Good morning. My name is Briana (Ph), and I will be your conference operator today. At this time, I would like to welcome everyone to the FY14 Q4 Conference Call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Katharine Kenny, Vice President, Investor Relations, you may begin your conference.

Thank you and good morning. Thanks a lot for joining our fiscal 2014 fourth quarter earnings conference call. On the call with me today as always 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 events, 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, 2013, filed with the SEC and our new 10-K will be out shortly. Before I turn the call over to Tom, let me again ask you to refrain from asking more than one question before rejoining the queue so that everyone can have a chance. Thank you very much. Tom?

Thank you, Katharine. Good morning, everyone. Thanks for joining us. Well all-in-all, it was a great year for CarMax I’ll go through some of the highlights of the year and of the quarter. First for the year total revenues were up 15% to a little over $12.5 billion. Used unit comps increased by 12%, our strongest comp performance since fiscal 2002 and total used units grew by 18%. Wholesale units up 5%, CAF income grew 12% to more than $336 million, net earnings grew 13% to a record $493 million and net earnings per diluted share rose 16% to $2.16. On the market share front our data indicates that we increased our share of the zero to 10 year old used vehicle markets by about 17%, bringing our total to approximately 5%. We also opened 13 stores during the fiscal year, the most in any year in our history. As for the fourth quarter, used unit comps up 7%, that’s a combination of a modest traffic improvement and continued improvements in conversion and total used units grew by 12%. Total used vehicle gross profit grew by 12%; used vehicle gross profit per unit was $2,141 in both this and last year’s fourth quarter. Wholesale units increased by 2%, and have a little bit more than 30% our appraisal buy rate was slightly higher than last year’s fourth quarter. Our gross profit per vehicle fell $32 to $953 per unit. CAF quarterly income grew by 6% to $81 million this quarter. I’ll now turn it over to Tom Reedy. Tom?

Thanks Tom. Good morning everybody. CAF delivered another solid year with income up 12% and average managed receivables growing 23% to more than $7 billion. In the fourth quarter, CAF income grew 6% compared to the fourth quarter of fiscal 2013. Weighted average contract rate, the average rate charged to customers, has been relatively stable over the past several quarters. For accounts originated during the quarter the rate was 7.2% compared to 7.1% in last year’s fourth quarter and 7% in this year’s third quarter. The allowance for the loan losses increased to $70 million in line with growth in managed receivables and a 1% flat as percentage of net receivables compared to last year. For CAF, net loans originated in the quarter rose 4% to $1 billion. Our net penetration was 40% for the current year’s fourth quarter versus 43% for the prior year's fourth quarter. Third-party subprime providers accounted for about 17% of our sales in the fourth quarter. That’s flat year-over-year which represent some moderation versus the first three quarters where we saw an increase to 5 points in Q1 and 3 points in each of Q2 and Q3. As we said in the press release, we launched our test in January to learn more about originating and servicing customers who would typically be funded by our subprime providers. During the quarter, we originated $9 million. It’s very early in this process and we will share information and learnings once it is appropriate. Before I turn the call back to Tom, I will take a moment to discuss the accounting correction associated with our cancellation of reserves for the ESP and GAP products. During the fourth quarter, we developed a new approach to projecting cancellations for ESP and GAP. Our previous method works well historically when trends were relatively stable. However, we learned it was too slow to identify changes in underlying cancellation trends. Over time, modifications to the products and our administration of them along with an evolution in our business, meaning a greater percentage of our sales coming from subprime financing caused changes in the overall cancellation profile of these products. We failed to adequately reflect these changes in our cancellation reserve and have made the Q4 correction described in the release. We are now using a more sophisticated model that takes more granular view of the data and we believe we will provide a better and more timely identification of changes in cancellation trends. Tom?

