CarMax, Inc. Q2 2014 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

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

Question: Simeon Gutman - Credit Suisse - Analyst : Okay, appreciate it.

Question: Simeon Gutman - Credit Suisse - Analyst : Okay, and good luck growing your beard. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Matt Nemer - Wells Fargo Securities, LLC - Analyst : I'm just wondering if the mix to compacts and mid-sized vehicles impacted the gross profit per unit. And then as a follow-up, can you talk about what led to the improved conversion. I'm sure it was lots of little things but maybe just the highlights.

Question: Matt Nemer - Wells Fargo Securities, LLC - Analyst : Just factors that led to better conversion.

Question: Matt Nemer - Wells Fargo Securities, LLC - Analyst : Great, thanks so much.

Question: Brian Nagel - Oppenheimer & Co. - Analyst : Hi, good morning. Congrats on another nice quarter. The question I had was really maybe a couple parts under it but one topic. Subprime -- we see in the results today that subprime remains a contributor to your overall sales growth. The question I have with respect to subprime, one is we look at this maybe from a high level perspective. Are you managing that growth or are you just allowing the market to basically dictate it for you? And as you think about this growth, where is your mind as far as the puts and takes, maybe the benefit-risk relationship as subprime continues to become a bigger piece? And then, finally, as we've started to see interest rates rise a little bit here, is there any shift in the way your subprime providers are financing customers? Thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Brian Nagel - Oppenheimer & Co. - Analyst : Got it. Thank you. Thanks for all the color.

Question: Craig Kennison - Robert W. Baird & Company, Inc. - Analyst : Good morning. Thanks for taking my question, as well. Your SG&A per unit declined nicely, providing some very good operating leverage. What were the key factors behind that?

Question: Craig Kennison - Robert W. Baird & Company, Inc. - Analyst : Thanks.

Question: Matthew Fassler - Goldman Sachs - Analyst : Thanks a lot and good morning. My question also relates to CAF. We are seeing APR, the average APR you're offering your consumers through CAF continue to come down. Though, to your point, the decline from Q1 was relatively modest. Now that we're starting to see your financing costs firm up along with the overall cost of money, what's your feel within the market, both for your and your competitors' desire to start to lift that APR? And what are consumers' tolerance, do you think, to entertain a somewhat higher cost of money on the credit front?

Question: Matthew Fassler - Goldman Sachs - Analyst : Do you think that the market is starting to move at this point?

Question: Matthew Fassler - Goldman Sachs - Analyst : Got it. Thank you so much.

Question: Elizabeth Suzuki - BofA Merrill Lynch - Analyst : Good morning. This is Elizabeth Suzuki on for John. On store openings, what percentage of the US markets will you be ultimately able to service with your current growth plan? I think the number was somewhere around 50% a little while ago. I just wanted to get an idea of what the target is for the next couple of years.

Question: Elizabeth Suzuki - BofA Merrill Lynch - Analyst : Okay. But there's still plenty of room for growth obviously?

Question: Elizabeth Suzuki - BofA Merrill Lynch - Analyst : Excellent, thank you.

Question: James Albertine - Stifel Nicolaus - Analyst : Great, thanks and good morning. I just wanted to focus very quickly, if I could, on originations. I think last quarter you gave some good details around your online metrics and some of your app metrics. And I just noticed, looking at your SG&A in a little bit more detail, obviously advertising is down significantly year over year. Maybe they're related, maybe they're not related. But I was hoping you could walk us through that. And perhaps, just from a housekeeping standpoint, talk about the buy rate from the appraisal lane. Thanks.

Question: James Albertine - Stifel Nicolaus - Analyst : And then the update on the online front in terms of any of the metrics that you're willing to share?

Question: James Albertine - Stifel Nicolaus - Analyst : Very helpful. Thanks and good luck.

Question: Bill Armstrong - CL King & Associates - Analyst : Good morning, Tom. Your average selling price actually declined slightly year over year for the first time since I think 2009. Does that reflect mix or are we seeing some impact from lower acquisition costs? Or is it just not big enough of a decrease to even be relevant?

Question: Bill Armstrong - CL King & Associates - Analyst : The last part?

Question: Bill Armstrong - CL King & Associates - Analyst : So it sounds like your acquisition costs then are not necessarily following along with the Manheim Index, which obviously has been decreasing.

Question: Bill Armstrong - CL King & Associates - Analyst : Right. Okay great, thank you.

Question: David Whiston - Morningstar - Analyst : Good morning. Can you talk about, if you would want to own the new properties you're constructing, would you want to own them if interest rates were to rise dramatically? And what's your goal for owning your real estate in terms of a percentage over the mid term?

Question: David Whiston - Morningstar - Analyst : Are interest rates a major decision factor for your treasury department?

Question: David Whiston - Morningstar - Analyst : You said the treasury department is evaluating on each deal. So, just from your answer it just sounded like interest rates were not that high on the decision-making tree for your treasury department. I just wanted to confirm that.

Question: David Whiston - Morningstar - Analyst : Okay, that's helpful, thanks.