2 Forward-Looking Statement This presentation contains forward-looking statements, which are subject...

2

Forward-Looking Statement

This presentation contains forward-looking statements, which are subject to risks and uncertainties. Additional discussion of factors that could cause actual results to differ materially from management’s projections, forecasts, estimates and expectations is contained in the CarMax, Inc. SEC filings.

3

CarMax TodayUsed Car Superstores

Sacramento

Richmond

Raleigh

Atlanta

Nashville

Orlando

Tampa

Miami / Ft. Lauderdale

San Antonio

Dallas/Fort Worth

Houston

Los Angeles

Baltimore / DC

Chicago

Charlotte Greensboro

1

1

4

4

11

4

22

21

4

3

1

7

Mid-sized Markets (13)

Large Markets (8)

1

Greenville

Knoxville1

Nation’s leading used car specialist

Pioneered used car superstore –1993

Operates 44 used car superstores

FY03: Sales: $ 4Bn Net profit: $ 95mm Separation Costs: $ 8mm Earnings ex Sep.: $103mm

1Las Vegas

1

1

Kansas City

1Birmingham

4

Unique retail opportunity

Provides superior economic returns

What Is CarMax?

5

CarMax Sells More Cars

CARMAX 5,210

Public dealers 2,023

Average dealer (NADA) 1,376

Sales/Store (Units)

2002

6

CarMax Gains Market Share

CARMAX + 8%

Public dealers - 8%

Used Car Comp Unit Sales

2002

6.7%

10.2%10.5%

12.4%12.8%12.9%

15.8%

14.1%

0

2

4

6

8

10

12

14

16

18

HD BBY KMX KSS WMT COST SPLS AutoDealer

Average

RO

IC (

%)

(2)

(1) After-tax EBITR/Average invested capital. Invested capital includes operating leases capitalized at 8x.

(2) Auto dealer average includes: ABG, AN, GPI, LAD, SAH and UAG.

Source: CarMax calculations based on companies’ public filings, most recent fiscal year.

ROIC

CarMax Earns Higher Returns

(1)

8

Why Does CarMax Work?

Used car focus

Consumer-preferred concept

Process-driven competitive advantages

Organic growth plan

9

Used Car Focus

CARMAX 91%

Public new car companies 38%

Average new car dealers (NADA) 48%

Used Car Mix % (Units)

10

Why Used Cars?

Huge, fragmented business

Non-commodity

Stable

11

(15.0)%(10.0)%

(5.0)%0.0%5.0%

10.0%15.0%

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

% Change New Vehicle Unit Sales % Change Used-Vehicle Unit Sales

Used Vehicle Sales Stable

Source: Manheim Auctions

12

Purchasing/ Inventory

Management

Information Systems

Reconditioning

Consumer

Offer

PROPRIETARY OPERATING PROCESS

Process-driven

Finance Originations

Proprietary Operating Process

13

Marketing

CARMAX MARKETING

COMPETITIVE ADVANTAGES

14

CarMax MarketingCompetitive Advantages

I. What we offer

Marketing

II. How we offer it

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I. The CarMax Offer - Overview

Marketing

Consumer Need CarMax Offer1. “No Games” Low No-Haggle Price

2. “I don’t want to driveall over town”

Broad Selection

3. “I want a car I cantrust”

Great Quality

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1. Low, No Haggle Prices

I. The CarMax Offer

No haggle on price

- on trade-in

- on financing

- on extended service plan

Competitive Prices ($500 - $1,000 Below KBB)

17

2. Great Selection

10x typical dealer

All makes and models on one lot - tailored to local area

15,000+ cars available for transfer

I. The CarMax Offer

18

3. Great Quality

No flood/frame damage

125+ point inspections andreconditioning

5 day money back guarantee

30 day worry free warranty

Extended warranties

I. The CarMax Offer

19

Matching Consumer Needs

I. The CarMax Offer

Percent of shoppers stating they came to CarMax because of... (n = 9800)

78%

79%

81%

Vehicle Quality

Large Selection

No Haggle Pricing

20

Superior to Competition

I. The CarMax Offer

Shoppers that rate CarMax superior to other dealerships on... (n = 9800)

75%

81%

72%

Vehicle Quality

Selection

Price

21

CarMax MarketingCompetitive Advantages

I. What We offer

Marketing

II. How We Offer It

- Internet Competitive Advantages

- Newspaper Competitive Advantages

- Television Competitive Advantages

22

CarMax Primary Competition

II. How We Offer It

Small FranchiseDealers

Mid-Size FranchiseDealers

Large FranchiseDealers

New SalesPer Month

Less than35

35-65 65+

Used SalesPer Month

Less than25

25-45 45+

Number ofDealerships

8,690 6,080 6,950

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Internet Competitive Advantages

National scale: selection

II. How We Offer It

Site optimization

Consumer Preferred

24

National Scale: Selection

Single national brand

II. Internet Competitive Advantages

15,000+ cars

Transferable anywhere - Over 4,500 SUV’s - Over 2,300 vehicles under $10K - Over 525 Jeep Grand Cherokees

