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

N. Richard Nelson - Stephens Inc., Research Division Scot Ciccarelli - RBC Capital Markets, LLC, Research Division William R. Armstrong - CL King & Associates, Inc. Unknown Analyst Amy L. Carroll - JP Morgan Chase & Co, Research Division Ryan Brinkman - Goldman Sachs Group Inc., Research Division Sharon Zackfia - William Blair & Company L.L.C., Research Division Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division John Murphy - BofA Merrill Lynch, Research Division Simeon Gutman - Crédit Suisse AG, Research Division James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division Jordan Hymowitz Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Good morning, my name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn today's conference over to Katharine Kenny. Ma'am, you may begin your conference. Katharine W. Kenny: Good morning. Thanks, Ashley and happy holidays to everyone. Thank you for joining our Fiscal 2012 Third Quarter Earnings Conference Call. On the call with me today are Tom Folliard, our President and Chief Executive Officer; and Tom Reedy, our Senior Vice President and CFO. 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, 2011, filed with the SEC. Tom? Thomas J. Folliard: Thank you, Katharine. Good morning, everyone, and thanks for joining us today. We're pleased again to report solid financial results despite soft used unit comps. We believe our comps continue to be a reflection of weak economic conditions and low consumer confidence. In addition, we had an extremely difficult comparison to 16% comps in last year's third quarter. But as we said last quarter, we remain focused on our long-term growth and we are excited to report this quarter on our store opening plans for the next 4 years. First, let me highlight some of the key factors that contributed to our results as compared to last year's third quarter. Total gross profit for CarMax increased by 2%, driven by growth in our retail and wholesale gross profit. Gross profit per used unit grew by 3% to $2,171. Our wholesale unit sales grew by 13% and wholesale gross profit per unit grew by $36 to $914. Our appraisal buy rate was 29%, higher than historic levels but slightly lower than last year's buy rate. CAF quarterly income grew by 12% to $62.6 million. During the quarter, our mix of vehicles changed somewhat. Sales of older vehicles 5-years plus increased to approximately 30% of sales compared with 16% a year ago and 24% in the second quarter. Meanwhile, sales of SUVs and trucks increased a few percentage points to 31%, up from 28%, while sales of smaller, more fuel-efficient vehicles decreased to 32%, down from around 35%. Our mix will clearly vary over time in reaction to market demand, again, reflecting the strength of our model and how quickly we can adjust our inventory mix to meet the needs of our customers. Now I'll ask Tom to share some information about CAF and our other lenders. Tom? Thomas W. Reedy: Thanks, Tom. Good morning, everyone. As Tom mentioned, CAF income this quarter increased $7 million or 12% compared to the third quarter fiscal 2011. CAF portfolio grew 11%. Net loans originated were up 34% compared with the third quarter fiscal '11 due to continued higher CAF penetration and the increase in average selling prices. CAF's net penetration for the quarter was approximately 38%, which is similar to last quarter and up from 29% last year. As we discussed previously, we have elected to retain a greater portion of loans that CAF had historically approved. And our good business for CarMax, but in recent had been purchased by third-party partners. The provision for loan losses grew by $6.5 million year-over-year, largely due to the fact that we originated and retained more loans with greater credit risk. CAF's interest margin expanded to $89 million, 7.4% of average managed receivables versus 6.9% in Q3 of that fiscal '11. As far as the components of interest margin, interest and fee income grew by $7.5 million as the increase in managed receivables more than offset the decline in interest income as a percent of managed receivable. And portfolio interest expense fell $7.4 million year-over-year as older higher-cost securitizations pay down and the deals with lower interest expense continue to become a greater portion of our financing. Third-party subprime penetration grew to 9% of sales compared with 8% last year. This increase in subprime loans, which our lenders buy from us at a discount, as well as CAF's decision to retain more loans, were the primary drivers between our decrease in other sales and revenues. During the quarter, access to financing for our customers continued to be as high as ever. More than 85% of customers who applied for financing in our stores received an approval from at least one of our in-house lenders. Tom? Thomas J. Folliard: Thank you. Also during the quarter, we opened up our North Attleborough store, which is our first store in Massachusetts and first in the Providence, Rhode Island market. We expect to open our Chattanooga, Tennessee store in the fourth quarter. In addition to the 6 stores we previously announced that will open in the first half of our next fiscal year, we also reported our planned openings for the third quarter. These include 3 stores in new CarMax markets; one in Des Moines, Iowa and 2 in Denver, Colorado. We plan to open 10 stores in fiscal 2013 and we are pleased to announce our future plans to open between 10 and 15 stores in each of the following 3 fiscal years. And with that, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of John Murphy with Bank of America Merrill Lynch. John Murphy - BofA Merrill Lynch, Research Division: 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 new car sales pick up, 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 summer 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. Just trying to understand how that flow works and how you think about that going forward? Thomas J. Folliard: 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 SAAR. And if SAAR 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 SAAR 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're 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 - BofA Merrill Lynch, Research Division: Okay, got you. Then second question, gross profit per unit at $2,171 is holding in pretty strong. I'm just wondering if you've been running any of those tests 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 breakpoints are as you think about those levels, if 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 impact. Thomas J. Folliard: We still haven't seen much, John. With 107 stores now in 50 markets, it's easier for us to run tests on a pretty continuous basis. We're 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 margin 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 cash 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, would we have sold more cars? Probably. But it's very difficult to ascertain and when we do run the tests, it doesn't -- the elasticity is not there like it used to be. John Murphy - BofA Merrill Lynch, Research Division: Okay. And 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 costs and the infrastructure in your systems and your human capital, 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 would just really be store cost to support those 162 stores? Thomas J. Folliard: It would probably ratable growth with all the things that go along with that. So we opened up 3 stores a year ago, 5 this year. We've said 8 to 10 next year, 10 to 15 the year after. So when you ramp up like that, not -- we don't have to do anything for 3 years out other than really look for real estate and prepare for those kind of things. We don't have to start adding overhead. We don't have to change our advertising model. So I think some of the SG&A that you'd expect to go with growth is going to come over time. John Murphy - BofA Merrill Lynch, Research Division: So quite simply, there should be some operating leverage from the incremental stores over time? Thomas J. Folliard: Well, I think leverage, if we're going to ramp at the speed that we expect to ramp, leverage is going to depend on comps. And with very low -- if we run low comps, which we, of course, hope to do better than that, then I wouldn't expect much leverage. But at the same time, I still think it's the right decision long term. If we run bigger comps, then I think we can both grow the business and get some leverage.

