CARMAX INC

Previous wording

During the first six months of fiscal 2025, the allowance for loan losses as a percent of total ending managed receivables increased by 4 basis points. The increase was primarily due to unfavorable loss performance related to CAF’s core receivables as well as CAF’s expanded investment in Tier 2, partially offset by the previously implemented tightened underwriting standards in response to the current environment. The increase in net charge-offs primarily reflects continued customer hardship in the current economic environment. The allowance for loan losses as of August 31, 2024 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.

Current wording

During the first nine months of fiscal 2025, the allowance for loan losses as a percent of total ending managed receivables decreased by 8 basis points. The decrease was primarily driven by the previously implemented tightened underwriting standards, partially offset by unfavorable loss performance related to CAF’s core receivables as well as CAF’s expanded investment in Tier 2. The increase in net charge-offs primarily reflects continued customer hardship in the current economic environment. The allowance for loan losses as of November 30, 2024 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.

Previous wording

For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (“AOCI”). For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $35.0 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three and six months ended August 31, 2024, we recognized expense of $4.6 million and $7.7 million, respectively, in CAF income representing these changes in fair value.

Current wording

For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (“AOCI”). For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $37.6 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three and nine months ended November 30, 2024, we recognized expense of $2.2 million and $9.9 million, respectively, in CAF income representing these changes in fair value.

Previous wording

As of August 31, 2024 and February 29, 2024, we had interest rate swaps outstanding with a combined notional amount of $5.12 billion and $5.21 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of August 31,

Current wording

As of November 30, 2024 and February 29, 2024, we had interest rate swaps outstanding with a combined notional amount of $4.76 billion and $5.21 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of November 30, 2024 and February 29, 2024, we had interest rate swaps with a combined notional amount of $274.6 million and $704.0 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.

Previous wording

The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of August 31, 2024 and February 29, 2024, the current portion of cancellation reserves was $72.3 million and $69.7 million, respectively.

Current wording

The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of November 30, 2024 and February 29, 2024, the current portion of cancellation reserves was $72.4 million and $69.7 million, respectively.

Previous wording

We had $31.3 million of gross unrecognized tax benefits as of August 31, 2024, and $28.8 million as of February 29, 2024. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 29, 2024.

Current wording

We had $32.1 million of gross unrecognized tax benefits as of November 30, 2024, and $28.8 million as of February 29, 2024. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 29, 2024.

Previous wording

Term Loans. The $300 million term loan was paid in May 2024. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 6.35% as of August 31, 2024. The $700 million term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Current wording

Term Loans. The $300 million term loan was paid in May 2024. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 5.58% as of November 30, 2024. The $700 million term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Previous wording

We generally enter into warehouse facility agreements for one-year terms and typically renew the agreements annually. The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions. At renewal, the cost, structure and capacity of the facilities could change. These changes could have a significant impact on our funding costs.

Current wording

We generally enter into warehouse facility agreements for one-year terms and typically renew the agreements annually. In December 2024, the $0.70 billion facility was extended with an expiration date of April 2025. The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions. At renewal, the cost, structure and capacity of the facilities could change. These changes could have a significant impact on our funding costs.

Previous wording

In June 2024, we entered into a $625 million asset-backed term funding transaction related to our new non-prime securitization program. In July 2024, we entered into a $1.4 billion asset-backed term funding transaction comprised of higher prime auto loans receivable. Going forward, we plan to utilize separate asset-backed securitization programs to more broadly incorporate funding of CAF’s receivables across distinct higher prime and non-prime segments. We believe this new two-program strategy will enable us to fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time.

Current wording

In June 2024, we entered into a $625 million asset-backed term funding transaction related to our new non-prime securitization program. In July 2024 and November 2024, we entered into $1.4 billion asset-backed term funding transactions comprised of higher prime auto loans receivable. Going forward, we plan to utilize separate asset-backed securitization programs to more broadly incorporate funding of CAF’s receivables across distinct higher prime and non-prime segments. We believe this two-program strategy will enable us to fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time.

