Carmax Inc: Form 10-Q for the period ended Nov 30, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2025 (“fiscal 2025”), as well as our unaudited interim consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q. Note references are to the notes to unaudited interim consolidated financial statements included in Item 1. All references to net earnings per share are to diluted net earnings per share. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.

OVERVIEW

CarMax is the nation’s largest retailer of used vehicles. We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.

CarMax Sales Operations

Our sales operations segment consists of retail sales of used vehicles and related products and services, such as wholesale vehicle sales; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); advertising and subscription revenues; and vehicle repair service. We offer competitive, no-haggle prices; a broad selection of CarMax Quality Certified used vehicles; value-added EPP products; and superior customer service. Our omni-channel experience provides a common platform across all of CarMax that leverages our scale, nationwide footprint and infrastructure and empowers our customers to buy a vehicle on their terms, whether online, in-store or through a seamless combination of both. Our associates, stores, technology and digital capabilities seamlessly tied together enable us to provide the most customer-centric car buying and selling experience, a key differentiator in a very large and fragmented market.

Our customers finance the majority of the retail vehicles purchased from us, and availability of on-the-spot financing is a critical component of the sales process. We provide financing to qualified retail customers through CAF and our arrangements with industry-leading third-party finance providers. All of the finance offers, whether by CAF or our third-party providers, are backed by a 3-day payoff option.

CarMax Auto Finance

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.

Management regularly analyzes CAF’s operating results by assessing the competitiveness of our consumer offer, profitability, the performance of its auto loans, including trends in credit losses and delinquencies, and CAF direct expenses.

Revenues and Profitability

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

Net Sales and Operating Revenues Gross Profit

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):

(Dollars in millions except per share or per unit data)

(1) Where applicable, amounts are net of intercompany eliminations.

(2) A digitally enabled transaction is defined as either an omni retail sale or an online retail sale, as defined below.

(3) An omni retail sale is defined as a sale where customers complete at least one, but not all, of the four activities listed in note (4) below online, or additional steps that can be completed online, including pre-qualifying for financing, setting appointments and signing up for notifications of cars coming soon.

(4) An online retail sale is defined as a sale where the customer completes all four of the following activities online: reserving the vehicle; financing the vehicle, if needed; trading-in or opting out of a trade-in; and creating an online sales order.

Net earnings per diluted share for both the third quarter and first nine months of fiscal 2026 was impacted by $0.08 in restructuring expenses related primarily to our CEO change and workforce reductions in our Customer Experience Centers (“CECs”). Refer to “Results of Operations” for further details on our revenues and profitability.

Liquidity

Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles and borrowings under our revolving credit facility or through other financing sources. In addition to funding our operations, this liquidity has been used to fund our capital expenditures and the repurchase of common stock under our share repurchase program.

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.

Strategic Update and Future Outlook

Our omni-channel experience provides a common platform across all of CarMax that leverages our scale, nationwide footprint and infrastructure and empowers our customers to buy a vehicle on their terms, whether online, in-store or through a seamless combination of both experiences. While we expect our online and omni sales to grow over time, our goal is to provide the best experience whether in-store, online or a combination of the two. As a result, online, omni and in-person sales can vary from quarter to quarter depending on consumer preferences and how they choose to interact with us. We believe consumers in the used car industry will increasingly prefer optionality that seamlessly connects digital and physical experiences.

We possess a beloved brand with national scale, unmatched physical and digital infrastructure and an award-winning culture. Despite these advantages and after decades of industry leadership, based on recent results, it is clear CarMax needs change. In November 2025, we announced a change in leadership. Effective December 1, 2025, Bill Nash stepped down from his position as CEO and as a member of the board. David McCreight, a member of the board, was named Interim President and CEO and Tom Folliard, Chair of the Board, was appointed Interim Executive Chair of the Board. The board is urgently searching for a permanent CEO who can drive sales, maximize the benefits of our omni-channel experience, strengthen our brand, improve operations and champion our culture in order to capture the tremendous opportunity ahead of us. In the near-term, the company is prioritizing the following focus areas:

