UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


            [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the Quarterly Period Ended May 31, 2002

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                          Commission File Number 1-5767


                            CIRCUIT CITY STORES, INC.
             (Exact Name of Registrant as Specified in its Charter)

           VIRGINIA                                      54-0493875
           --------                                      ----------
   (State of Incorporation)                           (I.R.S. Employer
                                                     Identification No.)

                  9950 MAYLAND DRIVE, RICHMOND, VIRGINIA 23233
              (Address of Principal Executive Offices and Zip Code)

                                 (804) 527-4000
              (Registrant's Telephone Number, Including Area Code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

           Yes    X                                   No
               -------                                   ------

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

 


                                     Class                                        Outstanding at June 30, 2002
-----------------------------------------------------------------------------     ----------------------------
Circuit City Stores, Inc. - Circuit City Group Common Stock, par value $0.50                209,961,358
Circuit City Stores, Inc. - CarMax Group Common Stock, par value $0.50                       37,063,940


An Index is included on Page 2 and a separate  Index for Exhibits is included on
Page 60.






                   CIRCUIT CITY STORES, INC. AND SUBSIDIARIES

                                      INDEX

                                                                                                Page
                                                                                                 No.
PART I.           FINANCIAL INFORMATION

      Item 1.     Financial Statements

                  Consolidated Financial Statements:
                  ---------------------------------

                     Consolidated Balance Sheets -
                     May 31, 2002, and February 28, 2002                                         4

                     Consolidated Statements of Earnings -
                     Three Months Ended May 31, 2002 and 2001                                    5

                     Consolidated Statements of Cash Flows -
                     Three Months Ended May 31, 2002 and 2001                                    6

                     Notes to Consolidated Financial Statements                                  7

                  Circuit City Group Financial Statements:
                  ---------------------------------------

                     Circuit City Group Balance Sheets -
                     May 31, 2002, and February 28, 2002                                        29

                     Circuit City Group Statements of Earnings -
                     Three Months Ended May 31, 2002 and 2001                                   30

                     Circuit City Group Statements of Cash Flows -
                     Three Months Ended May 31, 2002 and 2001                                   31

                     Notes to Circuit City Group Financial Statements                           32

                  CarMax Group Financial Statements:
                  ---------------------------------

                     CarMax Group Balance Sheets -
                     May 31, 2002, and February 28, 2002                                        44

                     CarMax Group Statements of Earnings -
                     Three Months Ended May 31, 2002 and 2001                                   45

                     CarMax Group Statements of Cash Flows -
                     Three Months Ended May 31, 2002 and 2001                                   46

                     Notes to CarMax Group Financial Statements                                 47

      Item 2.     Management's Discussion and Analysis:
                  ------------------------------------

                     Circuit City Stores, Inc. Management's Discussion and Analysis
                     of Financial Condition and Results of Operations                           16

                     Circuit City Group Management's Discussion and Analysis
                     of Financial Condition and Results of Operations                           37

                     CarMax Group Management's Discussion and Analysis
                     of Financial Condition and Results of Operations                           51

                                  Page 2 of 62


      Item 3.        Quantitative and Qualitative Disclosures About Market Risk:
                     ----------------------------------------------------------

                     Circuit City Stores, Inc. Quantitative and Qualitative Disclosures         27
                     About Market Risk

                     Circuit City Group Quantitative and Qualitative Disclosures                43
                     About Market Risk

                     CarMax Group Quantitative and Qualitative Disclosures                      58
                     About Market Risk


PART II.             OTHER INFORMATION

      Item 1.        Legal proceedings                                                          59

      Item 4.        Submission of Matters to a Vote of Security Holders                        59

      Item 6.        Exhibits and Reports on Form 8-K                                           60


                                  Page 3 of 62



                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                   CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    (Amounts in thousands except share data)

                                                            May 31, 2002     Feb. 28, 2002
                                                            ------------     -------------
                                                            (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                                   $1,176,002        $1,251,532
Net accounts receivable                                        201,208           211,402
Retained interests in securitized receivables                  544,036           515,139
Inventory                                                    1,742,485         1,633,327
Prepaid expenses and other current assets                       36,538            41,311
                                                            ----------        ----------

Total current assets                                         3,700,269         3,652,711

Property and equipment, net                                    858,505           853,778
Deferred income taxes                                            6,785                 -
Other assets                                                    31,537            32,897
                                                            ----------        ----------

TOTAL ASSETS                                                $4,597,096        $4,539,386
                                                            ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                            $1,108,731        $1,106,679
Accrued expenses and other current liabilities                 170,837           183,336
Accrued income taxes                                            21,207           100,696
Deferred income taxes                                          140,503           138,306
Short-term debt                                                 10,855            10,237
Current installments of long-term debt                         102,102           102,073
                                                            ----------        ----------

Total current liabilities                                    1,554,235         1,641,327
Long-term debt, excluding current installments                 113,734            14,064
Other liabilities                                              156,694           149,269
Deferred income taxes                                                -               288
                                                            ----------        ----------

TOTAL LIABILITIES                                            1,824,663         1,804,948
                                                            ----------        ----------

Stockholders' equity:

Circuit City Group Common Stock, $0.50 par value;
350,000,000 shares authorized; 209,912,599 shares
     issued and outstanding as of May 31, 2002                 104,956           104,411
CarMax Group Common Stock, $0.50 par value;
     175,000,000 shares authorized; 37,061,535 shares
     issued and outstanding as of May 31, 2002                  18,531            18,426
Capital in excess of par value                                 823,066           810,047
Retained earnings                                            1,825,880         1,801,554
                                                            ----------        ----------

TOTAL STOCKHOLDERS' EQUITY                                   2,772,433         2,734,438
                                                            ----------        ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $4,597,096        $4,539,386
                                                            ==========        ==========

See accompanying notes to consolidated financial statements.

                                  Page 4 of 62




                   CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
                 Consolidated Statements of Earnings (Unaudited)
                  (Amounts in thousands except per share data)

                                                                   Three Months Ended
                                                                        May 31,
                                                                2002              2001
                                                             ----------        ----------

Net sales and operating revenues                             $3,119,807        $2,749,621
Cost of sales, buying and warehousing                         2,488,554         2,183,268
                                                             ----------        ----------
Gross profit                                                    631,253           566,353
                                                             ----------        ----------

Selling, general and administrative expenses (net of
    finance income of $44,496 as of May 31, 2002,
    and $49,055 as of May 31, 2001)                             583,925           535,994
Interest expense                                                  1,026             2,992
                                                             ----------        ----------
Total expenses                                                  584,951           538,986
                                                             ----------        ----------

Earnings before income taxes                                     46,302            27,367
Provision for income taxes                                       18,320            10,400
                                                             ----------        ----------
Net earnings                                                 $   27,982        $   16,967
                                                             ==========        ==========

Net earnings attributed to:
    Circuit City Group Common Stock                          $   17,466        $   10,135
    CarMax Group Common Stock                                    10,516             6,832
                                                             ----------        ----------
                                                             $   27,982        $   16,967
                                                             ==========        ==========
Weighted average common shares:
    Circuit City Group:
       Basic                                                    206,710           204,936
                                                             ==========        ==========
       Diluted                                                  209,257           205,491
                                                             ==========        ==========
    CarMax Group:
       Basic                                                     36,962            25,934
                                                             ==========        ==========
       Diluted                                                   38,826            27,704
                                                             ==========        ==========
Net earnings per share attributed to:

    Circuit City Group:
       Basic                                                 $     0.08        $     0.05
                                                             ==========        ==========
       Diluted                                               $     0.08        $     0.05
                                                             ==========        ==========
    CarMax Group:
       Basic                                                 $     0.28        $     0.26
                                                             ==========        ==========
       Diluted                                               $     0.27        $     0.25
                                                             ==========        ==========
Dividends paid per share:

    Circuit City Group Common Stock                          $   0.0175        $   0.0175
                                                             ==========        ==========
    CarMax Group Common Stock                                $        -        $        -
                                                             ==========        ==========

See accompanying notes to consolidated financial statements.

                                  Page 5 of 62




                   CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Unaudited)
                             (Amounts in thousands)

                                                                               Three Months Ended
                                                                                    May 31,
                                                                            2002              2001
                                                                         ----------         --------
Operating Activities:
--------------------
Net earnings                                                             $   27,982         $ 16,967
Adjustments to reconcile net earnings to net cash
    used in operating activities of continuing operations:
    Depreciation and amortization                                            39,884           39,182
    Amortization of restricted stock awards                                   5,403            3,598
    Loss (gain) on disposition of property and equipment                      2,069             (959)
    Provision for deferred income taxes                                      (4,876)           6,066
    Changes in operating assets and liabilities:
       Increase in net accounts receivable and retained
          interests in securitized receivables                             (18,703)           (8,463)
       (Increase) decrease in inventory                                    (109,158)          25,831
       Decrease (increase) in prepaid expenses and other
          current assets                                                      4,773          (11,287)
       Decrease in other assets                                               1,143              237
       Decrease in accounts payable, accrued expenses and
          other current liabilities and accrued income taxes                (88,162)         (81,088)
          Increase in other liabilities                                       7,425            2,289
                                                                         ----------         --------
Net cash used in operating activities of continuing operations             (132,220)          (7,627)
                                                                         ----------         --------

Investing Activities:
--------------------
Purchases of property and equipment                                         (50,888)         (32,852)
Proceeds from sales of property and equipment, net                            4,425            3,248
                                                                         ----------         --------
Net cash used in investing activities of continuing operations              (46,463)         (29,604)
                                                                         ----------         --------

Financing Activities:
--------------------
Proceeds from issuance of short-term debt, net                                  618            1,640
Proceeds from issuance of long-term debt                                    100,000                -
Principal payments on long-term debt                                           (301)            (275)
Issuances of Circuit City Group Common Stock, net                             5,585            3,541
Issuances of CarMax Group Common Stock, net                                     907             (224)
Dividends paid on Circuit City Group Common Stock                            (3,656)          (3,621)
                                                                         ----------         --------
Net cash provided by financing activities of continuing operations          103,153            1,061
                                                                         ----------         --------

Cash used in discontinued operations                                              -           (5,460)
                                                                         ----------         ---------

Decrease in cash and cash equivalents                                       (75,530)         (41,630)
Cash and cash equivalents at beginning of year                            1,251,532          446,131
                                                                         ----------         --------
Cash and cash equivalents at end of period                               $1,176,002         $404,501
                                                                         ==========         ========

See accompanying notes to consolidated financial statements.


                                  Page 6 of 62



                   CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)


1.   Basis of Presentation

     The common stock of Circuit City Stores,  Inc. consists of two common stock
     series that are intended to reflect the  performance  of the  Company's two
     businesses.  The Circuit City Group Common Stock is intended to reflect the
     performance  of the  Circuit  City stores and  related  operations  and the
     shares of CarMax Group Common Stock  reserved for the Circuit City Group or
     for  issuance to holders of Circuit  City Group  Common  Stock.  The CarMax
     Group  Common  Stock is intended to reflect the  performance  of the CarMax
     stores and related  operations.  The  reserved  CarMax Group shares are not
     outstanding CarMax Group Common Stock.  Therefore,  net earnings attributed
     to the  reserved  CarMax  Group shares are included in the net earnings and
     earnings per share attributed to the Circuit City Group Common Stock.

     During the second quarter of fiscal 2002, Circuit City Stores completed the
     public  offering of  9,516,800  shares of CarMax Group  Common  Stock.  The
     shares sold in the  offering  were shares of CarMax Group Common Stock that
     previously  had been reserved for the Circuit City Group or for issuance to
     holders of Circuit City Group Common Stock. As of May 31, 2002,  65,923,200
     shares of CarMax  Group  Common  Stock were  reserved  for the Circuit City
     Group or for  issuance  to  holders of Circuit  City  Group  Common  Stock.
     Excluding  shares reserved for CarMax employee stock incentive  plans,  the
     reserved  CarMax  Group  shares  represented  64.0  percent  of  the  total
     outstanding  and  reserved  shares of CarMax  Group Common Stock at May 31,
     2002;  64.1 percent at February 28, 2002; and 74.1 percent at May 31, 2001.
     The terms of each  series of common  stock are  discussed  in detail in the
     Company's Form 8-A  registration  statement on file with the Securities and
     Exchange Commission.

     On February 22, 2002, Circuit City Stores, Inc. announced that its board of
     directors  had  authorized  management  to  initiate  a process  that would
     separate the CarMax auto superstore business from the Circuit City consumer
     electronics  business through a tax-free transaction in which CarMax, Inc.,
     presently a wholly owned  subsidiary  of Circuit City Stores,  Inc.,  would
     become an independent, separately traded public company. CarMax, Inc. holds
     substantially  all of the businesses,  assets and liabilities of the CarMax
     Group.  The separation  plan calls for Circuit City Stores,  Inc. to redeem
     the outstanding  shares of CarMax Group Common Stock in exchange for shares
     of common  stock of CarMax,  Inc.  Simultaneously,  shares of CarMax,  Inc.
     common stock, representing the shares of CarMax Group Common Stock reserved
     for the holders of Circuit City Group Common Stock, would be distributed as
     a tax-free dividend to the holders of Circuit City Group Common Stock.

     In the proposed separation,  the holders of CarMax Group Common Stock would
     receive  one share of CarMax,  Inc.  common  stock for each share of CarMax
     Group Common Stock redeemed by the Company. Management anticipates that the
     holders of Circuit City Group  Common  Stock would  receive a fraction of a
     share of CarMax,  Inc.  common  stock for each share of Circuit  City Group
     Common  Stock they hold.  The exact  fraction  would be  determined  on the
     record  date  for  the  distribution.  The  separation  is  expected  to be
     completed by late summer or early fall, subject to shareholder approval and
     final approval from the board of directors.

     Notwithstanding  the attribution of the Company's  assets and  liabilities,
     including  contingent  liabilities,  and  stockholders'  equity between the
     Circuit City Group and the CarMax  Group for the purposes of preparing  the
     financial  statements,  holders of  Circuit  City  Group  Common  Stock and
     holders of CarMax Group Common Stock are shareholders of the Company and as
     such are subject to all of the risks  associated  with an investment in the
     Company and all of its businesses, assets and liabilities. Such attribution
     and the equity  structure  of the Company do not affect title to the assets
     or  responsibility  for  the  liabilities  of  the  Company  or  any of its
     subsidiaries.  Neither shares of Circuit City Group Common Stock nor shares
     of CarMax Group

                                  Page 7 of 62

     Common  Stock  represent a direct  equity or legal  interest  solely in the
     assets and  liabilities  allocated to a particular  Group.  Instead,  those
     shares  represent  direct  equity  and legal  interests  in the  assets and
     liabilities  of  the  Company.  The  results  of  operations  or  financial
     condition of one Group could affect the results of  operations or financial
     condition of the other Group.  Net losses of either Group and  dividends or
     distributions  on, or  repurchases  of,  Circuit City Group Common Stock or
     CarMax  Group  Common  Stock  would  reduce  funds  legally  available  for
     dividends on, or repurchases  of, both stocks.  Accordingly,  the Company's
     consolidated  financial  statements  included  herein  should  be  read  in
     conjunction  with the financial  statements of each Group and the Company's
     SEC filings.

2.   Accounting Policies

     The consolidated  financial statements of the Company conform to accounting
     principles  generally accepted in the United States of America. The interim
     period  financial  statements  are  unaudited;  however,  in the opinion of
     management,  all  adjustments,  which  consist  only of  normal,  recurring
     adjustments,  necessary for a fair presentation of the interim consolidated
     financial statements have been included.  The fiscal year-end balance sheet
     data was derived  from the  audited  financial  statements  included in the
     Company's fiscal 2002 Annual Report on Form 10-K.

 

3.   Net Earnings per Share

     Reconciliations  of the numerator and  denominator of the basic and diluted
     net earnings per share calculations are presented below.

                                                                  Three Months Ended
     (Amounts in thousands                                              May 31,
     except per share data)                                     2002            2001
     ----------------------------------------------------------------------------------
     Circuit City Group:
     Weighted average common shares......................      206,710         204,936
     Dilutive potential common shares:
        Options..........................................        1,308             114
        Restricted stock.................................        1,239             441
                                                           ---------------------------
     Weighted average common shares and
        dilutive potential common shares.................      209,257         205,491
                                                           ===========================

     Net earnings available to common shareholders.......  $    17,466     $    10,135
     Basic net earnings per share .......................  $      0.08     $      0.05
     Diluted net earnings per share .....................  $      0.08     $      0.05

     CarMax Group:
     Weighted average common shares......................       36,962          25,934
     Dilutive potential common shares:
        Options..........................................        1,845           1,714
        Restricted stock.................................           19              56
                                                           ---------------------------
     Weighted average common shares and
        dilutive potential common shares.................       38,826          27,704
                                                           ===========================

     Net earnings available to common shareholders.......  $    10,516     $     6,832
     Basic net earnings per share........................  $      0.28     $      0.26
     Diluted net earnings per share......................  $      0.27     $      0.25



     In a public  offering  completed  during the second quarter of fiscal 2002,
     Circuit  City  Stores,  Inc.  sold  9,516,800  CarMax Group shares that had
     previously  been  reserved  for the Circuit  City Group.  Because  both the

                                  Page 8 of 62

     earnings  allocation  and the  outstanding  CarMax  shares were adjusted to
     reflect the impact of the sale,  net  earnings  per CarMax Group share were
     not diluted by the sale.  With the impact of the offering,  64.0 percent of
     the CarMax Group's fiscal 2003 first quarter earnings were allocated to the
     Circuit  City Group.  For the same period  last year,  74.3  percent of the
     CarMax Group's earnings were allocated to the Circuit City Group.

     Certain  options were  outstanding  and not included in the  computation of
     diluted net earnings per share  because the options'  exercise  prices were
     greater than the average  market price of the shares.  For the  three-month
     period ended May 31, 2002,  options to purchase 5,678,317 shares of Circuit
     City Group Common  Stock at prices  ranging from $21.68 to $43.03 per share
     were outstanding and not included in the  calculation.  For the three-month
     period ended May 31, 2001,  options to purchase 8,371,534 shares of Circuit
     City Group Common  Stock at prices  ranging from $13.88 to $47.53 per share
     were outstanding and not included in the calculation.

     For the  three-month  period  ended May 31,  2002,  options to purchase all
     4,411,582  outstanding shares of CarMax Group Common Stock were included in
     the calculation.  For the three-month period ended May 31, 2001, options to
     purchase 289,427 shares of CarMax Group Common Stock at prices ranging from
     $9.19  to  $16.31  per  share  were  outstanding  and not  included  in the
     calculation.