Previous wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the six months ended August 31, 2024 and 2023, we capitalized interest of $3.1 million and $2.9 million, respectively.

Current wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the nine months ended November 30, 2024 and 2023, we capitalized interest of $5.3 million and $4.6 million, respectively.

Previous wording

As of August 31, 2024, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.15 billion remained available for repurchase.

Current wording

As of November 30, 2024, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.04 billion remained available for repurchase.

Previous wording

Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended August 31, 2024 and 2023, options to purchase 5,083,556 shares and 3,508,300 shares of common stock, respectively, were not included. For the six months ended August 31, 2024 and 2023, options to purchase 5,133,763 shares and 5,518,543 shares of common stock, respectively, were not included.

Current wording

Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended November 30, 2024 and 2023, options to purchase 4,948,231 shares and 6,263,513 shares of common stock, respectively, were not included. For the nine months ended November 30, 2024 and 2023, options to purchase 5,235,364 shares and 5,732,651 shares of common stock, respectively, were not included.

Previous wording

Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive income. The cumulative balances are net of deferred taxes of $3.0 million as of August 31, 2024 and $19.3 million as of February 29, 2024.

Current wording

Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive income. The cumulative balances are net of deferred taxes of $4.8 million as of November 30, 2024 and $19.3 million as of February 29, 2024.

Previous wording

(1) Finance lease assets are recorded net of accumulated depreciation of $62.3 million as of August 31, 2024 and $55.5 million as of February 29, 2024.

Current wording

(1) Finance lease assets are recorded net of accumulated depreciation of $63.1 million as of November 30, 2024 and $55.5 million as of February 29, 2024.

Previous wording

As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was $31.0 million as of August 31, 2024, and $30.9 million as of February 29, 2024, and is included in accrued expenses and other current liabilities.

Current wording

As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was $29.1 million as of November 30, 2024, and $30.9 million as of February 29, 2024, and is included in accrued expenses and other current liabilities.

Previous wording

As of August 31, 2024, we operated 247 used car stores in 109 U.S. television markets.

Current wording

As of November 30, 2024, we operated 248 used car stores in 109 U.S. television markets.

Previous wording

In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 42.6% of our retail used vehicle unit sales in the first six months of fiscal 2025. As of August 31, 2024, CAF serviced approximately 1.1 million customer accounts in its $17.77 billion portfolio of managed receivables.

Current wording

In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 42.8% of our retail used vehicle unit sales in the first nine months of fiscal 2025. As of November 30, 2024, CAF serviced approximately 1.1 million customer accounts in its $17.76 billion portfolio of managed receivables.

Previous wording

The sources of revenue and gross profit from the CarMax Sales Operations segment for the first six months of fiscal 2025 are as follows:

Current wording

The sources of revenue and gross profit from the CarMax Sales Operations segment for the first nine months of fiscal 2025 are as follows:

Previous wording

A high-level summary of our financial results for the second quarter and first six months of fiscal 2025 as compared to the second quarter and first six months of fiscal 2024 is as follows (1):

Current wording

A high-level summary of our financial results for the third quarter and first nine months of fiscal 2025 as compared to the third quarter and first nine months of fiscal 2024 is as follows (1):

Previous wording

Net earnings per diluted share during the first six months of the prior fiscal year included a benefit of $0.32 in connection with the receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags. Refer to“Results of Operations” for further details on our revenues and profitability.

Current wording

Net earnings per diluted share during the first nine months of the prior fiscal year included a benefit of $0.32 in connection with the receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags. Refer to“Results of Operations” for further details on our revenues and profitability.

Previous wording

Our current capital allocation strategy is to focus on our core business. Given our recent performance and continued market uncertainties, we are taking a conservative approach to our capital structure in order to maintain the flexibility that allows us to efficiently access the capital markets for both CAF and CarMax as a whole. We have taken steps to better align our expenses to sales as well as slowed the rate of our store growth. During the first half of fiscal 2025, we accelerated the pace of our share repurchases above the pace that we implemented in the third quarter of fiscal 2024. We believe we have the appropriate liquidity, access to capital and financial strength to support our operations and continue investing in our business for the next 12 months and thereafter for the foreseeable future.

