get you that. I don't have it in front of me.

Your next question comes from Bill Armstrong with CL King and Associates. William R. Armstrong - CL King & Associates, Inc.: So you mentioned that traffic generally softened, you have a strong increase on the appraisal traffic, so people are coming through the stores. Are you able to track on an individual transaction basis if a person sells you a car, are they also buying a car or not buying a car? Can you give us any color on that, on trends there? Thomas J. Folliard: We have tracked that, we've talked about the number in the past. In the past that's been about 1 out of roughly every 3 customers that sells us a car also buys a car from us. What's been unique in the last, I don't know, 3 or 4 quarters is the traffic of customers who are only coming to sell us their car has increased a lot faster than the traffic of customers who are either there to do both or buy a car. So we have absolutely seen -- we call internally "appraisal only" and we've seen a very big increase in the volume of appraisal-only customers. And that has delivered the wholesale comp numbers that you've seen. It's also delivered the change in percentage of cars sold that we source through the appraisal lane. William R. Armstrong - CL King & Associates, Inc.: Right, okay. Kind of looking at the negative used unit comp, do you think there is any impact from the spread between used car prices and a comparable new car narrowing and making those used cars a little less competitive in the market? Thomas J. Folliard: It's possible but we haven't seen that just from a pure statistical standpoint. If you just look at the average new car and average used car, the spread hasn't shrunk to the level where we think it would have an impact. But could it have? Yes, possibly. William R. Armstrong - CL King & Associates, Inc.: Do you think you also has any impact perhaps from shortages of Japanese cars, perhaps at the beginning of the quarter in the wake of the tsunami and earthquake? Thomas J. Folliard: Not really. I don't think that that's been much of a big factor when you consider that there's a shortage of all cars because of the SAAR being down for so many years. I think that's what's driven -- I think the impact of the shortage of Japanese cars is a fraction, a fractional impact compared to the shortage of overall new cars sold over the last several years. I mean, our -- again, our average resales have gone up $3,000 since the fall of '08.

Your next question comes from Himanshu Patel with JP Morgan. Himanshu Patel - JP Morgan Chase & Co, Research Division: Just had a couple of questions, a little bit more color on the minus 2% same-store comp. I know you don't like to talk too much about the cadence throughout the quarter, but I guess it would really be useful to know if there was any sort of cliff event in demand around the debt-filling debate and then perhaps you saw some sort of rebound and maybe that's the reason why you sound still relatively optimistic and unaltered investment plans, or what is it just a kind of continuous soft traffic pattern all throughout the entire quarter? Thomas J. Folliard: Yes, we're not going to talk about cadence through the quarter. Himanshu Patel - JP Morgan Chase & Co, Research Division: Okay, and then when you -- you mentioned subprime mix for you guys was roughly flat I think year-over-year, what about the competitive landscape, can you talk a little bit about credit underwriting standards from third-party lenders for subprime right now? Thomas W. Reedy: For subprime? Himanshu Patel - JP Morgan Chase & Co, Research Division: Yes. Thomas W. Reedy: Yes, I think it's consistent with where it has been exactly in line with what maybe a 0.2% different than last year but we're seeing consistent support from subprime lenders. Himanshu Patel - JP Morgan Chase & Co, Research Division: And then just any thoughts on kind of the direction of used car prices through now and year-end as at least a couple of months ago, there was some strong expectations that new car incentives would accelerate and therefore used car prices could come down as well. Are you guys sort of, of the same view at this stage? Thomas J. Folliard: We're not -- at this point, we don't know. We're not really sure. We -- as someone mentioned earlier, the Manheim data says that there's been some depreciation here recently, which is different than the last couple of years, but it's been so volatile, over the last few years, it doesn't do us a lot of good to try to predict what's going to happen 2 months from now.

Your next question comes from Ryan Stevens with Philadelphia Financial. Jordan Hymowitz - Philadelphia Financial: Guys, it's actually Jordan Hymowitz. Question, on your wholesale vehicle per car, is there a sense of what the new normal is? I mean the new normal obviously isn't the $300 originally in the white paper, but it's not probably $950 either. I mean, what do you think a normal level is, or is there no idea to tell anymore? Thomas J. Folliard: Yes, I don't know that there's a new normal. I said last quarter I didn't think we'd get to $1,000 and we did. So again it's one piece of the puzzle for us and it's an area that as I've said before, we would give up wholesale margin for retail sales in a second, we just haven't had the chance to do that. And with the volumes that we have right now in our appraisal lane and the buy rate that we have, we know what that tells us, just we're making fair offers for those cars. We're buying approximately 1 out of every 3 cars that we appraise. We're getting phenomenal attendance in our auctions, so we're getting great price realizations. So it's very difficult to say what normal looks like. We've also seen the average price of what we sell for a similarly aged unit go from I don't know, $3,500 to $4,000 just 2 to 3 years ago up to $5,500 now, and it's essentially the same stuff. So it's a pretty unique environment right now in terms of supply and demand, and all our indicator said that we're making very, very fair offers but then we're getting attendance and great price realization, but I have no idea what the new normal is. Jordan Hymowitz - Philadelphia Financial: And then have you looked at ADESA or Copart, ADESA's more directly. I mean their auction volumes are collapsing and every quarter it's down as much or more than the industry's and you guys are gaining a lot of share. Do you see more and more dealers coming to you or in any way to sell their cars as opposed to these individuals? Thomas J. Folliard: We don't buy any cars from dealers that run in the auction, so it's all consumers. Jordan Hymowitz - Philadelphia Financial: Okay. So maybe more and more customers are taking their cars to you guys to sell us opposed to trading them in? Thomas J. Folliard: I don't know, but maybe. But it's -- we only let dealers come to the auction but we don't buy any cars from dealers. We don't run anybody else's cars at our auction. And we are the third largest auction chain in the country now, but we're still very tiny percentage compared to a Manheim or an ADESA, and Copart is a tough comparison because they're pretty much all salvage.