Thank you. SG&A for the fiscal year increased 12%, to $1.2 billion on a per unit basis, that’s a decline of $102 a car, to $2,161 compared to $2,263 in fiscal ’13 driven by our 12% CAFs. As you know SG&A expenses are largely fixed variable expenses represent approximately 25% to 30% of our cost structure. During the fourth quarter we opened five stores including our entry into the Philadelphia market with two stores, we also added one in each of our existing markets in St. Louis, Washington and Baltimore and Sacramento. After the fourth quarter ended, we opened stores in two new markets, Dothan, Alabama and Rochester, New York. Including these two stores we currently plans to open 13 stores in fiscal 2015 including the opening of our first store in the Cleveland market which is notable since it is Katharine’s home town.

Yes.

While our store traffic has increased modestly during fiscal ’14 our web traffic continues to expand significantly. For the year, average monthly web visits grew to 12 million, up 32% compared to fiscal ’13, and by the end of the year average monthly visits had grown to over 13 million a month with visits to our mobile site representing approximately 30% of that and our mobile app traffic is about 12% of the total. And lastly we are pleased that after the end of the year CarMax’s board of directors authorized an additional $1 billion expansion to our share repurchase program. And with that we will be happy to take your questions.

(Operator Instructions) Your first question comes from the line of Matt Nemer with Wells Fargo Securities; your line is open.

A couple of questions. First, Tom, could you talk to the weather impact to the quarter? I don’t know if you measured store days lost or some function of that, would be curious what the impact was.

Yes, I am sure there was impact in the quarter. We don’t do a store days lost Matt, but you know in my memory we had it one day where we had 30 stores closed. We had days when we had the entire Dallas market closed which I don’t really remember that happening. Historically we have always felt like we get those sales back and they might shift from quarter to quarter. So it is very difficult for us to attribute a sales loss or gain to a quarter because of weather. But it was obviously pretty significant as I said, with the number of closed stores; it also has an impact on our ability to produce cars. So it is a combination of traffic for sales and the shops being shut down and not being able to get inventory out front, I think the stores have done a fantastic job of working through some very challenging circumstances during the quarter to put us in a good position going forward, but there is no question it had an impact, I just can’t really quantify.

Okay, great. And then secondly, could you just talk to what impact the mix to subprime has had on ESP revenue over the last year, so just explain, or help explain maybe what is different about that purchase from an ESP standpoint?

Hey Matt, from an ESP standpoint, there is not a dramatic difference in our penetration between subprime and other sources funded through our channel, meaning CAF or other partners. We do see a difference, we don’t see as attachment of the ESP product, if customer does not finance internally with CAF or with one of our partners. But to the point, on the reserve through, I mean, the increase in the subprime customers as the percent of sales, if you could step back and think about, as subprime has got a higher default rate. The biggest reason we see a return to ESP is because of the customer exiting the car that could be because they bought another car that could be because they’ve got repossessed or something else going on for financing. So as there has been a higher percentage of subprime in the business the ESP returns have evolved this much. As far as the attach 30 ESP in our penetration there is not a significant difference between subprime and another channel within CarMax.

So it’s no real impact on revenue Matt just on the returns.

Got it, okay. That’s helpful, thanks so much.

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

I want to maybe shove a couple questions into one question, all tied around subprime. So, Tom Folliard, when you reported your third-quarter results, you called out a -- I guess it was somewhat of a disruption in the subprime relationship with one of your partners. So maybe if we can get an update on that, in the last three months, what you have seen there. Then the follow-up to that would be, as you look at the subprime penetration, which is now 17%, flat year-on-year, is that CarMax topping that out? Or is there some other factor out there that is basically keeping it from growing year-on-year?

