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. As of May 31, 2026, the carrying value of auto loans held for sale was $619.0 million and no valuation allowance was recorded. Once sold, CAF, as servicer, continues to be responsible for managing collections and performing other servicing activities for the sold auto loans and earns servicing income as compensation for these activities.

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. As of August 31, 2026, the carrying value of auto loans held for sale was $106.5 million and no valuation allowance was recorded. Once sold, CAF, as servicer, continues to be responsible for managing collections and performing other servicing activities for the sold auto loans and earns servicing income as compensation for these activities. During the second quarter, we executed a non-prime securitization transaction that resulted in the sale of approximately $596 million of auto loans, inclusive of accrued interest, in exchange for consideration in the form of cash and beneficial interests. We recognized a gain on sale of $16.6 million from the transaction, net of transaction expenses.

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 $16.08 billion as of May 31, 2026, and $15.83 billion as of February 28, 2026. 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 $15.72 billion as of August 31, 2026, and $15.83 billion as of February 28, 2026. See Note 9 for additional information on securitizations and non-recourse notes payable.

Previous wording

(2) Represents release of allowance previously recognized on auto loans held for sale.

Current wording

(2) Represents release of allowance previously recognized on auto loans held for investment upon transfer to held for sale.

Previous wording

(5) Combined total amounts of $95.6 million and $101.7 million represent the net provision for loan losses recognized as part of CAF income for the three months ended May 31, 2026 and 2025, respectively.

Current wording

(5) Combined total amounts of $113.4 million, $209.0 million, $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, 2026 and 2025, respectively.

Previous wording

During the first three months of fiscal 2027, the allowance for loan losses as a percentage of total auto loans held for investment increasedby 17 basis points. The increase was primarily driven by our continued expansion in the Tier 2 credit space, along with seasonality as the credit mix of new originations tends to shift down the credit spectrum during tax season. 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, 2026 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 2027, the allowance for loan losses as a percentage of total auto loans held for investment increased by 29 basis points. The increase was primarily driven by our continued expansion in the Tier 2 credit space, 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, 2026 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.

Previous wording

We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt. Primary exposures include SOFR and other rates used as benchmarks in our securitizations and other debt financing. We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and generally designate these derivative instruments as cash flow hedges for accounting purposes. In certain cases, we may choose not to designate a derivative instrument as a cash flow hedge for accounting purposes due to uncertainty around the probability that future hedged transactions will occur. Our derivative instruments are used to manage (i) differences in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding of our auto loans held for investment, and (ii) exposure to variable interest rates associated with our term loan.

Current wording

We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt. Primary exposures include SOFR and other rates used as benchmarks in our securitizations and other debt financing. We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and generally designate these derivative instruments as cash flow hedges for accounting purposes. In certain cases, we may choose not to designate a derivative instrument as a cash flow hedge for accounting purposes due to uncertainty around the probability that future hedged transactions will occur. Our derivative instruments are used to manage (i) differences in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding of our auto loans held for investment, and (ii) exposure to variable interest rates associated with our term loans.

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 (“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 $15.0 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, 2026, we didnot recognize expense in CAF income representing these changes in fair value. For the three months ended May 31, 2025, we recognized $1.0 million 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 (“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 $11.2 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 and six months ended August 31, 2026, we didnot recognize expense in CAF income representing these changes in fair value. For the three and six months ended August 31, 2025, we recognized $0.5 million and $1.6 million in CAF income representing these changes in fair value.

Previous wording

As of May 31, 2026 and February 28, 2026, we had interest rate swaps outstanding with a combined notional amount of $3.68 billion and $3.76 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of May 31, 2026 and February 28, 2026, we hadno interest rate swaps outstanding that were not designated as cash flow hedges for accounting purposes.

Current wording

As of August 31, 2026 and February 28, 2026, we had interest rate swaps outstanding with a combined notional amount of $3.60 billion and $3.76 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of August 31, 2026 and February 28, 2026, we hadno interest rate swaps outstanding that were not designated as cash flow hedges for accounting purposes.

