Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Fiscal Year 2026 CarMax Earnings Release Conference Call. — Operator Instructions — Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, David Lowenstein, Vice President, Investor Relations. Please go ahead.

Thank you, Nicky. Good morning, everyone, and thank you for joining our fiscal 2026 first quarter earnings conference call. I’m here today with Bill Nash, our President and CEO; and Enrique Mayor-Mora, our Executive Vice President and CFO; and Jon Daniels, our Executive Vice President, CarMax Auto Finance. Let me remind you our statements today that are not statements of historical fact including, but not limited to, statements regarding the company’s future business plans, prospects and financial performance are forward-looking statements we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our current knowledge, expectations and assumptions and are subject to substantial risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking state- ments, we disclaim any intent or obligation to update them. For additional information on important facts and risks that could affect these expectations, please see our Form 8-K filed with the SEC this morning and an annual report on 1 Form 10-K for fiscal year 2025 previously filed with the SEC. Should you have any followup questions after the call, please feel free to contact our Investor Relations department at (804) 747-0422, extension 7865. Lastly, let me thank you in advance for asking only one question and getting back in the queue for more follow-ups. Bill?

Thank you, David. Good morning, everyone, and thanks for joining us. Our first quarter results highlight the strength of our earnings growth model, which is underpinned by our best-in-class omnichannel experience, diversity of our business and a sharp focus on execution. Across the company, we are operating with a continuous improvement mindset. We are focused on growing sales and gaining market share, expanding gross profit, managing CAFs, credit spectrum expansion, leveraging SG&A and buying back shares. This focus, combined with our ability to provide a unique customer experience across our large total addressable market provides a long runway for profitable growth. In the first quarter, on a year-over-year basis, we grew retail and wholesale unit volume. We delivered robust retail wholesale EPP and service GPUs. We bought more vehicles from both consumers and dealers achieving an all-time record with dealers. We grew CAF’s net interest margin and continued to advance our full credit spectrum underwriting and funding model. We materially leveraged SG&A as a percent of gross profit. We doubled the pace of our share repurchases and we achieved 42% EPS growth. This marks our fourth consecutive quarter of positive retail unit comps and double-digit year-over-year earnings per share growth. During the period, we delivered total sales of $7.5 billion, up 6% compared to last year, reflecting higher volume, partially offset by lower prices. In our retail business, total unit sales increased 9% and used unit comps were up 8.1%. Average selling price was $26,100, a decrease of approximately $400 per 2 unit year-over-year. First quarter retail gross profit per used unit was an all-time record, driven by strong demand and operating efficiencies across our logistics network and reconditioning operations. Wholesale unit sales were up 1.2% versus the first quarter last year. Average wholesale selling price declined approximately $150 per unit to $8,000. Wholesale gross profit per unit was historically strong and similar to last year. We bought approximately 336,000 vehicles during the quarter, up 7% from last year. We purchased approximately 288,000 vehicles from consumers with more than half of those buys coming through our online instant appraisal experience. With the support of our Edmunds sales team, we sourced the remaining approximately 48,000 vehicles through dealers, which is up 38% from last year. Our digital capabilities supported 80% of our retail unit sales during the first quarter, 66% were omni and 14% were online. Relative to traditional and online-only dealers, we are the only nationwide retailer to offer an integrated, simple, seamless and personalized experience to meet the largest and growing segment of used car buyers. According to Cox Automotive Research as well as our own, the majority of customers shopping for used cars intend to transact via an omni experience. The combination of our associates, stores, technology and digital capabilities, all seamlessly tied together is a key differentiator that gives consumers the optionality to shop online, in-store or a combination of the two. Our Net Promoter Score is the highest it’s been since rolling out our digital capabilities nationwide, supported by new record high online and omni scores, reflecting that this experience is resonating well with customers. Our differentiating offering gives us a unique opportunity to reach more customers. To further capitalize on this opportunity, we’re excited to launch a new marketing campaign later in the summer that will bring our omnichannel experience and our digital capabilities to the forefront for a broad set of con- 3 sumers. And now I will turn the call over to Jon to provide more detail on CarMax Auto Finance. Jon?

