Tom Folliard - President, Chief Executive Officer Tom Reedy - Executive Vice President, Chief Financial Officer Katharine Kenny - Vice President, Investor Relations.

Matt Nemer – Wells Fargo Brian Nagel - Oppenheimer John Murphy - Bank of America Merrill Lynch Brett Hoselton - Keybanc Scot Ciccarelli - RBC Capital Markets Craig Kennison - Robert W.

Baird Matthew Fassler - Goldman Sachs Rod Lache - Deutsche Bank [Ravi Shankar] - Morgan Stanley Rick Nelson - Stephens Bill Armstrong - CL King & Associates David Whiston - Morningstar.

Good morning ladies and gentlemen, my name is Aaron and I’ll be your operator today. At this time, I’d like to welcome everyone to the FY15 Third Quarter Earnings call. At this time, all lines have been placed on mute to prevent any background noise. After our speakers’ remarks, we will have a question and answer session.

If you’d like to ask a question at that time, please press star then the number one on your telephone keypad. If you wish to withdraw your question, please press the pound key. I’d like to turn the call over to Ms. Katharine Kenny, Vice President of Investor Relations. Ms. Kenny, you may begin..

Thank you, Aaron, and good morning. Thank you everyone for joining our fiscal 2015 third quarter earnings conference call. As always, on the call with me today are Tom Folliard, our President and Chief Executive Officer, and Tom Reedy, our Executive 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, 2014, filed with the SEC.

Before I turn the call over to Tom, I’d like to mention that we have a few spots available for our next regular analyst day, which will take place on January 20 here in warm Richmond. If you’re interested in attending, please let us know. As always, I hope you remember to ask just one question and a follow-up before getting back in queue.

Thank you, and I’ll turn it over to Tom..

Thanks Katharine. Good morning everyone, and thank you for joining us today. As you saw, we had a great third quarter. Total revenues grew 16% to $3.4 billion, net earnings grew 22% to $130 million, and earnings per share have increased almost 28% to $0.60. Used unit comps grew by 7.4% for the quarter and total used units rose by 14%.

Gross profit per used unit increased $23 compared to last year to $2,172. Total wholesale units were up 10% and gross profit per wholesale unit was up $40 to $927. Other sales and revenue rose by over 30% partially due to an increase of $13 million in extended protection plan revenues.

This expansion reflected the growth in unit sales offset by a somewhat lower penetration rate. Also impacting October sales and revenues growth was a $2.5 million improvement in third party finance fees. CAF income grew 7% to approximately $90 million, and I’ll turn it over to Tom to give you some more details.

Tom?.

Thanks Tom. Good morning everybody. In Q3, CAF income grew 7% compared to the third quarter of fiscal 2014, and average managed receivables grew 18% to $8 billion. CAF weighted average contract rate - that’s the rate charged to customers - was flat to last year’s third quarter at 7%, and this rate has been relatively stable for the past eight quarters.

The allowance for loan losses grew to $80 million, which represents 1% of managed receivables and is consistent with last year. At 41.8%, CAF net penetration was up slightly compared to last year’s third quarter in part due to our subprime test, which was not in place last year.

Net loan dollars originated in the quarter rose 20% to $1.2 billion due to a combination of the retail unit growth, higher penetration, and an increase in the average amount financed. As you know, from time to time we test additional third party lenders and if we determine they add sufficient incremental value, we roll them out across our system.

During the quarter, we moved Allied Financial out of the testing phase to become our fifth Tier 2 lender. Finally as you probably noticed from the press release, our treasury department has been quite busy this quarter. We closed a three-year, $300 million private term loan.

We added $300 million to our unsecured revolver capacity, bringing it to a total of $1 billion, and added $200 million to CAF’s warehouse facility for a total of $2.3 billion. Now back to Tom..

Thank you. In regards to our mix, during the quarter despite the decrease in oil prices, we didn’t see a significant increase in our sales of SUVs and trucks compared to last year.