Well, certainly not CarMax topping it out, and what we talked about it at the end of the third quarter was a slight pullback we saw from our subprime providers and as Tom mentioned in his opening remarks we saw subprime as a percent of sales grow by a few points at each of the first three quarters so we continue to see some of the behaviors that we’ve seen out of our partners in terms of getting more aggressive with the origination channel that CarMax provides. And at the end of the third quarter, we mainly noted that we saw that pullback some we didn’t assign a magnitude to it because we weren’t so sure and as it has come out in the fourth quarter, this is still a very strong quarter for us, it’s a big percentage mix of our sales at 17% it’s flat year-over-year. So we can’t control what our subprime providers do or any of our lenders for that matter they have all their own models. They see these loan applications after they’ve been declined by everybody else. They’re terrific partners they’ve been a great add to our business and they allow us to offer credit terms to a full suite of credit profile that enter our store each and every day. So that’s how it came out for the quarter, how they’ll move going forward, it’s very difficult to say but all we were talking about at the end of the third quarter was we didn’t expect to see continued expansion as it relates to the percent of sales.

Got it. Thank you.

Your next question comes from the line of Matthew Fassler with Goldman Sachs. Your line is open.

Thanks a lot. Good morning. My first question relates to CAF so if we look at the loss ratio that you experienced this quarter the prior two year seasonally that number had come down year on year it was up a bit which is not the first time that had been the case in recent years but it was up a bit more than we’ve seen for a few quarter. So any comments on the moves and the loss ratio and what that means how that reflects your experience in marketplace?

No Matt I don’t think there is anything to call out particularly in the loss ratio where it’s at today is essentially what we would expected based on the evolution of our portfolio and the expense we have done over the last couple of years. I will comment that weather does impact credit as well with people being able to make payment, make calls et cetera but we don’t think there is the big impact there. If you remember last quarter we did talk about it favorable loss experience in the third quarter and early in the year that was something that didn’t materialize this quarter, so that would explain a little bit of it as well. As far as losses we’re not seeing anything unusual.

Yes actually in line with our expectations.

Then as relates to subprime, as we think big-picture about this business, can you talk about the cost of servicing a subprime loan over the life of that loan, compared to servicing a higher-quality credit?

Yes Matt I mean obviously if you think about subprime the cost of servicing is going to be significantly higher than the average of our portfolio. But I would point out that it’s not going to be dramatically higher than kind of the lowest stand of what we already do in the CAF business. We already do a pretty wide spectrum, and obviously we’re accounting for that accordingly in our estimation of whether it makes sense from a profitability perspective or not.

I think we have quite a bit of experience with frequent contact with customers.

If we think about the $1,000 bogie, which is currently roughly what you pay your third-party partners, and we think about the cost to bring that in-house, should we assume that that compares favorably to the fees you pay to third parties?

I mean Matt I think we’re going into this test not as similar we’re going to breakeven it or not make money with this product from the perspective of so we intent to go forward and if this thing make sense we would intent to have the finance piece on its own been viable from a profitability perspective. The $1,000 that we avoid from the discounts from the third party lenders will be incremental to that.

But it’s merely part of the calculation, clearly part of the calculation we would so many things go as we would hope we’d expect to make money on the financing independent of that 1,000, so the answer is yes it would be (multiple speakers)

Okay. Then finally, just by way of cleanup, last year I think you originally disclosed 15% penetration for third-party subprime providers. A couple of our clients have called this out to us. This year you identified the penetration at 17% and said that was flat with a year ago. So are you essentially restating the year-ago penetration of subprime?

We are not restating it, Matt, but there is a program we have that’s a lead generation program that has become a more significant part of the business. So, as it got to the point where it mattered in the number, we started adding it in and really back just to make sure that things are consistent year-over-year.

All right. We will clean that up with Katharine later. Thank you so much.

Your next question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi, good morning. I know it hasn't been a ton of time since you have had the smaller format stores. But I am just curious, as you have changed the operations for those smaller markets, if there is anything yet that you are seeing that maybe you can extrapolate and back-solve from an operational efficiency standpoint to your more large historical stores.