• Our average selling prices have drifted upward and appear to be less attractive to customers. To ensure that CarMax is a preferred choice, we are meaningfully lowering margins to reduce the gap between our offerings and the marketplace. We plan to support this action by increasing marketing spend, while also building more effective ways to communicate our value to customers.
• We plan to comprehensively review all costs associated with bringing a car to market to find ways to eliminate the unproductive costs while maintaining our reputation of having a high-quality fleet.
• We plan to sharpen our focus on the customer. In guiding decisions, we plan to challenge long-held institutional beliefs as we work to discover the most fundamental elements to the consumer in closing the sale. We will emphasize customer-insighted decision making, rooted in fact-based research.
• We plan to incorporate a clearer and more effective selling voice to our digital experience in order to drive conversion and further improve customer satisfaction. We plan to shift our digital voice from one that delivers abundant information to one that leans into streamlining and encouraging sales.
• We plan to leverage our technology platforms and process enhancements to reduce our spending. We are committed to eliminating unproductive costs, with the goal of reducing SG&A expense by at least $150 million by the end of fiscal 2027.
• We plan to take opportunities in the selling experience to enhance our profitability, including growth potential across CAF and ancillary products. For example, we expect significant future earnings potential from our redesigned MaxCare plan, which focuses on mechanical coverage, and our new MaxCare Plus plan, which focuses on cosmetic

protection. These products have already migrated from test phase to pilot in multiple markets and we expect to achieve near nationwide rollout during the first quarter of fiscal 2027.

• We plan to improve our decision-making speed, operate leaner, take smart risks and reignite the entrepreneurial spirit that made CarMax the industry leader.

We are optimistic that our actions of lowering margins and increasing marketing will improve our sales performance trends, but these actions may pressure earnings in the near-term. However, over the longer-term, we expect that this pressure will be offset by unit growth and expanded profitability in CAF and ancillary products as well as through reductions in SG&A and cost of sales.

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.

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.

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.

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.

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.

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.

CRITICAL ACCOUNTING ESTIMATES

For information on critical accounting policies, see “Critical Accounting Estimates” in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended February 28, 2025.

RESULTS OF OPERATIONS – CARMAX SALES OPERATIONS

NET SALES AND OPERATING REVENUES

(In millions)

(1) Excludes intercompany sales and operating revenues that have been eliminated in consolidation.

UNIT SALES

AVERAGE SELLING PRICES

COMPARABLE STORE USED VEHICLE SALES CHANGES

(1) Stores are added to the comparable store base beginning in their fourteenth full month of operation. We do not remove renovated stores from our comparable store base. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

VEHICLE SALES CHANGES

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USED VEHICLE FINANCING PENETRATION BY CHANNEL (BEFORE THE IMPACT OF 3-DAY PAYOFFS)

(1) Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.

(2) Includes CAF’s Tier 2 and Tier 3 loan originations, which represent approximately 2% of total used units sold.

(3) Third-party finance providers who generally pay us a fee or to whom no fee is paid.

(4) Third-party finance providers to whom we pay a fee.

(5) Represents customers arranging their own financing and customers that do not require financing.

CHANGE IN USED CAR STORE BASE

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

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.

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.

Wholesale Vehicle Sales. Vehicles sold at our wholesale auctions are, on average, more than 10 years old with more than 100,000 miles and are primarily comprised of vehicles purchased through our appraisal process that do not meet our retail standards. Our wholesale auction prices usually reflect trends in the general wholesale market for the types of vehicles we sell, although they can also be affected by changes in vehicle mix or the average age, mileage or condition of the vehicles being sold.

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.

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.

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.

GROSS PROFIT

(In millions)

(1) Amounts are net of intercompany eliminations.

GROSS PROFIT PER UNIT

(1) Amounts are net of intercompany eliminations.

(2) Calculated as category gross profit divided by its respective units sold, except the other category, which is divided by total used units sold.

(3) Calculated as a percentage of its respective sales or revenue.

Used Vehicle Gross Profit. We target a dollar range of gross profit per used unit sold. The gross profit dollar target for an individual vehicle is based on a variety of factors, including its probability of sale and its mileage relative to its age; however, it is not primarily based on the vehicle’s selling price. Our ability to quickly adjust appraisal offers to be consistent with trends in the broader trade-in market and the pace of our inventory turns reduce our exposure to the inherent continual fluctuation in used vehicle values and contribute to our ability to manage gross profit dollars per unit. Gross profit per used unit is consistent across our omni-channel platform.