Current wording

Our current capital allocation strategy is to focus on our core business. Given continued market uncertainties, we are taking a conservative approach to our capital structure in order to maintain the flexibility that allows us to efficiently access the capital markets for both CAF and CarMax as a whole. We have taken steps to better align our expenses to sales as well as slowed the rate of our store growth. During the first nine months of fiscal 2025, we accelerated the pace of our share repurchases above the pace that we implemented in the third quarter of fiscal 2024. We believe we have the appropriate liquidity, access to capital and financial strength to support our operations and continue investing in our business for the next 12 months and thereafter for the foreseeable future.

Previous wording

Our diversified business model, combined with our exceptional associates, national scale and unparalleled omni-channel experience, is a unique advantage in the used car industry that firmly positions us to drive profitable market share gains while creating shareholder value over the long-term. We expect the impact of our omni-channel capabilities will continue to grow as consumers demand a more personalized car-buying experience. Some of the recent actions we have taken to refine the customer experience and further differentiate our business include:

Current wording

Our diversified business model, combined with our exceptional associates, national scale and unparalleled omni-channel experience, is a unique advantage in the used car industry that firmly positions us to drive profitable market share gains while creating shareholder value over the long-term. We expect the impact of our omni-channel capabilities will continue to grow as consumers demand a more personalized car-buying experience. Some examples of our focus on refining the experience for customers and associates and supporting future growth across our diversified business include:

Previous wording

•We have focused on customer shopping accounts, which make it easier for customers to see the steps they have taken on their shopping journey, whether on their own or with help from an associate. These accounts also guide next steps and promote MaxCare, our ESP product. We are currently testing this offering in several stores and plan to deploy it nationwide later this year.

Current wording

•We completed the nationwide rollout of our customer shopping accounts, which make it easier for customers to see the steps they have taken on their shopping journey, whether on their own or with help from an associate. These accounts also guide next steps and create operational efficiencies by empowering associates to seamlessly search and update customer records regardless of where they were originated.

Previous wording

In addition to these actions, we are focused on driving down our cost of sales by pursuing incremental efficiency opportunities that we have identified across our logistics network and reconditioning operations. For example, we recently conducted a comprehensive review of our logistics operations and determined that centralizing some key functions will help us best leverage our network. During the second quarter of fiscal 2025, we centralized our home delivery, appraisal pick-up and MaxOffer moves by market. We believe this change enables us to achieve efficiencies in upcoming quarters as we roll out our enhanced transportation management system, which provides new planning and execution capabilities. We believe these initiatives focused on our logistics network and reconditioning operations will drive savings of approximately $200 per retail unit over the next year or two.

Current wording

In addition to these actions, we are focused on driving down our cost of sales by pursuing incremental efficiency opportunities that we have identified across our logistics network and reconditioning operations. We believe these initiatives focused on our logistics network and reconditioning operations will drive savings of approximately $200 per retail unit, approximately half of which have been realized to-date with the remainder to be realized in the upcoming quarters.

Previous wording

We purchased approximately 300,000 vehicles from consumers and dealers during the second quarter of fiscal 2025, up 2.9% from the prior year quarter. Of the approximately 269,000 vehicles purchased from consumers, more than half were purchased through our online instant appraisal experience. Approximately 31,000 vehicles were purchased through dealers, up 61.4% from the prior year quarter. Our self-sufficiency rate, including dealer buys, was over 70% for the second quarter of fiscal 2025. We leverage the Edmunds sales team to open new markets and sign up new dealers for MaxOffer.

Current wording

We purchased approximately 270,000 vehicles from consumers and dealers during the third quarter of fiscal 2025, up 7.9% from the prior year quarter. Of the approximately 237,000 vehicles purchased from consumers, more than half were purchased through our online instant appraisal experience. Approximately 33,000 vehicles were purchased through dealers, up 46.7% from the prior year quarter. We leverage the Edmunds sales team to open new markets and sign up new dealers for MaxOffer. Our MaxOffer active dealers have increased approximately 40% from the prior year quarter.

