Dandy Barrett - Assistant Vice President, Investor Relations Austin Ligon - President and Chief Executive Officer Tom Folliard - Executive Vice President Store Operations and Chief Executive Officer, Elect Keith Browning - Executive Vice President and Chief Financial Officer

Matthew Fassler - Goldman Sachs Matthew Nemer - Thomas Weisel Partners Sharon Zackfia - William Blair & Co. Scot Ciccarelli - RBC Capital Markets Bill Armstrong - CL King & Associates Rod Lache - Deutsche Bank Securities Hardy Bowen - Arnhold & Bleichroeder

Good morning. My name is Mandy and I will be your conference operator today. At this time I would like to welcome everyone to the Assistant Vice President Investor Relations conference call. (Operator Instructions). Thank you. Here’s Dandy Barrett. You may begin your conference.

Good morning everybody. Obviously, it is not the assistant vice president call; it is the CarMax call for the first quarter of our fiscal year ’07 earnings release. I want to thank you for joining us on the call this morning and we have with us, Austin Ligon, President and Chief Executive Officer; Tom Folliard, Executive Vice President, Store Operations and Chief Executive Officer, Elect; and Keith Browning, Executive Vice President and Chief Financial Officer. Before we begin, please let me remind you that any statements today about the Company’s future business plans, prospects and financial performance are forward-looking statements that we make relying on the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current knowledge and assumptions about future events. They involve risks and uncertainties that could cause actual results to differ materially from our expectations. For additional information on important factors that could affect these expectations, please see the Company’s annual report on Form 10-K for the fiscal year ended February 28, 2006 and our quarterly and current reports on file with the SEC. Now I will turn the call over to Austin.

Good morning. As you’ve seen from our press release we had a pretty terrific quarter that we’re very happy with. As far as sales go, the stronger traffic in our store was complemented by increased traffic on carmax.com. We had continued excellent execution by our store teams and a return to a less volatile, more normal sales pattern then we’ve seen in the first quarter for that past two years; all of these contributed to both our sales and earnings results. First quarter total sales and revenues increased 19%, including a 14% increase in total used units and a 6% increase in comp used units. Wholesale units were up 21%, driven by our expanding store base and a strong increase in appraisal traffic. Our new car units declined, primarily in our domestic brands, reflecting softer new car industry trends and our decision to sacrifice some sales to gain margin in our new car business, particularly on domestic brands. As far as gross margin goes, our total gross profit increased more than 25%. Used vehicle gross profit dollars per car increased to $1,924 benefiting from our strong, steady sales performance and from some moderation in wholesale pricing, which can favorably favor acquisition costs. Also from the fact that the new car industry appears to be trying to hold or increase prices of new cars, tends to help very late model used car margins. Wholesale vehicle gross profit dollars per car were $723, higher than last year’s first quarter, but meaningfully below the fourth quarter we just left. This benefited from our continuing enhancement of our wholesale buying process and reflected the normal seasonal moderation in wholesale pricing, which we have not seen in the past two years. As far as CarMax Auto Finance goes, CAF income increased 20% due to growth in total sales and managed receivables, an increase in loan penetration, and an in increase in the average amount financed. We also benefited from lower loss rate assumptions, which added about $0.03 to this quarter’s earnings. The gain spread to CAF remained slightly under our normal rate of 3.5% to 4.5%, reflecting the ongoing increases in interest rates. As far as SG&A went, we’re very happy with that. 9.9% SG&A ratio this quarter was down 50 basis points. We saw the leverage that 6% used unit comps can deliver. We delivered a lower SG&A ratio despite our higher stock-based compensation costs and additional costs related to moving our data center, but there also are a couple of million dollars of favorable timing that we expect to come back and hit us later on in the year. As far as FY ’07 expectations, for the fiscal year we continue to expect comp store used unit growth in the range of 2% to 8%. We think it is premature to change our fiscal year earnings expectations so early in the year, so our earnings expectation range remains the $1.25 to $1.47 that we gave at the beginning of the year. As we’ve said, this range includes stock compensation expense of $0.18 to $0.20, which now does include the options granted to Tom as part of his new compensation package. If sales trends continue as we’ve seen them in the first quarter, we would expect earnings to be at the upper end of the range. However as you know, market conditions have been very volatile for the previous two years, and we’re not willing to adjust our estimate, if necessary, until we’re further into the fiscal year. We also had some pretty tough comparisons in the second half, especially related to wholesale gross profit. In addition, we had anticipated that interest rate increases would begin to moderate by now, and we’ve not seen that happen yet, which could put pressure on CAF’s gains spread later in the year. As far as our growth plan goes, we continued our growth plan, opening four stores in the first quarter. We entered the Columbus, Ohio market with a standard superstore and a satellite. We entered Hartford with the first of two stores. Hartford King now and New Haven will come later in the year. Oklahoma City market was our fourth market with a standard superstore. We plan to open seven more stores this year, entering the Fresno market with a standard superstore and adding a standard superstore in Fredericksburg, Virginia and in Gastonia, North Carolina, which is a subsidiary market of Charlotte. We also plan to add satellite superstores in three markets: LA, with a Burbank store; Hartford, New Haven in New Haven; and Austin with a South Austin store. We also plan to open our small market tests satellite superstore in Charlottesville, Virginia later in the year. So with that, we’ll be happy to some questions.