Our next question comes from the line of Himanshu Patel for JPMorgan. Amy L. Carroll - JP Morgan Chase & Co, Research Division: This is Amy Caroll on for Himanshu. Yes, just following on some of John's point and what you guys wrote in the press release. Of the factors you listed, how would you rank those factors in terms of their impact between the tough comps and the year over -- and I guess market conditions right now? Thomas J. Folliard: I don't know that we could really rank them. It's -- we really just talked about the tough economy as a whole and consumer confidence, so I don't know that we could rank to come up with why we ended up at negative 3. And remember we had a really tough comparison as well. Amy L. Carroll - JP Morgan Chase & Co, Research Division: I guess, what are you seeing so far in December? Thomas J. Folliard: We won't comment on anything in this quarter.

Your next question comes from the line of Matt Nemer with Wells Fargo Securities. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: So my first question is could you just talk to the implications of a lower priced mix or the mix to lower-priced vehicles on your gross profit per unit? Clearly, it didn't matter at all this quarter, and I know in the past, you said that, that doesn't necessarily mean lower dollars per unit. But could you just kind of walk through that? Thomas J. Folliard: Yes. It -- obviously it didn't matter this quarter. And in terms of our ability to get margin, if it's an older car and it's in great shape and we bring it up to our high-quality standard, which we do on all of our cars and have not lowered our standards one bit, our ability to get margin on those cars is just as strong as it is on any other segment of inventory. So where -- if the consumer wants to buy an older car, we're happy to sell it. And in terms of its impact on margin, it doesn't really have much. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Okay. And then secondly, your provision for loan losses was up a good bit from last quarter, but obviously, we didn't see any deterioration in the credit metrics. So I'm assuming that this is a function of cash expansion into -- to essentially originate more of the loans that they were sending to third parties. But could you just talk to that? Thomas W. Reedy: Yes, Matt. As we mentioned in the call, we're retaining a greater portion of the loans and greater retention of the portfolio overall. Those loans that we taken back from the third parties are at the bottom end of the credit spectrum of what we've become accustomed to approving and living with. So as we ramp up and are increasing the proportion of those loans in the portfolio, remember it's going to take a couple years to kind of normalize and get to the point where the proportion of those loans in the overall portfolio is equal to the proportion that we're originating today. You -- it wouldn't be unexpected for us to see that loss provision going up over time as we normalize there. That's assuming all else is equal, loss experience. So the greatest part of the increase in the provision is due to expansion in volume and in credit quality of what we're doing. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Okay. So but it's not really one-time true-up. I mean, it is a number that there could be some upward pressure on the provision as the mix changes over time? Thomas W. Reedy: Yes, Matt. We look at the provision every quarter and we take a forward-looking view on losses based on what we're adding to the portfolio and what experience we're having with the loans that are already in the existing portfolio. So yes. And as I mentioned, as we -- as this lower credit stuff begins to ramp up and become a greater portion of the portfolio, I wouldn't be surprised to see loan losses going up until it normalizes. Thomas J. Folliard: Right. But don't forget, Matt, that, that comes along with upward pressure on profits. To offset. Thomas W. Reedy: Yes. Obviously, we intend to price for that and collect more interest income or interest in fees as a result and make more money than we would by giving it to third parties. Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division: Yes, makes sense. And then lastly, your -- on the store growth that you announced this morning, could you just talk to the mix of production and non-production stores and then also, new and existing markets? Not just this year, but really over the next few years? Thomas J. Folliard: Yes, it's -- we're going to build whatever we need to do the production that's required for the stores that we build. And I know that sounds a little simplistic, but it's not necessarily the mix of production and non-production stores. If we went to a bigger market and found we could build one giant production store and have 3 satellites, that would be fine with us. If we needed to build because of real estate availability, if we had 2 production stores and 2 satellites, that would be fine with us too. So we're going to build whatever is necessary based on the markets that we're going in and make sure we have the right number of acreage and production to support our sales. And the mix of markets will be, as we've said before and still believe, right now about half new markets about half filling out the existing markets.

