CARMAX INC

Previous wording

We typically use securitizations or other funding arrangements to fund loans originated by CAF. Certain pools of loans may be sold in such a way that CAF relinquishes all, or nearly all, of its continuing financial interests in the loans. We classify these loans as held for sale when we have both the intent and ability to sell the loans in an off-balance sheet transaction. Auto loans held for sale include amounts due from customers related to retail vehicles financed through CAF and are assessed on an aggregate basis to determine the lower of amortized cost or fair value. The fair value of the auto loans held for sale is determined using a discounted cash flow model that utilizes various assumptions based on the company's historical experience and current market factors. If the amortized cost exceeds the fair value, a valuation allowance is recorded. No valuation allowance is recorded as of August 31, 2025. See Note 6 for discussion of fair values of financial instruments.

Current wording

We typically use securitizations or other funding arrangements to fund loans originated by CAF. Certain pools of loans may be sold in such a way that CAF relinquishes all, or nearly all, of its continuing financial interests in the loans. We classify these loans as held for sale when we have both the intent and ability to sell the loans in an off-balance sheet transaction. Auto loans held for sale include amounts due from customers related to retail vehicles financed through CAF and are assessed on an aggregate basis to determine the lower of amortized cost or fair value. The fair value of the auto loans held for sale is determined using a discounted cash flow model that utilizes various assumptions based on the company's historical experience and current market factors. If the amortized cost exceeds the fair value, a valuation allowance is recorded. As of November 30, 2025, there were no auto loans held for sale.

Previous wording

On September 24, 2025, we executed a non-prime securitization transaction. The structure of the transaction resulted in CarMax recognizing the sale of approximately $930 million of auto loans, inclusive of accrued interest, in exchange for consideration in the form of cash and beneficial interests. The beneficial interests represent the 5% interest in the rated notes and residual certificate that we retained as the sponsor of the transaction. CarMax expects to recognize a gain on sale of approximately $25 million to $30 million from the transaction, net of transaction expenses, in the third quarter of fiscal 2026. Subsequent to this transaction, the sold auto loans will no longer be recognized on the CarMax consolidated balance sheets. As servicer, CAF will continue to be responsible for managing collections and performing other servicing activities for the sold auto loans and will earn servicing income as compensation for these activities.

Current wording

On September 24, 2025, we executed a non-prime securitization transaction. The structure of the transaction resulted in the sale of approximately $930 million of auto loans, inclusive of accrued interest, in exchange for consideration in the form of cash and beneficial interests. The beneficial interests represent the 5% interest in the rated notes and residual certificate that we retained as the sponsor of the transaction. We recognized a gain on sale of $27.0 million from the transaction, net of transaction expenses, in the third quarter of fiscal 2026. As of November 30, 2025, we were not the primary beneficiary of this securitization trust as our retained interests do not have exposure to losses or benefits that could potentially be significant. As a result, we did not consolidate this securitization trust and the sold auto loans are no longer recognized on our consolidated balance sheets. As servicer, CAF will continue to be responsible for managing collections and performing other servicing activities for the sold auto loans and will earn servicing income as compensation for these activities.

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 $17.06 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.

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 $15.97 billion as of November 30, 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 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.

Current wording

(5) Combined total amount of $317.3 million represents the net provision for loan losses recognized as part of CAF income for the nine months ended November 30, 2025.

Previous 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.

Current wording

During the first nine months of fiscal 2026, the allowance for loan losses as a percent of total auto loans held for investment increasedby 26 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 November 30, 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 $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.

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 $14.8 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 November 30, 2025, no expense was recognized in CAF income representing these changes in fair value. For the three months ended November 30, 2024, expense of $2.2 million was recognized in CAF income representing these changes in fair value. For the nine months ended November 30, 2025 and 2024, we recognized expense of $1.6 million and $9.9 million, respectively, in CAF income representing these changes in fair value.

Previous 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.

Current wording

As of November 30, 2025 and February 28, 2025, we had interest rate swaps outstanding with a combined notional amount of $3.63 billion and $3.76 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of November 30, 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 August 31, 2025 and February 28, 2025, the current portion of cancellation reserves was $72.3 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 November 30, 2025 and February 28, 2025, the current portion of cancellation reserves was $70.6 million and $69.8 million, respectively.

Previous 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.