That’s a good question Sharon and it is still a little bit early. We only have, we have three of those stores opened now that we opened Dothan, Alabama and we have not yet rolled anything back into the existing stores. But I do think there will be opportunities there particularly around labor sharing and the ability to cross-train people to do multiple things in the store as oppose to in our higher volume stores if you are a buyer or you are in the business office or you are in sales, you can stay busy doing that one thing whereas in one of these smaller stores you really have to be able to do multiple things and that’s true for both commission associates and hourly associates. So, I think some of those learnings, we will absolutely be able to go back into the bigger stores. We haven’t had a chance to do that yet nor have we had enough time to read the results. But so far we have the three stores open and some of the things that we have to do in that store like leverage inventory on a grander scale, have more rapid transfers to make sure customers have access to more inventory than just a 100 cars representing that store that stuff is all working very smoothly so far. But we don’t have much else to report in terms of results.

Thank you.

Your next question comes from the line of Seth Basham with Wedbush. Your line is open.

Good morning. My question is around subprime as well. I just would like to better understand. In the course of the last few months or in the next few months, do you plan on testing or signing up any other third-party providers to fill that gap that is left by the pullback with one of your current providers?

I would say no. We can’t get across the spectrum of our lending with our partners we are always testing but where do we test is we look and see if the lender brings incremental values to the table meaning that they are proving things others don’t and to the extent partners either fits in Tier 2 or the Tier 3 space, if do that, we will consider. But we are very happy with our relationships. One nice thing about CarMax and our growth plan is we believe there is room for us to potentially participate in that space and for our partners to continue to grow their business as well that’s the benefit of building stores every year and taking market share. And in terms of a pull back, Seth, it really as you see in the fourth quarter, just came out flat, it’s not a pull back, it’s a pull back on the growth rate. But in terms of, again being able to provide great offers to a whole suite of credit customers in our stores, it came through again in the fourth quarter to work really well.

Right, understood. So you look forward -- I don't know if you want to provide any forward-looking guidance; but would you expect that trend to persist, where you won't see any further penetration of subprime into 2014?

As you know Seth, we don’t provide any forward-looking guidance but again we can’t control at our models.

That’s going to depend on the appetite of our lenders and what they are seeing in the business that they originates through our channel and we want them to run a profitable business. Our main goal is to have a sustainable source of financing for all of our customers.

Right. Last related question is just on your subprime test. When do you expect to have conclusive evidence whether or not you're going to pursue it more broadly?

I mean I would say it’s going to be at least a year.

Yes, our plan is to originate about $70 million as Tom mentioned earlier we are up to about 9 and then it’s going to take a lot of the results.

Your next question comes from the line of Craig Kennison with Robert W. Baird. Your line is open.

Good morning. Thank you for taking my question. You mentioned in the press release that your share of the 1 to 10-year-old car market is up 17%. Can you give us the number of cars in that cohort and what your actual market share is?

Well we also mentioned our actual market share is approximately 5% of 0 to 10 year old cars sold. I am not sure of the number; 21 million Katharine says the number of cars in that cohort. So, I mean it’s a really great share gain. We have the best comps we have had since 2002 and I don’t have the numbers right in front me but it’s as good a share gain as I can remember over the last several years. Value of the used car market is still, it’s not like it’s growing rapidly, so it’s still either flat or slightly down depending on whose estimate you look at. So, we are really pleased with our ability to continue to grow share.

And can I have a follow-up, can you tell us what’s your best market share is on a local basis?

We have talked about 10% to 15% depending on the age of the store and every market is little bit different and some markets aren’t fully stored but we think 10% to 15% is a reasonable number over a long period of time.

Your next question comes from the line of Scot Ciccarelli with RBC Capital Markets. Your line is open.

Thank you. Good morning, guys. Can you talk about the sensitivity between CAF penetration rates and the slightly higher collateral coupon rates we saw in the latest securitization? Logically it makes sense, but is there an intention to start to tighten up credit a little bit on the CAF side?