We are starting to see some growth in sales of zero to four-year-old cars, which we’ve been talking about for a while, compared to last year - they’re now about 75% of sales, but that percentage is about the same as what it was in the second quarter. SG&A for the quarter increased approximately 11% to $317 million.

This growth is primarily due to the addition of 20 stores since the beginning of the third quarter of last year. If you remember, in the second quarter we were on top of about 18 new stores. On a per-unit basis, SG&A decreased $52 to $22.43 compared to $22.95 in the third quarter of fiscal 2014.

During the third quarter, we opened four stores, two in new markets for CarMax, Tupelo, Mississippi and Reno, Nevada, and two in existing markets, Portland, Oregon and Raleigh, North Carolina. In the fourth quarter, we’ll open one more store in our new market in Cleveland, home of Katharine Kenny..

Woo-hoo!.

Store traffic was up once again in the quarter and our web traffic also continued to expand. For the third quarter compared to last year, average monthly web visits grew over 17% to nearly 14 million.

Business to our mobile site continued to represent approximately 30% of total visits while visits utilizing our mobile apps represented another 15% of the total. With that, we’d be happy to take your questions.

Operator?.

[Operator instructions] Your first question comes from the line of Matt Nemer from Wells Fargo Securities. Your line is now open..

Good morning everyone, and congrats on an outstanding quarter. First question I wanted to ask about is whether the Auto Trader and the Cars.com addition or re-launch is maybe one of the factors that’s driving your traffic, and I’d love to hear about anything else that you think is driving the traffic in the stores and on the web.

Obviously it seems like it was very strong..

The first, Matt, a little background there. If you remember last year, throughout the whole year we had decided to no longer list our cars on Cars.com and AutoTrader.com, and we had 12% comps last year, 17% share gain, and one of the better years we’ve ever had in the history of the company.

The reason we stopped the first time is because we weren’t making a good return on our investment. What we’ve started back with the two of them is just a test, and the test is to determine whether or not we can make a good return on the investment. So it was a test during the quarter.

I don’t have a lot to report, but my guess is it had very little impact. .

Okay, then just a quick follow-up. The gross profit per unit has been extremely consistent over the last couple of years, and it ticked a little bit higher.

Just wondering if you’re starting to see--if you feel like you’re getting--your ability to increase prices isn’t impacting your unit sales, and that’s kind of why that’s starting to drift, and could we see that continue? Thanks..

I view $20 as flat.

If we were $20 down, we would have viewed it as just as good and just as consistent a performance, so it’s not an exact science to manage this margin across this number of sales at this price point, so I’d view that as just relatively flat and I think it just shows that we’re getting better and more analytical each and every year and each and every quarter at managing our inventory and managing to our targeted margin.

Despite some depreciation that we saw in the third quarter, which I think was pretty apparent in some external sources, we were able to manage our margins pretty tightly once again and deliver a 7.5% comp, so I’m pretty proud of what we’ve accomplished but we continue to work on it every year, and I think we get a little better each year..

Great. Nice work, and happy holidays..

Thanks. You too, Matt..

Your next question comes from the line of Brian Nagel from Oppenheimer. Please go ahead..

Hi, good morning. Congratulations on a really nice quarter. My first question, and it may be a follow-on to Matt’s question too, but there’s been a lot of chatter amongst investors with respect to declines in used car pricing and what impact that could have on CarMax. You saw some of your competitors have troubles; you obviously did not.

Bigger picture, how are you thinking about it as you’re looking at maybe the used car market now following a more normal pricing trajectory? How is that affecting, if at all, the CarMax business model?.

You know, we’ve been at this for a while, Brian, and the fall is a time when we always see depreciation.

We’ve had some anomalies going into the recession and coming out of the recession, but in a normal year you expect some appreciation in January through the spring, and then we expect some depreciation throughout the rest of the year all the way through December.

I think we’ve proven that we can manage in all kinds of different volatile environments, and this one is not as volatile as we’ve seen in the past, so we view this as--I don’t want to say it’s business as usual, but it’s normal depreciation that we see during the third quarter if you look at a 20-year history and say what does an average year look like.