Previous wording

While SG&A as a percent of gross profit can fluctuate from quarter to quarter depending on variability in gross profit, our initial goal on the path to strengthening our SG&A to gross profit leverage over time is to achieve a rate in the mid-70% range on an annual basis. Achieving this annual rate will require continued efficiency gains in our operating model, gross profit growth and healthier consumer demand. In fiscal 2025, we expect to require low-single-digit gross profit growth to lever SG&A.

Current wording

While SG&A as a percent of gross profit can fluctuate from quarter to quarter depending on variability in gross profit and the timing of SG&A spending, our initial goal on the path to strengthening our SG&A to gross profit leverage over time is to achieve a rate in the mid-70% range on an annual basis. Achieving this annual rate will require continued efficiency gains in our operating model, gross profit growth and healthier consumer demand. In fiscal 2025, we expect to require low-single-digit gross profit growth to lever SG&A.

Previous wording

•Improving efficiency in our stores and CECs and our logistics and reconditioning operations to reduce waste.

Current wording

•Improving efficiency in our stores and CECs as well as our logistics and reconditioning operations to reduce waste.

Previous wording

•Becoming the leading retailer of used EVs in the market. In support of this goal, Edmunds has launched several research and buying tools, which include providing data on the health and range of EV batteries as well as an evaluation of potential federal and state tax credits and incentives.

Current wording

•Becoming the leading retailer of used EVs in the market. In support of this goal, Edmunds has launched several research and buying tools.

Previous wording

As of August 31, 2024, we had used car stores located in 109 U.S. television markets, which covered approximately 85% of the U.S. population. The format and operating models utilized in our stores are continuously evaluated and may change or evolve over time based upon market and consumer expectations. During the first six months of fiscal 2025, we opened two stores and our second stand-alone reconditioning center in Richland, Mississippi. During the remainder of the fiscal year, we plan to open three stores and one stand-alone auction facility. We are utilizing our stand-alone reconditioning and auction locations to balance capacity and drive efficiencies across the network.

Current wording

As of November 30, 2024, we had used car stores located in 109 U.S. television markets, which covered approximately 85% of the U.S. population. The format and operating models utilized in our stores are continuously evaluated and may change or evolve over time based upon market and consumer expectations. During the first nine months of fiscal 2025, we opened three stores and our second stand-alone reconditioning center in Richland, Mississippi. During the remainder of the fiscal year, we plan to open two stores and one stand-alone auction facility. We are utilizing our stand-alone reconditioning and auction locations to balance capacity and drive efficiencies across the network.

Previous wording

During the first six months of fiscal 2025, we opened two stores in existing television markets (El Paso, TX and Gainesville, GA).

Current wording

During the first nine months of fiscal 2025, we opened three stores in existing television markets (El Paso, TX; Gainesville, GA; and Alliance, TX).

Previous wording

Used Vehicle Sales. The 1.5% increase in used vehicle revenues in the second quarter of fiscal 2025 was primarily driven by a 5.1% increase in used unit sales, partially offset by a 4.6% decrease in average retail selling price, or approximately $1,250. The increase in used units included a 4.3% increase in comparable store used unit sales. For the first six months of fiscal 2025, used vehicle revenues decreased 2.1%, driven by a 3.6% decrease in average selling price, or approximately $1,000, partially offset by a 0.8% increase in used unit sales. The increase in used units included a 0.1% increase in comparable store used unit sales. Online retail sales, as defined previously, accounted for 15% of used unit sales for both the second quarter and first six months of fiscal 2025 compared with 14% for both the second quarter and first six months of fiscal 2024. Based on current trends, we anticipate our comparable store used unit sales to remain positive for the third quarter of fiscal 2025, relatively in line with, but slightly below, our second quarter results.