No anything that you’re seeing on the CAF side is going to be mostly a byproduct of what’s coming through the door. I mean as we mentioned before we’re continually testing on pricing and different pockets of credit that we can look at. But from a big picture perspective we have not changed our approach and there is nothing to read into that.

So you don’t think the slightly higher collateral coupon rate that you are charging customers impacted their take rate at all?

That’s more function of the market Scot, yes.

Okay. Then just a follow-up. Can you provide any more color regarding how we should think about SG&A trends during the next year or two? You guys had to do a lot of, let's call it investment spending, before you started on your store growth path. We are up and running now, and obviously that compares against a lean infrastructure. And again, without providing specific guidance, just a better way to think about SG&A trends. Thanks.

I think you’re referring to us restarting our store growth plan which we’re in full swing now and as we mentioned we opened 13 stores this year we plan to open another 10 to 15 for the next three also. But that’s been a steady build up. So that’s a cost pressure we’ve had to overcome. As you saw in our results if we can deliver comps at this level, we’re going to provide some pretty good leverage on a per unit basis over time. And we also pointed out this time that about 25% to 30% of our total SG&A cost is variable and that number is going to flex up and down with sales. But as we’ve always said we’re still in a growth mode, we’re not growing significantly more next year than we did this year but there is still quite a bit of cost around growth, there is quite a bit of cost around fringes and some changes in kind of some of the fixed cost base. And we continue to make investments in our business. So again I feel like as long as we can deliver solid comps we’ll be able to leverage SG&A pretty well.

So Tom Reedy I think you have talked about kind of what comp you would need to leverage SG&A historically? What would that number look like today?

I think we have nothing different; it’s the same kind of level that 48% comp, mid to high single-digit we think we got some leverage.

Your next question comes from the line of Ravi Shankar with Morgan Stanley your line is open.

Morning, everyone. This is Yijay in for Ravi. Just one question for me before I jump back in the queue. Could you provide a bit more color on the mix of your used cars that you sold in the quarter? And maybe just comment on how that has evolved over time and how you think that will impact your gross margin going forward.

Yeah, we have talked about this in the past and we’ve done as you can look at our numbers over the last several years as our mix has moved and changed, we’ve done a pretty decent job of managing margin around that. So we’re not thinking that a mix shift is going to impact our ability to manage margins. But we really haven’t seen much in the way of mix shift over the last couple of years. In terms of mix of age our zero to four mix remains approximately 70% of our total sales and our five to 10 year mix is around 30%. As you remember a few years ago we talked about that number of five to 10 year old cars having doubled, coming out of the recession from 15% to around 30%. But that number has been pretty stable for the last couple of years. And we really didn’t see much in terms of a mix shift in sport utilities or compacts or anything of that nature. So last couple of years it’s been relatively stable in terms of mix.

In terms of the age then just a quick follow up. Do you expect that to improve, maybe improve is the wrong word but do you expect zero to five to increase this year and over the next couple of years then?

We have been anticipating with the increase in SAAR that we would see our mix of zero to four year old cars increase; it just didn’t happen over the last couple of years. So do we expect going forward at some point? Yes, but we’ve also seen a slowdown in the SAAR growth, I think it ended a little over 16 million at the end of last month and I think only like a 2% growth. But that’s really the driver of supply obviously. So the other factor is going to be consumer behavior and how quickly do they trade out cars and that’s just something we really can’t predict. But over time we would expect our mix to start to move a little bit more in that direction as the supply comes back.

Your next question comes from the line of James Albertine with Stifel. Your line is open.

Great. Thanks for taking the question and good morning, everyone. Just to follow on to a prior question as it related to the aggregate used vehicle market, I think you mentioned flat to slightly down in aggregate, but yet 17% share gains for you specifically. I am sure you probably have the data. Is there a way to sort of help us get to the bottom of -- is it negative sort of person-to-person transactions that’s offsetting growth in retail formats? So it’s said another way, are the retail formats actually growing relative to that commentary around flat to slightly down for the aggregate marketplace?