Mandy, we can open it up for questions now, please.

(Operator Instructions) Your first question comes from the line of Matthew Fassler with Goldman Sachs. Matthew Fassler – Goldman Sachs: Thanks a lot. Good morning. Austin, is this your last call?

It is. Matthew Fassler – Goldman Sachs: All the best. Two questions for you. First of all, you made reference to the OEMs looking to hold your increased pricing; some color on that would be helpful, as well as a little more detail on how that impacts you. Secondly, the expense performance that you showed this quarter was really stand out, and one of the big differentiators, I think, from prior quarters. If you could give us color on really what worked, from an expense perspective, where you found those efficiencies.

Okay, I’ll comment on the first and I’ll let the CEO Elect comment on the second. As far as the manufacturer pricing, I think it’s widely known that Ford and General Motors need to stop discounting at the rate they have been, because obviously it can’t get them the volumes to fill their factories and they can’t afford the lower volume in discounts. Now, that doesn’t mean it’s going to succeed, but that’s definitely what they have been trying to do. In terms of what impact it has on us; to the degree they’re able to hold prices, it simply stabilizes the relationship between new cars and used cars. It makes it easier for the wholesale market to stay efficient. As we’ve said before, incentives are not a bad thing. The only issue is how quickly do they come, and how long does it take the wholesale market to absorb the information and adjust? So we certainly have seen some softness in their sales. One of the big questions is: are they going to cut back more on production, or are they going to try to hold production and discount more? That’s one of the reasons we don’t want to adjust our annual estimate yet, because you never know what they’re going to do. Frankly, I’m not sure they know what they’re going to do, so that remains to be seen. I’ll turn it over to Tom to make some comments on the leverage that we have got on SG&A and any comments Keith wants to make as well.

Thanks Austin. Matt, there is a little bit of timing in there, but almost all of it is from the fixed leverage that 6% comps deliver, just as we said in the press release. Matthew Fassler – Goldman Sachs: So no incremental efficiencies, process changes, etc., that would make the difference?

There are modest changes we’ve made, as we continually describe, to take expenses out but we’re very careful about doing those and making sure that we don’t affect the customer experience when they come in. So while we try to get better on expenses, it’s really leverage from the comps. Matthew Fassler – Goldman Sachs: To the extent that timing was an issue, when would the delayed expenses, if you will, flow through to the P&L?

It was a variety of items. Quite honestly, there’s no one expense. It’s just things that added up to a couple of million dollars that we thoroughly expect to happen in the second and third quarters, but it wasn’t any one significant thing. Matthew Fassler – Goldman Sachs: So a couple of million is about the magnitude?

Yes. Matthew Fassler – Goldman Sachs: Thank you.

Thank you.

Your next question comes from the line of Matthew Nemer with Thomas Weisel Partners. Matthew Nemer – Thomas Weisel Partners: Good morning. First question is on the sales channels. I’m wondering if you’re seeing increased sales through the Auto Trader agreement that you signed. I seem to recall that you put all you’re inventory up on Auto Trader and I am wondering if you’ve been able to track how that’s working for you?