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

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.

Wholesale Vehicle Gross Profit. Our wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of our auctions, as well as strong dealer attendance and resulting high dealer-to-car ratios at our auctions. The frequency of our auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on these vehicles. Our ability to adjust appraisal offers in response to the wholesale pricing environment is a key factor that influences wholesale gross profit.

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.

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

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.

SG&A Expenses

COMPONENTS OF SG&A EXPENSES AS A PERCENTAGE OF TOTAL SG&A EXPENSES

Three Months Ended November 30, 2025 Nine Months Ended November 30, 2025

COMPONENTS OF SG&A EXPENSES COMPARED WITH PRIOR PERIOD (1)

(In millions except per unit data)

(1) Amounts are net of intercompany eliminations.

(2) Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales. See Note 10 for details of share-based compensation expense by grant type.

(3) Includes IT expenses, non-CAF bad debt, insurance, preopening and relocation costs, travel, charitable contributions and other administrative expenses.

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.

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.

SG&A deleveraged by 1,350 basis points and 190 basis points during the third quarter and first nine months of fiscal 2026, respectively, driven primarily by the decline in gross profit.

We expect marketing spend on a per total unit basis to be up year-over-year in the fourth quarter of fiscal 2026, though to a lesser degree than during the third quarter, with a focus on investing in acquisition to drive buys and sales. We expect that marketing spend on a per total unit basis for the full year of fiscal 2026 will be slightly above fiscal 2025.

Interest Expense. Interest expense includes the interest related to short- and long-term debt, financing obligations and finance lease obligations. It does not include interest on the non-recourse notes payable, which is reflected within CAF income.

Interest expense of $26.1 million and $81.6 million in the third quarter and first nine months of fiscal 2026, respectively, was relatively consistent with $25.4 million and $83.8 million in the third quarter and first nine months of fiscal 2025, respectively.

Other Expense. Other expense of $4.5 million and $0.5 million in the third quarter and first nine months of fiscal 2026, respectively, was relatively consistent with $5.4 million and $2.5 million in the third quarter and first nine months of fiscal 2025, respectively.

Income Taxes. The effective income tax rate was 25.8% in the third quarter of fiscal 2026 and 25.5% in the first nine months of fiscal 2026 versus 24.6% in the third quarter of fiscal 2025 and 25.5% in the first nine months of fiscal 2025.

RESULTS OF OPERATIONS – CARMAX AUTO FINANCE

CAF income primarily reflects interest and fee income generated by 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 CAF expenses. Total interest margin primarily reflects the spread between interest and fees charged to consumers and our funding costs. Changes in the interest margin on new originations generally affect CAF income over time. Increases in interest rates, which affect CAF’s funding costs, competitive pressures on rates charged to customers or reducing higher risk accounts in our origination strategy, could result in compression in the interest margin on new originations.

The provision for loan losses reflects changes in the allowance for loan losses. Changes to the allowance are primarily driven by loss and delinquency experience, economic factors on our outlook for net losses expected to occur over the remaining contractual life of the loans held for investment as well as changes in the mix of credit quality of originations.

CAF’s portfolio is composed primarily of auto loans originated over the past several years. Trends in auto loan growth and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period. Current period originations reflect current trends in both our retail sales and the CAF business, including the volume and credit mix of loans originated, current interest rates charged to consumers and loan terms. Loans originated in a given fiscal period generally impact CAF income over time, as we recognize income over the life of the underlying auto loan, or upon sale of the loan.

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. These loans are classified as held for sale on our consolidated balance sheet until they are sold. 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 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. We expect to receive approximately $40 million to $45 million in additional CAF income related to servicing fees and the retained beneficial interest over the life of the transaction. We expect this additional funding lever, as well as other off-balance sheet funding vehicles under consideration, will provide us with significant flexibility and allow us to mitigate risk while focusing on our growth plan.