Our next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: I have a few questions. So the gross profit per car growth on the used side was, I think it's the strongest we've seen in over a year. And just I'm sure it's probably something as simplistic as inventory management, which sounds simple on my side but it's hard to do on your side. But is there anything that really went into that gross profit growth in the quarter? And then on sourcing of older cars, I know historically, it's been a little bit of a challenge to find enough cars that meet your quality standards. Is there something different you did from sourcing? Thomas J. Folliard: On the first question, the margin didn't move much from the second quarter. So are you talking here about the growth from third quarter over third quarter? Sharon Zackfia - William Blair & Company L.L.C., Research Division: Right. Thomas J. Folliard: Yes. I'd say it's just more of a reflection of where we came from. So -- and within the $50 or $60 that's -- it's a bit of -- we can't target it that closely. We're shooting for a range and we come within the range, if we're up a few bucks or down a few bucks, that's not anything to look into. And on the second question, in terms of older stuff, we've always bought a lot of this stuff through the appraisal lane and we've sold a good portion of it. So even last year, it was -- 15% of our sales were over 5 years old and the second quarter was 24% of our sales. And the answer is some of those cars come from cars that would've gone to wholesale that we just decided that either there wasn't enough demand for them but we were still buying them and making the decision to wholesale them, or the -- we weren't sure about whether or not we could recondition them up to our standards. So over the last couple of quarters, we've just moved more of those cars over and taking chances, and seen, can we get it through the shop? Can get up to our standard? And that's allowed us to source more cars through the appraisal lane. And then we've gotten better and more effective at buying those cars off-site. Just as a rule over the past several years, we just don't buy a lot of those cars off-site. And as our systems have continued to improve and as our direction we give to our buyers has continued to improve, we've done a much better job of sourcing those cars off-site as well. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. But you haven't changed your quality standards? Thomas J. Folliard: We have not. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then just one last question, I guess. As you're thinking about the store growth through 2016 or fiscal 2016, I know I think at one point you guys had a think tank on kind of the CarMax of the future. So I mean what should we look at in terms of refinements for the stores over the next several years? Thomas J. Folliard: Well, that's a little far out. My guess is that whatever we're working on, it'll be different by 2016, and I think we've been able to be fairly nimble with making adjustments to our building and what it looks like and the amount of acreage that's required to build our stores. And I expect to be a much more efficient company in 2016 than we are today. In terms of giving you the specifics of how that would shake out, I don't really know. We've talked about our next-generation store, which is going to be in Chattanooga in February, but I expect that the stores after that will also be adjusted accordingly as we learn more and more from not only that store, but all these other adjustment that we're making on our existing stores.