In terms of sales through that channel, Auto Trader is really an advertising source. All it really does is refer people either to us or to carmax.com. I think the early read is, we think it’s worth the money that we’re spending on it, but it’s too early to say anything beyond that. We certainly wouldn’t attribute the performance of this quarter to our shift to Auto Trader, but I think on balance we feel like the money is better spent there than on some of the newspaper expenditures we were doing before and we think we are getting our money’s worth. Matthew Nemer – Thomas Weisel Partners: Second question is - any early read on the buying center in Atlanta and what that’s doing for the store that’s close to that center?

The only comment we’d make is that it’s open and we’re happy with it so far, but it’s way too early to draw any conclusion. As we say, we’re happy so far, but we need to get several months under our belt before we would even begin to draw a conclusion on it. So far, so good. Matthew Nemer – Thomas Weisel Partners: Then lastly, on the wholesale gross profit per vehicle - that continues to be strong even though you’ve seen a moderation in wholesale prices. So I’m wondering if this is the new bar, or do we ever see that go back to $400 or $500, or have the structural improvements in your offer changed that indefinitely?

I think for this time of the year we think this is probably an appropriate bar, but when we head into the second half -- especially the third quarter when we expect wholesale prices to significantly decline -- that we wouldn’t expect to achieve this level at that time of the year.

One of the things that we’ve said in the past is that our wholesale business is such an integrated piece of the total consumer offer that there is always a balance between wholesale and retail. What we monitor very closely is our buy rate. If we had to move our offers up in order to help drive retail sales, that’s a trade off we have to evaluate all the time. Matthew Nemer – Thomas Weisel Partners: That’s helpful. Thank you.

Your next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia – William Blair: Hi, good morning. I don’t think anyone has asked this already, so I’ll ask. Can you talk about trends in the quarter, both on the retail and wholesale side? Then, maybe separately, the gross margin dollars per retail car. I understand there are a lot of puts and pulls with that, but is there any reason why we shouldn’t see some nice increases in that year-over-year going forward, if wholesale trends remain where they are?

When you say trends in the quarter, do you mean during the first quarter? Sharon Zackfia – William Blair: Yes.

Any observation you want to make on that, Keith?

They were very steady. Compared to what we’ve seen previously, it was basically a pretty steady quarter. There were little pluses and minuses, but all three months were pretty much in line with expectations. Not at all like the prior two years.

The second part of your question again? Sharon Zackfia – William Blair: The gross margin dollars per retail car? Obviously, up nicely year-over-year. It didn’t look like you had a lot of push back from customers on taking a little more profit per retail car, with wholesale prices down and the profitability of that.

Part of what drives our margins is our fluctuation in inventory and the way we manage our inventory through our pricing model. As Austin just mentioned, we had a party steady quarter which really can help us get a little bit of extra margin out of it because we don't have some of the fluctuations we've had in the past with total inventory level. So a real steady quarter sometimes can help; this one sure did.

If you'll remember historically, up until the last two years, the first quarter is one of our two strongest quarters. So it's hopefully a little bit more of a return to what we would normally expect in the first quarter. Sharon Zackfia – William Blair: Great. Austin, have fun in Buton.

Thanks.

Our next question comes from Scot Ciccarelli - RBC Capital Markets. Scot Ciccarelli - RBC Capital Markets: Hi guys, how are you? Can you help us understand a little bit what else might be going industry wide in terms of used car pricing? I heard obviously the comments you made regarding what the new car guys are doing, but I guess some of the third-party data and what some of the auction houses are talking about is pricing starting to soften a little bit, unless I'm mistaken on that. Yet, obviously that's not what you saw. Can you help us understand a little bit the dynamic there?

I think the first thing to understand is when they talk about prices softening, you had unusually strong prices through the winter and it's normal that prices will soften; in the spring and in the summer you start to expect price declines. Having had a stronger than expected winter, particularly at the low end of product, I don't think it's unusual that you would see that outside of our expectation. The other comment I'd make is in general what we've said is you can't figure out a lot about where the used car business is going just because wholesale prices are increasing or decreasing, particularly the overall index. You don't buy any index, you buy individual cars. Last year we saw a fairly stable index which hid absolute chaos below with huge collapse of SUVs and skyrocketing prices on mid-size and compact cars. So we don't draw a lot of conclusions from those overall indices. I'll let Tom make any other comments on the overall wholesale market.