So I just think it’s something that we’re getting a little bit better at every year, just as I said to Matt on the last question..

That’s helpful. My follow-up question would be on the buyback. It wasn’t that long ago you and your board introduced a pretty significant buyback plan for CarMax, and we did see buyback activity step up somewhat here in the third quarter.

Any guidance you can give us how we should expect you to execute on that buyback as we going into 2015 and beyond?.

You know, Brian, I think the announcement that you saw from management and from our board was really just an authorization and a further commitment to delivering capital back to shareholders with a rather lengthy expiration date on it, so that it gave us the flexibility to continue to run the program that we’ve been running.

We could go a little more aggressively if we wanted, but it’s just what it says - it’s an authorization, it has a two-year limit on it, but I think it’s a nice show of confidence from our board in our ability over the next few years to continue to run a good business and put ourselves in a position to keep delivering capital back to shareholders through the buyback.

.

Got it. Thanks and congrats again..

Your next question comes from the line of John Murphy from Bank of America Merrill Lynch. Please go ahead..

Good morning, guys. A follow-up question on used car pricing, or to Brian’s question there. Tom, there’s a lot of concern that used car pricing might fade, yet all the data from you and the public dealers is actually positive on transaction prices.

Is there the potential here that we’re seeing some supply increase but demand actually increasing faster than that supply is increasing, and we might be in an environment where pricing stays relatively stable even as supply is increasing, which is really kind of a Goldilocks scenario for your business?.

You know, that’s impossible to tell. Our average retail was actually down in the quarter compared to the second quarter of this year by $300, so I think that reflects a little bit of depreciation. As I’ve said before, we don’t spend a lot of time trying to figure out what’s going to happen a year from now.

It’s pretty irrelevant to us running our business day-to-day, and we turn our inventory quick enough that I think we’re able to respond to whatever volatility the market has to offer. But I do think we’ve seen some improvements in the economy. We saw a nice tick-up in the SAR.

We’ve always said whenever we see new car sales in the up-tick, that that shows that people are willing to get out there and buy a car and sign up for a loan, and I think that’s good for us, it’s good for the consumer overall in terms of their activity. But it’s really difficult to predict what’s going to happen in the future..

Okay, and then just sort of a follow-up question here on SG&A.

Typically we think there’s leverage in the model at about a 7.5% positive same store sales comp, but as the store base gets larger, is it possible that that comes down over time and might get closer to 5%? I’m just trying to understand how you think about leverage on SG&A as the store base gets larger..

Yeah, that’s possible. We’ve never given a precise number because we’re not sure what that number is. You never know what kind of incremental investments you might make at any given point in time.

This is the most stores, the most new stores, so stores that are the most SG&A inefficient, that we’ve ever carried, which is 20 during the third quarter, and we were still able to leverage by $50 on a per-unit basis our total SG&A with the 7.5% comp.

So there’s a combination of factors that are going to allow us to either leverage or not, so it happened to work out this quarter. I couldn’t give you an exact number, but it does make sense logically that unless we dramatically accelerated our growth rate, that we’d be able to leverage a little bit better as the base gets bigger..

Thanks a lot. Great execution..

Your next question comes from the line of Brett Hoselton from Keybanc. Your line is now open..

Good morning.

I was hoping you could talk a little bit about CAF profitability, specifically how do we think about a rising interest rate environment negatively impacting CAF profitability? How do you think about your cost of funds, what might be the best representative rate that you use or something like that, and is there any way that you can kind of say look, if we saw 100 basis point increase in that cost of funds, that would represent some sort of a dollar amount headwind to that $90 million that you made in the third quarter? How can we kind of quantify that?.

Well first off, I’ve got to remind everybody, we’re going to run a market business and kind of our APRs are going to be driven by competition and our cost of funds are going to be driven by what we can achieve in the marketplace.