Well that is -- what we’re talking about is retail not wholesale. So I am not really sure of your question.

Okay. I wanted to make sure I understood that correctly then.

Based on retail cars sold, when we look at our wholesale business of whatever north of 300,000 units sold, those are all not included in the transaction -- I’m sorry, included in the share calculation. The share calculation is only of cars retail. And we have talked about this data set in the past. It’s a difficult data set to get your arms around. Approximately a third of all cars resale are sold from person to person. That number has been pretty stable over the last several years. And this is our best estimate. It’s the way we have been doing it for years and it’s our best estimate. Share and - I am not sure it’s exactly precise but I am sure that we’ve gained share pretty significantly and had a level that - as good as we’ve seen in several years.

If I can, and I know that you don't give intrayear granularity, but given the surge in the off-lease vehicles that we are seeing come back into the marketplace, is there a tendency -- do your share gains incrementally ramp as that surge has progressed? Said another way, back half of last year maybe did those share gains accelerate as far as you saw it?

We never really correlated share gains with changes in supplies that relates to leases. Having been here for 20 years and seeing lease percentages as a percent of new cars sold move up and down over that time period and then subsequently those cars coming back into the market place, if not really something that we have seen as a predictable variable to say that we would either gain more share or sell more cars.

Your next question comes from the line of Joe Edelstein with Stephens Inc; your line is open.

Hi, good morning. Each month we look at the monthly securitization filings that you put on the website. But the piece that we just don't get a lot of visibility on is what is in the warehouse and what is happening there. Could you just give us an update as to what the average net spread on those loans look like? Should we just assume that it is similar to the most recent securitization, which was down closer to like a 6.2% (multiple speakers) spread?

I think, looking at the securitization is a good proxy, because you can lock down on what actually out there. We are also giving you this data every quarter on our originations. And so from, that’s a pretty good indication that you could get on what’s going on in the warehouse, looking at the quarterly origination information and then kind of combining that with what you got up there in the public domain. And things are moving relatively quickly from the warehouse to the securitization…

We are doing one every quarter these days, based on the origination of the CAFs. I think it is pretty decent proxy.

Right. I guess as the timing of those newer securitizations do become a bigger part of the portfolio mix and you roll off the older, higher-rate deals, can you comment at all on what your expectation would be for net spreads as we progress throughout this year?

I mean, we’ve not given any guidance about things going forward for a couple of years. But I think if you -- I think you can take the data out there on securitization and you can kind of see how to work itself through. It usually takes us couple of years for things to work through after we make the change in rate or you can observe a change in spread, and we expect that –

And the expense is steadily declining here for the last couple of years and that’s kind of just that what we should expect going forward at this point?

I think we should expect it’s going to be where the market leads it to be. And we are going to provide a competitive rate of financing per customer, that’s the most important thing that we do with CAF, as we are sitting in the catbird seat, if you will, as far as looking at those amounts, first we have provided competitive product. Cost of fund is going to be what it is and we’re going to charge what the market allows us. That’s why we continuously-- and you know the spread that we’re living at today is significantly better than historic levels still. And we are very happy with the profitability level of CAF. It started having growth going forward, that’s going to give by-products of them providing competitive offer and us growing core business in a number of sales that we run through the CarMax channel.

Sure. If I may just ask one more question about the provision rate, that provision rate has picked up sequentially throughout the year. I guess there are some seasonality factors I am sure that go into that calculation. But can you just speak a little bit more directly to your calculation process there related to the provision? Should we model it and expect it to step up throughout the coming year as well?

All I could comment is, as I did earlier that I think the provision for loan losses is in line with our expectations, where it should be for the portfolio, and that’s pretty much in line as far as we can talk about going forward.

Okay. Do you have the ending delinquency balance handy, by chance? I know you will put that in the filing, but just if you have that.