During fiscal 2025, CAF began testing its new full-spectrum credit scoring models and corresponding strategies across the Tier 1, Tier 2 and Tier 3 spaces. During the first nine months of fiscal 2026, CAF began a measured expansion by recapturing profitable portions of Tier 1 originations that we had shifted to our Tier 2 lenders as we tightened lending standards as well as testing expanded lending in the top half of the Tier 2 space. This is a first step on the path towards our initial goal of increasing CAF penetration to 50%. We continue to learn from our new underwriting models and corresponding tests currently in place in order to capture additional volume beyond Tier 1. We will monitor consumer behavior and the broader economy and adjust our origination strategy as needed. We would expect each additional percentage point of CAF penetration to generate $10 million to $12 million in lifetime pre-tax income per year of origination, net of the impact to finance partner participation fees. Our pre-tax income expectations will be impacted by the volume of loans originated, interest rates charged to customers, loan terms, loss rates, average credit scores, funding strategy, loan sales and the broader macroeconomic and lending environments. We believe our unique finance platform with a full-spectrum in-house lending operation, coupled with a robust network of partner lenders, will strengthen our competitive advantage.

Historically, CAF has originated a small portion of auto loans to customers who typically would be financed by our Tier 2 and Tier 3 finance providers, in order to better understand the performance of these loans, mitigate risk and add incremental profits. The targeted percentage of Tier 2 and Tier 3 originations has fluctuated over the past several years. With the testing of the new full-spectrum credit scoring models, we intend to continue our investment in this space, but remain within the target of originating less than 15% and 5% of the total Tier 2 and Tier 3 loan volume, respectively, in fiscal 2026. Any future adjustments in Tier 2 and Tier 3 will consider the broader lending environment, which includes funding availability, along with the long-term sustainability of the change. These loans have higher loss and delinquency rates than the remainder of the CAF portfolio, as well as higher contract rates.

CAF income does not include any allocation of indirect costs. Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions. Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.

See Note 3 for additional information on CAF income and Note 4 for information on auto loans held for investment, including credit quality.

SELECTED CAF FINANCIAL INFORMATION

(In millions)

(1) Includes auto loans held for investment and auto loans held for sale.

CAF ORIGINATION INFORMATION (AFTER THE IMPACT OF 3-DAY PAYOFFS) (1)

(1) Includes auto loans held for investment and auto loans held for sale.

(2) Vehicle units financed as a percentage of total used units sold.

(3) The credit scores represent FICO® scores and reflect only loans with obligors that have a FICO® score at the time of application. The FICO® score with respect to any loans with co-obligors is calculated as the average of each obligor’s FICO® score at the time of application. FICO® scores are not a significant factor in our primary scoring model, which relies on information from credit bureaus and other application information as discussed in Note 4. FICO® is a federally registered servicemark of Fair Isaac Corporation.

(4) LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.

AUTO LOANS HELD FOR INVESTMENT PERFORMANCE INFORMATION

(In millions)

(1) The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at our wholesale auctions. While in any individual period conditions may vary, over the past 10 fiscal years, the annual recovery rate has ranged from a low of 46% to a high of 71%, and it is primarily affected by the wholesale market environment.