As far as what to look at for cost of funds, you can look at our securitization deals and the benchmarks in those, and that gives you kind of a good estimate of where we’re locking down long-term financing. As far as profitability, we believe over time we can manage to a reasonable profit, at least to a market profit.

In fact, if you look back at 2007, early 2008 to our securitization that we did back then, we were running at a very similar spread between APR and cost of funds then as we are today, and interest rates were 400 to 500 basis points higher than they are today.

So we don’t believe a higher interest rate market precludes a finance company from making the kind of returns that we’ve been making recently; however, as you migrate towards higher interest rates, APRs are typically sticky upward and downward, and there might be a little bit of lag time for the market to adjust to rates rising, so you might see some compression in that as things are moving.

We’ve benefited from that when rates have fallen, we’ve felt the pressure as rates are rising; but overall, I think we can manage a market rate of return on the business..

Okay. And then I apologize, Katharine, I’m just getting a lot of questions about rising used vehicle--or excuse me, declining used vehicle growth or used vehicle prices.

Obviously they haven’t declined recently, but the general expectation is that used vehicle prices are going to decline, so getting a lot of questions from investors as to is that a net positive or a net negative for your firm? I think that we believe that it’s a net position for you, but can you explain why you see that as a net positive, because I think you believe that as well..

You know, I’ve kind of answered that a couple of times, which is whatever the market delivers, we’ve done a pretty decent job of navigating through it.

I’m always a believer lower prices are better for the consumer, and we turn our inventory quick enough that we can manage margins in a declining environment, but I’m also not a believer we’re going to see this giant decline in car prices because there’s some tidal wave of supply coming our way. I think things tend to find a way to equal out..

Fair enough. Thank you very much..

Your next question comes from the line of Scot Ciccarelli from RBC Capital Markets. Please go ahead..

Good morning guys. I was looking for clarification real quick.

Did you say Allied was added to the Tier 2 or Tier 3?.

Tier 2, Scot. .

Okay. Obviously subprime bounced back--subprime penetration bounced back sequentially from what we saw last quarter.

Can you help us understand a little bit more about that, because obviously we had seen some deterioration in that trend over the prior last few quarters, and is that just a function of guys like Santander becoming more aggressive? Was there any other changes that might have happened on the subprime side, just to help us think about what happens in the future?.

You know, I can’t really speak to if there’s been any changes. What I can speak to is we have seen over the past several months relatively stable behavior from our subprime lenders.

We saw the big correction last year as they adjusted their behavior, but if we look at conversion of customers that were given acceptances, I think it would be fair to say that the behaviors have been relatively consistent over the last several months.

As to where that goes going forward, we want them to run a good and sustainable business, and we’re going to encourage them to do that, and things will shake out the way they do. There’s really nothing beyond that I can really say about the bounce back, other than we feel like we’ve been in a pretty stable place for the last several months..

Hey, it’s only a point and a half or two in terms of percent of sales, so it’s not--it wasn’t anything significant, Scot..

Right, no I understand. One thing that I think had been mentioned previously is there’s been a blending of some of the, let’s call it top tier subprime customers where some of the Tier 2 lenders have kind of moved into that portion of the customer base.

Any feel for what the impact is or any way to kind of size the impact of Tier 2 getting a little bit more aggressive on the down side?.

I think the easiest way to look at it--the way we look at it is we’re moving customers from a bucket where we’re paying a discount to our lenders to one where we’re receiving a premium from them, so there’s a significant shift in profitability.

Just like the Tier 3 lenders, we’re encouraging the Tier 2 lenders to run a business that’s sustainable for them over a long time.

I think we’ve seen their credit appetite increase over the last several quarters - that’s been a good thing for us, and the reason we manage a large stable of lenders there is so that we can get the best offers for CarMax customers on an ongoing basis..

But Scot, it’s also difficult to quantify very specifically because of the way we run our credit. We run a waterfall of credit. It goes from one tier of lenders down to the next, down to the next. If it gets picked up in the middle, then the bottom tier never see the application in the first place.