Current wording

We had $22.8 million of gross unrecognized tax benefits as of November 30, 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

On July 4, 2025, federal legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes provisions that make 100% bonus depreciation permanent, allows for the expensing of domestic research costs and modifies the business interest expense limitation calculation. These changes were incorporated into our income tax provision for the six months ended August 31, 2025, resulting in an increase in our deferred tax expense, offset by a corresponding decrease in our current tax expense. We do not expect the OBBBA to have a material impact on our fiscal 2026 effective tax rate.

Current wording

On July 4, 2025, federal legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes provisions that make 100% bonus depreciation permanent, allows for the expensing of domestic research costs and modifies the business interest expense limitation calculation. These changes were incorporated into our income tax provision for the nine months ended November 30, 2025, resulting in an increase in our deferred tax expense, offset by a corresponding decrease in our current tax expense. We do not expect the OBBBA to have a material impact on our fiscal 2026 effective tax rate.

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 5.36% 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.

Current wording

Term Loan. In November 2025, we amended our $700 million term loan to extend the maturity date to November 2030. In addition, we paid $200 million of the outstanding principal balance, reducing the loan to $500 million. The amendment did not modify existing covenants or other material terms. Borrowings under the $500 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 4.91% as of November 30, 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. 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.

Current 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.

Previous 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.

Current wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the nine months ended November 30, 2025 and 2024, we capitalized interest of $11.0 million and $5.3 million, respectively.

Previous 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.

Current wording

As of November 30, 2025, a total of $2.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $1.36 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, 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.

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, 2025 and 2024, options to purchase 8,600,764 shares and 4,948,231 shares of common stock, respectively, were not included. For the nine months ended November 30, 2025 and 2024, options to purchase 8,315,877 shares and 5,235,364 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 $6.3 million as of August 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 $8.2 million as of November 30, 2025 and $1.5 million as of February 28, 2025.

Previous 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.

Current wording

(1) Finance lease assets are recorded net of accumulated depreciation of $81.5 million as of November 30, 2025 and $67.6 million as of February 28, 2025.

Previous wording

Litigation. The company is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan, Ford and Volkswagen related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2019. In April 2020, CarMax received $40.3 million in net recoveries from the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlement funds. In January 2022, CarMax received $3.8 million in net recoveries from the Ford settlement funds. On April 21, 2023, CarMax received $59.3 million in net recoveries from residual undisbursed funds in the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlements. On August 9, 2023, CarMax received $7.9 million in additional residual funds in the BMW, Mazda, and Nissan settlements. CarMax remains a class member for residual funds in the Ford settlement. The Volkswagen settlement has not yet been resolved. We are unable to make a reasonable estimate of the amount or range of gain that could result from CarMax’s participation in the Ford residual or Volkswagen matters.

Current wording

Litigation. The company is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan, Ford and Volkswagen related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2019. In April 2020, CarMax received $40.3 million in net recoveries from the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlement funds. In January 2022, CarMax received $3.8 million in net recoveries from the Ford settlement funds. On April 21, 2023, CarMax received $59.3 million in net recoveries from residual undisbursed funds in the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlements. On August 9, 2023, CarMax received $7.9 million in additional residual funds in the BMW, Mazda, and Nissan settlements. On December 19, 2025, CarMax received $8.2 million in additional residual funds in the Ford settlement. The Volkswagen settlement has not yet been resolved. We are unable to make a reasonable estimate of the amount or range of gain that could result from CarMax’s participation in the Volkswagen matter.

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 $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.

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 $23.5 million as of November 30, 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 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.

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 42.3% of our retail used vehicle unit sales in the first nine months of fiscal 2026. As of November 30, 2025, CAF serviced approximately 1.0 million customer accounts in its $16.53 billion portfolio of auto loans.

Previous 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:

Current wording

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

Previous 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):

Current wording

A high-level summary of our financial results for the third quarter and first nine months of fiscal 2026 as compared to the third quarter and first nine 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 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.

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 accelerated the pace of our share repurchases as compared to the prior year. We may adjust this pace based on valuation and cash flow dynamics, as well as macroeconomic conditions. 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 also plan to accelerate our pace of SG&A expense reduction. Our goal of at least $150 million in SG&A expense reductions over the next 18 months represents a material improvement in our cost profile and reflects the execution of a plan that we have been developing with outside support. While we plan to realize some of these savings in fiscal 2026, we expect the vast majority will be realized in our exit rate by the end of fiscal 2027. In addition to offsetting inflationary pressures, these ongoing savings will provide additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our already robust earnings model, as discussed below.