• CAF Income
• CAF income increased $14.9 million, or 9.3%, in the third quarter of fiscal 2026 due to the gain recognized on the sale of auto loans, partially offset by the decrease in total interest margin dollars, driven by the decline in average auto loans outstanding resulting from the sale.
• CAF income decreased $3.4 million, or 0.8%, in the first nine months of fiscal 2026 due to an increase in the provision for loan losses, partially offset by an increase in the interest margin percentage and the gain recognized on the sale of auto loans.
• Total Interest Margin
• Total interest margin was 6.2% in the third quarter of fiscal 2026, consistent with the prior year quarter, and a decrease from 6.6% in the prior quarter, primarily due to the removal of higher margin receivables as part of the sale of auto loans during in the third quarter.
• Total interest margin increased to 6.4% in the first nine months of fiscal 2026 from 6.2% in the first nine months of fiscal 2025. The increase was driven by higher customer rates, partially offset by higher funding costs.
• Provision for Loan Losses
• The provision for loan losses resulted in expense of $73.4 million and $317.3 million in the third quarter and first nine months of fiscal 2026, respectively, compared with expense of $72.6 million and $266.4 million in the third quarter and first nine months of fiscal 2025, respectively.
• The provision for loan losses for the third quarter of fiscal 2026 was relatively consistent with the prior year period and losses for the quarter were in line with expectations.
• The increase in the provision for loan losses for the nine month period was primarily driven by unfavorable loss performance, primarily within loans originated in 2022 and 2023, when average selling prices were elevated and these customers were later challenged by the inflationary environment. As a result of the previously disclosed tightening of CAF's underwriting standards, loans originated after April 2024 are performing in line with expectations.
• There was also a reduction in the provision in the first nine months of fiscal 2026 due to the release of $42.2 million for the allowance recorded for loans that were previously classified as held for sale and subsequently sold during the third quarter of fiscal 2026.
• The allowance for loan losses as a percentage of auto loans held for investment was 2.87% as of November 30, 2025, compared with 2.70% as of November 30, 2024 and 2.61% as of February 28, 2025. The allowance percentage increased from February primarily due to unfavorable loss performance, partially offset by the release of a portion of the allowance previously recognized on auto loans held for sale.
• Loan Performance
• The decrease in net loan originations in the third quarter of fiscal 2026 primarily resulted from a decrease in used unit sales. The decrease in net loan originations in the first nine months of fiscal 2026 resulted from decreases in the average amount financed, net penetration rate and used unit sales.
• CAF net penetration decreased 50 basis points in both the third quarter and first nine months of fiscal 2026. During fiscal 2026, we made underwriting adjustments that translated to approximately 100 to 150 basis points of growth, but this growth was offset by lower application volume in the prime credit segment as well as an increase in penetration for Tier 3 third-party finance providers.

PLANNED FUTURE ACTIVITIES

During the first nine months of fiscal 2026, we opened five new stores and three stand-alone reconditioning/auction centers. For the remainder of fiscal 2026, we anticipate opening one additional store location and one additional stand-alone reconditioning/auction center. We currently estimate capital expenditures will total approximately $575 million in fiscal 2026. Capital expenditures were $467.9 million in fiscal 2025. Planned capital spending in fiscal 2026 largely consists of spending to support our future long-term growth in offsite reconditioning and auction facilities, as well as our new stores.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our primary ongoing cash requirements are to fund our existing operations, store and capacity expansion, store improvement, CAF, strategic growth initiatives and our share repurchase program. Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles and borrowings under our revolving credit facility or through other financing sources.

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.

We have historically managed leverage based on a number of factors, including internal financial forecasts, consideration of CAF’s operational and capital needs, external peer benchmarking, requirements of our debt agreements and macroeconomic conditions. Generally, we expect to use our revolving credit facility and other financing sources, together with stock repurchases, to maintain a leverage profile that ensures operating flexibility while supporting continued investment in the business.

Operating Activities. During the first nine months of fiscal 2026, net cash provided by operating activities totaled $2.34 billion compared with $478.1 million in the prior year period.

As of November 30, 2025, total inventory was $3.13 billion, representing a decrease of $806.7 million compared with the balance as of the start of the fiscal year. The decrease was primarily driven by a decrease in volume due to a strategic reduction of inventory in response to lower consumer demand. We are focused on maintaining a lean level of non-saleable inventory while ensuring adequate levels of saleable inventory.

Our operating cash flows are significantly impacted by the net change in auto loans held for investment and auto loans held for sale, which increased $156.3 million in the current year period compared with $667.5 million in the prior year period. A significant portion of the changes in auto loans held for investment and auto loans held for sale are accompanied by changes in non-recourse notes payable, which are issued to fund auto loans originated by CAF. Net payments on non-recourse notes payable were $1.15 billion in the current year period compared with net issuances of $229.3 million in the prior year period and are separately reflected as cash from financing activities. Due to the presentation differences between auto loans held for investment, auto loans held for sale and non-recourse notes payable on the consolidated statements of cash flows, fluctuations in these amounts can impact our operating and financing cash flows without affecting our overall liquidity, working capital or cash flows. In addition, operating cash flows for the first nine months of fiscal 2026 were impacted by proceeds of $909.0 million resulting from the sale of auto loans in connection with our non-prime securitization transaction completed in the third quarter.