Thanks, Bill, and good morning, everyone. During the first quarter, CarMax Auto Finance originated over $2.3 billion, resulting in sales penetration of 41.8% net of 3-day payoffs, which was 150 basis points below last year. The weighted average contract rate charged to new customers was 11.4%, in line with last year’s first quarter. CAF’s reduction in penetration was primarily driven by an influx of self-funded higher credit purchasers seen during the initial announcement of tariffs and, to a lesser degree, a higher Tier 3 penetration, both of which more than offset our expansion since Q4. Third-party Tier 2 penetration in the quarter was down 100 basis points year-over-year to 17.7% of sales while third-party Tier 3 volume accounted for 8% of sales, up from 7.5% last year. CAF income for the quarter was $142 million, which was down $5 million from FY ’25. Net interest margin was 6.5%, up over 30 basis points from last year as customer APRs outpaced the increase in our funding cost. CAF’s loan loss provision of $102 million was impacted by several notable items. First, Q1 is a seasonally higher sales and lower credit quality period requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages, along with the uncertain economic outlook necessitated additional loss reserves. Note that 2024 vintages remain largely in line with our original loss expectation. The last noteworthy item impacting the Q1 provision relates to CAF’s continued build-out of our full spectrum lending capabilities. While we remain focused on increasing our penetration across the credit spectrum, we also want to carefully manage future risk from higher profit, higher loss receivables. To that end, during the quarter, we earmarked a held-for4 sale pool of loans with a $632 million principal balance from our nonprime portfolio. That loan pool is intended to be fully sold off our balance sheet as a part of a nonprime securitization transaction. In the immediate term, this treatment removes the requirements to reserve for future losses expected on this pool of receivables. In the period in which the ABS transaction closes, CAF will book any gain realized by selling the financial interest in the loans. Also, the risk of any financial impact from this pool due to future deterioration is removed once sold. This additional funding lever as well as other off-balance sheet funding vehicles under consideration will provide CarMax with significant flexibility and allow us to mitigate risk while focusing on our growth plan. Our loan loss provision of $102 million results in a total reserve balance of $474 million or 2.76% of managed receivables, exclusive of auto loans held for sale. Note, there was a reduction on this quarter’s provision stemming from $26 million in the reserve allocated to loans booked prior to the first quarter, now classified as held for sale. As we reflect on the bigger picture, CAF has delivered solid income for yet another quarter, and we see tremendous potential for the future. Now I’d like to turn the call over to Enrique to discuss our first quarter financial performance in more detail. Enrique?

Thanks, Jon, and good morning, everyone. As a reminder, last quarter, we provided a view into the strength of the earnings model that we have built as part of our omni transformation. This model is designed to deliver an annual earnings per share CAGR in the high teens when retail unit growth is in the mid-single digits. First quarter results delivered net earnings per diluted share of $1.38, up 42% versus a year ago. Total gross profit was $894 million, up 13% from last year’s first quarter. Used retail margin of $554 million in5 creased by 12% with higher volume and per unit margins. Retail gross profit per used unit was $2,407, up $60 from a year ago and a record high. Wholesale vehicle margin of $157 million was flat from a year ago with an increase in volume, offset by a slight reduction in per unit margins. Wholesale gross profit per unit was $1,047, which was historically strong, though down slightly from a year ago. Other gross profit was $183 million, up 31% from a year ago. This was driven primarily by a combination of EPP and service. EPP increased by $13 million or $9 per retail unit as we fully comped over margin increases taken in the prior year. Service recorded a $33 million margin, which was a $30 million improvement over last year’s first quarter. We achieved this performance improvement through cost coverage, volume-based leverage and efficiencies. On the SG&A front, expenses for the first quarter were $660 million, up 3% or $21 million from the prior year. SG&A to gross profit leveraged by 680 basis points to 74% driven by the growth in gross profit and our ongoing actions to improve expense efficiencies. SG&A dollars for the first quarter versus last year was mainly impacted by a compensation and benefits increase of $19 million. The majority of this increase was related to unit volume growth. We continue to deliver efficiency gains across the business. We are off to a strong start in achieving our goal of omni cost neutrality in fiscal year ’26 for the first time across 3 key metrics. In the first quarter, we were both more efficient versus pre omni and versus last year per used unit, per total unit and as a percent of gross profit. Recall that this compares to variable commission costs of selling and buying vehicles in our pre-omni model to our cost now, which includes a new per unit commission as well as the cost of running our customer experience centers. A key driver of these efficiency gains and experience enhancements has been our strategic deployment of AI technology across our operations. A few key metrics that illustrate 6 the progress we are making year-over-year include Skye, our AI-powered virtual assistant realized a 30% improvement in containment rate. Our customer experience consultants productivity improved by 24%, and phone and web response rate SLAs improved by double digits. We see tremendous opportunity to continue expanding AI applications across our business to drive both the top line growth and operational excellence. Turning to capital allocation. We remain committed to creating long-term shareholder value. Our priorities are clear: invest in the core business, primarily through the reallocation of resources, evaluate new growth opportunities through investments, partnerships or acquisitions, and return excess capital to shareholders. During the first quarter, we accelerated the pace of our share repurchases, buying back approximately 3 million shares for a total spend of $200 million. As of the end of the quarter, we had approximately $1.74 billion of repurchase authorization remaining. Looking forward to the balance of the year, I’ll cover a few items. We expect service margin to grow year-over-year, predominantly in the first half of the year and to deliver a positive profit contribution for the full year as governed by sales performance, given the leverage – deleverage nature of service. Recall that the first quarter is typically the strongest for service margins due to higher seasonal sales volumes. Turning to marketing. We expect for the full year that our spend on a total unit basis will be flat year-over-year. Regarding CAF’s funding strategy, our current plan is to execute the programmatic off-balance sheet sale of the financial interest in the nonprime securitization once a year. As Jon noted, we will also be assessing additional off-balance sheet funding levers to further accelerate CAF penetration while continuing to learn from our full spectrum models. Now I’ll turn the call back over to Bill. 7