So it’s not as easy as it sounds to say, oh, we got half a point or a point and a half from this or that; but to Tom’s point, anything that gets picked up on the way down is a positive, and we have a bunch of lending partners and we’re grateful for all the relationships that we’ve built over the years, but they all run their own models and we hope they run them profitably and they can stay with us for a long time..

All right, got it. Thanks a lot, guys..

Your next question comes from the line of Craig Kennison from Baird. Please go ahead..

Good morning. Thank you for taking my question as well. Tom, you mentioned the drop in oil, and that seems like good news for most of your customers, but I also imagine it signals some tougher times in oil-based economies. Just wondering if you’ve seen that dynamic play out at all in some of those markets..

Not that I know of.

The way I look at that is you remember that the CarMax customer is the average American consumer, and the average American consumer has a little more spending money at this gas rate than they had before, so I think that’s a positive for people’s outlook, for their budget, for their wallet, for their consideration when they’re looking to sign up for a loan for a few years.

I think on the new car side, you saw it really impact the mix, and although we haven’t seen it impact the mix as much, we were probably already a little more heavily skewed to SUVs and things like that in the first place.

So we haven’t really seen an impact on mix much, but I think the American consumer having a little more money to spend is a good thing..

And is CAF or are your lending partners at all looking at markets like Texas or other oil-based markets and saying, you know what? We’ve got to score that customer differently because their incomes may actually change?.

We haven’t had any discussions with them along that front. Like Tom and I said, we’re going to encourage them to run a business that makes sense for them, and we’re going to do the same; and if we have something to talk about on that front, then we will..

There’s volatility in gas prices. I’m not sure if you’re a lender, you want to assume that this is where gas prices are going to stay for the next five years..

Got it. Thanks a lot..

Your next question comes from the line of Matthew Fassler from Goldman Sachs. Please go ahead..

Thanks a lot, and good morning. I’ve got one follow-up to someone else’s question and then one of my own.

On the subprime piece, can you talk about whether the mix of your Tier 3 providers has changed meaningfully over the course of the past year, and whether that might have contributed at all to the moderate decline in subprime penetration?.

No Matt, the mix has been very consistent over the past year. The only change has been that, as you know, CarMax is running a test and took a little bit of that volume starting this year, a very small part of the volume, and we are not behaving any differently or more aggressively than our partners..

Got it, and then secondly, your wholesale profitability, while it was not off the charts, it was very good and showed a bit of a pick-up year-on-year in the rate of growth in wholesale margins.

Any comments on what’s driving your ability to continue to extract more in terms of gross profit per vehicle through your auction process?.

Similar to what I said on the retail side, Matt, it’s $40 up, down, pretty close. It’s just good management. As you know how we run our auctions, the car sells to the top bidder, and we adjust our prices weekly as we sell through our auction.

We’ve had great execution in our stores, we’ve had great attendance from our dealers who come to our auction and support our pricing each and every week, and I think we just continue to do a good job running our auctions.

But as I said before, if we get pretty close on the margin, we consider that to be good, so it was slightly up but that’s essentially flat for us..

Understood. Thanks so much..

Your next question comes from the line of Rod Lache from Deutsche Bank. Please go ahead..

Thanks. Good morning everybody. On that improvement in conversion that you mentioned in your release, is that a function of the types of customers that you’re seeing coming through the door, lender behavior, or is it something else? I would imagine that if trade-in volumes moderated a little bit, that would not have necessarily helped..

No, you know, conversion for us is really a team effort. It’s a combination of buying the right cars, having the right inventory at the right store at the right time, doing a great job reconditioning, having high quality cars.

We’ve done a lot of training with our sales force to be able to execute and help customers overcome objections, whether it’s on the trade-in or their financing or what car they want to buy. Financing is obviously access to financing, and the rate that they receive is another piece of conversion.

The search engine we have on our website, I just think over time we expect to be able to continue to improve conversion, but it’s very difficult to point to one specific area. But as it relates directly to finance, we didn’t have anything significant change in the quarter to contribute to that.