Our next question comes from the line of Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: I wanted to follow up on the new store format. Does the number you contemplate include any of the smaller store formats that you had talked about? Or would this be more along the lines of the traditional format? Thomas J. Folliard: We put a range out there and it's fairly flexible, but we do contemplate some smaller stores in that mix. And the exact number, we don't know yet. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: But it would be included in that 10 to 15 range? Thomas J. Folliard: Yes, yes. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then I know you don't like to comment on specific stores, but would you say the new stores themselves that you've opened this year performed at least in line with your expectations? Or have you learned anything that maybe allowed those stores to accelerate? Thomas J. Folliard: We haven't talked about the performance of our new stores yet, and they really haven't been open that long. So we'll update on that when we get a little more time behind us. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: But perhaps fair to assume that the traditional ramp that you saw should be what we would expect on these new stores that you open up? Thomas J. Folliard: We haven't changed our assumptions on the ramp. The starting point is something that is difficult to figure out when we had such a big drop during the recession. And as you saw, we're still not back to where we were before. So the starting point's a little more difficult to figure out. But in terms of store growth over time, we haven't changed our assumptions there. But what changed is our profitability per car sold, so in terms of making the same return we expected before, we can do it at a lower sales volume than we used to. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then from a modeling perspective, it's helpful to know about when you would expect to open these new stores. And I know you can't predict that, but would you say that it's fairly easy to balance the opening of stores over the course of the year such that each quarter would be about the same? Or is there seasonality to it? Thomas J. Folliard: We have enough experience with our growth from before that we try to balance it. It's just easier on the organization to have it balanced. It's easier for staffing. It's easier for planning to balance it throughout the year. So yes, it's our goal to have it as balanced as possible. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And last question, how high would you be willing to let that subprime mix go? I know you're basically happy to sell a subprime car because you offer a better deal than maybe some Buy Here Pay Here dealers, but how high do you think that metric could actually go? Thomas W. Reedy: I think you answered the question yourself. At any given -- on any given sale, we're happy to have that transaction, because the one thing we know is that customer is not going to be a CarMax customer any other way, they’ve not been approved by either CarMax Auto Finance or one of our Tier 2 lenders, so it's an incremental customer to us. That number moves seasonally. We usually see it go up during tax season. But as far as what the -- we don't have a specific target or goal for that mix, and it's something we can think about long term. But as I said, on any given day, you want to take every one you can get.

Your next question comes from the line of Brian Nagel with Oppenheimer. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: The first question I want to ask, and it's a topic we've discussed a lot over the last few quarters, but assuming that one of the bigger pressures upon your used car business has been the artificially high used car prices and to tag along some comments you made, Tom, in your prepared remarks, we have started to see the SAAR pick up now. As you look underneath your business maybe some of – what I’d consider some of the leading indicators of your business, are you starting to see that used car pricing at auction ease a bit, maybe with some of the inventory you've taken recently even through the third quarter, we may see some relief on -- at least on that pressure over the next -- into the fourth quarter and into 2012? Thomas J. Folliard: Yes, we have seen -- if you look at some of the external data, you've seen some moderation in pricing but -- and even with our move towards older cars, which are lower retail price, our average retail for the quarter was still off compared to last year's third quarter. So I think the SAAR has got a long way to go before we start to see some real movement down on pricing due to supply. We're still in a supply constrained environment. If you look at the last, I guess, it's 4 or 5 years and you compare the SAAR, the actual SAAR to what the average SAAR was for several years prior to that, there's about 20 million cars missing from the supply chain. And until we get some movement, and it's a few years’ worth, I'm not sure that we're going to see any dramatic change. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: Okay. The second question I wanted to ask is on the -- on your self -- I guess the percent self-sufficiency we saw in the quarter, the improvement there, maybe some more color on kind of what really -- what's driving that and how should we think about that, the aspect of your business going forward? Thomas J. Folliard: So for the quarter, that number was up over 60%. It might be an all-time high for the company. We hit 50% in the second quarter and that was the first time we had hit 50% since pre-recession times. So some of it is, to be honest, we sold less cars than we thought we would sell. We certainly didn't plan for a negative 3 nor did we plan for a negative 2 in the second quarter, and so self-sufficiency has helped a little bit by that. And then the movement in the SAAR does help our appraisal volume. And as we have talked about over several quarters, we've had a disconnect in our appraisal volume increase compared to the -- compared to our retail sales. Remember our wholesale volume, which is just one piece of appraisal volume, was up 23% in the second quarter, 32% in the first quarter despite sales being up in the first quarter 6 and down in the second quarter 2, and even in this quarter, up 13 compared to a negative 3. So some of it is just this unique dynamic of higher appraisal volumes than what we're getting through the -- through our higher appraisal volumes compared to what we're selling. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: So in -- how should we think about the gross margin implication of that higher self-sufficiency rate? I mean how much more profitable is a car that you buy for a trade-in versus a... Thomas J. Folliard: Well, we've always said those cars are more profitable than what we buy off-site, and they are. But what we've -- what we're pretty good at is managing margins on the different segments to try to maximize and optimize our sales. So you've seen our margin, as I mentioned earlier for the last 12 quarters at a pretty consistent band, our self-sufficiency during that time has been as low as 30 and as high as over 60. So I feel really good about our ability to manage margin. If we have a segment that's more profitable, we might use those extra dollars to reduce prices on other cars to try and optimize and maximize our sales. So margin for us is not just what you see in the reported number across. It's a pretty complex process of managing by segment, managing by source, managing by year, mileage, band and trying to figure out what's the best way to sell the most cars possible. So I wouldn't look at it and say wow, if self-sufficiency goes way up or way down, we expect to see big swings in margin per car because we have seen it go way up and way down and we've been able to deliver a margin in a pretty consistent range. Brian W. Nagel - Oppenheimer & Co. Inc., Research Division: Got it. And then just one final question. And I know as you and I have spoke over the last, really since the economic downturn, but I've always kind of – but I think the tone from CarMax has been that you were headed to really reaccelerate growth until you got some clarity in the macro environment in the internal operations. And we've seen over the last few quarters, you've suddenly accelerated your growth plans and say you come out with an announcement that’s very encouraging, kind of a longer-term growth plan, which is I think higher than most people were expecting. Should -- as we're looking at this announcement kind of read-between-the-lines, should we take that as some indication that you're incrementally favorable now upon what you're seeing in your business as well as your outlook for the macro environment for the used car business? Thomas J. Folliard: I think you should take it as, if things don't get any worse and we can continue to manage our business the way we have in terms of efficiencies and margins, then that's our growth plan. If things got worse, we would cut back. And if things got better, I feel like we put out a range that would cover that. So I wouldn't look at it as optimism or as anything other than right now, those are our plans, and if things don't change for us, we think we can deliver on those plans. We're very excited about it. But in terms of making any outlook on the economy going forward, we're not in a position to do that.