Great. Thank you, Enrique and Jon. Before I open it up for questions, let me summarize what you heard from us today about our strong first quarter. We delivered our fourth consecutive quarter of retail positive retail unit comps and double-digit earnings per share growth. We grew both retail and wholesale unit volume. Our sourcing efforts hit another milestone with a record dealer volume through Max offer, and we continue to leverage our cost structure with meaningful SG&A improvement. Our digital capabilities and overall experiences are resonating with customers as evidenced by our Net Promoter Score. We’re also continuing to leverage AI across the business to further enhance the experience for both customers and associates and to increase operational efficiencies. We’re taking the next steps in our credit expansion by delivering a new funding method for a portion of our nonprime portfolio that mitigates risk, gives us more flexibility and supports the growth of CAF income and we doubled our share repurchase pace. Our associates, stores, technology and digital capabilities, all seamlessly tied together, enable us to provide the most customer-centric car buying and selling experience. This is a key differentiator in a very large and fragmented market and positions us to continue to drive sales, gain market share and deliver significant year-over-year earnings growth for years to come. I want to thank our associates across the country for their dedication in delivering these results to providing an unmatched experience for our customers. With that, we’ll be happy to take your questions. 8

— Operator Instructions — And your first question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter, congratulations. I guess the question I want to ask, we’ve seen a nice acceleration here in your used car business. I know you don’t typically talk much about intra- quarter trends or trends into the following quarter. But the question I ask is, I mean, how are you viewing the sustainability here? I mean as you’re looking at this, is the business coming back? Is there anything unique to this reacceleration? And then a follow-up to that is, you showed again in this quarter, nice SG&A leverage, but as we’re thinking about sales continuing to restrengthen here, how should we consider expenses coming back into the model? To what degree expenses need to back in the model to support those sales?

Sure, Brian. I’ll take the first one, and then Enrique, do you want to talk about the expenses. As far as acceleration, look, Brian, we feel really good. I mean, first of all, just back up a second. We’re really pleased that this is the fourth consecutive quarter of comp growth. Obviously, this quarter, we’re pleased with the comps, especially all 3 months were positive. As I think about the acceleration, and we talked a little bit about this last quarter, I think this month – this quarter’s performance, it’s driven some by the macro factors, but I also think it’s driven some by with what we have can control. And I would go back to some remarks I made in the last quarterly call, which is the quarter started off strong and then we saw an uptick at the end of the quarter when there was 9 speculation about the tariffs. And then I talked about that uptick towards the latter part of March and then rolling into April, we saw another little uptick. And so April ended up being the strongest month for us. But I would just go back to even before we saw that the initial uptick, the business was growing – was doing well. And I think that’s a reflection of a lot of the work that we’ve done internally, whether it’s the inventory management, it’s our pricing, it is our savings, it’s the omnichannel experience, continuing to make that better. So I think there’s – this performance is both part market driven. I think it’s also driven by us. So we feel great about the rest of the year. As I said at the end of last year that we would expect to grow sales and gain share this year, and there’s nothing that’s changed that outlook. Enrique?

Yes. For SG&A, Brian, we spent the past couple of years being able to lever SG&A, and that’s really given all the actions we’ve taken on focusing on efficiency. And we’re committed to continuing to lever the business. I do think this quarter is really illustrative of the power of the model that we’ve built. So strong comps, and we levered SG&A almost 700 basis points this quarter. And when you look at the increase in SG&A for this quarter, primarily, it was driven by variable costs. But again, with those variable costs, we were able to lever again by almost 700 basis points, taking us to the mid-70% in the first quarter here. So we’re committed to continue doing that, and you can see the power of the model here.

Yes. And Brian, the only thing I would add to that is that’s a big focus for us is continuing that leverage. And we certainly like the additional volume and how it helps that, but we’re also very much focused on continuing to find efficiencies, continuing to take SG&A. And we just think there’s a lot of opportunities still there. 10

Our next question comes from Scot Ciccarelli with Truist.

Bill, I know you guys don’t guide, but with comp growth kind of bouncing around a bit the way it has and comparisons getting much more difficult in the balance of the year, how should we, from an outside modeling perspective, be thinking about the comp growth on a go-forward basis? Are we thinking about stacks? Is that something that – like 2-year stacks or 3 stacks, is that relevant? I know obviously, there’s a lot of moving pieces on the macro and you guys are making all the changes that you’ve already cited. But just from a broader perspective, like how should we be thinking about the comp growth for the balance of the year?

Yes, I’ll tie back a little bit to what I talked about and Brian. But as far as – like you can look at 2-year stacks, 3-year stacks, they tell a little bit of a mixed story. And I think that’s – you can’t rely 100% on that because there’s a lot of dynamics that happen over the years. And as far as the outlook for the rest of the year, look, we feel like we’ve put ourselves in a good position. And as I said to Brian’s question, we don’t – we’re not changing our outlook for the year based off of what we laid out there for the beginning of the year. And so we expect to continue to grow sales and continue to gain market share. Nothing has changed that outlook. So...