4.   Debt

     On May 17,  2002,  CarMax  entered  into a $200  million  credit  agreement
     secured by vehicle inventory.  The credit agreement includes a $100 million
     revolving  loan  commitment  and  a  $100  million  term  loan  commitment.
     Principal is due in full at maturity  with  interest  payable  monthly at a
     LIBOR-based  rate.  The  agreement  currently is scheduled to expire in May
     2004 and  provides for annual  one-year  extensions  of the final  maturity
     beginning  on May 17,  2003,  and each  May 17  thereafter.  The  aggregate
     principal amount  outstanding under the credit facility on any date may not
     exceed  150  percent  of the  value  of  CarMax's  eligible  motor  vehicle
     inventory as of that date. As of May 31, 2002, the amount outstanding under
     this credit agreement was $100 million.  Under this agreement,  CarMax must
     meet  financial  covenants  relating  to  minimum  current  ratio,  minimum
     tangible net worth and minimum fixed charge coverage  ratio.  CarMax was in
     compliance with these covenants at May 31, 2002.

5.   Supplemental Financial Statement Information

     For the first  quarter of fiscal 2003 and 2002,  pretax  finance  operation
     income,  which  is  recorded  as  a  reduction  to  selling,   general  and
     administrative expenses, was as follows:

                                         Three Months Ended   Three Months Ended
     (Amounts in millions)                  May 31, 2002         May 31, 2001
     ---------------------------------------------------------------------------
     Circuit City Group:
     Securitization income.............          $50.5                $59.7
     Payroll and fringe expenses.......           10.7                 10.3
     Other direct expenses.............           19.4                 19.9
                                           -------------------------------------
     Finance operation income..........           20.4                 29.5
                                           -------------------------------------
     CarMax Group:
     Securitization income.............           23.3                 18.4
     Payroll and fringe expenses.......            1.7                  1.3
     Other direct expenses.............            1.7                  1.4
                                           -------------------------------------
     Finance operation income..........           19.9                 15.7
     Third-party financing fees........            4.2                  3.8
                                           -------------------------------------
     Total finance income..............           24.1                 19.5
                                           -------------------------------------
     Circuit City Stores, Inc.:
     Consolidated finance income.......          $44.5                $49.0
                                           =====================================

                                  Page 9 of 62


     For both the Circuit City Group and the CarMax Group, the finance operation
     income does not include any  allocation  of indirect  costs or income.  The
     Company  presents  this  information  on a direct  basis  to  avoid  making
     arbitrary  decisions  regarding the periodic indirect benefit or costs that
     could be  attributed  to this  operation.  Examples of  indirect  costs not
     included are  corporate  expenses such as human  resources,  administrative
     services,  marketing,  information systems, accounting, legal, treasury and
     executive payroll as well as retail store expenses.

6.   Securitizations

(A)  Credit Card Securitizations:

     Circuit City's finance operation enters into securitization transactions to
     finance its consumer revolving credit card receivables.  In accordance with
     the isolation provisions of Statement of Financial Accounting Standards No.
     140,  "Accounting  for  Transfers  and  Servicing of  Financial  Assets and
     Extinguishments of Liabilities,"  special purpose subsidiaries were created
     for the sole purpose of  facilitating  these  securitization  transactions.
     Credit  card  receivables  are sold to the  special  purpose  subsidiaries,
     which, in turn, transfer these receivables to securitization master trusts.
     Private-label  and co-branded Visa credit card  receivables are securitized
     through one master trust and MasterCard  and Visa credit card,  referred to
     as bankcard,  receivables  are  securitized  through a second master trust.
     Each master trust periodically  issues securities backed by the receivables
     in that master trust.  For transfers of receivables  that qualify as sales,
     Circuit  City  recognizes  gains or losses as a  component  of the  finance
     operation's profits,  which are recorded as reductions to selling,  general
     and  administrative  expenses.  In these  securitizations,  Circuit  City's
     finance  operation  continues to service the securitized  receivables for a
     fee and the special purpose  subsidiaries  retain an undivided  interest in
     the  transferred  receivables  and hold various  subordinated  asset-backed
     securities  that  serve  as  credit   enhancements   for  the  asset-backed
     securities  held by  outside  investors.  Neither  master  trust  agreement
     provides for recourse to the Company for credit  losses on the  securitized
     receivables.  Circuit  City  employs a  risk-based  pricing  strategy  that
     increases the stated annual percentage rate for accounts that have a higher
     predicted  risk of default.  Accounts with a lower risk profile may qualify
     for promotional financing.  Under certain of these securitization programs,
     Circuit City must meet financial  guidelines  relating to minimum  tangible
     net  worth,  debt to net  worth  and the  current  ratio.  The  securitized
     receivables  must meet  performance  levels  relating to  portfolio  yield,
     default rates,  principal payment rates and delinquency rates. Circuit City
     was in compliance  with these  guidelines at May 31, 2002, and February 28,
     2002.

     The total  principal  amount of credit card  receivables  managed was $2.74
     billion at May 31, 2002, and $2.85 billion at February 28, 2002. During the
     first  quarter  of  fiscal  2003,  the  Company  completed  a $300  million
     private-label  credit card receivable  securitization  transaction.  Of the
     total  principal  amounts  managed,  the  principal  amount of  receivables
     securitized  was  $2.70  billion  at May 31,  2002,  and $2.80  billion  at
     February 28, 2002, and the principal  amount of  receivables  held for sale
     was $39.2 million at May 31, 2002,  and $49.2 million at February 28, 2002.
     At May 31, 2002, the unused capacity of the private-label  variable funding
     program was $557.8 million and the unused capacity of the bankcard variable
     funding  program was $393.2  million.  At  February  28,  2002,  the unused
     capacity of the  private-label  variable  funding program was $22.9 million
     and the unused capacity of the bankcard variable funding program was $496.5
     million.  The  aggregate  amount of  receivables  that were 31 days or more
     delinquent  was $171.0  million  at May 31,  2002,  and  $198.4  million at
     February 28, 2002. The principal amount of losses net of recoveries totaled
     $70.8 million for the quarter ended May 31, 2002, and $69.6 million for the
     quarter ended May 31, 2001.

     Circuit City receives annual servicing fees  approximating 2 percent of the
     outstanding  principal  balance of the credit card  receivables and retains
     the  rights to future  cash  flows  available  after the  investors  in the
     asset-backed securities have received the return for which they contracted.
     The servicing fees specified in the credit card  securitization  agreements
     adequately  compensate the finance  operation for servicing the securitized
     receivables.   Accordingly,  no  servicing  asset  or  liability  has  been
     recorded.

                                 Page 10 of 62


 

     The table below summarizes certain cash flows received from and paid to the
     securitization trusts:

                                                             Three Months Ended   Three Months Ended
     (Amounts in millions)                                      May 31, 2002          May 31, 2001
     -----------------------------------------------------------------------------------------------
     Proceeds from new securitizations....................        $  401.8              $ 174.2
     Proceeds from collections reinvested
       in previous credit card securitizations............        $  245.6              $ 359.6
     Servicing fees received..............................        $   13.0              $  13.3
     Other cash flows received on retained interests*.....        $   50.7              $  44.2


     *This amount represents cash flows received from retained  interests by the
     transferor   other  than   servicing   fees,   including  cash  flows  from
     interest-only  strips and cash  above the  minimum  required  level in cash
     collateral accounts.

     When  determining  the  fair  value of  retained  interests,  Circuit  City
     estimates future cash flows using management's  projections of key factors,
     such as finance  charge  income,  default  rates,  payment  rates,  forward
     interest rate curves and discount rates  appropriate  for the type of asset
     and risk.

     Future finance income from securitized credit card receivables that exceeds
     the sum of the contractually  specified investor returns and servicing fees
     (interest-only  strips) is carried  at fair  value and  amounted  to $126.8
     million at May 31, 2002, and $134.8 million at May 31, 2001.  These amounts
     are  included in  retained  interests  in  securitized  receivables  on the
     consolidated  balance  sheets.  The change in the  interest-only  strip for
     securitization transaction was a $5.1 million decrease for the three months
     ended May 31, 2002 and a $3.8  million  increase for the three months ended
     May 31, 2001.

     The fair value of retained  interests at May 31, 2002, was $416.2  million,
     with a weighted-average  life ranging from 0.2 years to 3.0 years. The fair
     value of retained interests at February 28, 2002, was $394.5 million,  with
     a weighted-average  life ranging from 0.2 years to 1.8 years. The following
     table shows the key economic  assumptions  used in measuring the fair value
     of retained  interests at May 31, 2002, and a sensitivity  analysis showing
     the hypothetical effect on the fair value of those interests when there are
     unfavorable  variations from the assumptions used. Key economic assumptions
     at May 31, 2002, are not  materially  different  from  assumptions  used to
     measure the fair value of retained interests at the time of securitization.
     These  sensitivities  are hypothetical and should be used with caution.  In
     this table,  the effect of a variation  in a particular  assumption  on the
     fair value of the  retained  interest is  calculated  without  changing any
     other assumption; in actual circumstances, changes in one factor may result
     in changes in another, which might magnify or counteract the sensitivities.

 

                                                            Impact on Fair       Impact on Fair
                                          Assumptions        Value of 10%         Value of 20%
     (Dollar amounts in millions)            Used           Adverse Change       Adverse Change
     ------------------------------------------------------------------------------------------
     Monthly payment rate.............    6.7%-10.3%           $  8.3              $  15.4
     Annual default rate..............    8.1%-17.5%           $ 22.3              $  44.0
     Annual discount rate.............    8.3%-15.0%           $  2.9              $   5.8



(B). Automobile Loan Securitizations:

     CarMax has asset  securitization  programs to finance the  automobile  loan
     receivables generated by its finance operation.  CarMax's finance operation
     sells its  automobile  loan  receivables to a special  purpose  subsidiary,
     which,  in turn,  transfers  those  receivables  to a group of  third-party
     investors.  For  transfers of  receivables  that  qualify as sales,  CarMax
     recognizes  gains or  losses  as a  component  of the  finance  operation's
     profits,  which  are  recorded  as  reductions  to  selling,   general  and
     administrative   expenses.   The  special  purpose   subsidiary  retains  a
     subordinated  interest in the  transferred  receivables.  CarMax's  finance

                                 Page 11 of 62

     operation  continues  to service  securitized  receivables  for a fee.  The
     automobile  loan  securitization  agreements do not provide for recourse to
     the  Company  for  credit  losses on the  securitized  receivables.  CarMax
     employs a risk-based  pricing  strategy  that  increases  the stated annual
     percentage rate for accounts that have a higher  predicted risk of default.
     Under certain of these securitization programs,  CarMax must meet financial
     guidelines  relating to minimum tangible net worth,  debt to net worth, net
     worth to managed assets,  current ratio,  minimum cash balance or borrowing
     capacity and minimum coverage of rent and interest expense. The securitized
     receivables  must meet  performance  levels  relating to  portfolio  yield,
     default rates and  delinquency  rates.  CarMax was in compliance with these
     guidelines at May 31, 2002, and February 28, 2002.

     The total principal amount of automobile loan receivables managed was $1.63
     billion at May 31, 2002,  and $1.55  billion at February  28, 2002.  Of the
     total principal  amounts  managed,  the principal amount of automobile loan
     receivables  securitized  was  $1.61  billion  at May 31,  2002,  and $1.54
     billion at February 28, 2002, and the principal  amount of automobile  loan
     receivables  held for sale or investment was $20.5 million at May 31, 2002,
     and $13.9  million  at  February  28,  2002.  The  unused  capacity  of the
     automobile  loan  variable  funding  program was $115.0  million at May 31,
     2002,  and $211.0  million at February 28, 2002.  The  aggregate  principal
     amount of automobile  loans that were 31 days or more  delinquent was $21.2
     million at May 31,  2002,  and $22.3  million at  February  28,  2002.  The
     principal  amount of losses net of recoveries  totaled $3.3 million for the
     three  months  ended May 31,  2002,  and $1.9  million for the three months
     ended May 31, 2001.

     CarMax  receives  annual  servicing  fees  approximating  1 percent  of the
     outstanding   principal   balance  of  the   securitized   automobile  loan
     receivables and retains the rights to future cash flows available after the
     investors in the asset-backed securities have received the return for which
     they  contracted.  The  servicing  fees  specified in the  automobile  loan
     securitization  agreements  adequately compensate the finance operation for
     servicing the securitized receivables.  Accordingly,  no servicing asset or
     liability has been recorded.

 

     The table below summarizes certain cash flows received from and paid to the
     securitization trusts:

                                                             Three Months Ended   Three Months Ended
     (Amounts in millions)                                      May 31, 2002         May 31, 2001
     -----------------------------------------------------------------------------------------------
     Proceeds from new securitizations.....................       $  221.0             $  195.0
     Proceeds from collections reinvested
       in previous automobile loan securitizations.........       $  134.5             $   91.5
     Servicing fees received...............................       $    3.9             $    3.3
     Other cash flows received on retained interests*......       $   20.0             $   12.5


     *This amount represents cash flows received from retained  interests by the
     transferor   other  than   servicing   fees,   including  cash  flows  from
     interest-only  strips and cash  above the  minimum  required  level in cash
     collateral accounts.

     When  determining the fair value of retained  interests,  CarMax  estimates
     future cash flows using  management's  projections of key factors,  such as
     finance  charge  income,  default  rates,  payment rates and discount rates
     appropriate for the type of asset and risk.

     Future finance income from  securitized  automobile loan  receivables  that
     exceeds  the  sum of  the  contractually  specified  investor  returns  and
     servicing fees (interest-only strips) is carried at fair value and amounted
     to $76.1 million at May 31, 2002, and $51.4 million at May 31, 2001.  These
     amounts are included in retained  interests in  securitized  receivables on
     the  consolidated  balance  sheets.  Gains  of  $15.6  million  on sales of
     automobile  loan  receivables  were recorded for the three months ended May
     31, 2002;  gains of $13.1 million on sales of automobile  loan  receivables
     were recorded for the three months ended May 31, 2001.

     The fair value of retained  interests at May 31, 2002, was $127.9  million,
     with a  weighted-average  life of 1.6  years.  The fair  value of  retained
     interests at February 28, 2002, was $120.7 million, with a weighted-average
     life of 1.6 years.  The following table shows the key economic  assumptions
     used in measuring the fair value

                                 Page 12 of 62

     of retained  interests at May 31, 2002, and a sensitivity  analysis showing
     the hypothetical effect on the fair value of those interests when there are
     unfavorable  variations from the assumptions used. Key economic assumptions
     at May 31, 2002, are not  materially  different  from  assumptions  used to
     measure the fair value of retained interests at the time of securitization.
     These  sensitivities  are hypothetical and should be used with caution.  In
     this table,  the effect of a variation  in a particular  assumption  on the
     fair value of the  retained  interest is  calculated  without  changing any
     other assumption; in actual circumstances, changes in one factor may result
     in changes in another, which might magnify or counteract the sensitivities.

 

                                                           Impact on Fair      Impact on Fair
                                        Assumptions         Value of 10%        Value of 20%
     (Dollar amounts in millions)          Used           Adverse Change      Adverse Change
     ----------------------------------------------------------------------------------------
     Prepayment rate...................  1.5%-1.6%             $3.8                $  7.8
     Annual default rate...............  1.0%-1.2%             $2.1                $  4.3
     Annual discount rate..............      12.0%             $1.4                $  2.8


7.   Financial Derivatives

     On behalf of Circuit  City,  the  Company  enters  into  interest  rate cap
     agreements  to  meet  the   requirements  of  the  credit  card  receivable
     securitization transactions. During the first quarter of fiscal 2003 and in
     conjunction  with the  private-label  public  securitization,  the  Company
     purchased  and sold three  offsetting  interest rate caps with an aggregate
     initial  notional  amount of $280.5  million.  The total notional amount of
     interest  rate caps  outstanding  was $935.4  million at May 31, 2002,  and
     $654.9  million at February 28,  2002.  Purchased  interest  rate caps were
     included in net accounts receivable and had a fair value of $9.0 million as
     of May 31, 2002, and $2.4 million as of February 28, 2002. Written interest
     rate caps were  included in  accounts  payable and had a fair value of $9.0
     million as of May 31, 2002, and $2.4 million as of February 28, 2002.

     On behalf of CarMax,  the Company enters into amortizing  swaps relating to
     automobile  loan  receivable   securitizations  to  convert   variable-rate
     financing costs to fixed-rate  obligations to better match funding costs to
     the receivables being securitized. During the first quarter of fiscal 2003,
     the Company entered into three 40-month amortizing interest rate swaps with
     an initial  notional amount  totaling  approximately  $248.0  million.  The
     current  amortized  notional amount of all outstanding swaps related to the
     automobile loan receivable securitizations was approximately $633.7 million
     at May 31, 2002,  and $413.3 million at February 28, 2002. At May 31, 2002,
     the fair value of swaps  totaled a net  liability  of $2.1 million and were
     included in accounts payable. At February 28, 2002, the fair value of swaps
     totaled a net liability of $841,000 and were included in accounts payable.

     The market and credit risks associated with interest rate caps and interest
     rate  swaps are  similar  to those  relating  to other  types of  financial
     instruments.  Market risk is the exposure created by potential fluctuations
     in interest  rates and is directly  related to the product type,  agreement
     terms and  transaction  volume.  The Company has  entered  into  offsetting
     interest rate cap positions and, therefore, does not anticipate significant
     market  risk  arising  from  interest  rate  caps.  The  Company  does  not
     anticipate  significant  market risk from swaps  because they are used on a
     monthly basis to match funding costs to the use of the funding. Credit risk
     is the exposure to  nonperformance  of another party to an  agreement.  The
     Company   mitigates   credit  risk  by  dealing   with  highly  rated  bank
     counterparties.

8.   Appliance Exit Costs

     In the second  quarter of fiscal 2001,  the Company began to exit the major
     appliance category and expand its selection of key consumer electronics and
     home office  products in all Circuit  City  Superstores.  This  process was
     completed in November  2000.  To exit the appliance  business,  the Company
     closed eight  distribution  centers and eight service centers.  The Company
     leases the  majority  of these  closed  properties.  While the  Company has
     entered into contracts to sublease some of these  properties,  it continues
     the process of marketing the remaining properties to be subleased.

                                 Page 13 of 62

     In the second quarter of fiscal 2001, the Company  recorded  appliance exit
     costs of $30.0  million.  In the fourth quarter of fiscal 2002, the Company
     recorded additional lease termination costs of $10.0 million to reflect the
     current  rental  market for these  leased  properties.  These  expenses are
     reported separately on the fiscal 2002 and 2001 consolidated  statements of
     earnings. The appliance exit cost liability is included in accrued expenses
     and other current liabilities on the consolidated balance sheets.

 

     The appliance exit cost accrual activity and the remaining liability at May
     31, 2002, are presented in the following table.