Our next question comes from the line of Ryan Brinkman with Goldman Sachs. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: On market share, I know that CNW industry used car sales are, to some extent, a guesstimate, maybe at best. But they reported that in your August quarter, industry sales rose 2% year-over-year when you fell 2%, suggesting perhaps 4 percentage points of market underperformance. In the November quarter, they're reporting that sales were up 6% versus you down 3%, suggesting now a 9-point underperformance. Could you please talk about what factors you think might be contributing to this implied same-store share loss? And to the extent perhaps that you think these factors are cyclical rather than structural in nature? Thomas J. Folliard: Well, we'll talk about market share at the end of the year, as we have said in the past. And when we look at market share we use internal data sources that we buy throughout the year in the markets that we operate in. CNW has not been as reliable a source for us to determine whether or not the market's growing or shrinking. So we don't really look at it. But at the end of year, we'll let you know how it looks from our internal data. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: Okay, great. And then I know that you've already addressed gross profit per car on the retail side in a couple of ways, but, Tom, I seem to remember you saying on the call last year that the seasonal trend in gross profit per car from August and November quarters tends to about minus $100. But you guys didn't really experience any sequential decline and so it does sort of suggest that there was something which provided upward pressure on gross profit per car during quarter. Did you maybe realize any gains on the reconditioning front or benefit from the significantly higher in-house sourcing? Was that enough to explain the outperformance of seasonal trend there? Thomas J. Folliard: You remember last year that it did go down a little bit, but the 2 years prior, it didn't go down at all. I'm -- we're not really sure what normal is anymore, because 5 years prior to that, it went down pretty much every second to third quarter. Last year, when it went down a little bit, we attributed it to a more normal depreciation schedule throughout the year. And this year has been, I'd say, somewhat normal in terms of depreciation. So there's a lot of factors that go into it, and a lot of things you mentioned are part of it, including self-sufficiency that helps margin a little bit obviously. So I just wouldn't read into it too much. It's not a big enough movement for anybody to get concerned about, at least not on our side. Ryan Brinkman - Goldman Sachs Group Inc., Research Division: Okay, then. And then just last question. Given that you must be paying, and I imagine, fewer commission dollars on retail vehicles sold there in the quarter on a year-over-year basis. Can you speak to the primary drivers the higher SG&A dollars year-over-year? Is this primarily related investments, say, to drive the store growth that you talked about earlier? Thomas J. Folliard: Yes. The SG&A in the quarter is driven by a combination of things. But as you said, although selling expenses would've been down a little bit, we did increase our commission for our sales consultants during the year, which offset the decline in sales. And in terms of the rest of SG&A, it's around building for growth and investing in our future.

