CARMAX INC

Previous wording

Third-Party Finance Fees. Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We recognize these fees at the time of sale.

Current wording

Third-Party Finance (Fees)/Income. Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We recognize these fees at the time of sale.

Previous wording

Auto loans held for investment include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans held for investment originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loans held for investment into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans held for investment and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans held for investment serve as collateral for the related non-recourse notes payable of $17.20 billion as of May 31, 2025, and $17.12 billion as of February 28, 2025. See Note 9 for additional information on securitizations and non-recourse notes payable.

Current wording

Auto loans held for investment include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans held for investment originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loans held for investment into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans held for investment and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans held for investment serve as collateral for the related non-recourse notes payable of $17.06 billion as of August 31, 2025, and $17.12 billion as of February 28, 2025. See Note 9 for additional information on securitizations and non-recourse notes payable.

Previous wording

(5) Combined total amount of $101.7 million represents the net provision for loan losses recognized as part of CAF income.

Current wording

(5) Combined total amounts of $142.2 million and $243.9 million represent the net provision for loan losses recognized as part of CAF income for the three and six months ended August 31, 2025.

Previous wording

During the first three months of fiscal 2026, the allowance for loan losses as a percent of total auto loans held for investment increased by 15 basis points. The increase was primarily driven by unfavorable loan loss performance, particularly within loans originated in 2022 and 2023, when average selling prices were elevated and these customers were later challenged by the inflationary environment. This impact was partially offset by the release of the allowance previously recognized on auto loans held for sale. The allowance for loan losses as of May 31, 2025 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 six months of fiscal 2026, the allowance for loan losses as a percent of total auto loans held for investment increasedby 41 basis points. The increase was primarily driven by unfavorable loan loss performance, particularly within loans originated in 2022 and 2023, when average selling prices were elevated and these customers were later challenged by the inflationary environment. This impact was partially offset by the release of the allowance previously recognized on auto loans held for sale. The allowance for loan losses as of August 31, 2025 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 (loss) income (“AOCL”). 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 $26.3 million will be reclassified from AOCL 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 months ended May 31, 2025 and 2024, we recognized expense of $1.0 million and $3.2 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 (loss) income (“AOCL”). 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 $20.3 million will be reclassified from AOCL 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 months ended August 31, 2025 and 2024, we recognized expense of $0.5 million and $4.6 million, respectively, in CAF income representing these changes in fair value. For the six months ended August 31, 2025 and 2024, we recognized expense of $1.6 million and $7.7 million, respectively, in CAF income representing these changes in fair value.

Previous wording

As of May 31, 2025 and February 28, 2025, we had interest rate swaps outstanding with a combined notional amount of $4.15 billion and $3.76 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of May 31, 2025 and February 28, 2025, we had interest rate swaps with a combined notional amount of $127.8 million and $181.0 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.

Current wording

As of August 31, 2025 and February 28, 2025, we had interest rate swaps outstanding with a combined notional amount of $4.31 billion and $3.76 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of August 31, 2025, we hadno interest rate swaps outstanding that were not designated as cash flow hedges for accounting purposes. As of February 28, 2025, we had interest rate swaps with a combined notional amount of $181.0 million 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 May 31, 2025 and February 28, 2025, the current portion of cancellation reserves was $71.8 million and $69.8 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 August 31, 2025 and February 28, 2025, the current portion of cancellation reserves was $72.3 million and $69.8 million, respectively.

Previous wording

We had $19.4 million of gross unrecognized tax benefits as of May 31, 2025, and $18.0 million as of February 28, 2025. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 28, 2025.

Current wording

We had $20.6 million of gross unrecognized tax benefits as of August 31, 2025, and $18.0 million as of February 28, 2025. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 28, 2025.

Previous wording

Term Loan. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 5.33% as of May 31, 2025. The term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Current wording

Term Loan. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 5.36% as of August 31, 2025. The 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 September 2025, the $2.30 billion facility was increased to $2.55 billion and extended with an expiration date of September 2026. 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

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the three months ended May 31, 2025 and 2024, we capitalized interest of $4.0 million and $1.5 million, respectively.