That pretty much sums it up right there. I have nothing to add really. Scot Ciccarelli - RBC Capital Markets: I guess I understand that. I know you guys have never been one to really track that index. But it seems to me as you become larger, I would think at least theoretically, you'd start to track the index a little bit more just because of where you are in your growth phase. Is that an erroneous assumption?

I'm not sure that we don't track it. What I'm saying is that the index is not a key determinant of what we see going on in the market in terms of retail sales. It certainly relates to what we see going on in the auction market in average of all cars. But you don't buy the average of all cars, you go out and buy specific cars. What really matters is the very specific indices of the individual cars and how those relate to their counterparts in the new car market. That we track in excruciating detail with every piece of information that's available publicly or to us on a proprietary basis. Scot Ciccarelli - RBC Capital Markets: Okay, fair enough. Just one more clarifying comment if you could, Austin. Can you give us any more detail regarding your expectations for the wholesale business during the course of the year? Obviously that was a major driver for you guys last year. You had another very good quarter with it this year so far. Can you give us any other indication or detail regarding your expectations for that segment going forward?

I think as Keith said, in general we'd expect it to be fairly normal in the summer, we would expect certainly margins to go down in the fall when prices go down. It would be surprising if it were as strong next winter as it was this winter because we had an unusual benefit, particularly on the very low value cars from Hurricane Katrina and very strong demand for those cars. So we'd expect to have a tough comparison in the fourth quarter. Does that help? Scot Ciccarelli - RBC Capital Markets: Yes, it does. Thank you.

Your next question comes from Bill Armstrong - CL King & Associates. Bill Armstrong - CL King & Associates: Good morning. The lower vehicle acquisition cost, is that mostly at the wholesale level or at the appraisal offers? Or is it a combination of the two?

It's a combination of the two. Bill Armstrong - CL King & Associates: Your wholesale gross margin per vehicle was up 15% year-over-year, a moderation from the rate late last year, but still a pretty good increase despite the pricing moderation.

I would say that tended to come earlier in the quarter, because we still had some of the benefit from the winter. Bill Armstrong - CL King & Associates: Finally, your average -- and I know you tend not to track this or put a lot of importance on this -- but your average retail selling price was up about $1,000. Anything new to draw from that? Was that just coming from mix or were there any pricing trends that might have impacted that?

That's almost exclusively mix-related.

SUVs are a little stronger this year than they were last year. Last year they were in all-out collapse, this year they were in something less than all-out collapse.

Actually, despite the gas prices in the first quarter we have a higher mix of SUVs this quarter than we did last first quarter, because we had the collapse last year so we got out of some of that inventory. So if you compare year-over-year we have some more sport utilities this quarter than we did in last year's first quarter. Bill Armstrong - CL King & Associates: Okay, that's helpful. Because I was wondering how you were selling more SUVs with gas prices where they are.

It's really the comparison.

Look, used SUV prices got beaten down so low by last winter, that even with current gas prices there are some pretty good deals out there. We've talked about that before, that's why it's nice to work in a fairly efficient wholesale market; it will adjust for whatever has to happen to clear the market.

Even a lower-priced SUV is still more expensive than a compact. Bill Armstrong - CL King & Associates: Right, right. Okay, thanks.

Your next question comes from Rod Lache - Deutsche Bank. Rod Lache - Deutsche Bank Securities: Good morning, everybody. Congratulations. First, more of a macro question. We're seeing higher rates in gas prices having some effect on the new retail market. I'm just wondering whether you feel that your segment of the market would continue to be countercyclical if the consumer continued to slow?

Typically -- and I can only speak to history -- typically what rates and gas prices do is affect the mix of what people buy, not how much they buy, by and large. Because once again, the wholesale market will adjust those prices. The challenge for us when it occurs is does it occur in a study enough fashion that the wholesale market is pretty efficient? Or, does it occur so sharply that it takes a while for the wholesale market to catch up and therefore our inventory is a little out of line with what the ideal inventory might be? So far this year it's been a much steadier process. You'd have to have lived in a cave to be surprised that gas prices went up this spring. Interest rates have been going up steadily and I think the consumer has adjusted to that. So in the used car market it's really a need-driven market. The higher the interest rate you get less car, but you still have to go meet that need. If you need a minivan you still need a minivan. So at least based on history, those are going to have typically a much bigger impact on the new car business than on the used. Rod Lache - Deutsche Bank Securities: Obviously there are other factors aside from these that are pressuring consumers. The new car business used to be much more cyclical than it's been recently. But if you were to think back to other periods when there were bigger dips in the used car market -- obviously your business model was less mature than it is now -- but would you expect the volumes to be fairly resilient in used even under that kind of scenario?