                            Total     Fiscal 2001                Fiscal 2002   Fiscal 2002                Fiscal 2003
                           Original    Payments    Liability at  Adjustments    Payments    Liability at    Payments   Liability at
                           Exit Cost      or       February 28,  to Exit Cost      or       February 28,       or         May 31,
(Amounts in millions)      Accrual   Write-Downs      2001        Accrual      Write-Downs     2002        Write-Downs     2002
--------------------------------------------------------------------------------------------------------------------------------
Lease termination costs... $17.8       $  1.8         $16.0         $10.0         $6.3        $19.7          $ 1.7         $18.0
Fixed asset write-downs,
 net......................   5.0          5.0             -             -            -            -              -             -
Employee termination
 benefits.................   4.4          2.2           2.2             -          2.2            -              -             -
Other ....................   2.8          2.8             -             -            -            -              -             -
                           -----------------------------------------------------------------------------------------------------
Appliance exit costs...... $30.0       $ 11.8         $18.2         $10.0         $8.5        $19.7          $ 1.7         $18.0
                           =====================================================================================================



9.   Operating Segment Information

     The Company conducts business in two operating  segments:  Circuit City and
     CarMax.  These  segments are identified and managed by the Company based on
     the different products and services offered by each. Circuit City refers to
     the retail  operations  bearing  the  Circuit  City name and to all related
     operations,  such as Circuit  City's  finance  operation.  This  segment is
     engaged  in  the  business  of  selling  brand-name  consumer  electronics,
     personal computers and entertainment  software.  CarMax refers to the used-
     and  new-car  retail  locations  bearing the CarMax name and to all related
     operations, such as CarMax's finance operation.

     Financial  information for these segments for the three-month periods ended
     May 31, 2002 and 2001, is presented in the following tables.

     Three Months Ended May 31, 2002
                                                                                Total
     (Amounts in thousands)                   Circuit City       CarMax        Segments
     -----------------------------------------------------------------------------------
     Revenues from external customers........  $2,118,243      $1,001,564     $3,119,807
     Interest expense........................           -           1,026          1,026
     Depreciation and amortization..........       35,746           4,138         39,884
     (Loss) earnings before income taxes.....      (2,025)         48,327         46,302
     Income tax (benefit) provision .........        (769)         19,089         18,320
     Net (loss) earnings.....................      (1,256)         29,238         27,982
     Total assets............................  $3,769,322      $  830,218     $4,597,096


                                 Page 14 of 62


     Three Months Ended May 31, 2001
                                                                                Total
     (Amounts in thousands)                   Circuit City      CarMax         Segments
     -----------------------------------------------------------------------------------
     Revenues from external customers........  $1,870,621      $879,000       $2,749,621
     Interest expense........................         441         2,551            2,992
     Depreciation and amortization...........      34,489         4,693           39,182
     (Loss) earnings before income taxes.....     (15,492)       42,859           27,367
     Income tax (benefit) provision..........      (5,887)       16,287           10,400
     Net (loss) earnings.....................      (9,605)       26,572           16,967
     Total assets............................  $3,019,010      $795,402       $3,814,412



     In the  preceding  tables,  the net loss for Circuit City  excludes the net
     earnings  attributed to the reserved CarMax Group shares.  Total assets for
     Circuit City exclude the reserved CarMax Group shares.  As of May 31, 2001,
     total  assets  for  Circuit  City  also  exclude  the   discontinued   Divx
     operations, which are discussed in Note 10.

10.  Discontinued Operations

     On June 16,  1999,  Digital  Video  Express  announced  that it would cease
     marketing  the Divx home video  system and  discontinue  operations.  As of
     February 28, 2002,  entities  comprising the Divx operations were dissolved
     and the  related  liabilities  had been  assumed  by the  Company.  Current
     liabilities  of $18.5 million  related to the former Divx  operations  were
     reflected  in the  consolidated  balance  sheets  as of May 31,  2002,  and
     February 28, 2002. For the three-month periods ended May 31, 2002 and 2001,
     the  discontinued  Divx  operations  had no impact on the net  earnings  of
     Circuit City Stores, Inc.  Discontinued  operations have been segregated on
     the consolidated statements of cash flows.

11.  Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
     "Goodwill  and  Other  Intangible   Assets,"  effective  for  fiscal  years
     beginning  after  December 15, 2001.  Under the provisions of SFAS No. 142,
     goodwill  and  intangible  assets  deemed to have  indefinite  lives are no
     longer  amortized  but instead are  subject to annual  impairment  tests in
     accordance  with  the  pronouncement.  Other  intangible  assets  that  are
     identified to have finite useful lives continue to be amortized in a manner
     that reflects the estimated decline in the economic value of the intangible
     asset and are subject to review when  events or  circumstances  arise which
     indicate impairment.  Application of the nonamortization provisions of SFAS
     No. 142 in the first quarter of fiscal 2003 did not have a material  impact
     on the  financial  position,  results  of  operations  or cash flows of the
     Company.  During  fiscal  2003,  the Company  will perform the first of the
     required  impairment  tests of  goodwill  and  indefinite-lived  intangible
     assets, as outlined in the pronouncement.  Based on preliminary  estimates,
     as well as ongoing periodic  assessments of goodwill,  the Company does not
     expect to recognize any material impairment losses from these tests.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  For Asset
     Retirement  Obligations." This statement addresses financial accounting and
     reporting  for  obligations  associated  with the  retirement  of  tangible
     long-lived  assets and the associated asset retirement costs. It applies to
     legal obligations  associated with the retirement of long-lived assets that
     result from the acquisition,  construction,  development  and/or the normal
     operation of a long-lived asset, except for certain obligations of lessees.
     This standard requires entities to record the fair value of a liability for
     an asset  retirement  obligation  in the period  incurred.  SFAS No. 143 is
     effective for fiscal years  beginning  after June 15, 2002. The Company has
     not yet determined the impact, if any, of adopting this standard.


                                 Page 15 of 62

12.  Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
     presentation.  Effective in the first quarter of fiscal 2003,  Circuit City
     Stores  adopted  Emerging  Issues  Task Force No.  00-14,  "Accounting  for
     Certain Sales  Incentives,"  which provides that sales incentives,  such as
     mail-in  rebates,  offered to customers should be classified as a reduction
     of revenue.  Previously,  the  Company  recorded  these  rebates in cost of
     sales,  buying and  warehousing.  For the quarter  ended May 31, 2001,  the
     reclassification  of rebates from cost of sales,  buying and warehousing to
     sales  decreased  sales and cost of sales,  buying and warehousing by $11.0
     million.

     For the  quarter  ended May 31,  2001,  CarMax  wholesale  sales  have been
     reclassified and reported in net sales and operating revenues.  In previous
     periods,  wholesale sales were recorded as reductions to cost of sales. The
     reclassification  of wholesale  sales to sales  increased sales and cost of
     sales by $84.5  million for the quarter  ended May 31, 2001.  An additional
     reclassification  between  sales and cost of sales  made to  conform to the
     current presentation  decreased sales and cost of sales by $2.3 million for
     the quarter ended May 31, 2001.



                                     ITEM 2.

         CIRCUIT CITY STORES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this discussion,  "we," "our" and "Circuit City Stores" refer to Circuit City
Stores,  Inc. and our wholly  owned  subsidiaries,  unless the context  requires
otherwise.  "Circuit  City  business"  and  "Circuit  City"  refer to the retail
operations  bearing the Circuit City name and to all related  operations such as
product  service and Circuit  City's  finance  operation.  "Circuit  City Group"
refers to the Circuit  City  business  and the  reserved  CarMax  Group  shares.
"CarMax business," "CarMax" and "CarMax Group" refer to retail locations bearing
the  CarMax  name  and  to all  related  operations  such  as  CarMax's  finance
operation.  All references to "month,"  "quarter" and "year" refer to our fiscal
year periods rather than calendar year periods unless stated otherwise.

On February 22, 2002,  Circuit City  Stores,  Inc.  announced  that its board of
directors had  authorized  management to initiate a process that would  separate
the CarMax auto superstore  business from the Circuit City consumer  electronics
business  through a tax-free  transaction  in which  CarMax,  Inc.,  presently a
wholly  owned  subsidiary  of  Circuit  City  Stores,   Inc.,  would  become  an
independent,  separately traded public company. CarMax, Inc. holds substantially
all  of  the  businesses,  assets  and  liabilities  of the  CarMax  Group.  The
separation  plan calls for Circuit City Stores,  Inc. to redeem the  outstanding
shares of CarMax  Group  Common  Stock in exchange for shares of common stock of
CarMax, Inc. Simultaneously,  shares of CarMax, Inc. common stock,  representing
the shares of CarMax Group Common Stock reserved for the holders of Circuit City
Group Common Stock,  would be distributed as a tax-free  dividend to the holders
of Circuit City Group Common Stock.

In the  proposed  separation,  the holders of CarMax  Group  Common  Stock would
receive one share of CarMax,  Inc.  common  stock for each share of CarMax Group
Common Stock redeemed by the Company. Management anticipates that the holders of
Circuit City Group  Common Stock would  receive a fraction of a share of CarMax,
Inc.  common  stock for each share of Circuit City Group Common Stock they hold.
The exact fraction would be determined on the record date for the  distribution.
The separation is expected to be completed by late summer or early fall, subject
to shareholder approval and final approval from the board of directors.

CRITICAL ACCOUNTING POLICIES

See the discussion of critical  accounting policies included in the Circuit City
Stores,  Inc. 2002 Annual Report to  Shareholders.  These policies relate to the
calculation of the value of retained  interests in  securitization  transactions
and the calculation of the liability for lease termination costs.

                                 Page 16 of 62


RESULTS OF OPERATIONS

Effective  in the first  quarter of fiscal  2003,  Circuit  City Stores  adopted
Emerging Issues Task Force No. 00-14, "Accounting for Certain Sales Incentives,"
which  provides  that  sales  incentives,  such as mail-in  rebates,  offered to
customers  should be  classified  as a  reduction  of revenue.  Previously,  the
Company recorded these rebates in cost of sales,  buying and warehousing.  These
rebate  amounts  totaled  $11.0  million in the first quarter of fiscal 2002 and
have been reclassified on the statement of earnings.

Effective in the first quarter of fiscal 2003,  CarMax  classifies  revenue from
the sale of wholesale vehicles in net sales and operating revenues.  Previously,
CarMax wholesale vehicle sales were recorded as reductions to cost of sales. The
reclassification  of wholesale  sales to sales increased sales and cost of sales
by  $84.5   million  for  the  quarter   ended  May  31,  2001.   An  additional
reclassification  between sales and cost of sales made to conform to the current
presentation  decreased  sales and cost of sales by $2.3 million for the quarter
ended May 31, 2001.

Net Sales and Operating Revenues and General Comments

Circuit  City  Stores,  Inc.  Total sales for Circuit  City Stores for the first
quarter of fiscal 2003 were $3.12 billion,  an increase of 13 percent from $2.75
billion for the same period last year.

Our  operations,  in common  with other  retailers  in  general,  are subject to
seasonal influences.  Historically,  the Circuit City business has realized more
of its net sales and net  earnings in the fourth  quarter,  which  includes  the
December  holiday selling season,  than in any other fiscal quarter.  The CarMax
business,  however,  has experienced  more of its net sales in the first half of
the fiscal year. The net earnings of any quarter are seasonally disproportionate
since  administrative and certain operating expenses remain relatively  constant
during the year.  Therefore,  quarterly  results  should  not be relied  upon as
necessarily indicative of results for the entire fiscal year.

Circuit City Group. Total sales for the Circuit City Group for the first quarter
of fiscal 2003  increased 13 percent to $2.12 billion from $1.87 billion in last
year's first quarter.  Comparable store sales increased 12 percent for the first
quarter of fiscal 2003 and  decreased 25 percent for the first quarter of fiscal
2002. Circuit City stores are included in comparable store sales after the store
has been open for a full year.

The comparable  store sales pace  strengthened as the first quarter  progressed,
reflecting the growing consumer  response to our customer  service  initiatives,
aggressive promotions in traffic-building categories and on entry-level products
and a stronger inventory position in specific product categories.

First quarter Circuit City sales for fiscal 2003 reflected continued progress in
both the high-service  and packaged goods arenas.  We posted strong sales growth
in focus categories such as video, including big-screen televisions, DVD players
and digital satellite systems;  and wireless  communications,  and in self-serve
product selections, including DVD software and video game hardware, software and
accessories. We experienced improving trends in information technology products,
with PC sales  growth  driven by strong sales of notebook  computers  and a more
competitive promotional stance compared with last fiscal year's first quarter.

                                 Page 17 of 62

The percent of  merchandise  sales  represented  by each major product  category
during the first quarter of fiscal years 2003 and 2002 were as follows:


       ================================== ==============================
                                                   1st Quarter
                                          ------------------------------
                  Product Mix                 FY03            FY02
       ---------------------------------- -------------- ---------------
       Video                                   40%            37%
       ---------------------------------- -------------- ---------------
       Audio                                   15             17
       ---------------------------------- -------------- ---------------
       Information technology                  34             36
       ---------------------------------- -------------- ---------------
       Entertainment                           11             10
       ---------------------------------- -------------- ---------------
       Total                                  100%           100%
       ================================== ============== ===============


In most  states,  Circuit  City sells  extended  warranty  programs on behalf of
unrelated third parties that are the primary  obligors.  Under these third-party
warranty  programs,  we have no  contractual  liability to the customer.  In the
three states where  third-party  warranty sales are not permitted,  Circuit City
sells an  extended  warranty  for which we are the  primary  obligor.  The total
extended warranty revenue that is reported in total sales was $87.9 million,  or
4.2 percent of sales,  in the first quarter of fiscal 2003,  compared with $80.1
million, or 4.3 percent of sales, in last year's first quarter.

 

The following table provides details on the Circuit City retail units:

      ======================== =================== =================== ================== ===================
                                                                           Estimate
             Store Mix            May 31, 2002        May 31, 2001       Feb. 28, 2003      Feb. 28, 2002
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Superstores                      603                594                 611                604
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Express stores                    19                 32                  18                 20
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Total                            622                626                 629                624
      ======================== =================== =================== ================== ===================


Circuit City expects to open  approximately  eight  Superstores  and relocate an
estimated 10  Superstores  in the current  fiscal year.  In the first quarter of
fiscal 2003, we closed one Superstore,  relocated two Superstores and closed one
mall-based Express store.

CarMax  Group.  Total sales for the CarMax Group for the first quarter of fiscal
2003  increased 14 percent to $1.00  billion from $879.0  million in last year's
first quarter.

Retail  Vehicle Sales.  Retail vehicle sales for CarMax  increased 14 percent to
$870.1  million in the first  quarter of fiscal 2003 from $761.0  million in the
first quarter of fiscal 2002. In the first quarter of fiscal 2003,  used vehicle
sales  increased 20 percent to $737.8  million from $615.1  million in the first
quarter of fiscal 2002. In the first  quarter of fiscal 2003,  new vehicle sales
decreased 9 percent to $132.3  million from $145.8  million in the first quarter
of fiscal 2002.

                                 Page 18 of 62


CarMax stores are included in comparable  store retail sales after the store has
been open for a full year.  Comparable  store vehicle  dollar and unit sales for
the first quarter of fiscal years 2003 and 2002 were as follows:


       ================================== ==============================
                                                   1st Quarter
               Comparable Store           ------------------------------
                 Sales Change                 FY03            FY02
       ---------------------------------- -------------- ---------------
       Vehicle dollars:
       ---------------------------------- -------------- ---------------
            Used vehicles                      14 %           28%
       ---------------------------------- -------------- ---------------
            New vehicles                       (4)%           23%
       ---------------------------------- -------------- ---------------
       Total                                   11 %           27%
       ---------------------------------- -------------- ---------------

       ---------------------------------- -------------- ---------------
       Vehicle units:
       ---------------------------------- -------------- ---------------
            Used vehicles                      12 %           20%
       ---------------------------------- -------------- ---------------
            New vehicles                       (4)%           19%
       ---------------------------------- -------------- ---------------
       Total                                   10 %           20%
       ================================== ============== ===============


The  overall  increase in retail  sales is  attributed  to the 12 percent  sales
growth in comparable store used-unit  sales, the three additional  CarMax stores
opened  since the first  quarter of fiscal  2002 and the slight  increase in the
average retail selling price for used  vehicles.  The comparable  store new-unit
sales decline was in line with the new-car industry's performance.



       ================================== ================================
                                                    1st Quarter
                Average Retail            --------------------------------
                Selling Prices                 FY03            FY02
       ---------------------------------- --------------- ----------------
       Used vehicles                          $15,500         $15,100
       ---------------------------------- --------------- ----------------
       New vehicles                           $23,000         $23,200
       ---------------------------------- --------------- ----------------
       Blended average                        $16,300         $16,200
       ================================== =============== ================



       ================================== ==============================
                                                   1st Quarter
                                          ------------------------------
           Retail Vehicle Sales Mix           FY03            FY02
       ---------------------------------- -------------- ---------------
       Vehicle dollars:
       ---------------------------------- -------------- ---------------
             Used vehicles                      85%            81%
       ---------------------------------- -------------- ---------------
             New vehicles                       15             19
       ---------------------------------- -------------- ---------------
       Total                                   100%           100%
       ---------------------------------- -------------- ---------------

       ---------------------------------- -------------- ---------------
       Vehicle units:
       ---------------------------------- -------------- ---------------
            Used vehicles                       89%            87%
       ---------------------------------- -------------- ---------------
            New vehicles                        11             13
       ---------------------------------- -------------- ---------------
       Total                                   100%           100%
       ================================== ============== ===============


Wholesale  Vehicle Sales.  Wholesale  vehicle sales totaled $92.5 million in the
first  quarter of fiscal 2003,  compared  with $84.5  million in the same period
last year. The increase was consistent with increased traffic at CarMax Stores.

                                 Page 19 of 62

Other Sales and Revenues.  Other sales and revenues  include  extended  warranty
revenues,  service department sales and processing fees collected from consumers
for the purchase of their vehicles at a CarMax retail location and totaled $39.0
million in the first quarter of fiscal 2003,  compared with $33.5 million in the
same period last year.

CarMax sells  extended  warranties on behalf of unrelated  third parties who are
the primary obligors.  Under these third-party warranty programs,  CarMax has no
contractual  liability  to the  customer.  Extended  warranty  revenue was $16.7
million  in the first  quarter  of fiscal  2003 and $13.5  million  in the first
quarter of fiscal 2002. The increase  reflects  improved  penetration and strong
sales growth for used cars, which achieve a higher extended warranty penetration
rate than new cars.

Service sales were $15.5  million in the first quarter of fiscal 2003,  compared
with $13.9  million in the same period last year.  The  increase  relates to the
overall increase in CarMax's customer base.

Processing fees were $6.8 million in the first quarter of fiscal 2003,  compared
with $6.1 million in the same period last year.  Consumers are assessed this fee
when selling a vehicle to a CarMax retail location after the appraisal  process.
The increase was the result of increased traffic and increased consumer response
to CarMax's vehicle purchase program.