Current wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the six months ended August 31, 2025 and 2024, we capitalized interest of $6.8 million and $3.1 million, respectively.

Previous wording

As of May 31, 2025, a total of $2.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $1.74 billion remained available for repurchase.

Current wording

As of August 31, 2025, a total of $2.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $1.56 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 May 31, 2025 and 2024, options to purchase 7,180,325 shares and 4,796,089 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 August 31, 2025 and 2024, options to purchase 8,610,659 shares and 5,083,556 shares of common stock, respectively, were not included. For the six months ended August 31, 2025 and 2024, options to purchase 8,133,984 shares and 5,133,763 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 (loss) income. The cumulative balances are net of deferred taxes of $2.1 million as of May 31, 2025 and $1.5 million as of February 28, 2025.

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 (loss) income. The cumulative balances are net of deferred taxes of $6.3 million as of August 31, 2025 and $1.5 million as of February 28, 2025.

Previous wording

(1) Finance lease assets are recorded net of accumulated depreciation of $72.2 million as of May 31, 2025 and $67.6 million as of February 28, 2025.

Current wording

(1) Finance lease assets are recorded net of accumulated depreciation of $76.9 million as of August 31, 2025 and $67.6 million as of February 28, 2025.

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 $31.5 million as of May 31, 2025, and $28.8 million as of February 28, 2025, 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 $30.3 million as of August 31, 2025, and $28.8 million as of February 28, 2025, and is included in accrued expenses and other current liabilities.

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 held for investment and auto loans held for sale less the interest expense associated with the debt issued to fund these loans, a provision for estimated loan losses on loans held for investment 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 41.8% of our retail used vehicle unit sales in the first three months of fiscal 2026. As of May 31, 2025, CAF serviced approximately 1.1 million customer accounts in its $17.79 billion portfolio of auto loans.

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 held for investment and auto loans held for sale less the interest expense associated with the debt issued to fund these loans, a provision for estimated loan losses on loans held for investment 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 42.1% of our retail used vehicle unit sales in the first six months of fiscal 2026. As of August 31, 2025, CAF serviced approximately 1.1 million customer accounts in its $17.69 billion portfolio of auto loans.

Previous wording

The sources of revenue and gross profit from the CarMax Sales Operations segment for the first three months of fiscal 2026 are as follows:

Current wording

The sources of revenue and gross profit from the CarMax Sales Operations segment for the first six months of fiscal 2026 are as follows:

Previous wording

A high-level summary of our financial results for the first quarter of fiscal 2026 as compared to the first quarter of fiscal 2025 is as follows (1):

Current wording

A high-level summary of our financial results for the second quarter and first six months of fiscal 2026 as compared to the second quarter and first six months of fiscal 2025 is as follows (1):

Previous wording

Our current capital allocation strategy is to focus on our core business including investing in digital capabilities and the strategic expansion of our store and capacity footprint, pursue CAF’s expansion into the full credit spectrum, pursue new growth opportunities through investments, partnerships and acquisitions and return excess capital to shareholders. For fiscal 2026, we intend to modestly accelerate the pace of our share repurchases as compared to the prior year. We may increase this pace based on valuation and cash flow dynamics, as well as macroeconomic conditions, as we did in the first quarter of fiscal 2026. 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 including investing in digital capabilities and the strategic expansion of our store and capacity footprint, pursue CAF’s expansion into the full credit spectrum, pursue new growth opportunities through investments, partnerships and acquisitions and return excess capital to shareholders. For fiscal 2026, we have and intend to continue to accelerate the pace of our share repurchases as compared to the prior year. We may increase this pace based on valuation and cash flow dynamics, as well as macroeconomic conditions, as we did in the first half of fiscal 2026. 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