Okay. And then I’ll take a quick follow-up, if I can. Can you just provide a little bit more color on the shift on the nonprime? Like if I heard you correctly, it sounded like there was going to be another $26 million provision, but you don’t have to count it because it’s now 11 being held for sale. Was that the correct interpretation?

Sure. Yes, I can take that question, Scot. So first, overarching, let’s just talk about the heldfor-sale transaction. Broader picture, like we are super excited about our full spectrum strategy. If you look at what we put in place, we bifurcated our securitization program. We’ve implemented our new models. We’ve executed 2 transactions where we held the future cash flows, and this is the next step. This held-for-sale transaction is something we have been thinking about along with other off-balance sheet transactions, but it was just the right time to move on this thing. So the mechanics of it is, ultimately, for those receivables, you do not need to hold any loss reserve because you have intent to sell them. So those $630 million, we’re able to not have to put dollars into the reserve. So that works for you in your provision line. Beyond that, there’s no future risk there associated with those receivables if there were a deterioration, I mentioned that in the prepared remarks. So that, again, is a risk mitigant there, especially really well targeted to this nonprime space, which we’re looking to really drive growth in. On top of that, you’re going to capture the gain when the sale closes, I don’t know when the sale will close, but you can imagine, it’s probably not in Q2, but sometime after that, which is going to bring all of those cash flows upfront for us. So rather than earning them over time, we get them right upfront. So again, a really pivotal thing for us in our strategy and just an extra tool in our toolkit. Regarding the provision in the quarter, just as you mentioned, just to play that out. So again, you had your origination volume. We signaled about $100 million provision in the Q4 call. We landed on that number, but there were puts and takes there. You had 12 some increase in the provision from the true-up, 2022 and 2023 vintages, which we’ve mentioned. The economic view that we have, we’ve put aside not an insignificant amount of dollars for that as well. But again, this held for sale, you’re able to offset some of that with dollars you no longer have to hold in the reserve. So long answer, I want to lay out the entire transaction, how it plays out and how the provision was impacted by that. So hopefully, that’s clear.

I think, Scot, what I would add to that is we’re really excited about the program. I think a simple way to think about it is that it really enables full spectrum and CAF income growth while mitigating the risk. So it’s a tool that we’re excited about. As Jon had mentioned in his remarks, we’re also looking at other balance sheet potential funding vehicles as well to further accelerate and help us grow our full spectrum strategy.

Our next question comes from Michael Montani with Evercore.

Congrats on the quarter. Just wanted to ask, I guess, the 2-parter, but the first part was, you made a really interesting comment in the prepared remarks about doing a marketing campaign to kind of aware folks to your multichannel capabilities. So I’m just kind of wondering, can you share some basic levels of awareness kind of prior to that campaign? And what exactly it is you’re doing differently there? And then I guess the follow-up was just also related to credit, which was does this signal that you’ll be kind of increasing subprime penetration as a percentage of the loans that you’re issuing as well? And just how should we think about that?

13 Yes. Great. I’ll hit the marketing, and then I’ll pass it to Jon to talk about the subprime question. As far as the marketing goes and kind of awareness there, Mike, we’ve had – we’ve built up our awareness on both digital capabilities and the fact that we can do an online sale. So that’s been increasing through our marketing campaigns in the past. I think I talked about the last call, we’ve gone with a new ad agency, 72andSunny, and we’re really pleased with how the relationship is going. And I cited some Cox information and I did that purposeful because if you look at how customers want to buy, they intend to buy omni. But if you look at how the vast majority of them still buy today, it’s all in store. And I think what happens is consumers, they want to buy a certain way but then they settle. They go into a dealership and they’re forced to buy a certain way. And what we want to make sure that we educate the consumers on is that, look, you don’t have to settle. You don’t have to go for the one way a dealer has. You have optionality. So I think the campaign build-out is like don’t settle, like CarMax has the best experience no matter how you want to buy. And I think that is really going to start to resonate with folks as they’re looking for options in the future. Jon, I’ll turn it over to you on the subprime.

Yes, Michael, I’ll take that – take your question on the subprime growth. And yes, fair question. Short answer is, absolutely, we are looking to grow. We’ve signaled that very clearly. We made adjustments at the beginning of Q1. Taking volume back, we signaled 100 to 150 basis points of growth. Now that was muted because of a lot of stuff that happened in the first quarter, tariffs, et cetera. We cited that in the prepared remarks. But yes, we – if you look at what we’re doing from our full spectrum strategy, we’re putting things in place that allow and fuel that growth, especially we think this held for sale sup14 ports that. So if I were signaling a level to you of penetration, because again, we’re at 42%, 43% historically, we said we want to grow that. I’d put a great first step for us at 50%. We’re not going to get there this year. We will tell you as we grow that. But yes, that is our plan, and we’re really excited about a tremendous amount of value as we grow this in the quarters and upcoming years.

Our next question comes from Chris Bottiglieri with BNP Paribas.