Retail  Stores.  During the first  quarter of fiscal  2003,  we  integrated  the
new-car  stand-alone  Chrysler  franchise in the Orlando,  Fla.,  market with an
existing  CarMax  superstore  and  opened  a  standard-sized  superstore  in the
mid-sized  market of  Sacramento,  Calif.  CarMax  expects  to open four to five
stores  in the  second  half of the  fiscal  year,  including  entries  into the
Knoxville, Tenn., and Las Vegas, Nev., markets.

 

The following table provides detail on the CarMax retail stores:

      ====================================== ==================== =================== =================== ==================
                                                                                       Estimate Feb. 28,
                    Store Mix                   May 31, 2002         May 31, 2001            2003           Feb. 28, 2002
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Mega superstores                                13                  13                  13                  13
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Standard superstores                            18                  16                  20                  17
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Prototype satellite stores                       5                   4                   8                   5
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Co-located new-car stores                        2                   2                   2                   2
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Stand-alone new-car stores                       2                   5                   2                   3
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Total                                           40                  40                  45                  40
      ====================================== ==================== =================== =================== ==================



Cost of Sales, Buying and Warehousing

Circuit  City Stores,  Inc. The gross profit  margin for Circuit City Stores was
20.2 percent of sales in the first  quarter of fiscal 2003,  compared  with 20.6
percent in the same period last year.

Circuit City Group.  The gross profit margin for the Circuit City Group was 24.2
percent of sales in the first quarter of fiscal 2003, compared with 24.7 percent
in the same period last year.  The first  quarter  gross profit  margin  decline
reflects our more  competitive  product  selection  and pricing  throughout  the
quarter, as well as our response to more aggressive offers from competitors, and
the resulting sales mix. Circuit City experienced some trade-off in gross margin
for sales growth, as we chose to be more aggressive in promoting traffic-driving
and entry-level products.

CarMax Group. Total gross profit margin for the CarMax Group was 11.8 percent of
sales in the first quarter of both fiscal 2003 and fiscal 2002.

                                 Page 20 of 62

Retail Vehicle Gross Profit  Margin.  The retail vehicle gross profit margin was
9.9 percent in the first quarter of fiscal 2003 versus 10.0 percent for the same
period last year.  CarMax  achieved its average per unit gross profit targets on
used cars;  however,  the positive gross margin impact of a higher percentage of
used cars in the mix was  substantially  offset by the higher average retails on
used cars,  which reduced the used-car margin on a percentage  basis. The result
was a retail  vehicle gross profit margin that slightly  declined in relation to
last year's first quarter.

Wholesale Vehicle Gross Profit Margin. The wholesale vehicle gross profit margin
was 6.7 percent in the first  quarter of fiscal 2003,  compared with 5.6 percent
for the same  period  last year.  Both the  average  wholesale  cost and average
wholesale  sales price declined  compared with the first quarter of fiscal 2002;
however,  the  decrease in the average  wholesale  sales price was less than the
decrease in the average wholesale cost.

Other Gross Profit Margin.  The gross profit margin for other sales and revenues
was 66.5 percent in the first quarter of fiscal 2003, compared with 68.1 percent
for the same period last year.

Selling, General and Administrative Expenses

Circuit City Stores, Inc. The selling,  general and administrative expense ratio
for Circuit City Stores was 18.7 percent of sales in the first quarter of fiscal
2003,  compared  with 19.5 percent for the same period last year.  See below for
finance income disclosure.

Circuit City Group. The selling,  general and  administrative  expense ratio for
the Circuit City Group was 24.3 percent of sales in the first  quarter of fiscal
2003, compared with 25.5 percent for the same period last year. This decline was
principally a result of the leverage achieved through increased sales.

Finance  Operations.  For the  first  quarter  of fiscal  2003 and 2002,  pretax
finance operation income,  which is recorded as a reduction to selling,  general
and administrative expenses, was as follows:


                                        Three Months Ended    Three Months Ended
     (Amounts in millions)                 May 31, 2002          May 31, 2001
     ---------------------------------------------------------------------------
     Securitization income..............      $50.5                 $59.7
     Payroll and fringe expenses........       10.7                  10.3
     Other direct expenses..............       19.4                  19.9
                                          --------------------------------------
     Finance operation income...........      $20.4                 $29.5
                                          ======================================


Receivables  generated by the Circuit City  finance  operation  are sold through
securitization  transactions.  Circuit City continues to service the securitized
receivables  for a fee. For the quarter ended May 31, 2002 serviced  receivables
averaged $2.78 billion,  compared to $2.64 billion for the quarter ended May 31,
2001.

Included in  securitization  income is the gain on the sale of these receivables
and other income related to servicing these  receivables.  Future finance income
from   securitized   credit  card  receivables  that  exceeds  the  sum  of  the
contractually  specified  investor  returns and  servicing  fees  (interest-only
strips) is carried at fair value and amounted to $126.8  million at May 31, 2002
and  $134.8  million at May 31,  2001.  The key  assumptions  and  estimates  in
determining  the  fair  value  of  interest-only   strips  include  management's
projections  of key  factors,  such as finance  charge  income,  default  rates,
payment rates,  forward interest rate curves and discount rates  appropriate for
the type of asset and risk.  Based on these  assumptions  and  estimates and the
operation's  securitization  volume,  the change in the interest-only  strip for
securitization  transactions  was a $5.1  million  decrease for the three months
ended May 31, 2002 and a $3.8  million  increase  for the three months ended May
31, 2001.  Management  reviews the assumptions and estimates used in determining
the  fair  value  of the  interest-only  strip on a  quarterly  basis.  If these
assumptions  change or the actual  results  differ from the  projected  results,
securitization income would be affected.

                                 Page 21 of 62

For the Circuit City Group,  the finance  operation  income does not include any
allocation of indirect costs or income.  Examples of indirect costs not included
are  corporate  expenses  such  as  human  resources,  administrative  services,
marketing,  information  systems,  accounting,  legal,  treasury,  and executive
payroll as well as retail store expenses.  Other direct expenses,  which did not
change significantly for the three months ended May 31, 2002 compared to May 31,
2001, include third party data processing, rent, credit promotion expenses, Visa
and MasterCard fees, and other operating  expenses.  Payroll expenses  generally
vary with the size of the serviced portfolio, and increased only slightly during
the quarter ended May 31, 2002 compared to May 31, 2001.

The fiscal 2003 expense  ratio also includes  approximately  $8 million of costs
associated  with  remodeling  and relocation  activities,  while the fiscal 2002
ratio includes approximately $3 million of relocation costs. As of May 31, 2002,
the Company had completed the initial phases of the video department  remodeling
program planned for roll out to  approximately  300 Circuit City  Superstores in
fiscal 2003.  As of May 31, 2002, we had completed the video reset in 20 Circuit
City Superstores, including 18 in the first quarter, and the lighting upgrade in
more than 100  Superstores.  Based on our  experience  with the  progress of the
remodeling  process  to date,  we now  anticipate  that it can be  completed  in
approximately one week per store, rather than our initial two-week  expectation.
We anticipate that the cost will not exceed our initial estimate of 18 cents per
Circuit City Group share.

CarMax  Group.  The selling,  general and  administrative  expense ratio for the
CarMax Group  increased  to 6.8 percent of sales in the first  quarter of fiscal
2003 from 6.7 percent of sales for the same period last year. The higher expense
ratio in this year's  first  quarter  compared  with last year's  first  quarter
reflects  expenses  associated  with  geographic  expansion  and $1.9 million of
one-time separation costs, partly offset by increased income from financing.

Finance  Income.  For the first quarter of fiscal 2003 and 2002,  pretax finance
income, which is recorded as a reduction to selling,  general and administrative
expenses, was as follows:

                                      Three Months Ended    Three Months Ended
     (Amounts in millions)               May 31, 2002          May 31, 2001
     -------------------------------------------------------------------------
     Securitization income............      $23.3                 $18.4
     Payroll and fringe expenses......        1.7                   1.3
     Other direct expenses............        1.7                   1.4
                                      ----------------------------------------
     Finance operation income.........       19.9                  15.7

     Third-party financing fees.......        4.2                   3.8
                                      ----------------------------------------

     Total finance income.............      $24.1                 $19.5
                                      ========================================

Receivables   generated  by  the  CarMax  finance  operation  are  sold  through
securitization  transactions.  CarMax continues to service these  receivables in
exchange for a contractually  specified servicing fee. For the quarter ended May
31, 2002 serviced receivables averaged $1.56 billion,  compared to $1.28 billion
for the period ended May 31, 2001.

For  the  CarMax  Group,  securitization  income  includes  the  gain on sale of
receivables  and other income  related to servicing  these  receivables.  CarMax
recorded  gains on sale of  receivables  totaling  $15.6 million for the quarter
ended May 31, 2002  compared to gains of $13.1  million for the period ended May
31,  2001.  This change  resulted  from an increase in loan  origination  volume
driven by increased  sales. In recording these gains,  management  estimates key
assumptions  such as finance  charge income,  default  rates,  payment rates and
discount rates  appropriate for the type of asset and risk. If these assumptions
change, or the actual results differ from the projected results,  securitization
income would be affected.

For the CarMax Group,  finance  operation income does not include any allocation
of  indirect  costs or income.  Examples  of  indirect  costs not  included  are
corporate expenses such as human resources,  administrative services, marketing,
information systems,  accounting,  legal, treasury and executive payroll as well
as retail

                                 Page 22 of 62

store expenses.  Direct expenses include collection expenses,  rent and facility
expenses and loan processing costs.  Payroll,  fringes and other direct expenses
increased proportionately to the average managed receivable balance.

Fees received from arranging customer automobile financing through third parties
increased  by $0.4  million  over the same period last year.  The increase was a
result of the total increase in retail vehicle sales.

Interest Expense

Interest  expense for Circuit City Stores declined to $1.0 million for the first
quarter  of  fiscal  2003  from  $3.0  million  in the same  period  last  year,
reflecting both lower debt levels and lower interest rates.

Income Taxes

The effective income tax rate increased to 39.6 percent for the first quarter of
fiscal 2003 from 38.0 percent for the first quarter of fiscal 2002. The increase
reflects the $1.9 million of one-time,  non-tax-deductible costs associated with
the proposed separation of CarMax from Circuit City Stores, Inc.

Net Earnings (Loss)

Circuit  City Stores,  Inc.  Net  earnings for Circuit City Stores  increased to
$28.0  million in the first  quarter of fiscal  2003 from $17.0  million in last
year's first quarter.

Circuit City Group.  Excluding the earnings  attributed  to the reserved  CarMax
Group shares,  the Circuit City business  produced a loss of $1.3 million,  or 1
cent per Circuit  City Group  share,  in the first  quarter  ended May 31, 2002,
compared with a loss of $9.6  million,  or 5 cents per Circuit City Group share,
for the same period last year.

The net  earnings  attributed  to the  reserved  CarMax  Group shares were $18.7
million in the first quarter of this fiscal year, compared with $19.7 million in
last fiscal year's first quarter.

Net earnings of the Circuit City Group were $17.5 million, or 8 cents per share,
in the first quarter of fiscal 2003, compared with $10.1 million, or 5 cents per
share, in the first quarter of fiscal 2002.

CarMax Group.  The CarMax Group's first quarter fiscal 2003 net earnings rose 10
percent to $29.2 million from $26.6 million in the first quarter of fiscal 2002.
First  quarter   fiscal  2003   earnings   include  $1.9  million  of  one-time,
non-tax-deductible  costs associated with the proposed separation of CarMax from
Circuit  City Stores.  Excluding  the one-time  separation  costs,  net earnings
increased 17 percent to $31.1 million.

In the first quarter of fiscal 2003, net earnings attributed to the CarMax Group
Common Stock were $10.5  million,  or 27 cents per CarMax Group share,  compared
with $6.8 million,  or 25 cents per CarMax Group share,  in the first quarter of
last year.  The remainder of the CarMax  Group's net earnings was  attributed to
the shares of CarMax Group  Common Stock  reserved for the Circuit City Group or
for issuance to the holders of Circuit City Group Common Stock.

Operations Outlook

Circuit City Group. In fiscal 2001, we introduced a store design that includes a
more customer-friendly  layout with better product adjacencies;  a brighter more
contemporary  appearance;  additional product on the sales floor; shopping carts
and easily  accessible  cash  registers.  All new stores continue to follow this
design.  In fiscal 2001 and fiscal 2002, we also undertook  several remodels and
product  category tests to evaluate how best to add these features into existing
stores. We decided to begin in fiscal 2003 a three-year  multi-phased remodeling
program that will cover  approximately  300 stores.  As part of this  remodeling
program,  we will in fiscal  2003  introduce a remodeled  video  department  and
upgrade  the  lighting  in these  stores,  spending  an average of  $325,000  to
$350,000 per store.  We believe that rolling out this remodeled  department will
enable us to  increase  Circuit  City's  market  share in the growing and highly
profitable  big-screen  television category and further solidify our position in
the overall video category.  The Consumer Electronics  Association projects

                                 Page 23 of 62

that big-screen  television  sales will grow at a double-digit  rate in calendar
2002. By beginning  with the video  department,  we believe that we can affect a
large  number of  Circuit  City  Superstores  in a manner  that has  significant
potential for incremental  benefit while minimizing the disruptive impact of the
remodeling process.

In addition to remodeling, we expect to relocate approximately 10 Superstores in
the current  fiscal year.  We expect that fiscal 2003  expenditures  for Circuit
City remodeling and relocations will total  approximately $130 million, of which
we expect to capitalize  approximately $70 million and expense approximately $60
million, or no more than 18 cents per Circuit City Group share.

In fiscal 2003, we also will continue testing design ideas for other departments
in the Circuit City  Superstores.  In fiscal 2004 and fiscal 2005,  we expect to
introduce  these  design ideas into many of the  approximately  300 stores being
remodeled  under the  three-year  remodeling  plan.  We  continue  to review the
suitability of our remaining Superstore base for either remodeling or relocation
and also anticipate relocating additional stores in fiscal 2004 and fiscal 2005.
We  currently  anticipate  that in fiscal  2004 and  fiscal  2005 the  impact of
remodeling  and  relocations on earnings per share will be similar to the fiscal
2003 impact.

Given our presence in virtually  all of the nation's top  metropolitan  markets,
new  Superstores  are being  added  only in small  markets  or to  increase  our
penetration  in existing  major  markets.  We plan to open  approximately  eight
Circuit City Superstores in fiscal 2003.  Because of limited planned  geographic
expansion,  we expect total  Circuit City sales growth to only  slightly  exceed
comparable  store  sales  growth.  We expect that  categories  where we expanded
selection following our exit from the appliance business and categories, such as
big-screen  televisions,  that are benefiting from digital  product  innovation,
will  contribute  to Circuit  City's total and  comparable  store sales  growth.
However,  we also  anticipate  that Circuit City's sales growth will reflect our
focus on sales  counselor  training  and  customer  service,  store  remodeling,
effective  marketing  programs and a  competitive  merchandise  assortment  with
attractive  prices.  We expect that the gross profit margin will reflect the mix
of merchandise sold and our efforts to remain competitive and achieve profitable
market share growth and that the expense ratio will reflect increases in Circuit
City expenses  associated  with  remodeling and  relocation as discussed  above,
advertising and systems  enhancements and the total sales volume  achieved.  For
the full year, we expect the fiscal 2003 profit contribution from Circuit City's
finance operation to be similar to the contribution in fiscal 2002.

With  existing  Circuit  City  initiatives,  additional  efforts to enhance  the
business  and  a  relatively  stable  economy,  we  believe  Circuit  City  will
contribute  57 cents per share to 67 cents per share to the fiscal 2003 earnings
of the  Circuit  City  Group,  including  remodeling  and  relocation  expenses.
Excluding these expenses, we expect the Circuit City business will contribute 75
cents per share to 85 cents per share to the earnings of the Circuit City Group.

CarMax Group. For more than two years, CarMax has demonstrated that its consumer
offer and business  model can produce strong sales and earnings  growth.  At the
beginning  of fiscal 2002,  CarMax  announced  that it would  resume  geographic
growth,  opening two  superstores  in fiscal 2002,  four to six  superstores  in
fiscal 2003 and six to eight stores in each of fiscal years 2004, 2005 and 2006.
This  expansion  is  proceeding  as  planned  with  four or five  more  used-car
superstores scheduled to open during the second half of the fiscal year.

Comparable  store  used-unit  sales growth  drives  CarMax's  profitability.  We
currently  anticipate that comparable store used-unit growth will most likely be
in the low teens in the first half of fiscal  2003.  For the second  half of the
fiscal  year,  we continue to expect  used-unit  comparable  store growth in the
high-single to low-double digits.

Our earnings  expectations for fiscal 2003 remain unchanged at 95 cents to $1.00
per CarMax Group share,  excluding  approximately 8 cents per share of one-time,
non-tax-deductible  costs associated with the separation.  We expect fiscal 2003
to be a year of transition for CarMax as we ramp up the growth pace.  Additional
growth-related  costs, such as training,  recruiting and employee relocation for
our new  stores,  and  additional  expenses  expected  in the second half if the
planned  separation is approved will moderate  earnings  growth,  offsetting the
expense  leverage we would  otherwise  expect from  used-unit  comparable  store
growth.

                                 Page 24 of 62

In addition,  we had  anticipated  that interest  rates would rise above the low
levels  experienced  in fiscal 2002  resulting in reduced yield spreads from the
CarMax  finance  operation  throughout  fiscal  2003.  If the current  favorable
interest rate environment continues,  CarMax may not experience the reduction in
yield spreads that we originally anticipated.

Recent Accounting Pronouncements

On March 1, 2002,  Circuit City Stores adopted EITF No. 00-14,  "Accounting  for
Certain Sales Incentives," which provides that sales incentives, such as mail-in
rebates,  offered to customers  should be  classified as a reduction to revenue.
The Company  reclassified  these rebate expenses from cost of sales,  buying and
warehousing  to net sales and  operating  revenues.  The adoption did not have a
material impact on the Company's  financial  position,  results of operations or
cash flows.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
effective  for  fiscal  years  beginning  after  December  15,  2001.  Under the
provisions  of SFAS No.  142,  goodwill  and  intangible  assets  deemed to have
indefinite  lives are no longer  amortized  but  instead  are  subject to annual
impairment tests in accordance with the  pronouncement.  Other intangible assets
that are  identified to have finite  useful lives  continue to be amortized in a
manner  that  reflects  the  estimated  decline  in the  economic  value  of the
intangible  asset and are subject to review when events or  circumstances  arise
which indicate impairment. Application of the nonamortization provisions of SFAS
No. 142 in the first  quarter of fiscal  2003 did not have a material  impact on
the  financial  position,  results of  operations  or cash flows of the Company.
During  fiscal  2003,  the  Company  will  perform  the  first  of the  required
impairment tests of goodwill and indefinite-lived intangible assets, as outlined
in the  pronouncement.  Based  on  preliminary  estimates,  as well  as  ongoing
periodic  assessments of goodwill,  the Company does not expect to recognize any
material impairment losses from these tests.