As we said in the press release, our comps were driven partly by an increase in traffic and partly by an increase in conversion, and that’s what I would expect over time for us, is to be able to improve both of those marginally over time..

Okay, and just really quickly, I was wondering if you had any other follow-up comments on the CAF test in subprime.

What are some of the takeaways and adjustments you’re making, and what is sort of the trajectory we should be expecting from here?.

Yeah, it’s still a bit early. We’re seeing the first vintages that we originated kind of across a six-month time frame, and we really need to go through a full tax season, a full cycle with this product before we can make any conclusions.

So what I can say is that we have not seen anything negative and unexpected that would lead us to dial back or not continue to test. Like I said, we’d like to get through tax season and continue through the test that we have, and figure out where we go from there at the end of the year.

We’ll probably have something to say about where we’re going because we’re likely to use up that initial $70 million during the quarter..

Great, thank you. Congratulations..

Your next question comes from the line of Ravi Shankar from Morgan Stanley. Please go ahead..

Good morning everyone. This is [indiscernible] in for Ravi. Just to follow up on the subprime pilot program, you initially set out to do $70 million through the end of last quarter.

If you can provide some color as to what prevented you from deploying the entire $70 million?.

I think we’ve said we were going to run a test for $70 million. I don’t think we gave any guidance on how long it would take. We’ve been doing a bit of it every quarter and we’re continuing to test it as we go; and as I said, next quarter I think we can give you some more visibility to where we’ll go from beyond that initial 70 test..

Thanks for the clarification. Then on competition, you’re planning to expand your presence in the Denver market with, I think, a couple more stores in addition to a couple already there. Sonic recently launched their EchoPark stores in that market and are looking to add more stores as well.

Wanted to get your thoughts on what the initial share and pricing response has been like, and where do you see it going?.

We really don’t have anything to report there. They’ve been open for a very short window of time. We’ve been open for a couple of years with two stores. Denver has always been a very attractive market for us. We’ve owned real estate there for a number of years.

We have a couple more stores coming in the next 12 to 18 months, but they were coming anyway, and then we have an additional store down in Colorado Springs. But their store has been open for only a month or two, so nothing to report at this time..

Thanks so much..

Again if you’d like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Rick Nelson from Stephens. Please go ahead..

Thanks, good morning. I’d like to ask about the other segment revenues. The growth in extended protection plan revenue really accelerated this quarter. If you could comment there, that’d be helpful..

If you remember, last year we had a significant adjustment in the extended protection plan reserve, and so the reason you see a significant increase this year year-over-year is really because last year was impaired a bit.

If you back out that adjustment, it’s more like a 9% increase in those other revenues, and that comes from a combination of the extended protection plans, an improvement in the mix between subprime and non-prime, which means we have less discount that we pay to the subprime providers, and kind of relatively flat service income.

But the reason that’s such a big step-up was because last year was down..

Thank you for that. Also, you opened 13 stores last year, 10 the year before. Any color on as to how those stores are coming into the comps and how big a driver they are to the nice comp you reported this quarter? That’d be helpful..

Well, it’s awfully early in their life, but if you look at the size of the base, one year’s worth of openings impact on comps, the first year that those stores become comp stores is very, very little. But obviously over time, they’ll add to the total sales.

You look at our total increase of 14% - half of that is coming from new stores and half of that is coming from the existing stores with the 7% comp. But we’re on a pretty steady opening pace. You mentioned we opened 10 the year prior, 13 last year.

We’ll get another 13 open this year and we’re still on that 10 to 15 store pace for the next couple of years, and lots of great places for us to go build stores, lots of markets that we’re going back in and adding new stores. .

Thanks a lot, and good luck..

Your next question comes from the line of Bill Armstrong from CL King & Associates. Please go ahead..

Good morning. The only question I have left is on the EPP penetration rate. It was lower a little bit. I was wondering if you could expand on that, and maybe I don’t know if you would disclose what the actual penetration rates are this year versus last year and why they are down..