Our next question comes from the line of James Albertine with Stifel, Nicolaus. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: I wanted to drill down a little bit more on the wholesale business and was hoping you could shed some light on kind of the opportunity as you see it longer term, to continue gaining share there? And then relatedly, maybe drill down a little bit or in a little more detail on the appraisal trends you saw during the quarter, whether in terms of aggregate number or conversion rates, but any sort of detail there would be helpful. Thomas J. Folliard: Yes. As we've said in the past, wholesale has outpaced retail growth and it moderated some in the quarter. It's really difficult to figure out what our share is of that. It's -- when you get into that older stuff, the market is gigantic and we're a tiny, tiny player in it. We are the third largest auction chain now in the U.S. but all of our auction volume comes in the caliber of car that doesn't meet our retail standard, and it's only cars that we source through the appraisal lane. So it's not like we're out there trying to buy those cars and then sell them in the auction. We sell whatever we get through the appraisal lane that doesn't meet our standard. I'm not sure how we could predict what that wholesale volume will look like going forward. James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then I guess relatedly, could you drill down on the appraisal trends this quarter relative to maybe last quarter on a year-over-year basis, either an aggregate number or what you're seeing on the conversion rates in general? Thomas J. Folliard: So we talked about buy rate being the 29%, and I think that was slightly off of last year, which was around 30%. And appraisal volume was up some year-over-year but not up as much as it has been in the second quarter and the first quarter of this year. So it goes right along with that number. If our -- you look at our wholesale volume of -- our wholesale increases this year, 32%, 23% and 13%. Appraisal volumes in terms of a comparison to last year moves pretty much like that.

Our next question comes from the line of Scot Ciccarelli with RBC Capital. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: Tom, do you think you guys would have better sales, used unit sales if you have more late-model inventory available? Thomas J. Folliard: As long as the customers that wanted to buy them came along with it. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: No. Well, seriously, I guess, my question is this a supply -- do you think you have a supply-driven issue in terms of sales? Thomas J. Folliard: No, I think we have a demand-driven issue. If customers came in and wanted to buy more of those cars, we would go buy more of those cars. Despite the fact that there's less of those cars available, there's still a huge number of those cars out there. We're a tiny, tiny percentage of late-model used cars in the U.S. We move our inventory along with demand. It's not like we don't sell those cars. We actually sell probably more of those cars than anybody else. And if that segment of inventory was turning faster, we would go out and buy more of those cars. But I think some people get a little wrapped up when we talk about supply constraint; it absolutely is a supply-constrained environment, but there are tons of cars out there. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: All right. So you don't think -- because you had mentioned $20 million void there, whatever the phrase there would be... Thomas J. Folliard: 20 million cars, yes. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: Yes, 20 million cars that just aren't there. So you don't think that necessarily impacts your business? Thomas J. Folliard: No, I think it does impact our business. I think that's why our sales are -- dropped by 1/4 during the recession and have yet to fully recover. But I do think it's connected. You can't really say it's just if there was more supply, I don't know that, that's going to make a consumer decide to come out and spend $20,000 per car and sign a loan for 6 or 7 years. I still think there's enough uncertainty in the economy that we're just not seeing the demand that we saw pre-recession. I mean, if we would see higher volumes in our stores, we'd see higher traffic on our website and we would respond to that. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: Okay. And do you think pricing has played a role in that demand issue? Thomas J. Folliard: I think it's hard to figure out, but it would be hard for me to imagine that it hasn't because pricing for similar cars today compared to, for example, the fall of '08, we're largely selling about the same stuff, but it has a $3,000 higher average retail than it did in the fall of '08. And I got to think that has some impact on people's decision-making. So that's just another impact on the lack of supply. Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: But I thought you said earlier you really haven't seen much elasticity, so I guess I'm trying to just reconcile the 2. Thomas J. Folliard: We haven't seen much elasticity because we don't see a lot of elasticity when we move our prices by a couple hundred bucks when you're talking about $19,000. So it's different than if... Scot Ciccarelli - RBC Capital Markets, LLC, Research Division: I got it. So it’s to drive a price point. Thomas J. Folliard: Yes, I mean, we turn about a $3,000 move in average resell and if we lower our prices by $200, I don't think -- we haven't seen that to make much of a difference.

Our next question comes from the line of Rick Nelson with Stephens. N. Richard Nelson - Stephens Inc., Research Division: I'd like to ask about collateral spreads on the last 2 securitizations. It looks kind of like the spread came down a bit with the most recent deal. Would've thought it would have gone the other direction with the decision to underwrite more lower-quality credits. Thomas W. Reedy: Well, remember a couple things. One is that actually, if you adjust for the fact that we hedge those deals, the spread between APR and our coupon on those bonds is very similar deal to deal. And APRs I think if you look at over the last 4 public deals, have hung in there at right about 9% or just a little bit under. So I don't think we'll be seeing a disconnect in this particular transaction, but it's obviously something you can keep an eye on going forward. N. Richard Nelson - Stephens Inc., Research Division: Right, got you. And the decision to underwrite these lower quality credits, how do you think that impacted profitability in the quarter? Was it accretive? Ones that you amortize over the life of the loan versus the upfront fees? Thomas W. Reedy: Right. If you look at the decision overall and what's going on throughout the year, we believe it is essentially neutral in the quarter, maybe moderately accretive. But for the year, we think it'll be a little bit accretive, nothing material. Thomas J. Folliard: But for the life of the loan, it's a no-brainer.

