CARMAX INC (KMX)

ITEM 2.

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, 2026 (“fiscal 2026”), 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 sales platform 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 combination of both. Our associates, stores, technology and digital capabilities tied together enable us to provide the most customer-centric car buying and selling experience, a key differentiator in a 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, 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.

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.

Page 30

Revenues and Profitability

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

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):

(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.

Page 31

(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.

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 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.

Strategic Update and Future Outlook

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.

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:

•Great Offering - give customers every reason to choose CarMax. We plan to ensure our pricing remains competitive across demand cycles while we both grow our saleable inventory and provide customers faster access to our vehicles.

•Easy Experience - make it easy to do business with us through a seamless experience. We plan to better connect digital capabilities with in-store experiences to improve conversion and customer satisfaction.

•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.

•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.

We plan to host a strategic update in late fall to share additional details on key initiatives and milestones underlying our strategy for growth.

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.

Page 32

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

[Excerpt truncated for page length; source filing is linked above.]

Item 7.  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 and the accompanying notes presented in Item 8. Consolidated Financial Statements and Supplementary Data.  Note references are to the notes to consolidated financial statements included in Item 8.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  All references to net earnings per share are to diluted net earnings per share.  Amounts and percentages may not total due to rounding.

OVERVIEW

See Part I, Item 1 for a detailed description and discussion of the company’s business.

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 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 42.4% of our retail used vehicle unit sales in fiscal 2026.  As of February 28, 2026, CAF serviced approximately 1.0 million customer accounts in its $16.37 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.

26

Revenues and Profitability

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

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

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

(2)    Adjusted net earnings per diluted share is a non-GAAP measure. See “Non-GAAP Financial Measures” below for a reconciliation of this measure to the most comparable GAAP measure net earnings per diluted share.

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

27

(4)    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.

(5)    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.

Refer to “Results of Operations” for further details on our revenues and profitability. A discussion regarding Results of Operations and Financial Condition for fiscal 2025 as compared to fiscal 2024 is included in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2025, filed with the SEC on April 11, 2025.

Non-GAAP Financial Measures

To provide additional transparency, we disclose certain non-GAAP financial measures, which adjust for items as presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. The reconciliations of SG&A expenses, SG&A as a percent of gross profit, SG&A per total unit and net earnings per diluted share (GAAP financial measures) to adjusted SG&A expenses, adjusted SG&A as a percent of gross profit, adjusted SG&A per total unit and adjusted net earnings per diluted share (non-GAAP financial measures) are as follows:

(1)     Includes the portion of costs related to severance costs for our CEO change and workforce reductions as well as costs related to the abandonment of our Edmunds lease that have been recorded in SG&A expenses.

(2)     Represents the receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags.

(3)     Includes the goodwill impairment charge recorded in fiscal 2026 and the Edmunds lease impairment charge recorded in fiscal 2025.

(4)     Includes all costs related to severance costs for our CEO change and workforce reductions as well as all costs related to the abandonment of our Edmunds lease.

(5)     Calculated using the blended statutory tax rate for each period.

28

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. 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. 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

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]