Previous wording

The fair values of our beneficial interests for all rated notes are classified as Level 2 and are based on non-binding bank quotes. The non-binding bank quotes are based on recent market transactions and current business conditions. The fair value of our beneficial interest for the residual certificate is classified as Level 3 due to the lack of observable market data. The fair value is determined using a discounted cash flow model. As of May 31, 2026, the discount rate used was approximately 18%. Significant increases or decreases in the inputs to the models could result in a significantly higher or lower fair value measurement.

Current wording

The fair values of our beneficial interests for all rated notes are classified as Level 2 and are based on non-binding bank quotes or the selling price at the time of the transaction for the most recent securitization. The non-binding bank quotes are based on recent market transactions and current business conditions. The fair value of our beneficial interest for the residual certificates is classified as Level 3 due to the lack of observable market data. For the most recent securitization, the fair value is based on the selling price at the time of the transaction. For the remaining residual certificate, the fair value is determined using a discounted cash flow model. As of August 31, 2026, the discount rate used was approximately 18%. Significant increases or decreases in the inputs to the models could result in a significantly higher or lower fair value measurement.

Previous wording

There were no transfers in or out of Level 3 during the three months ended May 31, 2026 and 2025.

Current wording

There were no transfers in or out of Level 3 during the six months ended August 31, 2026 and 2025.

Previous wording

The carrying value of our cash and cash equivalents, accounts receivable, other restricted cash deposits and accounts payable approximates fair value due to the short-term nature and/or variable rates associated with these financial instruments. Auto loans held for investment are presented net of an allowance for estimated loan losses, which we believe approximates fair value.

Current wording

The carrying value of our cash and cash equivalents, accounts receivable, other restricted cash deposits and accounts payable approximates fair value due to the short-term nature and/or variable rates associated with these financial instruments. Auto loans held for investment are presented net of an allowance for estimated loan losses, which we believe approximates fair value. We believe that the carrying value of our revolving credit facility and term loans approximates fair value due to the variable rates associated with these obligations.

Previous wording

The fair value of our auto loans held for sale, which are not carried at fair value on our consolidated balance sheets, was determined using Level 2 inputs from the company’s recent term securitization transactions and other available market data. The carrying value and fair value of the auto loans held for sale as of May 31, 2026 and February 28, 2026, respectively, are as follows:

Current wording

The fair value of our auto loans held for sale, which are not carried at fair value on our consolidated balance sheets, was determined using Level 2 inputs from similar recent market transactions and other available market data. The carrying value and fair value of the auto loans held for sale as of August 31, 2026 and February 28, 2026, respectively, are as follows:

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, 2026 and February 28, 2026, the current portion of cancellation reserves was $72.4 million and $70.2 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, 2026 and February 28, 2026, the current portion of cancellation reserves was $74.9 million and $70.2 million, respectively.

Previous wording

We had $20.6 million of gross unrecognized tax benefits as of May 31, 2026, and $18.8 million as of February 28, 2026. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 28, 2026.

Current wording

We had $18.4 million of gross unrecognized tax benefits as of August 31, 2026, and $18.8 million as of February 28, 2026. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 28, 2026.

Previous wording

Revolving Credit Facility. Borrowings under our $2.00 billion unsecured revolving credit facility (the “credit facility”) are available for working capital and general corporate purposes. We pay a commitment fee on the unused portions of the available funds. Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing. Borrowings with “on demand” repayment terms are presented as short-term debt while amounts due at maturity are presented as long-term debt. As of May 31, 2026, the unused capacity of $1.11 billion was fully available to us.

Current wording

Revolving Credit Facility. Borrowings under our $2.00 billion unsecured revolving credit facility (the “credit facility”) are available for working capital and general corporate purposes. We pay a commitment fee on the unused portions of the available funds. Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing. Borrowings with “on demand” repayment terms are presented as short-term debt while amounts due at maturity are presented as long-term debt. As of August 31, 2026, the unused capacity of $2.00 billion was fully available to us.

Previous wording

Term Loan. Borrowings under the $500 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 4.53% as of May 31, 2026. 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 Loans. On June 15, 2026, we entered into a new term loan agreement for an aggregate principal amount of $500 million, which will mature on June 15, 2029. Borrowings under both $500 million term loans are available for working capital and general corporate purposes. As of August 31, 2026, the interest rate on the June 2029 term loan was 4.94%, and the interest rate on the November 2030 term loan was 4.54%. The term loans were classified as long-term debt as no repayments are scheduled to be made within the next 12 months.