So first off, congrats on the mental agility around the subprime funding. I think it’s an interesting structure. I just have one clarifying question on that and then just a broader question on credit. What percentage of new originations were classified as held for sale? Were those part of the $26 million you cited or would that be incremental? And then my broader question is just, obviously, you elaborated on the allowance stepping up and some of the factors that drove that? How much of this is like the macro environment with student loan lending? Like are you seeing like as the credit scores have dropped and credit performance and the broader economy has worsened a bit. Is that impacting capital? Is that measurable? Like what percentage of your customers have student loan debt? Just curious how if that’s having an impact at all?

Sure. Yes, I appreciate the question, Chris. Sorry, take them in order. So how do we think about the provision takedown from the held for sale, how much was it from new originations versus the fourth quarter originations or previous originations we had on the books that were already in the reserve. I’d just tell you the majority of it was from 15 receivables that were already in the reserve. So yes, certainly, some of it from Q1, but the majority were already in the reserve. So that handles that one. Second question, give a little more flavor around what we’re seeing in the step-up in the reserve to 2.76%, what we’re seeing in performance and as it relates to student loans. Yes, as I said in the prepared remarks, I think the ’22 and ’23 vintages certainly were ones that performed more unfavorably in the quarter. Again, we think we have appropriately reserved and adjusted accordingly. I did say in our prepared remarks, actually 2024, we feel real good about. We’re kind of on the mark there a year in on that stuff, year plus in on that stuff. Regarding student loans, let’s give you some statistics there. In the CAF portfolio, about 30% of – that we can see for the credit bureaus, 30% of our customers have student loans. We’ve been watching them, as you might imagine, for years now with the thought of our payment is going to be made, what forgiveness is done for those and how they performed. Ultimately, what I’ll tell you is we have not seen a material change in those customers in the recent year as compared to what we’ve normally seen. So we’re watching this very, very closely as payments are expected as it may impact their credit report, et cetera. We would hope that auto still remains top of wallet share for them, but we’ll watch them closely, but no change to date.

And Chris, the only thing I would add there, when you think about kind of what I call the true-up, that was primarily driven by the ’22 and ’23 vintages. And I just want to remind everybody, even with that, they’re still super profitable, and then, to a lesser degree, the kind of the economic factors as you lean forward, not immaterial, but I want to make sure everybody understands, it’s more of the ’22, ’23 that are driving that. And even with that, they’re still very, very profitable. 16

Yes. And to clarify that, last thing I’ll tackle on there is unemployment rate is the big one that’s driving that. Yes. Again, not insignificant contributor but not the majority of it.

On the economic factors?

Correct. Yes.

Our next question comes from Sharon Zackfia with William Blair.

I wanted to ask a question on CAF with the move to full spectrum lending. How far have you gone into kind of the full spectrum so far? Like how do we think about that for the second half of the year? And then in terms of increasing that CAF penetration, I know there was – there were moving parts in this quarter, but do you expect CAF penetration to increase year-over-year in the August quarter?

Yes. Sure. Appreciate the question, Sharon. So let’s just break down penetration as it typically sits. CAF has been historically sitting in where it’s originally – where it’s normally originated at 42% to 43%. We’ve cited our Tier 2 and Tier 3 players taking combined, call it, 26% of volume. As we grow, that is definitely where we’re looking to grow. So we’re looking to penetrate that. When you think about – I think really since your question is, how fast will we grow where – that’s really where we’re looking to grow down there. I think key for us will be we’ve got 2 securitizations in play. We’re looking for the heldfor-sale transaction that we need to close. That’s got to happen. We’re just coming up 17 anniversarying on our models. We put in place 100 to 150 basis points of growth at the beginning of the quarter. Now, as we say, the tariffs really threw a bit of a snap too in that and showing that growth that we realized. But we’ve made progress. As sort of that volume normalizes because so much of it came with – coming in with our own financing as that normalizes, you’re going to see that we have made progress on that. And again, we’re going to look to grow that. We will signal when that happens. But I think you’re going to see material growth we would expect in the – you’re not going to get there this year, Sharon, at that 50% number I labeled, but you’re going to see hopefully material growth in the quarters to come.

Sharon, the only other thing – when you think about the penetration speed, there’s really 2 governors on that. One is having your funding available, and that’s certainly taken care of. The other one to Jon’s point is your credit model. Remember, we had a lot of experience at the top. We had a lot of experience at the bottom, but then we put the full spectrum credit model in there, which we’re still testing. I mean, Jon, how long has that been in play that...

Yes. August, we launched it.

Yes. So it just takes time to make sure your model is exactly the way. So those are the 2 governors.

Our next question comes from David Bellinger with Mizuho.

18 Nice results. Another one around the marketing spend and the new campaign understanding the flexibility for consumers will be front and center. But is some of that new push being driven by this omni cost neutrality that you mentioned in the prepared remarks and suggested that CarMax is now ready to flow more digitally initiated volumes and in a more profitable way going forward? I’m just trying to gauge whether you’re seeing a step change within the digital economics of the business and opting to put more marketing dollars behind that now?

Yes. I mean that definitely enables the push on efficiency, the productivity, customer service, all of those things, again, fueled by AI, fueled by our associates, definitely enabling a better experience, but then makes us feel a lot better about going out there and advertising and letting our customers know the incredible experience and a highly differentiated experience that they’re going to get through CarMax.