We believe that our diversified business model, combined with our exceptional associates, stores, technology and digital capabilities seamlessly tied together, is a key differentiator in a very large and fragmented market that positions us to continue to drive sales, gain market share and deliver significant year-over-year earnings growth for years to come. According to Cox Automotive research, as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience. Our digital capabilities and overall experiences are resonating with customers as evidenced by our net promoter score, which is the highest it has been since rolling out our digital capabilities nationwide. In fiscal 2026, we plan to leverage and enhance our capabilities to drive growth through better execution, innovative efforts and upleveled experiences. Examples of our initiatives for fiscal 2026 include the following:

Current wording

We believe that our diversified business model, combined with our exceptional associates, stores, technology and digital capabilities seamlessly tied together, is a key differentiator in a very large and fragmented market that positions us to continue to drive sales, gain market share and deliver significant year-over-year earnings growth for years to come. According to Cox Automotive research, as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience. Our net promoter score is the highest it has been since we rolled out our digital capabilities nationwide, driven by record-high satisfaction among customers purchasing online as well as those using our omni-channel experience. In fiscal 2026, we plan to leverage and enhance our capabilities to drive growth through better execution, innovative efforts and upleveled experiences. Examples of our initiatives for fiscal 2026 include the following:

Previous wording

•For retail, we plan to continue leveraging data science and AI to offer even better digital experiences for associates and consumers, driving conversion and efficiency. We plan to improve our online vehicle transfer experience and expand the functionality of Skye, our AI-powered virtual assistant, with additional data and new architecture.

Current wording

•For retail, we plan to continue leveraging data science and AI to offer even better digital experiences for associates and consumers, driving conversion and efficiency. We plan to improve our online vehicle transfer experience and expand the functionality of Skye, our AI-powered virtual assistant, with additional data and new architecture. We recently completed the full roll-out of Skye 2.0, which leverages agentic AI, and we expect this release will drive even more efficiency and experience improvements.

Previous wording

•For supply, we plan to streamline the online appraisal checkout process, expand appraisal pick-up availability to new markets and further enhance MaxOffer to attract new dealers, expanding our access to directly sourced vehicles.

Current wording

•For supply, we plan to continue to streamline the online appraisal checkout process, expand appraisal pick-up availability to new markets and further enhance MaxOffer to attract new dealers, expanding our access to directly sourced vehicles.

Previous wording

•For credit, we plan to continue expanding CAF’s participation across the credit spectrum to grow penetration and capture profitable returns. As part of that strategy, we plan to execute the programmatic sale of the financial interest in a non-prime securitization once per year. We expect this additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide us with significant flexibility and allow us to mitigate risk while focusing on our growth plan. Additionally, we plan to modernize the ownership experience on CAF’s digital platform, which is expected to enhance the customer experience and drive operating efficiencies.

Current wording

•For credit, we plan to continue expanding CAF’s participation across the credit spectrum to grow penetration and capture profitable returns. As part of that strategy, we plan to execute the programmatic sale of the financial interest in a non-prime securitization once per year, the first of which was completed in September 2025. We expect this additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide us with significant flexibility and allow us to mitigate risk while focusing on our growth plan. Additionally, we plan to modernize the ownership experience on CAF’s digital platform, which is expected to enhance the customer experience and drive operating efficiencies.

Previous 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 2026, we expect to require low-single-digit gross profit growth to lever SG&A. This will be supported by our goal of becoming omni cost neutral for the first time for the full year of fiscal 2026. Omni-channel costs include commissions and the cost of operating our Customer Experience Centers (“CECs”). We expect our omni-channel costs per used unit, per total unit and as a percentage of gross profit for the full year of fiscal 2026 to be more efficient than before our omni-channel roll-out. This reinforces our pathway back to a lower SG&A leverage ratio, as noted above.

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 2026, we expect to require low-single-digit gross profit growth to lever SG&A. This will be supported by our goal of becoming omni cost neutral for the first time for the full year of fiscal 2026. Omni-channel costs include commissions and the cost of operating our Customer Experience Centers (“CECs”). We expect our omni-channel costs per used unit, per total unit and as a percentage of gross profit for the full year of fiscal 2026 to be more efficient than before our omni-channel roll-out.