In August 2001, the FASB issued SFAS No. 143,  "Accounting For Asset  Retirement
Obligations." This statement  addresses  financial  accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement  costs. It applies to legal  obligations  associated
with the  retirement  of  long-lived  assets that  result from the  acquisition,
construction,  development  and/or the normal  operation of a long-lived  asset,
except for certain  obligations of lessees.  This standard  requires entities to
record the fair value of a liability for an asset  retirement  obligation in the
period incurred. SFAS No. 143 is effective for fiscal years beginning after June
15, 2002.  The Company has not yet  determined  the impact,  if any, of adopting
this standard.

On March 1, 2002, Circuit City Stores adopted SFAS No. 144,  "Accounting for the
Impairment or Disposal of  Long-Lived  Assets." The adoption of SFAS No. 144 did
not have a  material  impact on the  Company's  financial  position,  results of
operations or cash flows.

FINANCIAL CONDITION

Liquidity and Capital Resources

Operating  Activities.  For the first three months ended May 31, 2002,  net cash
used in operating  activities was $132.2 million  compared with net cash used in
operating  activities of $7.6 million in the first  quarter of fiscal 2002.  The
increase  primarily  reflects  an  increase  in  inventory   purchases  to  meet
anticipated sales demands.

Investing Activities. Net cash used in investing activities was $46.5 million in
the three months ended May 31, 2002,  compared  with $29.6  million in the first
three months of last year.  Capital  expenditures  increased to $50.9 million in
the first  three  months of fiscal  2003 from $32.9  million  in the  comparable
period last year. Circuit City capital expenditures in the first three months of
fiscal 2003 included  spending for the initial phases of rolling out a remodeled
video  department,  which was completed in 18 Superstores,  lighting upgrades in
more than 100 Circuit City  Superstores  and the  relocation of two Circuit City
Superstores.  Capital  expenditures  in the first  three  months of fiscal  2002
included spending for the relocation of one Circuit City

                                 Page 25 of 62

Superstore.   During  the  first  quarter  of  fiscal  2003,   CarMax's  capital
expenditures  increased $25.2 million in connection  with geographic  expansion.
Proceeds from sales of property and  equipment  increased to $4.4 million in the
first  three  months  of the  current  fiscal  year  from  $3.2  million  in the
comparable period of last fiscal year.

Financing  Activities.  Net cash provided by financing  activities  increased to
$103.2  million  in the first  quarter of fiscal  2003 from $1.1  million in the
comparable period last year. In the first quarter of fiscal 2003, CarMax entered
into a  $200  million  credit  agreement  with  DaimlerChrysler  Services  North
America, LLC and Toyota Financial Services. This agreement,  which is secured by
vehicle inventory,  includes a $100 million revolving loan commitment and a $100
million term loan commitment. The terms for both commitments are LIBOR-based and
have initial  two-year terms. As of May 31, 2002, the amount  outstanding  under
this credit  agreement was $100  million.  CarMax  anticipates  that some of the
proceeds  from the agreement  will be used for the repayment of allocated  debt,
the payment on the  separation  date of a one-time  special  dividend to Circuit
City Stores of $28.4 million,  the payment of transaction  expenses  incurred in
connection with the separation and general corporate purposes.

In December 2001, CarMax entered into an $8.5 million secured promissory note in
conjunction  with the  purchase of land for new store  construction.  This note,
which is payable in August 2002,  was included in short-term  debt as of May 31,
2002. At May 31, 2002, a $100 million outstanding term loan due in July 2002 was
classified  as a current  liability.  Although  the  Company  has the ability to
refinance this debt, we intend to repay it using existing working capital.

At May 31, 2002, the Company had cash and cash  equivalents of $1.18 billion and
total  outstanding debt of $226.7 million.  Circuit City Stores maintains a $150
million unsecured revolving credit facility that expires on August 31, 2002. The
Company does not anticipate  renewing this facility.  The Company also maintains
$195 million in  committed  seasonal  lines of credit that are renewed  annually
with  various  banks.  At May 31,  2002,  total  balances of $2.4  million  were
outstanding under these facilities.

At May 31, 2002,  the  aggregate  principal  amount of  securitized  credit card
receivables  totaled  $1.25 billion  under the  private-label  program and $1.44
billion under the bankcard program. During the first quarter of fiscal 2003, the
Company   completed  a  $300  million   private-label   credit  card  receivable
securitization  transaction.  At  May  31,  2002,  the  unused  capacity  of the
private-label  variable  funding  program  was  $557.8  million  and the  unused
capacity of the bankcard variable funding program was $393.2 million. At May 31,
2002,  there were no  provisions  providing  recourse  to the Company for credit
losses on the  receivables  securitized  through the  private-label  or bankcard
master trusts.

During the first  quarter,  we announced  plans to offer  consumers a co-branded
Visa credit card rather than the private-label credit card. We began introducing
the new card  early in the  second  quarter  and  ceased  to open  private-label
accounts.  Existing  private-label  credit card holders may continue using their
accounts.  Receivables  generated  under the  co-branded  program will be funded
through the private-label master trust.

At May 31, 2002, the aggregate  principal amount of securitized  automobile loan
receivables  totaled $1.61  billion.  During the second  quarter of fiscal 2003,
CarMax completed an asset securitization  transaction totaling $512.6 million of
automobile  loan  receivables.  At May 31,  2002,  the  unused  capacity  of the
automobile loan variable  funding  program was $115.0 million.  At May 31, 2002,
there were no provisions  providing recourse to the Company for credit losses on
the securitized automobile loan receivables.  We anticipate that we will be able
to expand or enter into new securitization  arrangements to meet future needs of
both the Circuit City and CarMax finance operations.

For the  Company,  we expect that  available  cash  resources,  CarMax's  credit
agreement secured by vehicle inventory,  sale-leaseback  transactions,  landlord
reimbursements  and cash  generated by  operations  will be  sufficient  to fund
capital expenditures for the foreseeable future.

                                 Page 26 of 62


                           FORWARD-LOOKING STATEMENTS

This  report  on Form  10-Q  contains  "forward-looking  statements,"  which are
subject  to risks  and  uncertainties,  including,  but not  limited  to,  risks
associated  with plans to separate the CarMax business from Circuit City Stores,
Inc. and create an independent,  separately  traded public  company.  Additional
discussion of factors that could cause actual results to differ  materially from
management's projections,  forecasts, estimates and expectations is contained in
the  Company's SEC filings,  including the Company's  Annual Report on Form 10-K
for the year ended February 28, 2002, and the registration statement on Form S-4
filed by CarMax, Inc. (File No. 333-85240) related to the proposed separation.


                                     ITEM 3.

             CIRCUIT CITY STORES, INC. QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK


RECEIVABLES RISK

The Company  manages the market risk associated  with the  private-label  credit
card and bankcard  revolving loan portfolios of Circuit City's finance operation
and the automobile  installment  loan portfolio of CarMax's  finance  operation.
Portions of these portfolios have been securitized in transactions accounted for
as sales in accordance  with SFAS No. 140 and,  therefore,  are not presented on
the Company's consolidated balance sheets.

Consumer  Revolving  Credit  Receivables.   The  majority  of  accounts  in  the
private-label  credit card and bankcard portfolios are charged interest at rates
indexed to the prime  rate,  adjustable  on a monthly  basis  subject to certain
limitations.  The balance of the accounts are charged interest at a fixed annual
percentage  rate.  As of  May  31,  2002,  and  February  28,  2002,  the  total
outstanding   principal  amount  of  private-label   credit  card  and  bankcard
receivables had the following interest rate structure:


(Amounts in millions)                         May 31      Feb. 28
-----------------------------------------------------------------

Indexed to prime rate.....................    $2,543       $2,645
Fixed APR.................................       192          202
                                           ----------------------
Total.....................................    $2,735       $2,847
                                           ======================

Financing for the private-label credit card and bankcard receivables is achieved
through asset  securitization  programs  that,  in turn,  issue both private and
public market debt,  principally at floating rates based on LIBOR and commercial
paper rates.  Receivables held for sale are financed with working  capital.  The
total  principal  amount of receivables  securitized or held for sale at May 31,
2002, and February 28, 2002, was as follows:


(Amounts in millions)                         May 31      Feb. 28
-----------------------------------------------------------------

Floating-rate securitizations.............    $2,696       $2,798
Held for sale.............................        39           49
                                             --------------------
Total.....................................    $2,735       $2,847
                                             ====================

Automobile Installment Loan Receivables. At May 31, 2002, and February 28, 2002,
all loans in the  portfolio  of  automobile  loan  receivables  were  fixed-rate
installment  loans.  Financing for these automobile loan receivables is achieved
through  asset  securitization  programs  that,  in turn,  issue both fixed- and
floating-rate

                                 Page 27 of 62

securities.  Interest rate exposure relating to floating rate securitizations is
managed through the use of interest rate swaps.  Receivables held for investment
or sale are financed with working capital.

The total principal amount of receivables  securitized or held for investment or
sale as of May 31, 2002, and February 28, 2002, was as follows:


(Amounts in millions)                         May 31      Feb. 28
-----------------------------------------------------------------

Fixed-rate securitizations................    $  979       $1,122
Floating-rate securitizations
   synthetically altered to fixed.........       634          413
Floating-rate securitizations.............         1            1
Held for investment(1)....................        18           12
Held for sale.............................         3            2
                                            ---------------------
Total.....................................    $1,635       $1,550
                                            =====================

(1) Held by a bankruptcy-remote special purpose subsidiary.

Interest Rate Exposure.  The Company is exposed to interest rate risk on Circuit
City's  securitized  credit card portfolio,  especially when interest rates move
dramatically over a relatively short period of time. Market risk is the exposure
created by potential fluctuations in interest rates. We have mitigated this risk
through  matched  funding.  However,  our ability to increase the finance charge
yield of Circuit City's variable rate credit cards may be contractually  limited
or limited at some point by competitive  conditions.  On behalf of Circuit City,
the Company enters into interest rate cap agreements to meet the requirements of
the credit card receivable securitization transactions.  The Company has entered
into offsetting interest rate cap positions and, therefore,  does not anticipate
significant market risk arising from interest rate caps.  Interest rate exposure
relating to CarMax's securitized automobile loan receivables represents a market
risk  exposure  that we manage  with  matched  funding and  interest  rate swaps
matched to projected payoffs. The Company does not anticipate significant market
risk from swaps  because they are used on a monthly basis to match funding costs
to the use of the funding. Generally, changes only in interest rates do not have
a material impact on the Company's results of operations.

Credit risk is the exposure to  nonperformance of another party to an agreement.
Credit risk is mitigated by dealing with highly rated bank  counterparties.  The
market and credit risks  associated  with financial  derivatives  are similar to
those relating to other types of financial  instruments.  Refer to Note 7 to the
Company's consolidated financial statements for a description of these items.

                                 Page 28 of 62



 


                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                 CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
                                 Balance Sheets
                             (Amounts in thousands)

                                                              May 31, 2002      Feb. 28, 2002
                                                              ------------      -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                                       $1,114,557        $1,248,246
Net accounts receivable                                            146,301           158,817
Retained interests in securitized receivables                      416,176           394,456
Merchandise inventory                                            1,325,024         1,234,243
Prepaid expenses and other current assets                           34,892            39,246
                                                                ----------        ----------

Total current assets                                             3,036,950         3,075,008

Property and equipment, net                                        712,933           732,802
Deferred income taxes                                                9,229             2,647
Reserved CarMax Group shares                                       331,198           311,386
Other assets                                                        10,210            11,354
                                                                ----------        ----------

TOTAL ASSETS                                                    $4,100,520        $4,133,197
                                                                ==========        ==========

LIABILITIES AND GROUP EQUITY
Current liabilities:
Accounts payable                                                $1,017,252        $1,019,519
Accrued expenses and other current liabilities                     148,143           157,561
Accrued income taxes                                                21,207           100,696
Deferred income taxes                                              118,589           116,297
Allocated short-term debt                                            1,094               397
Current installments of allocated long-term debt                    46,778            23,465
                                                                ----------        ----------

Total current liabilities                                        1,353,063         1,417,935

Allocated long-term debt, excluding current installments            13,734            14,064
Other liabilities                                                  147,508           140,853
                                                                ----------        ----------

TOTAL LIABILITIES                                                1,514,305         1,572,852

GROUP EQUITY                                                     2,586,215         2,560,345
                                                                ----------        ----------

TOTAL LIABILITIES AND GROUP EQUITY                              $4,100,520        $4,133,197
                                                                ==========        ==========

See accompanying notes to Group financial statements.

                                 Page 28 of 62



                 CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
                       Statements of Earnings (Unaudited)
                             (Amounts in thousands)


                                                                       Three Months Ended
                                                                             May 31,
                                                                     2002              2001
                                                                  ----------        ----------

Net sales and operating revenues                                  $2,118,243        $1,870,621

Cost of sales, buying and warehousing                              1,604,893         1,408,228
                                                                  ----------        ----------

Gross profit                                                         513,350           462,393
                                                                  ----------        ----------

Selling, general and administrative expenses (net of
    finance income of $20,419 as of May 31, 2002,
    and $29,545 as of May 31, 2001)                                  515,375           477,444

Interest expense                                                           -               441
                                                                  ----------        ----------

Total expenses                                                       515,375           477,885
                                                                  ----------        ----------

Loss before income taxes and income
    attributed to the reserved CarMax Group shares                    (2,025)          (15,492)

Income tax benefit                                                      (769)           (5,887)
                                                                  ----------        ----------

Loss before income attributed to
    the reserved CarMax Group shares                                  (1,256)           (9,605)

Net earnings attributed to the reserved CarMax Group shares           18,722            19,740
                                                                  ----------        ----------

Net earnings                                                      $   17,466        $   10,135
                                                                  ==========        ==========

See accompanying notes to Group financial statements.


                                 Page 30 of 62



                 CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
                      Statements of Cash Flows (Unaudited)
                             (Amounts in thousands)

                                                                                      Three Months Ended
                                                                                           May 31,
                                                                                   2002              2001
                                                                                ----------         ---------
Operating Activities:
--------------------
Net earnings                                                                    $   17,466         $  10,135
Adjustments to reconcile net earnings to net cash (used in)
    provided by operating activities of continuing operations:
    Net earnings attributed to the reserved CarMax Group shares                    (18,722)          (19,740)
    Depreciation and amortization                                                   35,746            34,489
    Amortization of restricted stock awards                                          5,385             3,561
    Loss (gain) on disposition of property and equipment                             2,059              (959)
    Provision for deferred income taxes                                             (4,290)            4,785
    Changes in operating assets and liabilities:
       (Increase) decrease in net accounts receivable and
          retained interests in securitized receivables                             (9,204)           21,551
       (Increase) decrease in merchandise inventory                                (90,781)           81,669
       Decrease (increase) in prepaid expenses and
          other current assets                                                       4,354           (13,062)
       Decrease in other assets                                                      1,144               242
       Decrease in accounts payable, accrued expenses
          and other current liabilities and accrued income taxes                   (91,174)         (113,516)
          Increase in other liabilities                                              6,655             2,271
                                                                                ----------         ---------
Net cash (used in) provided by operating activities
    of continuing operations                                                      (141,362)           11,426
                                                                                ----------         ---------


Investing Activities:
--------------------
Purchases of property and equipment                                                (26,051)          (29,505)
Proceeds from sales of property and equipment, net                                   8,115             3,248
                                                                                ----------         ---------
Net cash used in investing activities of continuing operations                     (17,936)          (26,257)
                                                                                ----------         ---------

Financing Activities:
--------------------
Increase in allocated short-term debt, net                                             697                11
Increase (decrease) in allocated long-term debt, net                                22,983           (22,983)
Equity issuances, net                                                                5,585             3,541
Dividends paid                                                                      (3,656)           (3,621)
                                                                                ----------         ---------
Net cash provided by (used in) financing activities
    of continuing operations                                                        25,609           (23,052)
                                                                                ----------         ---------

Cash used in discontinued operations                                                     -            (5,460)
                                                                                ----------         ---------

Decrease in cash and cash equivalents                                             (133,689)          (43,343)
Cash and cash equivalents at beginning of year                                   1,248,246           437,329
                                                                                ----------         ---------
Cash and cash equivalents at end of period                                      $1,114,557         $ 393,986
                                                                                ==========         =========

See accompanying notes to Group financial statements.

                                 Page 31 of 62




                 CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
                       Notes to Group Financial Statements
                                   (Unaudited)


1.   Basis of Presentation

     The common stock of Circuit City Stores,  Inc. consists of two common stock
     series that are intended to reflect the  performance  of the  Company's two
     businesses.  The Circuit City Group Common Stock is intended to reflect the
     performance  of the  Circuit  City stores and  related  operations  and the
     shares of CarMax Group Common Stock  reserved for the Circuit City Group or
     for  issuance to holders of Circuit  City Group  Common  Stock.  The CarMax
     Group  Common  Stock is intended to reflect the  performance  of the CarMax
     stores and related  operations.  The  reserved  CarMax Group shares are not
     outstanding CarMax Group Common Stock.  Therefore,  net earnings attributed
     to the  reserved  CarMax  Group  shares are  included  in the net  earnings
     attributed to the Circuit City Group Common Stock.

     During the second quarter of fiscal 2002, Circuit City Stores completed the
     public  offering of  9,516,800  shares of CarMax Group  Common  Stock.  The
     shares sold in the  offering  were shares of CarMax Group Common Stock that
     previously  had been reserved for the Circuit City Group or for issuance to
     holders of Circuit City Group Common Stock. As of May 31, 2002,  65,923,200
     shares of CarMax  Group  Common  Stock were  reserved  for the Circuit City
     Group or for  issuance  to  holders of Circuit  City  Group  Common  Stock.
     Excluding  shares reserved for CarMax employee stock incentive  plans,  the
     reserved  CarMax  Group  shares  represented  64.0  percent  of  the  total
     outstanding  and  reserved  shares of CarMax  Group Common Stock at May 31,
     2002,  64.1 percent at February 28, 2002, and 74.1 percent at May 31, 2001.
     The terms of each  series of common  stock are  discussed  in detail in the
     Company's Form 8-A  registration  statement on file with the Securities and
     Exchange Commission.