Previous wording

Information on our funding vehicles of non-recourse notes payable as of May 31, 2026 are as follows:

Current wording

Information on our funding vehicles of non-recourse notes payable as of August 31, 2026, is as follows:

Previous wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the three months ended May 31, 2026 and 2025, we capitalized interest of $3.6 million and $4.0 million, respectively.

Current wording

Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the six months ended August 31, 2026 and 2025, we capitalized interest of $6.2 million and $6.8 million, respectively.

Previous wording

Financial Covenants. The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants. We must also meet financial covenants in conjunction with certain financing obligations. The agreements governing our non-recourse funding vehicles contain representations and warranties, as well as financial covenants and performance triggers related to events of default. As of May 31, 2026, we were in compliance with these financial covenants and our non-recourse funding vehicles were in compliance with these performance triggers.

Current wording

Financial Covenants. The credit facility, term loans and senior note agreements contain representations and warranties, conditions and covenants. We must also meet financial covenants in conjunction with certain financing obligations. The agreements governing our non-recourse funding vehicles contain representations and warranties, as well as financial covenants and performance triggers related to events of default. As of August 31, 2026, we were in compliance with these financial covenants and our non-recourse funding vehicles were in compliance with these performance triggers.

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, 2026 and 2025, options to purchase 8,131,638 shares and 7,180,325 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, 2026 and 2025, options to purchase 7,188,168 shares and 8,610,659 shares of common stock, respectively, were not included. On a weighted average basis, for the six months ended August 31, 2026 and 2025, options to purchase 7,668,279 shares and 8,133,984 shares of common stock, respectively, were not included.

Previous wording

Changes in the funded status of our retirement plans, changes in the fair value of derivatives that are designated and qualify as cash flow hedges and changes in the fair value of certain of our beneficial interests in non-consolidated securitizations are recognized in accumulated other comprehensive loss. The cumulative balances are net of deferred taxes of $3.9 million as of May 31, 2026 and $10.5 million as of February 28, 2026.

Current wording

Changes in the funded status of our retirement plans, changes in the fair value of derivatives that are designated and qualify as cash flow hedges and changes in the fair value of certain of our beneficial interests in non-consolidated securitizations are recognized in accumulated other comprehensive loss. The cumulative balances are net of deferred taxes of $1.2 million as of August 31, 2026 and $10.5 million as of February 28, 2026.

Previous wording

(1) Finance lease assets are recorded net of accumulated depreciation of $79.2 million as of May 31, 2026 and $74.6 million as of February 28, 2026.

Current wording

(1) Finance lease assets are recorded net of accumulated depreciation of $83.7 million as of August 31, 2026 and $74.6 million as of February 28, 2026.

Previous wording

On November 3, 2025, a putative class action complaint titled Jason Cap v. CarMax, Inc., et al. was filed in the United States District Court for the District of Maryland against the company and certain present or former officers of the company. An amended complaint was filed on March 31, 2026. The amended complaint (i) seeks to certify a class of investors who purchased or otherwise acquired the company’s publicly traded securities between June 20, 2025 and November 5, 2025, and (ii) asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5. The amended complaint seeks unspecified damages and an award of fees, costs, and expenses. The company has filed a motion to dismiss the amended complaint. The company believes that the claims are without merit and intends to vigorously defend against the claims in all respects. Given the preliminary nature of the action, we are unable to assess the likelihood of any potential loss or adverse effect on our financial condition or to estimate the amount or range of potential losses, if any, from this action.

Current wording

On November 3, 2025, a putative class action complaint titled Jason Cap v. CarMax, Inc., et al. was filed in the United States District Court for the District of Maryland against the company and certain present or former officers of the company. An amended complaint was filed on March 31, 2026. The amended complaint (i) seeks to certify a class of investors who purchased or otherwise acquired the company’s publicly traded securities between June 20, 2025 and November 5, 2025, and (ii) asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5. The amended complaint seeks unspecified damages and an award of fees, costs, and expenses. On September 23, 2026, the court granted CarMax's motion to transfer venue to the United States District Court for the Eastern District of Virginia. The company has filed a motion to dismiss the amended complaint. The company believes that the claims are without merit and intends to vigorously defend against the claims in all respects. Given the preliminary nature of the action, we are unable to assess the likelihood of any potential loss or adverse effect on our financial condition or to estimate the amount or range of potential losses, if any, from this action.