Yes. I think, David, the way I think about it, too, is FY ’25 was a big year from us from an experience standpoint and really closing some of the last big gaps with the rollout of order processing and shopping card. And so we feel like we’re at a point where if you’re going to go out and celebrate this and really point direct customers to this fact that like you don’t have to be forced into a fixed path. You better have best-in-class in-store, you better have best-in-class omni, you better have a best-in-class online-only experience. And we feel like we’re at that point where like we need consumers to understand, you don’t have to settle. And so that’s a lot of the thrust why we’re thinking about it now in addition to the efficiency stuff that Enrique has already mentioned.

19 Our next question comes from Rajat Gupta with JPMorgan.

I just had like a couple of clarifications from like some of the commentary. Firstly, any color on how the second quarter might have started. We’ve heard anecdotes just in the broader macro around some meaningful pullback from like just the prebuy ahead of tariffs. I was curious if your business has felt any of that here in June? Any color you could give on comps there? And then just on CAF, I mean, obviously, a lot of discussion there. In the last quarter, you had given us some guidance around the provisioning cadence for the year. Any color you could give us on how the second quarter might look like, especially in context of all the changes that are happening, that would be helpful.

Okay, Rajat. On June, look, we’re 19 days into it. We’ll talk about June when we talk about the second quarter at the end of the second quarter. The only thing I would add to that is just remember or you may not know this, but the second quarter, we do lose a Saturday, and that happens to fall out in the month of June, and then you don’t pick it up for the rest of the quarter. You won’t pick that Saturday until the rest of the year. Jon, I’ll toss to you on the provision.

Sure. Yes. Just think about the cadence of provision for the year, we would expect Q1 to be the high watermark here. We’ve made the adjustment that we believe needs to be made on those older vintages. We feel good about the ’24s, obviously, notwithstanding the consumer and all that could happen in the future. But again, we feel good about our reserve ideally just be provisioning for new originations. The only thing that could throw that is what is our growth plan? Obviously, if we grow, you’re going to have to add 20 provision accordingly for that nonprime space, but we’ll signal that when we’re going to do any material more growth there. So...

Yes, I think the way you should think about it is what we talked about last quarter is we’re going in the near term after the 100 to 150 basis points. We’re well on our way there. I just got a little bit math this quarter.

Our next question comes from Craig Kennison with Baird.

It’s been a helpful call. I appreciate it. I wanted to ask a question. In the press release, you talked about digitally supported sales at 80%. That was down from 82% in the February quarter. So I think you lost a point in omni and a point in online. I know you’re really focused on the omnichannel, but digital had been gaining share and clearly feels like the future. So I’m just curious if you can explain why that might have stepped back in this quarter.

Yes. I think part of it is just seasonally. Craig, I mean, I don’t really – I mean – I think omni is actually up a point and maybe online is flat or maybe down a point. But I mean, I think it’s more seasonally driven. I think the more interesting and the more relevant point is that we continue – in the omni bucket, we continue to see more transactions, more pieces of these digital capabilities being used. And I think that’s the more relevant point than, oh, did everybody go to online or did everybody go to omni. It’s like, okay, of your omni bucket, you’re seeing that the number of steps that they’re doing is continuing to increase. 21

And then just to follow up on the marketing comments you’ve made, how is AI changing the way you think about search engine optimization as part of this new marketing campaign?

Yes. Well, I think the big new buzzword is GEO instead of SEO, and it’s a generative engine optimization. That’s what it’s all about. It’s like how do you show up well. So it’s critical. I think if you’re only focused on SEO, you’re going to miss the boat. SEO is still super important. You still got to focus that, but now you have to kind of also be really good at GEO. So it will play a big role in the marketing campaign. And I just think in marketing in general, I think generative AI, there’s just a lot of potential there.

Our next question comes from Jeff Lick with Stephens, Inc.

Congrats on a great quarter. There was obviously – this quarter is a lot of puts and takes in terms of you expanding the credit spectrum kind of the tariff surge. And then also, you guys have kind of been – you indicated in your Analyst Day leaning into a bit more on the value cars, 6 the 7-plus years. Maybe if you could just kind of walk us through anything – any call-outs as the quarter progressed and how those buckets influenced your impressive comp?

Yes. I appreciate the question, Jeff. Look, I think we’ll take some of the noise like the credit spectrum expansion, take that out, it’s still a great quarter, okay? We’re really pleased with it. And I think the credit expansion, look, it’s the next step. We’ve been working through that. It didn’t – we didn’t contemplate in the provision of the fourth 22 quarter, but it’s something we’ve been working on. So we’re excited about that. I think you brought up an interesting point on just the age. We did sell – if I look at our, let’s call it, 10-plus year old cars, we increased – we probably sold roughly 25,000 more of those cars. When I say it’s like think about the 10-year-old, the 11-year old, the 12year-old, and that’s by continuing to really kind of push in that area because we do know customers, they’re interested, they want to buy. But even like this past quarter where we saw this higher no finance, those are folks that have higher credit. But interestingly, if you look at how they bought, they bought vehicles across the spectrum. In fact, our biggest growing contributor to sales this quarter was kind of barbell. It was the under $20,000 cars and the over $40,000 cars. And so I think having a good answer there for all those is going to be critical. And that’s an area that we’ll continue to focus on without sacrificing the quality standards of CarMax. That is a work track that we’re definitely focused on.