     On February 22, 2002, Circuit City Stores, Inc. announced that its board of
     directors  had  authorized  management  to  initiate  a process  that would
     separate the CarMax auto superstore business from the Circuit City consumer
     electronics  business through a tax-free transaction in which CarMax, Inc.,
     presently a wholly owned  subsidiary  of Circuit City Stores,  Inc.,  would
     become an independent, separately traded public company. CarMax, Inc. holds
     substantially  all of the businesses,  assets and liabilities of the CarMax
     Group.  The separation  plan calls for Circuit City Stores,  Inc. to redeem
     the outstanding  shares of CarMax Group Common Stock in exchange for shares
     of common  stock of CarMax,  Inc.  Simultaneously,  shares of CarMax,  Inc.
     common stock, representing the shares of CarMax Group Common Stock reserved
     for the holders of Circuit City Group Common Stock, would be distributed as
     a tax-free dividend to the holders of Circuit City Group Common Stock.

     In the proposed separation,  the holders of CarMax Group Common Stock would
     receive  one share of CarMax,  Inc.  common  stock for each share of CarMax
     Group Common Stock redeemed by the Company. Management anticipates that the
     holders of Circuit City Group  Common  Stock would  receive a fraction of a
     share of CarMax,  Inc.  common  stock for each share of Circuit  City Group
     Common  Stock they hold.  The exact  fraction  would be  determined  on the
     record  date  for  the  distribution.  The  separation  is  expected  to be
     completed by late summer or early fall, subject to shareholder approval and
     final approval from the board of directors.

     Notwithstanding  the attribution of the Company's  assets and  liabilities,
     including  contingent  liabilities,  and  stockholders'  equity between the
     Circuit City Group and the CarMax  Group for the purposes of preparing  the
     financial  statements,  holders of  Circuit  City  Group  Common  Stock and
     holders of CarMax Group Common Stock are shareholders of the Company and as
     such are subject to all of the risks  associated  with an investment in the
     Company and all of its businesses, assets and liabilities. Such attribution
     and the equity  structure  of the Company do not affect title to the assets
     or  responsibility  for  the  liabilities  of  the  Company  or  any of its
     subsidiaries.  Neither shares of Circuit City Group Common Stock nor shares
     of CarMax Group

                                 Page 32 of 62

     Common  Stock  represent a direct  equity or legal  interest  solely in the
     assets and  liabilities  allocated to a particular  Group.  Instead,  those
     shares  represent  direct  equity  and legal  interests  in the  assets and
     liabilities  of  the  Company.  The  results  of  operations  or  financial
     condition of one Group could affect the results of  operations or financial
     condition of the other Group.  Net losses of either Group and  dividends or
     distributions  on, or  repurchases  of,  Circuit City Group Common Stock or
     CarMax  Group  Common  Stock  would  reduce  funds  legally  available  for
     dividends on, or repurchases of, both stocks. Accordingly, the Circuit City
     Group  financial  statements  included herein should be read in conjunction
     with the  Company's  consolidated  financial  statements,  the CarMax Group
     financial statements and the Company's SEC filings.

2.   Accounting Policies

     The Circuit City Group has accounted  for the reserved  CarMax Group shares
     in a  manner  similar  to  the  equity  method  of  accounting.  Accounting
     principles  generally accepted in the United States of America require that
     the CarMax Group be  consolidated  with the Circuit City Group.  Except for
     the effects of not  consolidating  the CarMax  Group with the Circuit  City
     Group,  the  financial  statements  of the  Circuit  City Group  conform to
     accounting  principles  generally accepted in the United States of America.
     The interim period  financial  statements are  unaudited;  however,  in the
     opinion of  management,  all  adjustments,  which  consist  only of normal,
     recurring  adjustments,  necessary for a fair  presentation  of the interim
     group financial statements have been included.  The fiscal year-end balance
     sheet data was derived from the audited  financial  statements  included in
     the Company's fiscal 2002 Annual Report on Form 10-K.

3.   Supplemental Financial Statement Information

     For the first quarter  of fiscal 2003 and 2002,  pretax  finance  operation
     income,  which  is  recorded  as  a  reduction  to  selling,   general  and
     administrative expenses, was as follows:

                                         Three Months Ended   Three Months Ended
     (Amounts in millions)                  May 31, 2002         May 31, 2001
     ---------------------------------------------------------------------------
     Securitization income...............       $50.5               $59.7
     Payroll and fringe expenses.........        10.7                10.3
     Other direct expenses...............        19.4                19.9
                                          --------------------------------------
     Finance operation income............       $20.4               $29.5
                                          ======================================

     The finance  operation  income does not include any  allocation of indirect
     costs or income. The Company presents this information on a direct basis to
     avoid making arbitrary decisions regarding the periodic indirect benefit or
     costs that could be  attributed  to this  operation.  Examples  of indirect
     costs  not  included  are  corporate  expenses  such  as  human  resources,
     administrative services, marketing, information systems, accounting, legal,
     treasury, and executive payroll as well as retail store expenses.

4.   Securitizations

     Circuit City's finance operation enters into securitization transactions to
     finance its consumer revolving credit card receivables.  In accordance with
     the isolation provisions of Statement of Financial Accounting Standards No.
     140,  "Accounting  for  Transfers  and  Servicing of  Financial  Assets and
     Extinguishments of Liabilities,"  special purpose subsidiaries were created
     for the sole purpose of  facilitating  these  securitization  transactions.
     Credit  card  receivables  are sold to the  special  purpose  subsidiaries,
     which, in turn, transfer these receivables to securitization master trusts.
     Private-label  and co-branded Visa credit card  receivables are securitized
     through one master trust and MasterCard  and Visa credit card,  referred to
     as bankcard,  receivables  are  securitized  through a second master trust.
     Each master trust periodically  issues securities backed by the receivables
     in that master trust.  For transfers of receivables  that qualify as sales,
     Circuit  City  recognizes  gains or losses as a  component  of the  finance
     operation's profits,  which are recorded as reductions to selling,  general
     and  administrative  expenses.  In these  securitizations,  Circuit  City's
     finance  operation  continues to service the securitized  receivables for a
     fee and the special purpose  subsidiaries  retain an undivided  interest in
     the  transferred  receivables  and hold various  subordinated  asset-backed
     securities  that  serve  as  credit

                                 Page 33 of 62

     enhancements  for the  asset-backed  securities held by outside  investors.
     Neither  master  trust  agreement  provides for recourse to the Company for
     credit  losses  on the  securitized  receivables.  Circuit  City  employs a
     risk-based  pricing  strategy that  increases the stated annual  percentage
     rate for accounts that have a higher  predicted  risk of default.  Accounts
     with a lower risk  profile  may qualify for  promotional  financing.  Under
     certain of these securitization programs,  Circuit City must meet financial
     guidelines  relating to minimum  tangible net worth,  debt to net worth and
     the current ratio. The securitized receivables must meet performance levels
     relating to portfolio  yield,  default rates,  principal  payment rates and
     delinquency rates.  Circuit City was in compliance with these guidelines at
     May 31, 2002, and February 28, 2002.

     The total  principal  amount of credit card  receivables  managed was $2.74
     billion at May 31, 2002, and $2.85 billion at February 28, 2002. During the
     first  quarter  of  fiscal  2003,  the  Company  completed  a $300  million
     private-label  credit card receivable  securitization  transaction.  Of the
     total  principal  amounts  managed,  the  principal  amount of  receivables
     securitized  was  $2.70  billion  at May 31,  2002,  and $2.80  billion  at
     February 28, 2002, and the principal  amount of  receivables  held for sale
     was $39.2 million at May 31, 2002,  and $49.2 million at February 28, 2002.
     At May 31, 2002, the unused capacity of the private-label  variable funding
     program was $557.8 million and the unused capacity of the bankcard variable
     funding  program was $393.2  million.  At  February  28,  2002,  the unused
     capacity of the  private-label  variable  funding program was $22.9 million
     and the unused capacity of the bankcard variable funding program was $496.5
     million.  The  aggregate  amount of  receivables  that were 31 days or more
     delinquent  was $171.0  million  at May 31,  2002,  and  $198.4  million at
     February 28, 2002. The principal amount of losses net of recoveries totaled
     $70.8 million for the quarter ended May 31, 2002, and $69.6 million for the
     quarter ended May 31, 2001.

     Circuit City receives annual servicing fees  approximating 2 percent of the
     outstanding  principal  balance of the credit card  receivables and retains
     the  rights to future  cash  flows  available  after the  investors  in the
     asset-backed securities have received the return for which they contracted.
     The servicing fees specified in the credit card  securitization  agreements
     adequately  compensate the finance  operation for servicing the securitized
     receivables.   Accordingly,  no  servicing  asset  or  liability  has  been
     recorded.

 

     The table below summarizes certain cash flows received from and paid to the
     securitization trusts:

                                                            Three Months Ended  Three Months Ended
     (Amounts in millions)                                     May 31, 2002       May 31, 2001
     ---------------------------------------------------------------------------------------------
     Proceeds from new securitizations......................      $401.8            $174.2
     Proceeds from collections reinvested
       in previous credit card securitizations..............      $245.6            $359.6
     Servicing fees received................................      $ 13.0            $ 13.3
     Other cash flows received on retained interests*.......      $ 50.7            $ 44.2


     *This amount represents cash flows received from retained  interests by the
     transferor   other  than   servicing   fees,   including  cash  flows  from
     interest-only  strips and cash  above the  minimum  required  level in cash
     collateral accounts.

     When  determining  the  fair  value of  retained  interests,  Circuit  City
     estimates future cash flows using management's  projections of key factors,
     such as finance  charge  income,  default  rates,  payment  rates,  forward
     interest rate curves and discount rates  appropriate  for the type of asset
     and risk.

     Future finance income from securitized credit card receivables that exceeds
     the sum of the contractually  specified investor returns and servicing fees
     (interest-only  strips) is carried  at fair  value and  amounted  to $126.8
     million at May 31, 2002, and $134.8 million at May 31, 2001.  These amounts
     are  included in  retained  interests  in  securitized  receivables  on the
     consolidated  balance  sheets.  The change in the  interest-only  strip for
     securitization transaction was a $5.1 million decrease for the three months
     ended May 31, 2002 and a $3.8  million  increase for the three months ended
     May 31, 2001.

     The fair value of retained  interests at May 31, 2002, was $416.2  million,
     with a weighted-average  life ranging from 0.2 years to 3.0 years. The fair
     value of retained interests at February 28, 2002, was $394.5 million,

                                 Page 34 of 62

     with a  weighted-average  life  ranging  from 0.2 years to 1.8  years.  The
     following  table shows the key economic  assumptions  used in measuring the
     fair  value  of  retained  interests  at May 31,  2002,  and a  sensitivity
     analysis  showing  the  hypothetical  effect  on the  fair  value  of those
     interests when there are unfavorable  variations from the assumptions used.
     Key economic assumptions at May 31, 2002, are not materially different from
     assumptions  used to measure  the fair value of retained  interests  at the
     time of securitization.  These sensitivities are hypothetical and should be
     used with caution. In this table, the effect of a variation in a particular
     assumption on the fair value of the retained interest is calculated without
     changing  any other  assumption;  in actual  circumstances,  changes in one
     factor may result in changes in another,  which might magnify or counteract
     the sensitivities.

 

                                                        Impact on Fair     Impact on Fair
                                       Assumptions        Value of 10%       Value of 20%
     (Dollar amounts in millions)         Used          Adverse Change     Adverse Change
     ------------------------------------------------------------------------------------
     Monthly payment rate............  6.7%-10.3%           $ 8.3              $15.4
     Annual default rate.............  8.1%-17.5%           $22.3              $44.0
     Annual discount rate............  8.3%-15.0%           $ 2.9              $ 5.8



5.   Financial Derivatives

     On behalf of Circuit  City,  the  Company  enters  into  interest  rate cap
     agreements  to  meet  the   requirements  of  the  credit  card  receivable
     securitization transactions. During the first quarter of fiscal 2003 and in
     conjunction  with the  private-label  public  securitization,  the  Company
     purchased  and sold three  offsetting  interest rate caps with an aggregate
     initial  notional  amount of $280.5  million.  The total notional amount of
     interest  rate caps  outstanding  was $935.4  million at May 31, 2002,  and
     $654.9  million at February 28,  2002.  Purchased  interest  rate caps were
     included in net accounts receivable and had a fair value of $9.0 million as
     of May 31, 2002, and $2.4 million as of February 28, 2002. Written interest
     rate caps were  included in  accounts  payable and had a fair value of $9.0
     million as of May 31, 2002, and $2.4 million as of February 28, 2002.

     The market and credit risks  associated with interest rate caps are similar
     to those relating to other types of financial  instruments.  Market risk is
     the exposure  created by potential  fluctuations  in interest  rates and is
     directly  related to the  product  type,  agreement  terms and  transaction
     volume. The Company has entered into offsetting interest rate cap positions
     and,  therefore,  does not anticipate  significant market risk arising from
     interest  rate caps.  Credit  risk is the  exposure  to  nonperformance  of
     another party to an agreement. The Company mitigates credit risk by dealing
     with highly rated bank counterparties.

6.   Appliance Exit Costs

     In the second  quarter of fiscal 2001,  the Company began to exit the major
     appliance category and expand its selection of key consumer electronics and
     home office  products in all Circuit  City  Superstores.  This  process was
     completed in November  2000.  To exit the appliance  business,  the Company
     closed eight  distribution  centers and eight service centers.  The Company
     leases the  majority  of these  closed  properties.  While the  Company has
     entered into contracts to sublease some of these  properties,  it continues
     the process of marketing the remaining properties to be subleased.

     In the second quarter of fiscal 2001, the Company  recorded  appliance exit
     costs of $30.0  million.  In the fourth quarter of fiscal 2002, the Company
     recorded additional lease termination costs of $10.0 million to reflect the
     current  rental  market for these  leased  properties.  These  expenses are
     reported separately on the fiscal 2002 and 2001 statements of earnings. The
     appliance  exit cost  liability  is included in accrued  expenses and other
     current liabilities on the balance sheets.

                                 Page 35 of 62


     The appliance exit cost accrual activity and the remaining liability at May
     31, 2002, are presented in the following table.

 

                               Total    Fiscal 2001                Fiscal 2002   Fiscal 2002                Fiscal 2003
                             Original    Payments    Liability at  Adjustments    Payments   Liability at    Payments  Liability at
                             Exit Cost      or       February 28,  to Exit Cost       or      February 28,       or        May 31,
(Amounts in millions)         Accrual   Write-Downs      2001        Accrual     Write-Downs    2002        Write-Downs    2002
----------------------------------------------------------------------------------------------------------------------------------
Lease termination costs.....  $17.8       $  1.8         $16.0         $10.0        $6.3         $19.7        $ 1.7         $18.0
Fixed asset write-downs,
  net.......................    5.0          5.0             -             -           -             -            -             -
Employee termination
  benefits..................    4.4          2.2           2.2             -         2.2             -            -             -
Other.......................    2.8          2.8             -             -           -             -            -             -
                             -----------------------------------------------------------------------------------------------------
Appliance exit costs........  $30.0       $ 11.8         $18.2         $10.0        $8.5         $19.7        $ 1.7         $18.0
                             =====================================================================================================



7.   Discontinued Operations

     On June 16,  1999,  Digital  Video  Express  announced  that it would cease
     marketing  the Divx home video  system and  discontinue  operations.  As of
     February 28, 2002,  entities  comprising the Divx operations were dissolved
     and the  related  liabilities  had been  assumed  by the  Company.  Current
     liabilities  of $18.5 million  related to the former Divx  operations  were
     reflected in the balance  sheets as of May 31, 2002, and February 28, 2002.
     For the three-month  periods ended May 31, 2002 and 2001, the  discontinued
     Divx  operations  had no impact on the net  earnings  of the  Circuit  City
     Group.  Discontinued  operations  have been segregated on the statements of
     cash flows.

8.   Recent Accounting Pronouncements

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
     143,   "Accounting  For  Asset  Retirement   Obligations."  This  statement
     addresses  financial  accounting and reporting for  obligations  associated
     with the retirement of tangible  long-lived assets and the associated asset
     retirement  costs.  It applies  to legal  obligations  associated  with the
     retirement  of  long-lived   assets  that  result  from  the   acquisition,
     construction,  development  and/or the  normal  operation  of a  long-lived
     asset,  except for certain  obligations of lessees.  This standard requires
     entities  to record the fair value of a liability  for an asset  retirement
     obligation  in the period  incurred.  SFAS No. 143 is effective  for fiscal
     years beginning after June 15, 2002. The Company has not yet determined the
     impact, if any, of adopting this standard.

9.   Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
     presentation.  Effective in the first quarter of fiscal 2003,  Circuit City
     Stores  adopted  Emerging  Issues  Task Force No.  00-14,  "Accounting  for
     Certain Sales  Incentives,"  which provides that sales incentives,  such as
     mail-in  rebates,  offered to customers should be classified as a reduction
     of revenue.  Previously,  the  Company  recorded  these  rebates in cost of
     sales,  buying and  warehousing.  For the quarter  ended May 31, 2001,  the
     reclassification  of rebates from cost of sales,  buying and warehousing to
     sales  decreased  sales and cost of sales,  buying and warehousing by $11.0
     million.

                                 Page 36 of 62



                                     ITEM 2.

            CIRCUIT CITY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



In this discussion,  "we," "our" and "Circuit City Stores" refer to Circuit City
Stores,  Inc. and our wholly  owned  subsidiaries,  unless the context  requires
otherwise.  "Circuit  City  business"  and  "Circuit  City"  refer to the retail
operations  bearing the Circuit City name and to all related  operations such as
product  service and Circuit  City's  finance  operation.  "Circuit  City Group"
refers to the Circuit  City  business  and the  reserved  CarMax  Group  shares.
"CarMax business," "CarMax" and "CarMax Group" refer to retail locations bearing
the  CarMax  name  and  to all  related  operations  such  as  CarMax's  finance
operation.  All references to "month,"  "quarter" and "year" refer to our fiscal
year periods rather than calendar year periods unless stated otherwise.

On February 22, 2002,  Circuit City  Stores,  Inc.  announced  that its board of
directors had  authorized  management to initiate a process that would  separate
the CarMax auto superstore  business from the Circuit City consumer  electronics
business  through a tax-free  transaction  in which  CarMax,  Inc.,  presently a
wholly  owned  subsidiary  of  Circuit  City  Stores,   Inc.,  would  become  an
independent,  separately traded public company. CarMax, Inc. holds substantially
all  of  the  businesses,  assets  and  liabilities  of the  CarMax  Group.  The
separation  plan calls for Circuit City Stores,  Inc. to redeem the  outstanding
shares of CarMax  Group  Common  Stock in exchange for shares of common stock of
CarMax, Inc. Simultaneously,  shares of CarMax, Inc. common stock,  representing
the shares of CarMax Group Common Stock reserved for the holders of Circuit City
Group Common Stock,  would be distributed as a tax-free  dividend to the holders
of Circuit City Group Common Stock.