Previous wording

For the first quarter of fiscal 2026, we were more efficient compared to both before our omni-channel roll-out and the prior year across all three metrics noted above. A key driver of these efficiency gains has been our strategic deployment of AI technology across our operations. A few key metrics that illustrate the progress we are making year-over-year include a 30% improvement in containment rate for Skye, a 24% improvement in productivity for our CEC consultants and double digit improvement in phone and web response rate metrics. We believe there are significant opportunities to continue expanding AI applications across our business to drive both top-line growth and operational excellence.

Current wording

For the second quarter of fiscal 2026, we were more efficient compared to both before our omni-channel roll-out and the prior year across all three metrics noted above. A key driver of these efficiency gains has been our strategic deployment of AI technology. For example, Skye continued to deliver year-over-year improvements, with containment rate, CEC consultant productivity and phone and web response rate metrics all improving by double digits. We believe there are significant opportunities to continue expanding AI applications across our business to drive both top-line growth and operational excellence.

Previous wording

In calendar 2024, we estimate we sold approximately 3.7% of the age 0- to 10-year old vehicles sold on a nationwide basis, consistent with calendar 2023. Our strategy to increase our market share includes focusing on:

Current wording

In calendar 2024, we estimate we sold approximately 3.7% of the age 0- to 10-year old vehicles sold on a nationwide basis, consistent with calendar 2023. We expect to gain market share in calendar 2025. Our strategy to increase our market share includes focusing on:

Previous wording

As of May 31, 2025, 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 three months of fiscal 2026, we opened two stand-alone reconditioning/auction centers located in El Mirage, Arizona, supporting the Phoenix metro market, and Midlothian, Texas, supporting the Dallas metro market. During the remainder of the fiscal year, we plan to open six stores and two additional stand-alone reconditioning/auction facilities. We are utilizing our stand-alone reconditioning and auction locations to balance capacity and drive efficiencies across the network.

Current wording

As of August 31, 2025, we operated 253 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 2026, we opened three stores located in Tuscaloosa, Alabama, El Cajon, California and Hagerstown, Maryland. In addition, we opened three stand-alone reconditioning/auction centers located in El Mirage, Arizona, supporting the Phoenix metro market, Midlothian, Texas, supporting the Dallas metro market, and New Kent, Virginia, supporting the Richmond metro market. During the remainder of the fiscal year, we plan to open three additional stores and one additional stand-alone reconditioning/auction facility. We are utilizing our stand-alone reconditioning and auction locations to balance capacity and drive efficiencies across the network.

Previous wording

The decrease in average retail selling price in the first quarter of fiscal 2026 primarily reflected shifts in the mix of our sales by vehicle age.

Current wording

The decrease in average retail selling price in the second quarter and first six months of fiscal 2026 primarily reflected shifts in the mix of our sales by vehicle age and class, partially offset by an increase in vehicle acquisition costs.

Previous wording

The 0.3% decrease in wholesale vehicle revenues in the first quarter of fiscal 2026 was driven by a 1.7% decrease in average selling price, or approximately $150, partially offset by a 1.2% increase in unit sales.

Current wording

The 0.4% decrease in wholesale vehicle revenues in the second quarter of fiscal 2026 was driven by a 2.2% decrease in unit sales, partially offset by a 1.6% increase in average selling price, or approximately $125. During the second quarter of fiscal 2026, wholesale unit sales were impacted by our decision to lower buys in order to balance our inventory with sales. We are no longer intentionally lowering buys and anticipate year-over-year improvement for the third quarter of fiscal 2026. For the first six months of fiscal 2026, wholesale vehicle revenues decreased 0.4%, driven by a 0.5% decrease in unit sales.

Previous wording

The decrease in average selling price during the first quarter of fiscal 2026 was primarily due to shifts in the mix of our sales by vehicle age.

Current wording

The increase in average selling price during the second quarter of fiscal 2026 was primarily due to increased acquisition costs.