Current wording

As previously mentioned, we plan to accelerate our pace of SG&A expense reduction. We are on track to achieve our goal of at least $150 million in exit rate savings in SG&A expense by the end of fiscal 2027. We took our first significant step toward these savings during the third quarter with an approximately 30% reduction in our CEC workforce, which we expect will result in annualized savings of approximately $35 million. In addition to offsetting inflationary pressures, these ongoing savings will enable additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our earnings.

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.

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. Generally, 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 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. For the third 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.

Previous wording

We are also 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 achieved savings of approximately $125 per unit in fiscal 2025 and anticipate that we will achieve another $125 per unit in fiscal 2026. These efficiencies support affordability as we pass savings on to our customers and also support our margins.

Current wording

We are also 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 achieved savings of approximately $125 per unit in fiscal 2025. Due to our recent sales performance, we expect that our savings in fiscal 2026 will be slightly below our goal of another $125 per unit. These efficiencies support affordability as we pass savings on to our customers and also support our margins.

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. We expect to gain market share in calendar 2025. 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. While we gained market share in the first half of calendar 2025, sales and market share have been pressured in the second half of the year and we expect market share to decrease for the full calendar year.

Previous 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.

Current wording

As of November 30, 2025, we operated 255 used car stores located in 110 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 2026, we opened five stores located in Tuscaloosa, Alabama, El Cajon, California, Hagerstown, Maryland, Tulalip, Washington and Rogers, Arkansas. 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 one additional store 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

While we execute both our short- and long-term strategy, there are trends and factors that could impact our strategic approach or our results in the short and medium term. For additional information about risks and uncertainties facing our company, see “Risk Factors,” included in Part I. Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2025.

Current wording

While we execute both our short- and long-term strategy, there are trends and factors that could impact our strategic approach or our results in the short and medium term. For additional information about risks and uncertainties facing our company, see “Risk Factors,” included in Part I. Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2025 and Part II, Item 1A of this report.

Previous wording

During the first six months of fiscal 2026, we opened three stores in existing television markets (Tuscaloosa, AL; El Cajon, CA; and Hagerstown, MD).

Current wording

During the first nine months of fiscal 2026, we opened five stores (Tuscaloosa, AL; El Cajon, CA; Hagerstown, MD; Tulalip, WA; and Rogers, AR).

Previous wording

Used Vehicle Sales. The 7.2% decrease in used vehicle revenues in the second quarter of fiscal 2026 was driven by a 5.4% decrease in used unit sales as well as a 1.0% decrease in average retail selling price, or approximately $250. The decrease in used units included a 6.3% decrease in comparable store used unit sales. Pressured performance across our inventory aged 0-5 years was partially offset by increased sales of older, higher mileage vehicles. In response to the increase in sales volume in March and April due to tariff speculation, we ramped up inventory ahead of the second quarter in support of this growth. During the back half of May and through the end of June, we saw approximately $1,000 in depreciation across our inventory, which negatively impacted our price competitiveness and sales. In response, we lowered our used margin in the second quarter to drive the sell-through of inventory. As a result, price competitiveness has improved and we believe we are better positioned for the third quarter. In addition, we believe our second quarter sales were negatively impacted by a pull forward of demand into the first quarter in response to speculation about tariffs. The 0.2% increase in used vehicle revenues in the first six months of fiscal 2026 was driven by a 1.8% increase in used unit sales, partially offset by a 1.2% decrease in average retail selling price, or approximately $300. The increase in used units included a 0.9% increase in comparable store used unit sales. Comparable store used unit sales for September are currently stronger than our second quarter results but down slightly year-over-year.

Current wording

Used Vehicle Sales. The 7.0% decrease in used vehicle revenues in the third quarter of fiscal 2026 was driven by an 8.0% decrease in used unit sales, partially offset by a 0.9% increase in average retail selling price, or $230. The decrease in used units included a 9.0% decrease in comparable store used unit sales. Notwithstanding that comparable store used unit sales for September were stronger than our second quarter results, comparable store used unit sales for the remainder of the quarter declined sharply. Pressured performance across our inventory aged 0-5 years was partially offset by increased sales of older, higher mileage vehicles, which represented over 40% of our sales in the third quarter, an increase of approximately 5% compared to the second quarter and the prior year third quarter. The 2.0% decrease in used vehicle revenues in the first nine months of fiscal 2026 was driven by a 1.1% decrease in used unit sales and a 0.6% decrease in average retail selling price, or approximately $160. The decrease in used units included a 2.1% decrease in comparable store used unit sales.

Previous 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.