The increase in net cash provided by operating activities for the first nine months of the current fiscal year compared with the prior year period primarily reflected the proceeds from the sale of auto loans, the change in inventory and the change in auto loans held for investment, as discussed above, partially offset by the impact of volume and timing-related changes in accounts payable, accrued expenses and other current liabilities and accrued income taxes.

Investing Activities. During the first nine months of fiscal 2026, net cash used in investing activities totaled $411.3 million compared with $347.9 million in fiscal 2025. Capital expenditures were $408.0 million in the current year period versus $340.3 million in the prior year period. Capital expenditures primarily included construction costs to support our growth capacity initiatives and new store openings as well as investments in technology. We maintain a multi-year pipeline of sites to support our store and capacity growth, so portions of capital spending in one year may relate to locations that we open in subsequent fiscal years.

As of November 30, 2025, 170 of our 255 used car stores were located on owned sites and 85 were located on leased sites, including 29 land-only leases and 56 land and building leases.

Financing Activities. During the first nine months of fiscal 2026, net cash used in financing activities totaled $1.97 billion compared with $404.7 million in the prior year period. Included in these amounts were net payments on non-recourse notes payable of $1.15 billion compared with net issuances of $229.3 million in the prior year period. Net payments on non-recourse notes payable during the first nine months of fiscal 2026 were impacted by the non-prime securitization transaction completed during the third quarter as the transaction was structured such that off-balance sheet treatment was achieved. Non-recourse notes payable are typically used to fund changes in auto loans held for investment and auto loans held for sale (see “Operating Activities”).

During the first nine months of fiscal 2026, cash used in financing activities was impacted by net payments on our long-term debt of $212.0 million as well as stock repurchases of $588.4 million. During the first nine months of fiscal 2025, cash used in financing activities was impacted by net payments on our long-term debt of $309.8 million as well as stock repurchases of $329.6 million.

TOTAL DEBT AND CASH AND CASH EQUIVALENTS

(In thousands)

(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.

(2) Borrowings accrue interest at variable rates based on SOFR, the federal funds rate, or the prime rate, depending on the type of borrowing.

(3) Total debt excludes unamortized debt issuance costs. See Note 9 for additional information.

Borrowings under our $2.00 billion unsecured revolving credit facility are available for working capital and general corporate purposes, and the unused portion is fully available to us. The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants. If these requirements are not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. As of November 30, 2025, we were in compliance with these financial covenants.

See Note 9 for additional information on our revolving credit facility, term loan, senior notes and financing obligations.

CAF auto loans held for investment and auto loans held for sale are primarily funded through our warehouse facilities and asset-backed term funding transactions. These non-recourse funding vehicles are structured to legally isolate the auto loans, and we would not expect to be able to access the assets of our non-recourse funding vehicles, even in insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related loans, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loans held for investment. We do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles.

As of November 30, 2025, $12.94 billion and $3.03 billion of non-recourse notes payable were outstanding related to asset-backed term funding transactions and our warehouse facilities, respectively. During the first nine months of fiscal 2026, we funded a total of $5.23 billion in asset-backed term funding transactions. As of November 30, 2025, we had $3.32 billion of unused capacity in our warehouse facilities.

We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown. See Note 9 for additional information on the warehouse facilities.

We generally repurchase the loans funded through our warehouse facilities when we enter into an asset-backed term funding transaction. If our counterparties were to refuse to permit these repurchases it could impact our ability to execute on our funding program. Additionally, the agreements related to the warehouse facilities include various representations and warranties, as well as covenants and performance triggers related to events of default. If these requirements are not met, we could be unable to continue to fund loans through the warehouse facilities. In addition, warehouse facility investors could charge us a higher rate of interest and could have us replaced as servicer. Further, we could be required to deposit collections on the related loans with the warehouse facility agents on a daily basis and deliver executed lockbox agreements to the warehouse facility agents.

The timing and amount of stock repurchases are determined based on stock price, market conditions, legal requirements, cash flow dynamics and other factors. Shares repurchased are deemed authorized but unissued shares of common stock. As of November 30, 2025, a total of $2 billion of board authorizations for repurchases was outstanding, with no expiration date, of which $1.36 billion remained available for repurchase. See Note 10 for more information on share repurchase activity.