Previous wording

As part of our customer service strategy, we guarantee the used vehicles we retail with a 30-day 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 $14.7 million as of May 31, 2026 and $21.7 million as of February 28, 2026, 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 30-day 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 $13.0 million as of August 31, 2026 and $21.7 million as of February 28, 2026, 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, direct expenses and income related to the sale of auto loans. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 43.3% of our retail used vehicle unit sales in the first three months of fiscal 2027. As of May 31, 2026, CAF serviced approximately 1.1 million customer accounts, which includes its $16.71 billion portfolio of auto loans and $700 million of auto loans that have previously been sold.

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, direct expenses and income related to the sale of auto loans. 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 2027. As of August 31, 2026, CAF serviced approximately 1.0 million customer accounts, which includes its $16.30 billion portfolio of auto loans and $1.20 billion of auto loans that have previously been sold.

Previous wording

The sources of revenue and gross profit from the CarMax Sales Operations segment for the first three months of fiscal 2027 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 2027 are as follows:

Previous wording

A high-level summary of our financial results for the first quarter of fiscal 2027 as compared to the first quarter of fiscal 2026 is as follows (1):

Current wording

A high-level summary of our financial results for the second quarter and first six months of fiscal 2027 as compared to the second quarter and first six months of fiscal 2026 is as follows (1):

Previous wording

Our current capital allocation strategy is to focus on funding the business to drive unit sales and earnings growth that enables us to consistently reward our shareholders. We continue to take a disciplined approach to our capital structure, including managing our net leverage to preserve efficient access to the capital markets for both CAF and CarMax overall. With leverage slightly above our targeted range, and as we focus on improving the business during this transitional period, we paused our share buybacks during the fourth quarter of fiscal 2026. For the first quarter of fiscal 2027, our leverage remained slightly above our targeted range. We remain committed to returning capital to shareholders and intend to resume share repurchases in the future at the appropriate time depending upon market conditions, our leverage and our capital needs, among other factors. 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 funding the business to drive unit sales and earnings growth that enables us to consistently reward our shareholders. We continue to take a disciplined approach to our capital structure, including managing our net leverage to preserve efficient access to the capital markets for both CAF and CarMax overall. With leverage slightly above our targeted range, and as we focused on improving the business, we paused our share buybacks during the fourth quarter of fiscal 2026. For the first half of fiscal 2027, our leverage improved to the upper end of our targeted range. Based on our improved performance as well as our positive outlook for the remainder of the fiscal year and the progress we have made on our strategic plan, we intend to resume our share repurchase program in the third quarter of fiscal 2027. We expect to begin repurchases at a modest pace, below the average quarterly pace prior to our pause. The timing and amount of repurchases will depend upon market conditions, our leverage and our capital needs, among other factors. 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 possess an award-winning, people-first culture, an iconic brand, an irreplaceable national footprint and meaningful digital capabilities. When fully harnessed, this combination enhances our competitive advantage and will drive our market share growth and financial returns in one of the largest consumer markets in the nation. Despite these advantages, it is clear that there are some key areas that have impeded our ability to perform to our full potential. Our core operations are not yet fast and efficient enough, retail prices and selection must continue to improve and our costs remain too high. In addition, our digital experience is too complex and not seamlessly connected to the in-person experience. This has put friction in the customer experience, ultimately impacting conversion and preventing us from fully leveraging our unmatched scale and store network.

Current wording

We possess an award-winning, people-first culture, an iconic brand, an irreplaceable national footprint and meaningful digital capabilities. When fully harnessed, this combination enhances our competitive advantage and will drive our market share growth and financial returns in one of the largest consumer markets in the nation.

Previous wording

In order to move forward, we have established our strategy for growth, built around four pillars with the objective of delivering strong unit sales and earnings growth that enables CarMax to consistently reward shareholders. The four pillars place the customer at the center of everything we do and are designed to meaningfully improve how we operate at scale and support consistently strong performance. Our four pillars are:

Current wording

We have established our strategy for growth, which we have named Shift into GEAR. This strategy is built around four pillars with the objective of delivering strong unit sales and earnings growth that enables CarMax to consistently reward shareholders. The four pillars place the customer at the center of everything we do and are designed to meaningfully improve how we operate at scale and support consistently strong performance. Our four pillars are:

Previous wording

•Add Value On Each Transaction - grow profitability by maximizing value across all aspects of our business. This includes our CAF full spectrum ambitions as well as the extended protection plan redesign initiatives that are already underway.