Current wording

Used Vehicle Sales. The 1.2% increase in used vehicle revenues in the third quarter of fiscal 2025 was driven by a 5.4% increase in used unit sales, partially offset by a 3.9% decrease in average retail selling price, or approximately $1,100. The increase in used units included a 4.3% increase in comparable store used unit sales, supported by conversion. For the first nine months of fiscal 2025, used vehicle revenues decreased 1.1%, driven by a 3.7% decrease in average selling price, or approximately $1,000, partially offset by a 2.2% increase in used unit sales. The increase in used units included a 1.3% increase in comparable store used unit sales. Online retail sales, as defined previously, accounted for 15% of used unit sales for both the third quarter and first nine months of fiscal 2025 compared with 14% for both the third quarter and first nine months of fiscal 2024. Comparable store used unit sales improved sequentially during the third quarter. Our December comparable store used unit sales have further improved from the third quarter and we anticipate our fourth quarter fiscal 2025 results will exceed those of the third quarter.

Previous wording

The decrease in average retail selling price in both the second quarter and first six months of fiscal 2025 reflected lower vehicle acquisition costs, partially offset by shifts in the mix of our sales by vehicle age and class.

Current wording

The decrease in average retail selling price in the third quarter of fiscal 2025 primarily reflected lower vehicle acquisition costs. The decrease in average retail selling price in the first nine months of fiscal 2025 reflected lower vehicle acquisition costs, partially offset by shifts in the mix of our sales by vehicle age and class.

Previous wording

The 12.7% decrease in wholesale vehicle revenues in the second quarter of fiscal 2025 was primarily due to a decrease in average selling price of 12.9%, or approximately $1,150, and a 0.3% decrease in unit sales. For the first six months of fiscal 2025, wholesale vehicle revenues decreased 15.0%, driven by a decrease in average selling price of 11.6%, or approximately $1,050, and a 4.5% decrease in unit sales.

Current wording

The 0.3% increase in wholesale vehicle revenues in the third quarter of fiscal 2025 was driven by a 6.3% increase in unit sales, partially offset by a 5.7% decrease in average selling price, or approximately $500. For the first nine months of fiscal 2025, wholesale vehicle revenues decreased 10.5%, driven by a decrease in average selling price of 9.8%, or approximately $900, and a 1.3% decrease in unit sales.

Previous wording

The decrease in average selling price during both the second quarter and first six months of fiscal 2025 was primarily due to decreased acquisition costs and shifts in the mix of our sales by vehicle age.

Current wording

The decrease in average selling price during both the third quarter and first nine months of fiscal 2025 was primarily due to decreased acquisition costs and shifts in the mix of our sales by vehicle age.

Previous wording

Other sales and revenues increased 13.2% and 8.9% in the second quarter and first six months of fiscal 2025, respectively, reflecting increases in EPP revenues. EPP revenues increased 19.3% and 12.8% in the second quarter and first six months of fiscal 2025, respectively, largely reflecting increased margins, partially offset by decreased penetration.

Current wording

Other sales and revenues increased 9.7% and 9.1% in the third quarter and first nine months of fiscal 2025, respectively, reflecting increases in EPP revenues. EPP revenues increased 16.1% and 13.8% in the third quarter and first nine months of fiscal 2025, respectively, largely reflecting increased margins, partially offset by decreased penetration.

Previous wording

We systematically adjust individual vehicle prices based on proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit achievement. Other factors that may influence gross profit include the wholesale and retail vehicle pricing environments, vehicle reconditioning and logistics costs, and the percentage of vehicles sourced directly from consumers and dealers through our appraisal process. Vehicles purchased directly from consumers and dealers generally have a lower cost per unit compared with vehicles purchased at auction or through other channels, which may generate more gross profit per unit. In any given period, our gross profit may also be impacted by the age mix of vehicles sold, as older vehicles are generally more profitable. We monitor macroeconomic factors and pricing elasticity and adjust our pricing accordingly to optimize unit sales and profitability while also maintaining a competitively priced inventory.