Once again, you can only look at history. The history was that when the new car business was much more cyclical the used car business was relatively acyclical. History is what it is. It has happened, conditions always change and you never know how the new set of conditions are going to affect you. But based on what we've seen historically, this has been a less cyclical business than new cars.

Clearly this quarter with rising gas prices, the consumer response was nowhere near as dramatic as it was last year in the summer. As Austin mentioned, I think nobody was surprised. They were a little bit more conditioned, and having gone through it a couple of times now we've learned and applied the lessons we've learned with inventory management to this quarter, so we're a little better prepared to handle it as well. Rod Lache - Deutsche Bank Securities: Great. Secondly, could you just give us a little bit more color on when you'd expect the CAF margins to revert back to normal?

When Keith is put in charge of the Federal Reserve probably. I think as Keith said before, as long as interest rates keep going up we expect there to be some continuing pressure. The latest thing we've all heard, as you have, from the Fed is a somewhat more aggressive attitude toward interest rates that suggest that they may continue to go up for longer than people thought; and maybe even go up more than people thought. So that will continue to put pressure on until they level out, would be our best guess. Rod Lache - Deutsche Bank Securities: Great, thank you.

Keith has not gotten an appointment letter yet.

Or even a phone call. Rod Lache - Deutsche Bank Securities: He can use us as a reference if he'd like.

Thanks.

Our next question comes from the line of Hardy Bowen - Arnhold & Bleichroeder. Hardy Bowen - Arnhold & Bleichroeder: How are you doing after such a great quarter? I think it must be very satisfying.

Yes, it was. Hardy Bowen - Arnhold & Bleichroeder: How much did the mix of business influence the gross margin dollars per vehicle in this quarter?

As I mentioned earlier, Hardy, it's mostly the smoothness of the inventory and the consistency of sales we saw through the first quarter, less mix. Hardy Bowen - Arnhold & Bleichroeder: So it's not mix to a great degree?

It's primarily turns. Hardy Bowen - Arnhold & Bleichroeder: Okay. And the price per vehicle, do we expect that to be equally as high in the second quarter I would presume, with the trends that we're seeing?

I don't think anybody actually believes us when we say this, but we have no expectation on that and our general view is it doesn't matter. We sell what the market demands and if the mix shifts it toward a higher average retail price point we'll sell that, and if it shifts toward a lower average retail price point we'll sell that. Our experience is that is not the key driver. The key driver of this quarter was not the fact that our average retails were up but was the fact that our sales were strong and our inventory turn was strong.

Hardy, one of the things we've gotten more and more comfortable with is our ability to move with whatever is going on in the marketplace, whatever the consumer demand tells us to do. So we could tell you something now and if we saw something happen in the second quarter like we did last year with Katrina, our ability to move our inventory along with demand is going to have an influence on the average selling price and I think we're getting better and better at that. Hardy Bowen - Arnhold & Bleichroeder: I'm pursuing that we're seeing strong volume in Texas because of hurricanes. Is that fair to say?

We have been, but I think that's well behind us. Hardy Bowen - Arnhold & Bleichroeder: Okay. California, it seems like these units are doing very well. What are your thoughts on California?

As we've said before, we're quite happy with L.A. We're very happy with the advertising strategy we undertook there and we're going to continue to add more stores in L.A. We've always been happy with Sacramento and we'll continue to add more stores in the other California markets. It is 37 million to 38 million people and the biggest car market on earth. We're still not even remotely fully penetrated there. So we're happy with the way California is going and we'll continue to add stores there. Hardy Bowen - Arnhold & Bleichroeder: Okay. Sounds good. And Austin, have a wonderful retirement, if you call it that.

Okay, thanks a lot. I'll give you a call from Buton. Okay. Having no more questions I think we'll bid you adieux. Thanks a lot for joining us. Bye.

Thank you for participating in today's conference. You may now disconnect.