Current wording

•Add Value - grow profitability by maximizing value across all aspects of our business. This includes our CAF full spectrum ambitions as well as the extended protection plan redesign initiatives that are already underway.

Previous wording

•Run Lean - continue to reimagine our cost structure to enable a great offering. We plan to lower reconditioning costs through technology and operational efficiency while continuing to deliver the high-quality vehicles customers expect from CarMax. We are also working to enhance our logistics network and continuing to reduce our SG&A expenses.

Current wording

•Run Lean - unlock efficiencies to enable a great offering. We plan to lower reconditioning costs through technology and operational efficiency while continuing to deliver the high-quality vehicles customers expect from CarMax. We are also working to enhance our logistics network and continuing to reduce our SG&A expenses.

Previous wording

While this work will take time, we are encouraged that the progress we have been making across the four pillars is already translating into improved trends that we expect will continue this fiscal year. For the first quarter of fiscal 2027, on a year-over-year basis and compared to our strongest quarter from fiscal 2026, retail unit sales delivered slight growth, reflecting the near-term steps we have been taking across pricing, marketing and conversion to strengthen the business and drive performance. In addition, we levered SG&A expense on a total unit basis, expanded CAF penetration and increased EPP margin, all while improving our year-over-year EPS trend.

Current wording

While this work will take time, we are encouraged that the progress we have been making across the four pillars is already translating into improved trends that we expect will continue this fiscal year. For the first half of fiscal 2027, on a year-over-year basis, retail unit sales delivered mid-single digit growth, reflecting the near-term steps we have been taking across pricing, marketing and conversion to strengthen the business and drive performance. In addition, we levered SG&A expense on a total unit basis, expanded CAF Tier 2 penetration and increased EPP margin, all while improving our year-over-year EPS trend.

Previous wording

Regarding SG&A expenses, our goal is to achieve $200 million in exit rate savings in SG&A expense by the end of fiscal 2027. However, the year-over-year savings within fiscal 2027 are expected to be offset as we annualize over materially reduced corporate bonus and share-based compensation expense in fiscal 2026, which offsets approximately half of the anticipated savings in fiscal 2027. The savings are also expected to be impacted by inflationary pressures and new location growth. We expect the full impact from these savings to occur in fiscal 2028. For the first quarter of fiscal 2027, the year-over-year decline in SG&A expense was in line with our full year expectations and we remain on track to achieve our $200 million savings target. In addition to offsetting cost pressures, these ongoing savings are expected to enable additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our earnings.

Current wording

Regarding SG&A expenses, our goal is to achieve $200 million in exit rate savings in SG&A expense by the end of fiscal 2027. However, the year-over-year savings within fiscal 2027 are expected to be offset as we annualize over materially reduced corporate incentive compensation and share-based compensation expense in fiscal 2026, which offsets approximately half of the anticipated savings in fiscal 2027. The savings are also expected to be impacted by variable costs associated with higher sales, inflationary pressures and new location growth. We expect the full impact from these savings to occur in fiscal 2028. In addition to offsetting cost pressures, these ongoing savings are expected to enable additional flexibility to reinvest in areas that directly drive sales, while also serving as a tailwind to our earnings. We remain on track to achieve our $200 million savings target.

Previous wording

In fiscal 2027, we plan to take a more dynamic approach to margin management. We expect used margins for the full fiscal year to decline by approximately $200 per unit, although this may vary as we continue to optimize performance. This outlook reflects our pricing actions and our ongoing efforts to reduce logistics and reconditioning cost of sales in support of more competitive pricing and stronger sales. In the first quarter of fiscal 2027, we lowered margins by less than the $300 per unit guidance we provided last quarter as we balanced demand, margins and efficiency gains in our reconditioning process to support sales.