Yes, Katharine and Celeste can get back if you wanted to, and give some detail on that.

Just a couple of follow-ups. That’s all. Thank you very much.

Your next question comes from the line of Bill Armstrong with CL King & Associates; your line is open.

Good morning. A question about market share. I think you said earlier you have about 5% total share. I assume that is throughout the United States. Could you update us on some of your more mature markets where you've got a lot of penetration, like Chicago, Washington, Atlanta? What sort of share do you think you have there right now?

Bill, first that number is not the entire United States, it’s only the markets that we’re in.

The only ones you are in, okay.

May be a little more than half, so if you look at it as a share nationally it’s probably approximately half of that. And I talked earlier about markets where we have seen more mature markets achieving somewhere in the 10% to 15% range that’s about as high as it goes. We are not going to get into specific detail around markets but again and the data is, it’s challenging dataset that we have tried to have a consistent way to look at it over a long period of time. And recently as our sales mix has moved into the older category and a more significant percentage, we will now report only 0 to 10 year old share which is more representative of what we fell in aggregate.

Right. In those more mature markets where you have had a significant presence for now a few car-buying cycles, do you see market share continuing to grow? Or is that stabilizing and leveling off?

The reason I put a wide range around it is, it’s just again it’s a difficult measure. The second part is, in some of our more mature markets where we thought maybe it was only a three store market or a five store market because of our ability to grow, we have been able to go back in and add more stores which contributes to more share. So, we are still a relatively young company particularly if you look at the number of stores we have that have been through a couple of buying cycles. So, I think we got a long way to go to continue to learn but I think that’s a pretty good range to work with what I said earlier.

Okay. Just one really quick follow-up. The ratio of wholesale cars to retail cars has been going down for the last few quarters. What is driving that trend? Can you remind us?

That’s a difficult one for us to get our arms around other than we think over a long period of time they will kind of grow around the same. And remember we have couple of years where the disconnect was gigantic in the other direction.

Yes.

Where our wholesale approximately doubled over two years, so it’s really strong volumes. We run a great auction business. We have great wholesale customers that support us each and every week and I think we provide great customer service and it’s been a terrific part of the total CarMax diversified business model.

Your next question comes from the line of John Murphy with Bank of America, Merrill Lynch. Your line is open.

Hi, this is Liz Suzuki on for John. With the accounting correction, how should we think about modeling ESP and GAP revenue and gross profit going forward? Is it going to remain closer to the lower levels of this quarter? Or was that accounting correction just a one-time adjustment that shouldn't be ongoing?

So, that’s very good question Liz and it is an adjustment to take care of going back over the last few years but in terms of the magnitude of the dollars on a per contract basis, it’s approximately 30 bucks. So, in terms of our ability to price that back, we would feel like that’s a number that we could easily price back without much impact on penetration. Now that being said, the product itself has price changes all the time. We have been doing this for a long time over 20 years and as our partners learn more about the product and about the performance, we will see price changes. We do anticipate additional price changes this year to the product unrelated to the change required to get back the reserve. The impact that that will have on our penetration, we will have to see. We have also done a great job of training and developing our store teams to be able to sale the product. We think it’s a great deal for our customers. Our customers who buy ESP product as a group are happier than those that don’t. So, we continue to believe in it and although it’s a minor adjustment on a per car basis, it obviously have the impact that it did and we believe we fixed it going forward.

Great, thank you. Just one quick one. Regarding used vehicle pricing, are you seeing any impact from the GM recall on the pricing of your inventory for Chevy, Pontiac, or Saturn vehicles? And are you hearing any concerns either from the ABS market or elsewhere about residual projections coming down?

We have not yet, I am not saying that that won’t happen but as of yet no, we haven’t seen much of an impact on pricing or we certainly haven’t heard anything from anybody in the lending world.

And your next question comes from the line of avid Whiston with Morningstar. Your line is open.