Yes. Between those 2 is really the under $20,000 – increase in under $20,000 that drove our comps. So that focused on affordability. And internally, as you know, we call our certain cars or older cars, more of a value max car that was up 5 points year-over-year on the quarter as well. So those that believe into under $20,000 car. So a focus on affordability and ability to meet the customer where they want to be met.

Our next question comes from David Whiston with Morningstar.

I was curious if you can talk at all about how you see buyback spending trending the rest of the fiscal year relative to Q1 spend? And how financially stressed is the consumer right 23 now in your opinion?

On the share buyback, what I’d tell you is our intent entering this year was to modestly accelerate the pace of our buybacks as compared to last year. And in the first quarter, based on valuation, based on cash flow dynamics, we saw an opportunity to sizably increase the amount of share repos clearly. So when determining the base for Q2 and beyond, we’ll have the same considerations, the valuation, cash flow dynamics as well as the broader macro backdrop.

Yes. And I think as far as the consumers, how stressed that, look, I wouldn’t categorize it as way more stress than the last. But I certainly would say they’re less stressed. And I think what you’re seeing is some of the consumers are – obviously, we talked about the student loans. You can see some default on folks that have got student loans. We haven’t seen any impact on our business. But I think there’s also a little bit of kind of wait and see on tariffs. While tariffs have impacted some prices. I think there’s – a lot of stuff was already – a lot of things were already in the U.S. before tariffs kicked in. So I think really, we just need to watch going forward as prices go up on for everyday consumables, how that might push them. But I would say from a consumer sentiment standpoint, they’re probably a little less positive about the future, but I don’t think it’s necessarily showed up so much in the buying habits at this point.

— Operator Instructions — We will move next with Chris Pierce with Needham.

24 Can you just walk me through cost avoidance in other cost of sales? I just – I’m not sure what the model going forward. It was down $33 million year-over-year and drove a pretty high – yes, I’d just love to hear about cost avoidance there and what to think about going forward.

I’m sorry, which line are you talking about?

$7 million in other cost of sales versus $40 million year-over-year?

You’re talking about service, we had an improvement of $30 million in service line in our gross margin, if that’s what you’re talking about, then again, we had benefits coming there from cost coverage that we have taken, meaning we have taken some fees to overcome some of the cost pressures we had last year. We saw leverage on our – on a largely fixed cost base in service. Right? So positive sales will create some leverage. And then we continue to go after efficiencies in that business as well, and we continue to deliver on those like we’ve committed to on an annual basis. That’s why we saw the improvement of $30 million improvement in service.

So those – that 95% other gross margin, that’s something – I mean, I guess, how should we think about the gross margin going forward, given the impact it has on EPS?

Yes. The gross margin is certainly in line when I talked about our earnings model and our focus on being able to deliver high-teen EPS growth over time and on mid-single-digit comps. That is something that we’re focused on is continuing to grow that margin, the 25 other margin. And the key components in other margins are going to be service like I just talked about. And the other component is our EPP products, right? We saw our EPP margin go up again this quarter. I talked last quarter about we’re undergoing some tests in terms of product enhancements in our EPP products. We’ve been pleased with the results of those tests. In terms of product enhancement, those have to do with deductibles, terms, and we would expect to see a modest rollout in the back half of this year and then with the full financial impact or more full financial impact as we head into FY ’27. We are laser-focused on other gross profit as a vehicle for growth in terms of fueling our EPS growth.

Yes. I think, Chris, from your modeling standpoint, I think it goes to some comments earlier because a lot of that is being driven by service and the service in the first quarter is always the strongest we would expect, as we said last quarter, to be profitable for the year, but you shouldn’t expect the service gains equal, like you saw in the first quarter for the rest of the year.

Yes. And I can – yes, I made a note that in my prepared remarks as well. The first quarter is usually the strongest when it comes to service just because it’s the highest volume quarter that we have just seasonally. And again, you’re levering on a somewhat fixed cost basis. And so you’re going to lever more strongly there. But again, we’re committed to growing our other gross profit in totality as part of our earnings model moving forward. And that’s what you’ve seen now for the past couple of years.

Okay. And then just lastly, going back to the first question, SG&A per retail unit was down 26 mid-single digits year-over-year, but it was sort of flattish if we look back 2 years ago. I just kind of want to get a sense of where we are in fully levering omni cost and how should think about this kind of going forward?

Yes. I don’t – we have opportunity to continue to lever our costs, whether it be specific on the sales side, when you’re thinking about CEC expense, that kind of thing or just across the business. And we have initiatives in pretty much every single area. So we still feel like there’s additional opportunity there.

Yes. And what you certainly see from us is a commitment to doing that. It’s been a couple of years now where we’ve been levering and levering our SG&A as a percent of gross profit, whether comps were positive or weather comps were negative. We’ve been able to successfully lever our SG&A and we intend on continuing to do that.