Our next question comes from the line of Simeon Gutman with Credit Suisse. Simeon Gutman - Crédit Suisse AG, Research Division: A couple questions on the other gross profit piece. Can you provide a little more detail, maybe parse out the -- what happened in terms of lower fees versus the service department? And then how should we think about that segment going forward? Is there some timing, if you're getting lower fees, is that going be made up in another division and is there a little timing gap that we should think about? Thomas W. Reedy: I think the way -- with regard to the shortfall in service, the way we account for service contemplates costs associated with reconditioning and some -- and fixed overhead in there, and we try to apply it on a per car basis. So when we see a shortfall in units, you're going to see a deleveraging in the service department and an impact on what we report as profit. But I mean, over time, meaning over several years, yes, we absolutely try to predict that correctly. But we're not always going right. In fact, we're rarely going to be right off the bat. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then but in the lower third-party fees, is -- that's because is the CAF penetration absorbing some of that? Thomas W. Reedy: Yes, absolutely. From the perspective of lower finance fees, it's twofold. One is that CAF is taking more volume and that reduces third-party fees. And also, as you saw, there's a step-up in subprime penetration from our third-party buyers. And if you remember, we pay them a discount on every loan. So the combination of those 2 things drove the decrease in third-party finance. Thomas J. Folliard: But in terms of that fee being offset, even though it may not be more than offset in the quarter, it's way more than offset over the life of the deal. Simeon Gutman - Crédit Suisse AG, Research Division: Right. And that's what I wanted to confirm. That makes sense. Okay. And then second on the store growth, for next year I think it originally was 8 to 10, now you're going to do 10. For the out years, what's going to be the difference in doing 10 versus 15 stores? I mean, assuming the macro is cooperative, is it just real estate? Or do you want -- is 15 the plan and depends on real estate? Thomas J. Folliard: That 10 to 15 is a range that we're comfortable with and we think covers our ability to fluctuate based on how well the economy is going. I mean, that's largely going be the driver to move within that band. Right now, in terms of real estate availability, in terms of our ability to ramp up our staffing and ramp up all the things necessary to deliver, we feel comfortable that we can deliver within that range. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then lastly on the wholesale business, and this is asked in a couple different ways. The outlook for next year for units in that wholesale world, at least in the auction lane, is not great. You're taking tremendous share. You're going be cycling some excellent growth rates next year. How do you think that plays out? You said earlier SAAR goes up. That should increase appraisal traffic some more. Do you sort of comp those very difficult numbers from a year ago and keep the gross profit rates high? Thomas J. Folliard: Yes. We don't -- we're not really giving guidance going forward, and we're just going to do the best we can with the volume that we get. But as I said earlier, I don't think our share in average car 10 years old, average miles, over 100,000. Our share is actually very, very small in that segment of what's sold annually in the U.S. And I don't know how it's measured or how it could be measured of whether or not we're taking share from other auctions since we're not trying to get dealers to bring -- we don't get any dealers to bring any cars to our auction. It's only what we buy through the appraisal lane. So the movement, I think as I said earlier, if SAAR moves considerably, we would expect our appraisal volumes to move as well.

Our next question comes from line of Jordan Hymowitz with Philadelphia Financial.

Two small things. What is your average FICO or LTV this quarter versus, say, 2 quarters ago? And what's originated in that overall portfolio? Thomas J. Folliard: Hold on, Jordan, we'll get that for you. Thomas W. Reedy: Yes, we’ve just got to dig it. Katharine W. Kenny: We're looking. Thomas J. Folliard: What's your other question?

When you just -- you gave more disclosure this quarter, or maybe I just noticed it this quarter, on the breakout of the Auto Finance income and you've always disclosed just the other direct costs related to the Auto Finance business. Do you have a sense of magnitude of the indirect costs? I mean, if I assume it's like $20 million a quarter, is that a good guess or is it very difficult to break out? Thomas J. Folliard: Yes, it's very difficult to break out and probably, there's enough detail that you might want to call us after, because I'm not really sure we can give you all of those answers right there. Katharine W. Kenny: Yes, Jordan, this is Katharine, just give me a call later today and we'll talk in more detail. We can get to the FICO. The FICO information and the LTV is also in our webdoc that we put out, the updated version on our website but we can talk that through to give you color. Thomas J. Folliard: And that's not new, Jordan. That's been in there the whole time.