In the  proposed  separation,  the holders of CarMax  Group  Common  Stock would
receive one share of CarMax,  Inc.  common  stock for each share of CarMax Group
Common Stock redeemed by the Company. Management anticipates that the holders of
Circuit City Group  Common Stock would  receive a fraction of a share of CarMax,
Inc.  common  stock for each share of Circuit City Group Common Stock they hold.
The exact fraction would be determined on the record date for the  distribution.
The separation is expected to be completed by late summer or early fall, subject
to shareholder approval and final approval from the board of directors.

CRITICAL ACCOUNTING POLICIES

See the discussion of critical  accounting policies included in the Circuit City
Stores,  Inc. 2002 Annual Report to  Shareholders.  These policies relate to the
calculation of the value of retained  interests in  securitization  transactions
and the calculation of the liability for lease termination costs.

RESULTS OF OPERATIONS

Effective  in the first  quarter of fiscal  2003,  Circuit  City Stores  adopted
Emerging Issues Task Force No. 00-14, "Accounting for Certain Sales Incentives,"
which  provides  that  sales  incentives,  such as mail-in  rebates,  offered to
customers  should be  classified  as a  reduction  of revenue.  Previously,  the
Company recorded these rebates in cost of sales,  buying and warehousing.  These
rebate  amounts  totaled  $11.0  million in the first quarter of fiscal 2002 and
have been reclassified on the statement of earnings.

Net Sales and Operating Revenues and General Comments

Total  sales for the  Circuit  City Group for the first  quarter of fiscal  2003
increased 13 percent to $2.12  billion  from $1.87  billion in last year's first
quarter.  Comparable  store sales  increased 12 percent for the first quarter of
fiscal  2003 and  decreased  25 percent  for the first  quarter of fiscal  2002.
Circuit City stores are included in  comparable  store sales after the store has
been open for a full year.

                                 Page 37 of 62

The comparable  store sales pace  strengthened as the first quarter  progressed,
reflecting the growing consumer  response to our customer  service  initiatives,
aggressive promotions in traffic-building categories and on entry-level products
and a stronger inventory position in specific product categories.

First quarter Circuit City sales for fiscal 2003 reflected continued progress in
both the high-service  and packaged goods arenas.  We posted strong sales growth
in focus categories such as video, including big-screen televisions, DVD players
and digital satellite systems;  and wireless  communications,  and in self-serve
product selections, including DVD software and video game hardware, software and
accessories. We experienced improving trends in information technology products,
with PC sales  growth  driven by strong sales of notebook  computers  and a more
competitive promotional stance compared with last fiscal year's first quarter.

The percent of  merchandise  sales  represented  by each major product  category
during the first quarter of fiscal years 2003 and 2002 were as follows:


       ================================== ============================
                                                   1st Quarter
                                          ----------------------------
                  Product Mix                 FY03           FY02
       ---------------------------------- -------------- -------------
       Video                                   40%            37%
       ---------------------------------- -------------- -------------
       Audio                                   15             17
       ---------------------------------- -------------- -------------
       Information technology                  34             36
       ---------------------------------- -------------- -------------
       Entertainment                           11             10
       ---------------------------------- -------------- -------------
        Total                                 100%           100%
       ================================== ============== =============

In most  states,  Circuit  City sells  extended  warranty  programs on behalf of
unrelated third parties that are the primary  obligors.  Under these third-party
warranty  programs,  we have no  contractual  liability to the customer.  In the
three states where  third-party  warranty sales are not permitted,  Circuit City
sells an  extended  warranty  for which we are the  primary  obligor.  The total
extended warranty revenue that is reported in total sales was $87.9 million,  or
4.2 percent of sales,  in the first quarter of fiscal 2003,  compared with $80.1
million, or 4.3 percent of sales, in last year's first quarter.

The following table provides details on the Circuit City retail units:


 
      ======================== =================== =================== ================== ===================
                                                                            Estimate
             Store Mix             May 31, 2002        May 31, 2001       Feb. 28, 2003      Feb. 28, 2002
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Superstores                      603                594                 611                604
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Mall-based
         Express stores                 19                 32                  18                 20
      ------------------------ ------------------- ------------------- ------------------ -------------------
      Total                            622                626                 629                624
      ======================== =================== =================== ================== ===================


Circuit City expects to open  approximately  eight  Superstores  and relocate an
estimated 10  Superstores  in the current  fiscal year.  In the first quarter of
fiscal 2003, we closed one Superstore,  relocated two Superstores and closed one
mall-based Express store.

Our  operations,  in common  with other  retailers  in  general,  are subject to
seasonal influences.  Historically,  the Circuit City business has realized more
of its net sales and net  earnings in the fourth  quarter,  which  includes  the
December  holiday  selling  season,  than in any other fiscal  quarter.  The net
earnings of any quarter are seasonally disproportionate since administrative and
certain  operating   expenses  remain  relatively   constant  during  the  year.
Therefore, quarterly results should not be relied upon as necessarily indicative
of results for the entire fiscal year.

                                 Page 38 of 62

Cost of Sales, Buying and Warehousing

The gross profit  margin for the Circuit City Group was 24.2 percent of sales in
the first quarter of fiscal 2003,  compared with 24.7 percent in the same period
last year.  The first  quarter  gross profit  margin  decline  reflects our more
competitive product selection and pricing throughout the quarter, as well as our
response to more  aggressive  offers from  competitors,  and the resulting sales
mix.  Circuit City  experienced some trade-off in gross margin for sales growth,
as we chose to be more aggressive in promoting  traffic-driving  and entry-level
products.

Selling, General and Administrative Expenses

The selling, general and administrative expense ratio for the Circuit City Group
was 24.3  percent of sales in the first  quarter of fiscal 2003,  compared  with
25.5  percent for the same  period last year.  This  decline was  principally  a
result of the leverage achieved through increased sales.

Finance  Operations.  For the  first  quarter  of fiscal  2003 and 2002,  pretax
finance operation income,  which is recorded as a reduction to selling,  general
and administrative expenses, was as follows:


                                       Three Months Ended    Three Months Ended
     (Amounts in millions)                May 31, 2002          May 31, 2001
     --------------------------------------------------------------------------
     Securitization income...........       $50.5                  $59.7
     Payroll and fringe expenses.....        10.7                   10.3
     Other direct expenses...........        19.4                   19.9
                                       ----------------------------------------
     Finance operation income........       $20.4                  $29.5
                                       ========================================


Receivables  generated by the Circuit City  finance  operation  are sold through
securitization  transactions.  Circuit City continues to service the securitized
receivables  for a fee. For the quarter ended May 31, 2002 serviced  receivables
averaged $2.78 billion,  compared to $2.64 billion for the quarter ended May 31,
2001.

Included in  securitization  income is the gain on the sale of these receivables
and other income related to servicing these  receivables.  Future finance income
from   securitized   credit  card  receivables  that  exceeds  the  sum  of  the
contractually  specified  investor  returns and  servicing  fees  (interest-only
strips) is carried at fair value and amounted to $126.8  million at May 31, 2002
and  $134.8  million at May 31,  2001.  The key  assumptions  and  estimates  in
determining  the  fair  value  of  interest-only   strips  include  management's
projections  of key  factors,  such as finance  charge  income,  default  rates,
payment rates,  forward interest rate curves and discount rates  appropriate for
the type of asset and risk.  Based on these  assumptions  and  estimates and the
operation's  securitization  volume,  the change in the interest-only  strip for
securitization  transactions  was a $5.1  million  decrease for the three months
ended May 31, 2002 and a $3.8  million  increase  for the three months ended May
31, 2001.  Management  reviews the assumptions and estimates used in determining
the  fair  value  of the  interest-only  strip on a  quarterly  basis.  If these
assumptions  change or the actual  results  differ from the  projected  results,
securitization income would be affected.

For the Circuit City Group,  the finance  operation  income does not include any
allocation of indirect costs or income.  Examples of indirect costs not included
are  corporate  expenses  such  as  human  resources,  administrative  services,
marketing,  information  systems,  accounting,  legal,  treasury,  and executive
payroll as well as retail store expenses.  Other direct expenses,  which did not
change significantly for the three months ended May 31, 2002 compared to May 31,
2001, include third party data processing, rent, credit promotion expenses, Visa
and MasterCard fees, and other operating  expenses.  Payroll expenses  generally
vary with the size of the serviced portfolio, and increased only slightly during
the quarter ended May 31, 2002 compared to May 31, 2001.

                                 Page 39 of 62

The fiscal 2003 expense  ratio also includes  approximately  $8 million of costs
associated  with  remodeling  and relocation  activities,  while the fiscal 2002
ratio includes approximately $3 million of relocation costs. As of May 31, 2002,
the Company had completed the initial phases of the video department  remodeling
program planned for roll out to  approximately  300 Circuit City  Superstores in
fiscal 2003.  As of May 31, 2002, we had completed the video reset in 20 Circuit
City Superstores, including 18 in the first quarter, and the lighting upgrade in
more than 100  Superstores.  Based on our  experience  with the  progress of the
remodeling  process  to date,  we now  anticipate  that it can be  completed  in
approximately one week per store, rather than our initial two-week expectation.

Interest Expense

Circuit City reported no interest  expense for the first quarter of fiscal 2003,
compared with $441,000 for the same period last year.

Income Taxes

The  effective  income tax rate was 38.0  percent for the first  quarter of both
fiscal 2003 and 2002.

Loss Before Income Attributed to the Reserved CarMax Group Shares

Excluding  the earnings  attributed  to the reserved  CarMax Group  shares,  the
Circuit City business produced a loss of $1.3 million in the first quarter ended
May 31,  2002,  compared  with a loss of $9.6  million  for the same period last
year.

Net Earnings Attributed to the Reserved CarMax Group Shares

The net  earnings  attributed  to the  reserved  CarMax  Group shares were $18.7
million in the first  quarter of this fiscal year compared with $19.7 million in
last fiscal year's first quarter.

Net Earnings

Net earnings of the Circuit City Group were $17.5  million in the first  quarter
of fiscal 2003, compared with $10.1 million in the first quarter of fiscal 2002.

Operations Outlook

In  fiscal  2001,   we   introduced   a  store  design  that   includes  a  more
customer-friendly  layout  with  better  product  adjacencies;  a brighter  more
contemporary  appearance;  additional product on the sales floor; shopping carts
and easily  accessible  cash  registers.  All new stores continue to follow this
design.  In fiscal 2001 and fiscal 2002, we also undertook  several remodels and
product  category tests to evaluate how best to add these features into existing
stores. We decided to begin in fiscal 2003 a three-year  multi-phased remodeling
program that will cover  approximately  300 stores.  As part of this  remodeling
program,  we will in fiscal  2003  introduce a remodeled  video  department  and
upgrade  the  lighting  in these  stores,  spending  an average of  $325,000  to
$350,000 per store.  We believe that rolling out this remodeled  department will
enable us to  increase  Circuit  City's  market  share in the growing and highly
profitable  big-screen  television category and further solidify our position in
the overall video category.  The Consumer Electronics  Association projects that
big-screen  television sales will grow at a double-digit  rate in calendar 2002.
By beginning  with the video  department,  we believe that we can affect a large
number of Circuit City  Superstores in a manner that has  significant  potential
for incremental benefit while minimizing the disruptive impact of the remodeling
process.

In addition to remodeling, we expect to relocate approximately 10 Superstores in
the current  fiscal year.  We expect that fiscal 2003  expenditures  for Circuit
City remodeling and relocations will total  approximately $130 million, of which
we expect to capitalize  approximately $70 million and expense approximately $60
million, or no more than 18 cents per Circuit City Group share.

                                 Page 40 of 62

In fiscal 2003, we also will continue testing design ideas for other departments
in the Circuit City  Superstores.  In fiscal 2004 and fiscal 2005,  we expect to
introduce  these  design ideas into many of the  approximately  300 stores being
remodeled  under the  three-year  remodeling  plan.  We  continue  to review the
suitability of our remaining Superstore base for either remodeling or relocation
and also anticipate relocating additional stores in fiscal 2004 and fiscal 2005.
We  currently  anticipate  that in fiscal  2004 and  fiscal  2005 the  impact of
remodeling  and  relocations on earnings per share will be similar to the fiscal
2003 impact.

Given our presence in virtually  all of the nation's top  metropolitan  markets,
new  Superstores  are being  added  only in small  markets  or to  increase  our
penetration  in existing  major  markets.  We plan to open  approximately  eight
Circuit City Superstores in fiscal 2003.  Because of limited planned  geographic
expansion,  we expect total  Circuit City sales growth to only  slightly  exceed
comparable  store  sales  growth.  We expect that  categories  where we expanded
selection following our exit from the appliance business and categories, such as
big-screen  televisions,  that are benefiting from digital  product  innovation,
will  contribute  to Circuit  City's total and  comparable  store sales  growth.
However,  we also  anticipate  that Circuit City's sales growth will reflect our
focus on sales  counselor  training  and  customer  service,  store  remodeling,
effective  marketing  programs and a  competitive  merchandise  assortment  with
attractive  prices.  We expect that the gross profit margin will reflect the mix
of merchandise sold and our efforts to remain competitive and achieve profitable
market share growth and that the expense ratio will reflect increases in Circuit
City expenses  associated  with  remodeling and  relocation as discussed  above,
advertising and systems  enhancements and the total sales volume  achieved.  For
the full year, we expect the fiscal 2003 profit contribution from Circuit City's
finance operation to be similar to the contribution in fiscal 2002.

Refer to the "Circuit City Stores, Inc. Management's  Discussion and Analysis of
Results of Operations and Financial Condition" for the estimated contribution of
the Circuit City business  earnings  attributed to the Circuit City Group Common
Stock in fiscal 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to the "Circuit City Stores, Inc. Management's  Discussion and Analysis of
Results of Operations and Financial Condition" for a review of recent accounting
pronouncements.


FINANCIAL CONDITION

Liquidity and Capital Resources

Operating  Activities.  In the first  quarter of fiscal 2003,  Circuit City used
cash of $141.3 million for operating  activities.  In last year's first quarter,
Circuit City  generated cash from  operating  activities of $11.4  million.  The
increase  primarily  reflects  an  increase  in  inventory   purchases  to  meet
anticipated sales demands.

Investing Activities. Net cash used in investing activities was $17.9 million in
the three months ended May 31, 2002,  compared  with $26.3  million in the first
three months of last year.  Capital  expenditures  decreased to $26.1 million in
the first  three  months of fiscal  2003 from $29.5  million  in the  comparable
period last year. Circuit City capital expenditures in the first three months of
fiscal 2003 included  spending for the initial phases of rolling out a remodeled
video  department,  which was completed in 18 Superstores,  lighting upgrades in
more than 100 Circuit City  Superstores  and the  relocation of two Circuit City
Superstores.  Capital  expenditures  in the first  three  months of fiscal  2002
included  spending for the relocation of one Circuit City  Superstore.  Proceeds
from sales of property  and  equipment  increased  to $8.1  million in the first
three  months of the  current  fiscal year from $3.2  million in the  comparable
period of last fiscal year.

                                 Page 41 of 62


Financing  Activities.  Net cash  provided  by  financing  activities  was $25.6
million  in the first  quarter  of  fiscal  2003,  compared  to the use of $23.1
million in the first  quarter  of last year.  At May 31,  2002,  a $100  million
outstanding  term loan due in July 2002 was  classified as a current  liability.
Although the Company has the ability to refinance  this debt, we intend to repay
it using existing working capital.

At May 31,  2002,  the  Company  allocated  cash and cash  equivalents  of $1.11
billion and debt of $61.6 million to the Circuit City Group. Circuit City Stores
maintains a $150 million  unsecured  revolving  credit  facility that expires on
August 31, 2002.  The Company does not anticipate  renewing this  facility.  The
Company also maintains  $195 million in committed  seasonal lines of credit that
are renewed annually with various banks. At May 31, 2002, total balances of $2.4
million were outstanding under these facilities.

At May 31, 2002,  the  aggregate  principal  amount of  securitized  credit card
receivables  totaled  $1.25 billion  under the  private-label  program and $1.44
billion under the bankcard program. During the first quarter of fiscal 2003, the
Company   completed  a  $300  million   private-label   credit  card  receivable
securitization  transaction.  At  May  31,  2002,  the  unused  capacity  of the
private-label  variable  funding  program  was  $557.8  million  and the  unused
capacity of the bankcard variable funding program was $393.2 million. At May 31,
2002,  there were no  provisions  providing  recourse  to the Company for credit
losses on the  receivables  securitized  through the  private-label  or bankcard
master  trusts.  We anticipate  that we will be able to expand or enter into new
securitization arrangements to meet future needs of the finance operation.

During the first  quarter,  we announced  plans to offer  consumers a co-branded
Visa credit card rather than the private-label credit card. We began introducing
the new card  early in the  second  quarter  and  ceased  to open  private-label
accounts.  Existing  private-label  credit card holders may continue using their
accounts.  Receivables  generated  under the  co-branded  program will be funded
through the private-label master trust.

We expect that available cash resources,  sale-leaseback transactions,  landlord
reimbursements  and cash  generated by  operations  will be  sufficient  to fund
capital expenditures of the Circuit City business for the foreseeable future.



                           FORWARD-LOOKING STATEMENTS

This  report  on Form  10-Q  contains  "forward-looking  statements,"  which are
subject  to risks  and  uncertainties,  including,  but not  limited  to,  risks
associated  with plans to separate the CarMax business from Circuit City Stores,
Inc. and create an independent,  separately  traded public  company.  Additional
discussion of factors that could cause actual results to differ  materially from
management's projections,  forecasts, estimates and expectations is contained in
the  Company's SEC filings,  including the Company's  Annual Report on Form 10-K
for the year ended February 28, 2002, and the registration statement on Form S-4
filed by CarMax, Inc. (File No. 333-85240) related to the proposed separation.

                                 Page 42 of 62


                                     ITEM 3.

                 CIRCUIT CITY GROUP QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK


RECEIVABLES RISK

The Company  manages the market risk associated  with the  private-label  credit
card and bankcard revolving loan portfolios of Circuit City's finance operation.
Portions of these portfolios have been securitized in transactions accounted for
as sales in accordance  with SFAS No. 140 and,  therefore,  are not presented on
the Group balance sheets.