Current wording

We systematically adjust individual vehicle prices based on proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit achievement. Other factors that may influence gross profit include the wholesale and retail vehicle pricing environments, vehicle reconditioning and logistics costs, and the percentage of vehicles sourced directly from consumers and dealers through our appraisal process. Vehicles purchased directly from consumers and dealers generally have a lower cost per unit compared with vehicles purchased at auction or through other channels, which may generate more gross profit per unit. In any given period, our gross profit may also be impacted by the age mix of vehicles sold, as older vehicles are generally more profitable. We monitor macroeconomic factors and pricing elasticity and adjust our pricing accordingly to optimize unit sales and profitability while also maintaining competitively priced inventory.

Previous wording

Used vehicle gross profit increased 5.9% in the second quarter of fiscal 2025, driven primarily by the 5.1% increase in total used unit sales. Used vehicle gross profit increased 0.8% in the first six months of fiscal 2025, driven primarily by the 0.8% increase in total used unit sales. Used vehicle gross profit per unit was in line with the prior year period for both the second quarter and first six months of fiscal 2025. We continue to focus on striking the right balance between covering cost increases, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Current wording

Used vehicle gross profit increased 6.8% in the third quarter of fiscal 2025, primarily driven by the 5.4% increase in total used unit sales. Used vehicle gross profit increased 2.5% in the first nine months of fiscal 2025, primarily driven by the 2.2% increase in total used unit sales. Used vehicle gross profit per unit was in line with the prior year period for both the third quarter and first nine months of fiscal 2025. We continue to focus on striking the right balance between covering cost increases, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Previous wording

Wholesale vehicle gross profit increased 0.9% in the second quarter of fiscal 2025, primarily driven by a $12 increase in wholesale vehicle gross profit per unit, partially offset by a 0.3% decrease in wholesale unit sales. Wholesale vehicle gross profit decreased 3.1% in the first six months of fiscal 2025, primarily driven by a 4.5% decrease in wholesale unit sales, partially offset by a $15 increase in wholesale vehicle gross profit per unit.

Current wording

Wholesale vehicle gross profit increased 12.3% in the third quarter of fiscal 2025, driven by a 6.3% increase in wholesale unit sales and a $54 increase in wholesale vehicle gross profit per unit. Wholesale vehicle gross profit increased 1.3% in the first nine months of fiscal 2025, driven by a $27 increase in wholesale vehicle gross profit per unit, partially offset by a 1.3% decrease in wholesale unit sales.

Previous wording

Other gross profit increased 33.1% and 16.5% in the second quarter and first six months of fiscal 2025, respectively, primarily driven by increases in EPP revenues, as discussed above, as well as improvements in service department margins. The increase in service department profits for both the second quarter and first six months of fiscal 2025 was driven by efficiency and cost coverage measures that we have implemented. The increase in service department margins for the second quarter was also impacted by the increase in used unit sales. We expect to continue to see significant year-over-year favorability in service department profits for the full year of fiscal 2025, as governed by sales performance given the leverage/deleverage nature of service.

Current wording

Other gross profit increased 24.6% and 18.7% in the third quarter and first nine months of fiscal 2025, respectively, primarily driven by increases in EPP revenues, as discussed above, as well as improvements in service department margins. The increase in service department profits for both the third quarter and first nine months of fiscal 2025 was driven by cost coverage measures that we have implemented, increased efficiencies and the increase in used unit sales. We expect to continue to see significant year-over-year favorability in service department profits in the fourth quarter of fiscal 2025 and for the full year, as governed by sales performance given the leverage/deleverage nature of service. We also expect EPP margin per unit to increase slightly year over year in the fourth quarter of fiscal 2025 but to a lesser degree than the increase in the first nine months of fiscal 2025.

Previous wording

SG&A expenses increased $24.9 million, or 4.2%, in the second quarter of fiscal 2025. Factors contributing to the increase include the following:

Current wording

SG&A expenses increased $15.8 million, or 2.8%, in the third quarter of fiscal 2025. Factors contributing to the net increase include the following:

Previous wording

•$13.0 million increase in compensation and benefits, excluding share-based compensation expense, driven by an increase in the corporate bonus accrual, which was reduced in the second quarter of the prior year.

Current wording

•$25.5 million increase in compensation and benefits, excluding share-based compensation expense, driven by an increase in the corporate bonus accrual, which was reduced in the prior year quarter.