Fair Value Measurements

We recognize money market securities, mutual fund investments, certain equity investments, derivative instruments and beneficial interests in non-consolidated securitizations at fair value. See Note 6 for more information on fair value measurements.

FORWARD-LOOKING STATEMENTS

We caution readers that the statements contained in this report that are not statements of historical fact, including statements about our future business plans, operations, challenges, opportunities or prospects, including without limitation any statements or factors regarding expected succession matters, operating capacity, sales, inventory, market share, financial and operational targets and goals, revenue, margins, expenses, liquidity, loan originations, capital expenditures, share repurchase plans, debt obligations or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “committed,” “could,” “enable,” “encouraged,” “estimate,” “expect,” “focused on,” “intend,” “may,” “on track,” “outlook,” “plan,” “positioned,” “predict,” “should,” “target,” “will” and other similar expressions, whether in the negative or affirmative. Such forward-looking statements are based upon management’s current knowledge, expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. We disclaim any intent or obligation to update these statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

• Changes in the competitive landscape and/or our failure to successfully adjust to such changes.
• Changes in general or regional U.S. economic conditions, including economic downturns, inflationary pressures, fluctuating interest rates, tariffs or the effect of trade policies and the potential impact of international events.
• Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
• Events that damage our reputation or harm the perception of the quality of our brand.
• Significant changes in prices of new and used vehicles.
• A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
• Our inability to realize the benefits associated with our omni-channel platform or initiatives designed to leverage evolving technologies, including AI.
• Factors related to geographic and sales growth, including the inability to effectively manage our growth.
• Our inability to recruit, develop and retain associates and maintain positive associate relations.
• The loss of key associates from our store, regional or corporate management teams, the failure to effectively execute key executive succession plans or a significant increase in labor costs.
• Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loans than anticipated.
• The failure or inability to realize the benefits associated with our strategic investments.
• Changes in consumer credit availability provided by our third-party finance providers.
• Changes in the availability of extended protection plan products from third-party providers.
• The performance of the third-party vendors we rely on for key components of our business.
• Adverse conditions affecting one or more automotive manufacturers.
• The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
• The failure or inability to adequately protect our intellectual property.
• The occurrence of severe weather events.
• The failure or inability to meet our environmental goals or satisfy related disclosure requirements.
• Factors related to the geographic concentration of our stores.
• Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.
• The failure of or inability to sufficiently enhance key information systems.
• Factors related to the regulatory and legislative environment in which we operate.
• The effect of evolving regulations, disclosure requirements, standards and expectations relating to environmental, social and governance matters.
• The effect of various litigation matters.
• The volatility in the market price for our common stock.

For more details on factors that could affect expectations, see Part II, Item 1A, “Risk Factors” on Page 45 of this report, our Annual Report on Form 10-K for the fiscal year ended February 28, 2025, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to our Investor Relations Department by email to investor_relations@carmax.com (mailto:relations@carmax.com) or by calling 1-804-747-0422, ext. 7865. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

There have been no material changes to our market risk since February 28, 2025. For information on our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2025.

Disclosure. We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that this information is accumulated and communicated to management, including the interim chief executive officer (“CEO”) and the chief financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, with the participation of the interim CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the interim CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period.

Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended November 30, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended February 28, 2025, should be considered. These risks could materially and adversely affect our business, financial condition, and results of operations. There have been no material changes to the factors discussed in our Form 10‑K other than the updated information related to succession planning for our CEO and executive management included below.

Our future success depends in substantial part on our ability to attract, recruit, hire, motivate, develop, and retain talented personnel possessing the qualifications, experiences, capabilities and skills we need for all areas of our organization, including our CEO and members of our senior leadership team. Succession planning to ensure effective transfer of knowledge and a seamless transition when key personnel depart is also important to our long-term success. In November 2025, we announced that on December 1, 2025, Bill Nash was stepping down from his position as CEO and that David McCreight would serve as our Interim President and CEO. Our business could be adversely affected if we fail to successfully execute our succession plan or if our succession plan is not well-received by our employees, investors and other stakeholders. In addition, our ability to execute our business strategies and retain key executives may be adversely affected by the transition and this could have a material adverse effect on our business, sales and results of operations.