Current wording

The increase in average retail selling price in the third quarter of fiscal 2026 primarily reflected an increase in vehicle acquisition costs, driven by a year-over-year increase in market prices, as well as a shift in the mix of our sales by vehicle class, partially offset by a shift in the mix of our sales toward older, higher mileage vehicles. The decrease in average retail selling price in the first nine months of fiscal 2026 primarily reflected a shift in the mix of our sales by vehicle age, partially offset by an increase in vehicle acquisition costs.

Previous 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.

Current wording

The 6.3% decrease in wholesale vehicle revenues in the third quarter of fiscal 2026 was driven by a 6.2% decrease in unit sales. For the first nine months of fiscal 2026, wholesale vehicle revenues decreased 2.3%, driven by a 2.3% decrease in unit sales.

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)/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.

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

Previous wording

Other sales and revenues decreased 4.2% in the second quarter of fiscal 2026, reflecting a 5.2% decrease in EPP revenues. The decrease in EPP revenues was driven by the decline in retail unit sales. For the first six months of fiscal 2026, other sales and revenues increased 0.9%, reflecting a 2.7% increase in EPP revenues. The increase in EPP revenues reflected favorable reserve adjustments and increased margins, partially offset by decreased penetration.

Current wording

Other sales and revenues decreased 9.2% in the third quarter of fiscal 2026, driven by an 8.4% decrease in EPP revenues. The decrease in EPP revenues was driven by the decline in retail unit sales. For the first nine months of fiscal 2026, other sales and revenues decreased slightly compared to the prior year period.

Previous 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.

Current wording

Used vehicle gross profit decreased 10.8% in the third quarter of fiscal 2026, primarily driven by the 8.0% decrease in total used unit sales. Used vehicle gross profit per unit decreased $71, down from the record high in the prior year period but consistent with historical averages. Used vehicle gross profit decreased 1.7% in the first nine months of fiscal 2026, primarily driven by the 1.1% decrease in total used unit sales. 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. In the fourth quarter of fiscal 2026, we will be meaningfully lowering used vehicle margins to reduce the gap between our offerings and the marketplace.

Previous 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.

Current wording

Wholesale vehicle gross profit decreased 16.9% in the third quarter of fiscal 2026, driven by a $116 decrease in wholesale vehicle gross profit per unit and a 6.2% decrease in wholesale unit sales. Wholesale vehicle gross profit decreased 5.6% in the first nine months of fiscal 2026, driven by a $35 decrease in wholesale vehicle gross profit per unit and a 2.3% decrease in wholesale unit sales. Wholesale volume and margin per unit were negatively impacted by steep market depreciation, primarily during the third quarter of fiscal 2026.

Previous 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.

Current wording

Other gross profit decreased 16.0% in the third quarter of fiscal 2026, primarily driven by the decline in EPP revenues, as discussed above. Other gross profit increased 4.8% in the first nine months of fiscal 2026, primarily driven by an increase in service department margins. The increase in service department margins was driven by cost coverage measures that we have implemented and increased efficiencies. In fiscal 2026, we are testing EPP product enhancements that will focus on increasing penetration and margin per unit. We expect EPP margin per unit will be relatively flat during fiscal 2026, with the potential for year-over-year growth due to continued expansion in fiscal 2027. While we expect service margins to continue to face pressure in the fourth quarter of fiscal 2026 due to seasonal sales volumes, we expect service margins to be close to breakeven for the full fiscal year, as governed by sales performance given the leverage/deleverage nature of service.

Previous wording

SG&A expenses decreased $9.5 million, or 1.6%, in the second quarter of fiscal 2026, primarily driven by a $9.7 million decrease in share-based compensation expense. This decrease was 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. The continued realization of expense efficiencies were offset by cost pressures during the quarter.

Current wording

SG&A expenses increased $5.6 million, or 1.0%, in the third quarter of fiscal 2026, primarily driven by a $19.6 million increase in advertising expense to support our new brand positioning campaign. The increase was partially offset by a $7.6 million decrease in share-based compensation expense. This decrease was 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. Additionally, there was a net $4.5 million decrease in compensation and benefits, excluding share-based compensation expense, driven by a decrease in the corporate bonus accrual, partially offset by severance costs for both the CEO change and the reduction in workforce in our CECs.

Previous 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.

Current wording

SG&A expenses increased $17.2 million, or 0.9%, in the first nine months of fiscal 2026. The increase was driven by a net $18.6 million increase in compensation and benefits, excluding share-based compensation expense, driven by the severance costs discussed above as well as cost pressures, partially offset by a decrease in the corporate bonus accrual. Additionally, there was a $16.5 million increase in advertising expense to support our new brand positioning campaign. These increases were partially offset by an $18.8 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.