Current wording

In fiscal 2027, we plan to take a more dynamic approach to margin management. We expect used margins for the full fiscal year to decline by less than $200 per unit, although this may vary as we continue to optimize performance. This outlook reflects our pricing actions and our ongoing efforts to reduce logistics and reconditioning cost of sales in support of more competitive pricing and stronger sales.

Previous wording

During fiscal 2026, we tested EPP product enhancements that focused on increasing penetration and margin per unit. We began the nationwide rollout of these products in the first quarter of fiscal 2027 and anticipate the full rollout to be completed in the second quarter. EPP margins increased slightly in the first quarter and we are on track to achieve incremental EPP margin per unit of approximately $35 in fiscal 2027.

Current wording

During fiscal 2026, we tested EPP product enhancements that focused on increasing penetration and margin per unit. We began the nationwide rollout of these products in the first quarter of fiscal 2027 and anticipate the full rollout to be completed in October 2026. EPP margins increased $27 per unit in the first half of fiscal 2027 and we are on track to achieve incremental EPP margin per unit of approximately $35 in fiscal 2027.

Previous wording

As of May 31, 2026, we operated 256 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 three months of fiscal 2027, we opened one stand-alone reconditioning/auction center located in Locust Grove, Georgia, supporting the Atlanta metro market. During the remainder of the fiscal year, we plan to open four stores, two stand-alone auction facilities and one additional stand-alone reconditioning/auction center. 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, 2026, we operated 258 used car stores located in 111 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 2027, we opened two stores as well as one stand-alone reconditioning/auction center located in Locust Grove, Georgia, supporting the Atlanta metro market, and one stand-alone auction center in Conroe, Texas. Subsequent to the end of the second quarter, we opened an additional store in Austin, Texas. During the remainder of the fiscal year, we plan to open one store location, one stand-alone auction facility and one stand-alone reconditioning/auction center. We are utilizing our stand-alone reconditioning and auction locations to balance capacity and drive efficiencies across the network.

Previous wording

The 14.0% increase in wholesale vehicle revenues in the first quarter of fiscal 2027 was driven by an 8.4% increase in unit sales and a 5.1% increase in average selling price, or approximately $400. The increase in average selling price in the first quarter of fiscal 2027 primarily reflected an increase in vehicle acquisition costs.

Current wording

The 18.2% increase in wholesale vehicle revenues in the second quarter of fiscal 2027 was driven by a 15.9% increase in unit sales and a 1.8% increase in average selling price, or approximately $100. For the first six months of fiscal 2027, wholesale vehicle revenues increased 16.0%, driven by a 12.0% increase in wholesale unit sales as well as a 3.5% increase in average selling price, or approximately $300.

Previous wording

The increase in average retail selling price in the first quarter of fiscal 2027 primarily reflected an increase in vehicle acquisition costs as well as a shift in the mix of our sales by vehicle age.

Current wording

The increase in average selling price in both the second quarter and first six months of fiscal 2027 primarily reflected an increase in vehicle acquisition costs.

Previous wording

Used vehicle gross profit decreased 9.5% in the first quarter of fiscal 2027, primarily driven by lower used vehicle gross profit per unit, which decreased $230 from the record high first quarter in the prior year. The decrease in used vehicle gross profit per unit reflects the continuation of pricing actions implemented to drive unit sales. In the first quarter of fiscal 2027, we lowered margins by less than the $300 per unit guidance we provided last quarter as we balanced demand, margins and efficiency gains in our reconditioning process to support sales.

Current wording

Used vehicle gross profit increased 8.1% in the second quarter of fiscal 2027, primarily driven by a 13.8% increase in used unit sales, partially offset by a $111 decrease in used vehicle gross profit per unit. For the first six months of fiscal 2027, used vehicle gross profit decreased 1.7%, driven by a $177 decrease in used vehicle gross profit per unit, mostly offset by a 6.5% increase in used unit sales. The decrease in used vehicle gross profit per unit for both the second quarter and first six months of fiscal 2027 reflects the continuation of pricing actions implemented to drive unit sales growth. In the second quarter of fiscal 2027, we lowered margins by less than the $200 per unit outlook we provided last quarter as we balanced demand, margins and efficiency gains in our reconditioning process to support sales. We expect used margins to decline year over year for the remainder of fiscal 2027. For the full fiscal year, we expect used margins to decline by less than $200 per unit, although results may vary as we continue to optimize performance.