Your next question comes from Mark Mandel with ThinkEquity. Mark D. Mandel - ThinkEquity LLC, Research Division: Just a follow-up, first of all, on the -- you mentioned reconditioning, Tom, can you give us some numbers in terms of the efficiencies that you're seeing. I know you've talked about this in the past. Thomas J. Folliard: Yes, we updated that at the beginning of this year and said that we probably got $250 of sustained improvement on reconditioning costs and we don't have -- we're not going to -- we don't have any reason to change that or update it now. What I was referencing is a shift in mix. If there -- we -- the number we gave you, the $250 number is -- it has to be a mix-adjusted number to be accurate and if -- I was just saying that if our inventory, because of a lack of supply, continue to get older then our reconditioning dollars would go up but it would be something that would be a planned go-up because again we expect to spend more money since we have the same quality standard for an 8-year-old car as we do for a 1-year-old car, and we would expect to spend more reconditioning dollars on an older, higher mileage car. Mark D. Mandel - ThinkEquity LLC, Research Division: So on a year-over-year basis was it pretty much awash in the second quarter in terms of what you're spending? Thomas J. Folliard: I don't know, I didn't look at just the pure dollars spent. Again, we always look it mix-adjusted. So we don't have any reason to change the number we gave at the beginning of the year. Mark D. Mandel - ThinkEquity LLC, Research Division: Okay, and then my second question on inventory, year-to-date, we've seen a relatively small increase in inventory of about $12 million. Precisely, is this a function of just the lack of supply, the prices that you have to pay, or just cautiousness on your part? Thomas J. Folliard: If you just look at our ASPs it explains half of the inventory difference for the quarter. About half of what's left is new stores that we didn't have last year. So the balance of that is minimal. Mark D. Mandel - ThinkEquity LLC, Research Division: And as far as the mix of inventory, can you give us any color as to what's in the stores right now? Thomas J. Folliard: Our mix in terms of like sport utility and compacts, remember we talked about a shift I think at the end of last year. Since then, it's been pretty relatively stable. Second -- first quarter to second quarter, we saw not much in terms of change of mix. We are seeing our inventory age a little bit more, which would be expected. But in terms of the mix of products sold, it didn't move much from first to second quarter. And -- when we see big movements in inventory mix as it relates to say sport utilities or compacts or things like that, that is generally directly correlated with a spike in gas prices and gas prices have seemed to stabilize over the next several months, so we really haven't seen much movement in mix. Mark D. Mandel - ThinkEquity LLC, Research Division: How about by brand or the cars that are in strong demand? Thomas J. Folliard: Yes, we haven't seen much change there. Mark D. Mandel - ThinkEquity LLC, Research Division: And then finally in terms of the loan loss provision, obviously it's bounced around a bit. You had a small credit in the first quarter and then I believe is a $10.8 million provision this quarter, can you give us -- share any thoughts with us in terms of what you're thinking for the rest of the year and how that might play out? Thomas W. Reedy: Well we don't, if we we're thinking anything different for the rest of the year it would be embedded in that loan loss provision in our current allowance for loan losses. I can give you some color. If you remember last quarter, we saw a pretty significant improvement in loss experienced and that improvement was driven primarily by payment experience rather than the increase in recoveries. So we're still seeing a strong wholesale recovery rate and I think the increase in, or the increase in our experience in losses is offsetting somewhat to a great extent the increase in the spectrum of credit we're buying. So we're buying further down the food chain in credit, but we're seeing losses improve and that's reflected in our number there. Mark D. Mandel - ThinkEquity LLC, Research Division: Okay, but you still had a -- it was still a noticeable increase year-over-year, $10.8 million versus $9 million, I mean is that something that we should think about for the third and fourth quarters? Thomas W. Reedy: I think it's line with our expectations. The portfolio is significantly bigger and we're buying a little bit different paper.

Your next question comes from Efraim Levy with Standard and Poor's. Efraim Levy - S&P Equity Research: I just want to know, as far as the appraisal, the traffic and the buy rate, how are we comparing now versus the pre-recession levels, I think we're still below? Thomas J. Folliard: You mean total appraisal volume? I actually don't have that handy. Efraim Levy - S&P Equity Research: Okay, and as far as with the gas prices stabled, I assumed the mix shift is probably has been also pretty stable? Thomas J. Folliard: Yes, as I just said, it hasn't really changed much from first quarter to second quarter.

And there are no further questions at this time. Thomas J. Folliard: All right, well, thanks, everyone for joining us. I want to once again thank our CarMax associates for all they do everyday. I especially want to give a special thanks out to all of those who's helped us prepare for the hurricane and get our stores ready. You did a phenomenal job. And lastly, I want to thank Keith Browning. Keith is our retiring Chief Financial Officer. This will be his last call. You didn't hear him speak today, but Keith has been an enormous contributor of the business. We wouldn't be the company we are today without his contributions. If you look at his combined tenure with Circuit City and CarMax, he had his 29th anniversary just 2 days ago. We're going to give him a little round of applause here in the room. And I just want to personally thank Keith for all he's done for me. I've learned a lot from him in the last 5 years and we wish him the best of luck in his retirement. Thank you, Keith. Keith D. Browning: Thank you. Thomas J. Folliard: All right, thanks, everyone.

This concludes today's conference call. You may now disconnect.