Our next question comes from – it’s actually a follow-up from Rajat Gupta with JPMorgan.

Great. Sorry for the follow-up. I just wanted to follow up on the new off-balance sheet approach. And is it fair to assume that a lot of the incremental penetration that you see in the CAF book from 42% to 50%, all of that will go through this off-balance sheet approach. Basically trying to understand like what’s the mix going to be or what you’re targeting in terms of on versus off balance sheet for CAF?

Yes. I appreciate the question, Rajat, and a fair follow-up. So I think one of the things we want to drive home here was we think this is a periodic play for us. It’s – obviously, we 27 have our higher prime deals. We don’t think it’s necessarily set up for this approach, less volatility there, less risk in those customers in the nonprime approach, especially as we grow from 42% to 50%, which you’ve cited. And I think it really does set itself up to at some point in time, maybe we do want to retain that risk and all the additional cash flows that come with it because there is additional value there, where we’re willing to offload some of that risk take the cash upfront. And again, maybe there’s a little bit of a haircut there. But I think it’s an opportunistic play as we’re going to see. So maybe it’s once a year. We’ll see how it plays out. But I wouldn’t think about it as an all or nothing play here at all.

Yes, I definitely wouldn’t think about it that way. There’s – if you look at the Tier 1 business, we aren’t changing that. I mean that – we hold on that – think about it more being able to expand on some things that, hey, at the end of the day, probably don’t want to carry that. And so to Jon’s point, don’t think about it as all in one bucket or the other. It’s going to be a nice complement of the two.

Yes, there are definitely subprime receivables that we want to keep and hold for investment, and we’ll continue to do that. Absolutely, I think of this play, and I mentioned it earlier, just kind of simplistically, it’s going to enable our full spectrum and CAF income growth over time while mitigating some of that risk. So we’re really excited for this program, but that’s how I think about it.

Understood. And it makes a lot of sense.

28 And we have another follow-up from Jeff Lick with Stephens Inc.

Great. I just wanted to double back or ask about retail GPUs. Surprised we actually haven’t hit on this. It’s a record at $2,407 first time we’ve seen the $2,400. Last quarter, you talked a little bit and highlighted the improvements in logistics and then also recon if we could get into the – if you wouldn’t mind elaborating on the stand-alone recon centers, do that – do those have an immediate impact? Or does it – is it actually dilutive for a few quarters or a year before they show up? And then, I guess, lastly on GPUs, are the 10-plus year old vehicles, I’m assuming those might have higher GPUs than the chain average. So can you just kind of talk about the improvements you’re seeing there and where the trajectory might be?

All right, Jeff, I’m going to try to hit it. There’s a lot in that question. So I’m going to try to hit it all, but you can keep me honest at the end. So look, yes, we’re pleased with the retail GPUs. And I think the big thing there you should be thinking about. And I talked a little bit about this last quarter because someone asked, how do you think about retail GPUs? And I said, look, if you’re modeling it, think about it on a yearly basis and think about it being similar to what it was last year. But I also said that on any individual quarter, it’s going to be up or down. And the reason I said that is because you got to look at the factors in the quarter. And sometimes if you think about all the different things that go into the decision, think about elasticity and price competitiveness and variable costs and how you’re improving on that and ancillary services that you attach or products that you’re attach, there’s going to be some quarters where you know what, and this is one of those quarters, like look, we’re going to take some of those savings that you’re talking about from the reconditioning and logistics, 29 and we’re going to just flow them through to the bottom line. Now as far as the stand-alone reconditioning centers, look, our – the benefits that we’re getting from reconditioning and logistics, I just want to remind everybody, we’ve had large reconditioning centers all up until now because if you think about it, we have 250-plus stores, but we only have a little over 100 places where we produce cars. We’re seeing the benefits across the board. And it’s so early on the reconditioning side. We just opened up a couple more large recon centers. We are seeing some improvements there, but that’s more towards the logistics because we’re having to ship cars from less out of market and being able to put them right there in the market. They’re not – I think we’ve got one that’s probably fully ramped to capacity. I would expect to continue to get synergies outside of those. But we’re getting synergies across the board when you think about the reconditioning, and I would expect to continue to do that as we go forward. Did I miss anything? Yes, I did. Yes.

You said 10-year-old cars.

Yes, the 10-year-old car. Yes, I mean historically, we talked about older cars, you bring them up to the CarMax standard, they’re generally a little bit of a unicorn. They will get a little bit more margin there, you’re able to make a little bit more margin on those vehicles. So that’s fair.

We don’t have any further questions at this time. I will hand the call back to Bill for any closing remarks.

30 Great. Thank you. Well, listen, thank you all for joining the call today and for your continued questions and your support. And as always, I just want to thank our associates for everything that they do and how they take care of each other and our customers. We will talk again next quarter. Thank you.

Thank you. Ladies and gentlemen, that concludes our first quarter fiscal year 2026 Corporate Earnings Release Conference Call. You may now disconnect. Copyright © 2025, S&P Global Market Intelligence. All rights reserved 31