Previous wording

Other Sales and Revenues. Other sales and revenues include revenue from the sale of ESPs and GAP (collectively reported in EPP revenues, net of a reserve for estimated contract cancellations), net third-party finance fees, advertising and subscription revenues earned by our Edmunds business, and other revenues, which are predominantly comprised of service department sales. The fees we pay to the Tier 3 providers are reflected as an offset to finance fee revenues received from the Tier 2 providers. The mix of our retail vehicles financed by CAF, Tier 2 and Tier 3 providers, or customers that arrange their own financing, may vary from quarter to quarter depending on several factors, including the credit quality of applicants, changes in providers’ credit decisioning and external market conditions. Changes in originations by one tier of credit providers may also affect the originations made by providers in other tiers.

Current wording

Other Sales and Revenues. Other sales and revenues include revenue from the sale of ESPs and GAP (collectively reported in EPP revenues, net of a reserve for estimated contract cancellations), net third-party finance (fees)/income, advertising and subscription revenues earned by our Edmunds business, and other revenues, which are predominantly comprised of service department sales. The fees we pay to the Tier 3 providers are reflected as an offset to finance fee revenues received from the Tier 2 providers. The mix of our retail vehicles financed by CAF, Tier 2 and Tier 3 providers, or customers that arrange their own financing, may vary from quarter to quarter depending on several factors, including the credit quality of applicants, changes in providers’ credit decisioning and external market conditions. Changes in originations by one tier of credit providers may also affect the originations made by providers in other tiers.

Previous wording

Used vehicle gross profit increased 11.8% in the first quarter of fiscal 2026, primarily driven by the 9.0% increase in total used unit sales and a $60 increase in used vehicle gross profit per unit. We continue to focus on striking the right balance between managing changes in vehicle costs, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Current wording

Used vehicle gross profit decreased 7.6% in the second quarter of fiscal 2026, primarily driven by the 5.4% decrease in total used unit sales and a $53 decrease in used vehicle gross profit per unit. While used vehicle gross profit per unit was relatively in line with the prior year period, it was down approximately $200 from the first quarter of fiscal 2026. As noted above, we intentionally lowered retail margin in the second quarter to drive the sell-through of inventory in response to depreciation, negatively impacting our used vehicle gross profit per unit. Used vehicle gross profit increased 2.3% in the first six months of fiscal 2026, primarily driven by the 1.8% increase in total used unit sales and a $10 increase in used vehicle gross profit per unit. For the third quarter of fiscal 2026, we expect used vehicle gross profit per unit to be consistent with our historical average but down from the record high in the prior year. We continue to focus on striking the right balance between managing changes in vehicle costs, maintaining margin and passing along efficiencies to consumers to support vehicle affordability.

Previous wording

Wholesale vehicle gross profit decreased 0.4% in the first quarter of fiscal 2026, driven by a $17 decrease in wholesale vehicle gross profit per unit, partially offset by a 1.2% increase in wholesale unit sales.

Current wording

Wholesale vehicle gross profit decreased 0.4% in the second quarter of fiscal 2026, driven by a 2.2% decrease in wholesale unit sales, partially offset by an $18 increase in wholesale vehicle gross profit per unit. Wholesale vehicle gross profit decreased 0.4% in the first six months of fiscal 2026, driven by a 0.5% decrease in wholesale unit sales. Wholesale vehicle gross profit per unit for the first six months was in line with the prior year period. For the third quarter of fiscal 2026, we expect wholesale vehicle gross profit per unit to be consistent with our historical average but down from the prior year, which was historically strong.

Previous wording

Other Gross Profit. Other gross profit includes profits related to EPP revenues, net third-party finance fees, advertising and subscription profits earned by our Edmunds business, and other revenues. Other revenues are predominantly comprised of service department operations, including used vehicle reconditioning. We have no cost of sales related to EPP revenues or net third-party finance fees, as these represent revenues paid to us by certain third-party providers. Third-party finance income is reported net of the fees we pay to third-party Tier 3 finance providers. Accordingly, changes in the relative mix of the components of other gross profit can affect the composition and amount of other gross profit.