No, right. I'm just wondering this quarter one, is this current quarter number out? Katharine W. Kenny: No. It will come out in January. Thomas J. Folliard: It’ll come out in January.

Could you give, if not the exact number, just the magnitude? Thomas W. Reedy: I can give you the beginning of kind of Q2 to -- Q2 last year to Q2 this year. It’s trended down slightly. It was slightly over 100 in – I mean 700 in fiscal '10, and now kind in the upper middle 600s.

And the lowest this got, if I remember, was like 640, 650. Is that about where it’s trending again? Katharine W. Kenny: It's been about 680, Jordan.

Say that again, I'm sorry? Katharine W. Kenny: Our average historically has been about 680. Thomas W. Reedy: If you look over time back in 2005, 2006 timeframe, we averaged about 675, 680 for the entire portfolio. In recent years, we've had a higher FICO because we've deliberately dialed back on the lower credit and farmed that off to some of our partners. And now we're moving back into a similar range than we've been in the past. We're not quite back there yet but...

Okay. So the loss reserves should probably reflect the same numbers that you had in the past as well then? Thomas W. Reedy: The loss reserve’s going to reflect whatever is going on in the current environment based on what we're putting into the portfolio. Our expectation in loss for that and what we originate, I mean, and what we experienced with the existing loans in the portfolio. And we have to look at that every quarter on a forward-looking basis. So I can't make any comment about what it'll look like vis-á-vis 2 years ago, 3 years ago.

And are you financing any of your auction sales at this point as well to facilitate that? Thomas J. Folliard: No. Thomas W. Reedy: No..

Our next question comes from the line of Bill Armstrong with CL King & Associates. William R. Armstrong - CL King & Associates, Inc.: Could you talk about the overall customer traffic and conversion rates during the quarter? Thomas J. Folliard: Yes. So sales were down 3, traffic was up slightly and conversion was down slightly on a gross basis. But I think we talked a little bit about this last quarter. We have had this unique dynamic of much higher appraisal-only volume and we really haven't separated that out and talked about it. But if you were to take that out, then obviously the traffic number, the customers who are there to buy traffic number would go down some and conversion would have increased a little bit. But from the way we have historically talked about it, traffic was up slightly in the quarter and conversion was down slightly. William R. Armstrong - CL King & Associates, Inc.: Got it. Is there any way to quantify the impact that the pricing may have on demand in terms of just the narrowing of the price spread between new and used? Thomas J. Folliard: It's very difficult to quantify but -- and we have not -- I know I haven't looked at this since the first quarter. But at the end of the first quarter, when we looked back to the low point of our average retail, which is what it was down around $16,000 in the fall of '08 and we looked at new car pricing at that same time, our average retails have gone up $3,000 and the average price of a new car had gone up $4,000 over that same time period. So that was just 5 or 6 months ago the last time we looked at that. So no, I couldn't give you an answer there. But the spread is still pretty high between the price of a light used car and the same new car. Particularly if the car is 3 years old, our average car is little over 3 years old, little over 35,000 miles. William R. Armstrong - CL King & Associates, Inc.: Right, okay. And then shifting gears on new store growth going forward. When we see you entering a new market, is it fair to assume that, that first store is almost always going to be a production store? Thomas J. Folliard: No. It depends on its proximity to another store. For example, North Attleborough is a satellite store and we're doing the production out of Hartford. We obviously expect to have production stores in that area, but as of now, we don't. So it depends how isolated the store is. If a store is very isolated, it almost -- like you said, it almost needs to be a production store but just because it's a new market doesn't mean it has to be a production store.

Our next question comes from the line of Armenia Khodordovsky [ph] with KeyBanc.

You guys are actively moving back into lower FICO scores in your portfolio. Is that because you're more confident about the macro environment? Or is it because you're selling older cars and you kind of can't find third-party financing out there? Thomas W. Reedy: Just to give a little history on this again. We historically have approved a range of credit through CarMax Auto Finance. And during the recession and during the financial crisis, when funding got very difficult in the ABS market, we elected to dial back a little bit on the credit we were approving and farmed that off to some of our third-party lending partners. That decision was not because we were uncomfortable with the credit risk associated with those loans. It was because -- it was purely based on our view on our ability to finance those loans efficiently. So as we've seen the ABS market recover, as we've gotten more confident in our ability to fund, it makes perfect sense for us to get back into that business that we've done all along and start taking that volume back from the partners. So it's not really a byproduct of what's coming in the door or what we're selling, just a -- rather a byproduct of what we're comfortable buying and our ability to fund it. Thomas J. Folliard: Okay. With that, thank you very much for joining us. I want to once again thank all of our associates for all they do every day and wish everybody happy holidays. We'll talk to you next quarter, thanks.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.