Yeah, it is down a couple points. It’s not down significantly.

As we discussed early in the year with the change in the reserve, we were going to make some changes to pricing to recover that additional reserve, and we also talked about the fact that our partners continually are having us change prices on their product in order to preserve their business, based on the experience they see in the portfolio.

There have been price changes based on their needs as well, so what we’ve seen is some price changes and we’ve seen a little bit of a degradation in penetration, but I think we need to see where that’s going to shake out over the course of the year because penetration is also highly dependent on people’s performance in the stores and the initiatives that we have around selling that product..

But our penetration is around 60%. We’re really proud of our execution. I think our store teams do a great job of working with customers and showing them the value of buying an extended service plan, and our providers do a really good job of managing that through the life of the car.

So we think we offer a great product and our customers realize the value in it, and we do as good a job as anybody out there in selling this product and then delivering a great experience for the customer after..

So it sounds like the decline in penetration is more an issue of pricing rather than execution?.

Yeah, and as Tom said, we talked about that at the beginning of this year..

Yeah, okay. Thank you..

Your final question comes from the line of David Whiston from Morningstar. Please go ahead..

Thanks, good morning. Looking at your cash flow statement and ignoring the increase in auto loan receivables, and then just doing an adjusted CFO minus CAPEX and free cash flow as a percentage of revenue, and for the nine months ’14 versus nine months ’13, it’s down quite a bit, which looks to be the increase in inventory.

So obviously we’ve got a lot more inventory supply coming online.

Do you think over the next 12 months you’re going to continue to have a lot of decrease in working capital from inventory accumulation?.

We’re going to manage our inventory in line with what our sales expectations are, and then also with the fact that we are continuing to build stores and we’re building them all over the place, and we’re building at a pace of about a store a month or a little better than that.

So oftentimes--a lot of times, you look at our inventory and some of it is just based on timing - when is the next store being opened, are we reconditioning those cars in another market, getting them ready for that other store.

But even if you look at our inventory reported at the end of the quarter, about half of the unit increase is in our existing stores, which delivered a 7.5% comp, and about half our unit increase in represented in our new stores.

So our inventory will go up as our store base goes up and our comp sales go up, but it won’t necessarily--it’s not going to exceed that to any great degree..

I think there’s a bit of seasonality in that as well. Q3 was a significant inventory build as we’re coming into the tax season, so you’d need to look at it over a more spread out period, I think..

Okay. Last question - I know in the past you’ve talked about starting from scratch on targeting inventory mix weekly, but I’m sure there’s a lot more IT in the company over the past few years.

Are you really at the point where you’re sourcing, maybe even changing your sourcing habits daily or several times a day?.

No, not really. It doesn’t move that fast. Weekly is pretty fast, especially with the size of the investment in each individual car.

Remember that half of our cars right now are coming from appraisals that we’re buying directly from the consumer, and you really need a week’s worth of data at least before you can make a decision about what to do the following week. So we’re pretty comfortable with the way we’re managing it right now.

I think what has gotten better and better for us each and every year is the ability to apply that data to a buying model that is very, very store-specific, and then the other benefit that we’ve gained over the last several years is as our brand gets stronger, the more cars that are on our website, the better the pictures, the better the search engine, the more accessibility the customer has to inventory in other markets, and that’s about a third of our sales, are cars transferred at the customer’s request, so it’s another way for us to leverage that inventory.

But I think hopefully we’ll continue to get better at this..

You said transfers are a third of sales?.

Roughly, yeah - right around 30%..

Okay, thanks..

We have no further questions in the queue. I’ll turn the call back over to Mr. Tom Folliard, CEO..

[end of Q&A]:.

All right, thank you very much. I want to thank all of you for joining us today on the call. I also of course want to thank all of our associates for everything they do every day, especially around the holiday season. I wish all of you guys happy holidays, and we will talk to you again next quarter. Thanks for joining us. .

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