Current wording

Other Gross Profit. Other gross profit includes profits related to EPP revenues, net third-party finance (fees)/income, advertising and subscription profits earned by our Edmunds business, and other revenues. Other revenues are predominantly comprised of service department operations, including used vehicle reconditioning. We have no cost of sales related to EPP revenues or net third-party finance (fees)/income, as these represent revenues paid to us by certain third-party providers. Third-party finance income is reported net of the fees we pay to third-party Tier 3 finance providers. Accordingly, changes in the relative mix of the components of other gross profit can affect the composition and amount of other gross profit.

Previous wording

Other gross profit increased 31.3% in the first quarter of fiscal 2026, primarily driven by increases in service department margins as well as EPP revenues, as discussed above. The increase in service department margins for the first quarter of fiscal 2026 was driven by cost coverage measures that we have implemented, the increase in used unit sales and increased efficiencies. In fiscal 2026, we are testing EPP product enhancements that will focus on increasing penetration and margin per unit. We expect this will result in a slight year-over-year increase in EPP margin per unit during fiscal 2026, with the potential for more expansion in fiscal 2027. In addition, we expect service margin to grow year-over-year in fiscal 2026, predominantly in the first half of the year, and to deliver a positive profit contribution for the full year, as governed by sales performance given the leverage/deleverage nature of service. We expect service will continue to serve as a slight profit lever beyond fiscal 2026.

Current wording

Other gross profit decreased 4.2% in the second quarter of fiscal 2026, primarily driven by the decline in EPP revenues, as discussed above. Other gross profit increased 13.2% in the first six months of fiscal 2026, primarily driven by increases in service department margins as well as EPP revenues, as discussed above. The increase in service department margins was driven by cost coverage measures that we have implemented, the increase in used unit sales and increased efficiencies. In fiscal 2026, we are testing EPP product enhancements that will focus on increasing penetration and margin per unit. We expect this will result in a slight year-over-year increase in EPP margin per unit during fiscal 2026, with the potential for more expansion in fiscal 2027. In addition, we expect service margin to face pressure in the back half of fiscal 2026 due to seasonal sales volumes. We continue to expect to deliver a positive profit contribution for the full fiscal year, as governed by sales performance given the leverage/deleverage nature of service. We expect service will continue to serve as a slight profit lever beyond fiscal 2026.

Previous wording

SG&A expenses increased $21.1 million, or 3.3%, in the first quarter of fiscal 2026. The increase was driven by a $20.9 million increase in compensation and benefits, excluding share-based compensation expense, primarily due to costs related to unit volume growth.

Current wording

SG&A expenses increased $11.6 million, or 0.9%, in the first six months of fiscal 2026. The increase was driven by a $23.0 million increase in compensation and benefits, excluding share-based compensation expense, primarily due to costs related to unit volume growth as well as cost pressures. This increase was partially offset by an $11.2 million decrease in share-based compensation expense primarily related to cash-settled restricted stock units, as the expense associated with these units was primarily driven by the change in the company's stock price during the relevant periods.

Previous wording

SG&A leveraged by 680 basis points during the first quarter of fiscal 2026, driven by the growth in gross profit and ongoing cost management efforts in the stores and CECs.

Current wording

SG&A deleveraged by 350 basis points during the second quarter of fiscal 2026, driven by the decline in gross profit. SG&A leveraged by 230 basis points during the first six months of fiscal 2026, driven by the growth in gross profit and ongoing cost management efforts in the stores and CECs.

Previous wording

For fiscal 2026, we expect that full year marketing spend on a per total unit basis will be in line with fiscal 2025 at approximately $200 per total unit.

Current wording

For the remainder fiscal 2026, we expect an increase in marketing spend on a per total unit basis, particularly in the third quarter, as we support our new brand positioning launch. We expect that marketing spend on a per total unit basis for the full year of fiscal 2026 will be in line with, or slightly above, fiscal 2025.

Previous wording

Interest expense of $27.1 million in the first quarter of fiscal 2026 was relatively consistent with $31.4 million in the first quarter of fiscal 2025.

Current wording

Interest expense of $28.5 million and $55.5 million in the second quarter and first six months of fiscal 2026, respectively, was relatively consistent with $27.0 million and $58.4 million in the second quarter and first six months of fiscal 2025, respectively.