Good morning. A question on the comp performance. You often cite improvements from improved execution in our stores. I was just wondering if you could get a little more detail about that. I mean, I assume it's been the same playbook all along. But what has been changing at a more granular level to be better?

It kind of is the same playbook, so it’s not, and I couldn’t point to any one thing. I just think our teams have done a really great job. We are also more experienced, we have some more experienced sales people in our stores who are better at selling. We have talked about credit in the past being a factor, car quality is a factor, having the right inventory in the right place at the right time is a factor for conversion. So, conversion is a multi-person effort. It’s not just a sales person in the store. It’s a combination of whole bunch of different things, I think the initiatives that we have worked on over the last several years to get more efficient and become a better operator, I think have also helped. So, it really is a combination of things and I really couldn’t be more proud of our store teams for how hard they have worked over the last several years to continue to improve our execution.

Okay. On the capital structure, is there any thoughts on ever taking on debt for buybacks?

As you can see we have got a significant amount of cash on the balance sheet today. We are generating a lot of cash. So the answer to that, we’ll cross that bridge when we come to it. We’re obviously concerned about making sure we’re returning capital to shareholder appropriately. That said I don’t think we’d be uncomfortable with more leverage in our capital structure and we have significant access to capital to the extent we wanted to do that. We’ve got unused credit facility three quarters to the billion dollars and access to capital from a number of other venues if you wanted to.

I guess related would be: what about a dividend?

As I said we’re constantly thinking about what’s the best thing for our shareholders and if we have something to talk about on that front we will, but at this point there is nothing to talk about.

(Operator Instructions). Your next question comes from the line of Seth Basham with Wedbush. Your line is open.

Two quick follow-ups. First, can you give us some color around tax refunds and how the year-over-year change in tax refunds tends to affect sales going through your store?

The tax refund time for us is always a seasonally high time for sales and we have to get prepped up and make sure we have the inventory ready. If you remember last year there was a delay in the tax returns but I think we saw similar delay this year it’s not something that we think impacts us over the year but it can shift sales from one quarter to the other. Although I think I am not exactly Tom I think was pretty similar to last year in terms of timing. Delayed last year and a little delayed this year as well.

Got you. The data I was looking at suggested that tax refunds are up 12% year-over-year through February. So I was wondering if that had to any extent a positive effect on your business. But I guess you don't have the data to show that.

No.

Got you. All right. Then secondly as it relates to wholesale, can you help us connect the dots there? With wholesale sales down and ASPs down, your buy rates up, are you seeing more limited appraisal traffic or some other factor affecting the wholesale trends?

The wholesale sales were up not down, margin was slightly down. But I mean we have seen, we went for a number of years where we saw an appreciating wholesale market which was obviously pretty unique and that provides the tailwind and for a number of different reasons I would say the last year or so have been what we would consider more of a normally depreciating market. So pretty strong buy rate, remember this is not a business that you can isolate and manage independently. It is absolutely attached to the retail business and to everything else that we do. So maintaining a strong buy rate, making sure that customers who come and want to sell us their car and also buy a car from us get a strong offer, so that they’re likely to sell us their car and then in turn buy a car from us is one of the more important things that we do. So a buy rate of around 30% that’s about as we have ever had in the quarter so wholesale comes out the way it does based on the amount of traffic that we get through the door.

Okay. So no big changes in the rate of change in appraisal traffic, and no big changes in the rate of cars going to retail versus wholesale that you buy?

No.

And we have no further question in queue at this time.

Thank you operator and thank you everyone for your support and interest and just a couple of closing comments. The year when we celebrated our 20 year anniversary, we also have cumulative retail sales of over 5 million units and cumulative wholesale sales of almost 3 million units and in fiscal ‘14 alone we sold almost 870,000 total cars in those two categories. And I just want to thank our 21,000 CarMax associates for all they have done over the last 20 years to make this all possible. Thanks for joining us, we’ll talk to again next quarter.

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