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Ease of UseII. Internet Competitive Advantage

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Consumer Preferred

Number 1 car site in every market

84% say site is excellent/very good

90% say better than other dealers

Second most mentioned car sitenationwide! (J.D. Power)

II. Internet Competitive Advantage

27

Newspaper Competitive Advantages

Scale: lower costs

II. How We Offer It

Ad optimization

Consumer Preferred

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Scale: Lower Costs

Purchasing advantage vs. 90% of dealers

Consistent ad (3,000 ads - 4 designers)

II. Newspaper Competitive Advantages

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Optimized for Used Car Shopper

II. Newspaper Competitive Advantages

Price

Quality

Selection

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Consumer Preferred

II. Newspaper Competitive Advantage

Non-CarMax markets 190+ competitor ads

CarMax Ad Had Highest Visit Intent (n = 400)

First Top 3

16%

46%

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Television Competitive Advantages

Scale: lower costs

II. How We Offer It

Ad optimization

Consumer Preferred

32

Scale: Lower Costs

Buying scale vs. most (10 - 35%)

II. Television Competitive Advantages

Ad production economies (20 ads vs. 0-4 ads)

33

Ad Optimization

350-600 consumers test every ad

II. Television Competitive Advantage

2-4 cities

Moment to moment reaction

34

Consumer Preferred

II. Television Competitive Advantage

Likelihood to Visit

Local dealerad (22 ads)

TypicalCarMax ad

Less Neutral More

-16%

+30%

35

Impact of Marketing Scale

II. How We Offer It

Small Dealer(40%)

Large Dealer(30%) CarMax

Unique websiteVisitors/month

0-100 1,000-5,000+ 50,000+

NewspaperPages/week

0.1 1.0 2.1

TV points/week 3 17 150

Marketing Expense(% of sales)

1.2% 1.3% 1.3%

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Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven



37


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven



38


Competitive Advantage

Consistent processes across stores

Scalable

Hard to replicate

– time

– re-applied learning

39


Why Others Failed

Operating processes weak

Only copied the sales end

Did not fully adopt equities

Focused on the visible consumer offer

40


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Consumer

Offer

41


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Purchasing /

Inventory

Management

42


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven

Finance OriginationsReconditioning

43


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Consumer

Offer

44


Management

Reconditioning

Consumer

Offer


Process-driven


Information Systems

45


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Finance

Originations

46


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Purchasing /

Inventory

Management

47

Purchasing/ Inventory Management

Efficient Inventory Management

1 million served

4 million appraisals

All transactions captured and analyzed

Right car, right place, right price and right time

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People Development

Volume buying = great buyers

130 buyers with over 10,000 appraisals

Report card = accountability and improvement

Difficult to replicate

49


Proprietary Pricing Model

Sophisticated model

Refined over 10 years

Store specific

Automated and flexible

50


We Buy Cars

Cash offer on every car

We will buy your car even if you don’t buy from us

1/2 of our vehicles are sourced through appraisals

57


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Purchasing /

Inventory

Management

58

Auctions: Disposing of Vehicles

We Buy Cars

The majority of appraisal buys don’t make the cut

125,000 cars/$420 million in sales

$3,400 cost, 10 years old, over 100,000 miles

59


Traditional Disposal Options

Wholesale individually

Take to off-site auction– Excessive fees

– 60% sales rate

– 1:6 dealer/car ratio

Minimal control, high cost

60


Carmax Auctions

Economic and efficient– No fees

– 98% sales rate

– 1:2 dealer to car ratio

Real-time market feedback

Total control

611


62


Auction Summary

500,000 vehicles sold

Integrated operating system

Customer profiles

Industry-leading attendance and results

64


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven

Finance OriginationsReconditioning

65

Service Operations

Service Operations

Reconditioning and retail service

Reconditioning is majority of work

66

Service Operations

Competitive Advantages

1. Reconditioning treated as manufacturing

2. Centralized production planning

3. People development

67

Service Operations

1. Reconditioning = Mfg.

Engineered process

Operating procedures on-line

Proprietary custom system – ERO

Maximize facility utilization

68

Service Operations

2. Centralized Production Planning

Sophisticated weekly planning algorithm

Balances capacity across all stores

Minimizes inventories

69

Service Operations

3. People Development

Structured training program

Technicians

73


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Consumer

Offer

74

Business Office

Complex Transactions

An average transaction

How traditional dealers do it

75

Business Office

Why That Won’t Work For Us

Volume

Across states

Store growth

76

Business Office

10 Years Of Process Development

Over 4 million transactions

900 forms, 14,000 fees & taxes

Integrated systems designed around process

77

Business Office

Competitive Advantage

44 stores, 1 system

Seamless transactions across stores

Easily leverage workforce for growth

781

Business Office

791

Business Office

801

Business Office

81


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Consumer

Offer

82

Sales Floor

Sales Force

Over 2000 sales consultants

Flat commissions benefit customer

Structured advancement program

83

Sales Floor

Simplified Process

Online financing

Step by step delivery

Consistent and easy to learn

84

Sales Floor

Performance Management

Systematic feedback

Goal oriented

Real time information

96


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


97

Information Systems

Two Primary Advantages

Process for development

Cumulative result of that process

98

Information Systems

Typical Dealer Systems

Few alternatives

Limited flexibility

High cost

Functionality does not exist

99

Information Systems

Our Advantage vs. Dealers

Started with a blank slate

Tuned to the concept

Re-applied learning

Half the cost

Highly flexible

102


Management

Information Systems

Reconditioning

Consumer

Offer


Process-driven


Finance

Originations

103

Consumer Finance


Maximize sales

Minimize risk

Optimize profitability

104

Consumer Finance

Maximizing Sales

CarMax consumer offer

– Low no-haggle prices

– Choice

– Customer-friendly process

105

Maximizing Sales

Traditional Negotiations

Payment

Vehicle price

APR and term

Trade-in

Ancillary products

106

Process Flow

Fast

Efficient

Technologically advanced

Maximizing Sales

107

Application RoutingPrime

Non-prime

KMX App. Routing

Customer Views and Chooses

From Among all

Offers

Transmission

Non-prime

Non-prime

Non-prime

Prime Decline

Prime #2

CAF

KMX App. Routing

KMX App. Routing

KMX App. Routing

Maximizing Sales

108

Maximizing Sales

Technology Advantages

Connectivity

Scale

Data collection

Point of sale support

Accuracy / compliance

110

Consumer Finance

Minimizing Risk

Transparent loan originations:

- Consumer risk

- Vehicle risk

- Intermediary risk

111

Consumer Finance

Optimizing Profitability

3rd party finance company selection:

- CarMax-specific programs

- Stability and scale

- Balanced agreement

112

Consumer Finance


Maximize sales

Minimize risk

Optimize profitability

113

GROWTH PLAN

115

Organic Growth

Creates value

Not acquisition dependent

Not 3rd-party constrained

Growth Plan

116

Opportunity Scale

Market: $265 Bn

Currently: 18%-20% of U.S.

Mature stores: 8%-10% market share

Growth Plan

117

Expanding The Opportunity

Market share experience

Higher-density storing

- Charlotte

- Orlando

- Las Vegas

- Richmond

Growth Plan

118

Growth Plan To Date:FY02 FY03 FY04

Mid-SizedMarkets:

Greensboro SacramentoKnoxville

Las VegasKansas CityBirminghamMemphis (Oct.)Louisville (Feb.)

Large MarketSatellites:

CHI:Merrillville CHI: Oak LawnATL: Lithia Springs

CHI: Glencoe (Nov.)

Mid-Sized MarketSatellites:

CHA: South Blvd. ORL: SanfordLSV: Sahara (Jan.)

YE Total (Used): 35 40 48-49

Growth Plan

119

Growth Plan: Next 3 Years

FY05 FY06 FY07Store Goal: 8-10 10-12 12-14

Focus: Mid-sized Satellite

Mid-sized Satellite

Mid-sized Satellite New large

market

YE Total: 56-59 66-71 78-85

Growth Plan

120

Used Car Store Model

Year 1 Year 2 Year 5

Year 5StandardSuperstore

SatelliteSuperstore

$ mm $ mm

Sales Ramp 70% 88% 100% $60-120 $43-86

Store OperatingProfit

0.7-4.2% 2.9-6.3% 4.0-8.5% $2.4-10.3 $1.6-7.3

Growth Plan

121

Average Store Investment

Standard ($mm) Satellite ($mm)Land & Bldg. $12.6-20.0 $ 7.5 -10.5FF+ E 1.3 - 1.6 0.5 - 0.8Inventory 5.3 - 9.2 4.8 - 6.9Initial CarMax Cash $19.2-30.8 $12.8- 18.2

Cash RecoverySale/Leaseback $12.6-20.0 $7.5-10.5Inventory Financing (@ 90%) 4.8 - 8.3 4.3 - 6.2Net CarMax Cash(@ 90% Inventory)

$ 1.8 - 2.5 $1.0 - 1.5

Growth Plan

122

Investment ReturnsHistorical ROIC

Comparable Standard and Satellites (FY03) 18.7% (CAF normalized)

Total CarMax (FY03) 12.9%

Prototypical

Standard (Yr 5, CAF normalized) 14.9%

Satellite (Yr 5, CAF normalized) 16.6%

Leading Retail Comparison (‘92-’02 Avg.)

Home Depot 14.6%

Wal-Mart 12.4%

Growth Plan

123

4-year goal: $8 Bn

Comp used-unit growth : 5%-9%

New store openings : 15%-20%

New store openings

Store margin expansion

Corporate overhead leverage

Sales Growth

Profit Growth

Growth Plan

Growth Plan

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