Consumer  Revolving  Credit  Receivables.   The  majority  of  accounts  in  the
private-label  credit card and bankcard portfolios are charged interest at rates
indexed to the prime  rate,  adjustable  on a monthly  basis  subject to certain
limitations.  The balance of the accounts are charged interest at a fixed annual
percentage  rate.  As of  May  31,  2002,  and  February  28,  2002,  the  total
outstanding   principal  amount  of  private-label   credit  card  and  bankcard
receivables had the following interest rate structure:


(Amounts in millions)            May 31      Feb. 28
----------------------------------------------------

Indexed to prime rate.........   $2,543       $2,645
Fixed APR.....................      192          202
                                 -------------------
Total.........................   $2,735       $2,847
                                 ===================

Financing for the private-label credit card and bankcard receivables is achieved
through asset  securitization  programs  that,  in turn,  issue both private and
public market debt,  principally at floating rates based on LIBOR and commercial
paper rates.  Receivables held for sale are financed with working  capital.  The
total  principal  amount of receivables  securitized or held for sale at May 31,
2002, and February 28, 2002, was as follows:


(Amounts in millions)                May 31      Feb. 28
--------------------------------------------------------

Floating-rate securitizations.....   $2,696       $2,798
Held for sale.....................       39           49
                                     -------------------
Total.............................   $2,735       $2,847
                                     ===================

Interest  Rate  Exposure.  Circuit City is exposed to interest  rate risk on its
securitized   credit  card  portfolio,   especially  when  interest  rates  move
dramatically over a relatively short period of time. Market risk is the exposure
created by potential fluctuations in interest rates. We have mitigated this risk
through  matched  funding.  However,  our ability to increase the finance charge
yield of our variable rate credit cards may be contractually  limited or limited
at some point by competitive conditions.  On behalf of Circuit City, the Company
enters into interest rate cap agreements to meet the  requirements of the credit
card  receivable  securitization  transactions.  The Company  has  entered  into
offsetting  interest  rate cap positions  and,  therefore,  does not  anticipate
significant market risk arising from interest rate caps. Generally, changes only
in  interest  rates  do not have a  material  impact  on the  Group  results  of
operations.

Credit risk is the exposure to  nonperformance of another party to an agreement.
Credit risk is mitigated by dealing with highly rated bank  counterparties.  The
market and credit risks  associated  with financial  derivatives  are similar to
those relating to other types of financial  instruments.  Refer to Note 5 to the
Circuit City Group consolidated  financial statements for a description of these
items.

                                 Page 43 of 62


 

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                    CIRCUIT CITY STORES, INC. - CARMAX GROUP
                                 Balance Sheets
                             (Amounts in thousands)

                                                               May 31, 2002     Feb. 28, 2002
                                                               ------------     -------------
                                                                (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                                        $ 61,445          $  3,286
Net accounts receivable                                            54,907            52,585
Retained interests in securitized receivables                     127,860           120,683
Inventory                                                         417,461           399,084
Prepaid expenses and other current assets                           1,646             2,065
                                                                 --------          --------

Total current assets                                              663,319           577,703

Property and equipment, net                                       145,572           120,976
Other assets                                                       21,327            21,543
                                                                 --------          --------

TOTAL ASSETS                                                     $830,218          $720,222
                                                                 ========          ========

LIABILITIES AND GROUP EQUITY
Current liabilities:
Accounts payable                                                 $ 91,479          $ 87,160
Accrued expenses and other current liabilities                     22,694            25,775
Deferred income taxes                                              21,914            22,009
Allocated short-term debt                                           9,761             9,840
Current installments of allocated long-term debt                   55,324            78,608
                                                                 --------          --------

Total current liabilities                                         201,172           223,392

Allocated long-term debt, excluding current installments          100,000                 -
Deferred revenue and other liabilities                              9,186             8,416
Deferred income taxes                                               2,444             2,935
                                                                 --------          --------

TOTAL LIABILITIES                                                 312,802           234,743

GROUP EQUITY                                                      517,416           485,479
                                                                 --------          --------

TOTAL LIABILITIES AND GROUP EQUITY                               $830,218          $720,222
                                                                 ========          ========

See accompanying notes to Group financial statements.

                                 Page 44 of 62



                    CIRCUIT CITY STORES, INC. - CARMAX GROUP
                       Statements of Earnings (Unaudited)
                             (Amounts in thousands)

                                                                      Three Months Ended
                                                                            May 31,
                                                                   2002               2001
                                                                ----------          --------

Net sales and operating revenues                                $1,001,564          $879,000

Cost of sales                                                      883,661           775,040
                                                                ----------          --------

Gross profit                                                       117,903           103,960
                                                                ----------          --------

Selling, general and administrative expenses (net of
    finance income of $24,077 as of May 31, 2002,
    and $19,510 as of May 31, 2001)                                 68,550            58,550

Interest expense                                                     1,026             2,551
                                                                ----------          --------

Total expenses                                                      69,576            61,101
                                                                ----------          --------

Earnings before income taxes                                        48,327            42,859

Provision for income taxes                                          19,089            16,287
                                                                ----------          --------

Net earnings                                                    $   29,238          $ 26,572
                                                                ==========          ========

Net earnings attributed to:

    Circuit City Group Common Stock                             $   18,722          $ 19,740
    CarMax Group Common Stock                                       10,516             6,832
                                                                ----------          --------
                                                                $   29,238          $ 26,572
                                                                ==========          ========


See accompanying notes to Group financial statements.

                                 Page 45 of 62



                    CIRCUIT CITY STORES, INC. - CARMAX GROUP
                      Statements of Cash Flows (Unaudited)
                             (Amounts in thousands)

                                                                                    Three Months Ended
                                                                                          May 31,
                                                                                  2002              2001
                                                                                --------          --------
Operating Activities:
--------------------
Net earnings                                                                    $ 29,238          $ 26,572
Adjustments to reconcile net earnings to net
    cash provided by (used in) operating activities:
    Depreciation and amortization                                                  4,138             4,693
    Amortization of restricted stock awards                                           18                37
    Loss on disposition of property and equipment                                     10                 -
    Provision for deferred income taxes                                             (586)            1,281
    Changes in operating assets and liabilities:
       Increase in net accounts receivable and retained
         interests in securitized receivables                                     (9,499)          (30,014)
       Increase in inventory                                                     (18,377)          (55,838)
       Decrease in prepaid expenses and other current assets                         419             1,775
       Increase in other assets                                                       (1)               (5)
       Increase in accounts payable, accrued expenses and other
         current liabilities                                                       3,012            32,428
       Increase in deferred revenue and other liabilities                            770                18
                                                                                --------          --------
Net cash provided by (used in) operating activities                                9,142           (19,053)
                                                                                --------          --------

Investing Activities:
--------------------
Purchases of property and equipment                                              (28,533)           (3,347)
Proceeds from sales of property and equipment, net                                     6                 -
                                                                                --------          --------
Net cash used in investing activities                                            (28,527)           (3,347)
                                                                                --------          --------


Financing Activities:
--------------------
(Decrease) increase in allocated short-term debt, net                                (79)            1,629
Increase in allocated long-term debt, net                                         76,716            22,708
Equity issuances, net                                                                907              (224)
                                                                                --------          --------
Net cash provided by financing activities                                         77,544            24,113
                                                                                --------          --------

Increase in cash and cash equivalents                                             58,159             1,713
Cash and cash equivalents at beginning of year                                     3,286             8,802
                                                                                --------          --------
Cash and cash equivalents at end of period                                      $ 61,445          $ 10,515
                                                                                ========          ========

See accompanying notes to Group financial statements.


                                 Page 46 of 62



                    CIRCUIT CITY STORES, INC. - CARMAX GROUP
                      Notes to Group Financial Statements
                                   (Unaudited)


1.   Basis of Presentation

     The common stock of Circuit City Stores,  Inc. consists of two common stock
     series that are intended to reflect the  performance  of the  Company's two
     businesses.  The CarMax  Group  Common  Stock is  intended  to reflect  the
     performance of the CarMax stores and related  operations.  The Circuit City
     Group  Common Stock is intended to reflect the  performance  of the Circuit
     City stores and related  operations  and the shares of CarMax  Group Common
     Stock  reserved  for the Circuit  City Group or for  issuance to holders of
     Circuit City Group Common Stock.  The reserved  CarMax Group shares are not
     outstanding CarMax Group Common Stock.  Therefore,  net earnings attributed
     to the  reserved  CarMax  Group  shares are  included  in the net  earnings
     attributed to the Circuit City Group Common Stock.

     During the second quarter of fiscal 2002, Circuit City Stores completed the
     public  offering of  9,516,800  shares of CarMax Group  Common  Stock.  The
     shares sold in the  offering  were shares of CarMax Group Common Stock that
     previously  had been reserved for the Circuit City Group or for issuance to
     holders of Circuit City Group Common Stock. As of May 31, 2002,  65,923,200
     shares of CarMax  Group  Common  Stock were  reserved  for the Circuit City
     Group or for  issuance  to  holders of Circuit  City  Group  Common  Stock.
     Excluding  shares reserved for CarMax employee stock incentive  plans,  the
     reserved  CarMax  Group  shares  represented  64.0  percent  of  the  total
     outstanding  and  reserved  shares of CarMax  Group Common Stock at May 31,
     2002,  64.1 percent at February 28, 2002, and 74.1 percent at May 31, 2001.
     The terms of each  series of common  stock are  discussed  in detail in the
     Company's Form 8-A  registration  statement on file with the Securities and
     Exchange Commission.

     On February 22, 2002, Circuit City Stores, Inc. announced that its board of
     directors  had  authorized  management  to  initiate  a process  that would
     separate the CarMax auto superstore business from the Circuit City consumer
     electronics  business through a tax-free transaction in which CarMax, Inc.,
     presently a wholly owned  subsidiary  of Circuit City Stores,  Inc.,  would
     become an independent, separately traded public company. CarMax, Inc. holds
     substantially  all of the businesses,  assets and liabilities of the CarMax
     Group.  The separation  plan calls for Circuit City Stores,  Inc. to redeem
     the outstanding  shares of CarMax Group Common Stock in exchange for shares
     of common  stock of CarMax,  Inc.  Simultaneously,  shares of CarMax,  Inc.
     common stock, representing the shares of CarMax Group Common Stock reserved
     for the holders of Circuit City Group Common Stock, would be distributed as
     a tax-free dividend to the holders of Circuit City Group Common Stock.

     In the proposed separation,  the holders of CarMax Group Common Stock would
     receive  one share of CarMax,  Inc.  common  stock for each share of CarMax
     Group Common Stock redeemed by the Company. Management anticipates that the
     holders of Circuit City Group  Common  Stock would  receive a fraction of a
     share of CarMax,  Inc.  common  stock for each share of Circuit  City Group
     Common  Stock they hold.  The exact  fraction  would be  determined  on the
     record  date  for  the  distribution.  The  separation  is  expected  to be
     completed by late summer or early fall, subject to shareholder approval and
     final approval from the board of directors.

     Notwithstanding  the attribution of the Company's  assets and  liabilities,
     including  contingent  liabilities,  and  stockholders'  equity between the
     CarMax Group and the Circuit  City Group for the purposes of preparing  the
     financial  statements,  holders of CarMax Group Common Stock and holders of
     Circuit City Group Common Stock are shareholders of the Company and as such
     are  subject  to all of the  risks  associated  with an  investment  in the
     Company and all of its businesses, assets and liabilities. Such attribution
     and the equity  structure  of the Company do not affect title to the assets
     or  responsibility  for  the  liabilities  of  the  Company  or  any of its
     subsidiaries.  Neither  shares of CarMax  Group  Common Stock nor shares of
     Circuit City Group

                                 Page 47 of 62

     Common  Stock  represent a direct  equity or legal  interest  solely in the
     assets and  liabilities  allocated to a particular  Group.  Instead,  those
     shares  represent  direct  equity  and legal  interests  in the  assets and
     liabilities  of  the  Company.  The  results  of  operations  or  financial
     condition of one Group could affect the results of  operations or financial
     condition of the other Group.  Net losses of either Group and  dividends or
     distributions  on, or repurchases  of, CarMax Group Common Stock or Circuit
     City Group Common Stock would reduce funds legally  available for dividends
     on, or repurchases of, both stocks. Accordingly, the CarMax Group financial
     statements included herein should be read in conjunction with the Company's
     consolidated  financial  statements,   the  Circuit  City  Group  financial
     statements and the Company's SEC filings.

2.   Accounting Policies

     The  financial  statements  of  the  CarMax  Group  conform  to  accounting
     principles  generally accepted in the United States of America. The interim
     period  financial  statements  are  unaudited;  however,  in the opinion of
     management,  all  adjustments,  which  consist  only of  normal,  recurring
     adjustments,  necessary  for a  fair  presentation  of  the  interim  group
     financial statements have been included.  The fiscal year-end balance sheet
     data was derived  from the  audited  financial  statements  included in the
     Company's fiscal 2002 Annual Report on Form 10-K.

3.   Debt

     On May 17,  2002,  CarMax  entered  into a $200  million  credit  agreement
     secured by vehicle inventory.  The credit agreement includes a $100 million
     revolving  loan  commitment  and  a  $100  million  term  loan  commitment.
     Principal is due in full at maturity  with  interest  payable  monthly at a
     LIBOR-based  rate.  The  agreement  currently is scheduled to expire in May
     2004 and  provides for annual  one-year  extensions  of the final  maturity
     beginning  on May 17,  2003,  and each  May 17  thereafter.  The  aggregate
     principal amount  outstanding under the credit facility on any date may not
     exceed  150  percent  of the  value  of  CarMax's  eligible  motor  vehicle
     inventory as of that date. As of May 31, 2002, the amount outstanding under
     this credit agreement was $100 million.  Under this agreement,  CarMax must
     meet  financial  covenants  relating  to  minimum  current  ratio,  minimum
     tangible net worth and minimum fixed charge coverage  ratio.  CarMax was in
     compliance with these covenants at May 31, 2002.

4.   Supplemental Financial Statement Information

     For the first quarter of fiscal 2003 and 2002, pretax finance income, which
     is recorded as a reduction to selling, general and administrative expenses,
     was as follows:

                                       Three Months Ended   Three Months Ended
     (Amounts in millions)                May 31, 2002         May 31, 2001
     -------------------------------------------------------------------------
     Securitization income...........        $23.3                $18.4
     Payroll and fringe expenses.....          1.7                  1.3
     Other direct expenses...........          1.7                  1.4
                                       ---------------------------------------
     Finance operation income........         19.9                 15.7

     Third-party financing fees......          4.2                  3.8
                                       ---------------------------------------
     Total finance income............        $24.1                $19.5
                                       =======================================

     For the  CarMax  Group,  finance  operation  income  does not  include  any
     allocation  of  indirect  costs  or  income.   The  Company  presents  this
     information on a direct basis to avoid making arbitrary decisions regarding
     the periodic  indirect  benefit or costs that could be  attributed  to this
     operation.  Examples of indirect costs not included are corporate  expenses
     such as human resources,  administrative services,  marketing,  information
     systems,  accounting,  legal,  treasury  and  executive  payroll as well as
     retail store expenses.

                                 Page 48 of 62

5.   Securitizations

     CarMax has asset  securitization  programs to finance the  automobile  loan
     receivables generated by its finance operation.  CarMax's finance operation
     sells its  automobile  loan  receivables to a special  purpose  subsidiary,
     which,  in turn,  transfers  those  receivables  to a group of  third-party
     investors.  For  transfers of  receivables  that  qualify as sales,  CarMax
     recognizes  gains or  losses  as a  component  of the  finance  operation's
     profits,  which  are  recorded  as  reductions  to  selling,   general  and
     administrative   expenses.   The  special  purpose   subsidiary  retains  a
     subordinated  interest in the  transferred  receivables.  CarMax's  finance
     operation  continues  to service  securitized  receivables  for a fee.  The
     automobile  loan  securitization  agreements do not provide for recourse to
     the  Company  for  credit  losses on the  securitized  receivables.  CarMax
     employs a risk-based  pricing  strategy  that  increases  the stated annual
     percentage rate for accounts that have a higher  predicted risk of default.
     Under certain of these securitization programs,  CarMax must meet financial
     guidelines  relating to minimum tangible net worth,  debt to net worth, net
     worth to managed assets,  current ratio,  minimum cash balance or borrowing
     capacity and minimum coverage of rent and interest expense. The securitized
     receivables  must meet  performance  levels  relating to  portfolio  yield,
     default rates and  delinquency  rates.  CarMax was in compliance with these
     guidelines at May 31, 2002, and February 28, 2002.

     The total principal amount of automobile loan receivables managed was $1.63
     billion at May 31, 2002,  and $1.55  billion at February  28, 2002.  Of the
     total principal  amounts  managed,  the principal amount of automobile loan
     receivables  securitized  was  $1.61  billion  at May 31,  2002,  and $1.54
     billion at February 28, 2002, and the principal  amount of automobile  loan
     receivables  held for sale or investment was $20.5 million at May 31, 2002,
     and $13.9  million  at  February  28,  2002.  The  unused  capacity  of the
     automobile  loan  variable  funding  program was $115.0  million at May 31,
     2002,  and $211.0  million at February 28, 2002.  The  aggregate  principal
     amount of automobile  loans that were 31 days or more  delinquent was $21.2
     million at May 31,  2002,  and $22.3  million at  February  28,  2002.  The
     principal  amount of losses net of recoveries  totaled $3.3 million for the
     three  months  ended May 31,  2002,  and $1.9  million for the three months
     ended May 31, 2001.

     CarMax  receives  annual  servicing  fees  approximating  1 percent  of the
     outstanding   principal   balance  of  the   securitized   automobile  loan
     receivables and retains the rights to future cash flows available after the
     investors in the asset-backed securities have received the return for which
     they  contracted.  The  servicing  fees  specified in the  automobile  loan
     securitization  agreements  adequately compensate the finance operation for
     servicing the securitized receivables.  Accordingly,  no servicing asset or
     liability has been recorded.

 

     The table below summarizes certain cash flows received from and paid to the
     securitization trusts:

                                                            Three Months Ended   Three Months Ended
     (Amounts in millions)                                     May 31, 2002         May 31, 2001
     ----------------------------------------------------------------------------------------------
     Proceeds from new securitizations.....................       $221.0               $195.0
     Proceeds from collections reinvested
       in previous automobile loan securitizations.........       $134.5               $ 91.5
     Servicing fees received...............................       $  3.9               $  3.3
     Other cash flows received on retained interests*......       $ 20.0               $ 12.5


     *This amount represents cash flows received from retained  interests by the
     transferor   other  than   servicing   fees,   including  cash  flows  from
     interest-only  strips and cash  above the  minimum  required  level in cash
     collateral accounts.

     When  determining the fair value of retained  interests,  CarMax  estimates
     future cash flows using  management's  projections of key factors,  such as
     finance  charge  income,  default  rates,  payment rates and discount rates
     appropriate for the type of asset and risk.

     Future finance income from  securitized  automobile loan  receivables  that
     exceeds  the  sum of  the  contractually  specified  investor  returns  and
     servicing fees (interest-only strips) is carried at fair value and amounted
     to

                                 Page 49 of 62

     $76.1  million at May 31, 2002,  and $51.4  million at May 31, 2001.  These
     amounts are included in retained  interests in  securitized  receivables on
     the  consolidated  balance  sheets.  Gains  of  $15.6  million  on sales of
     automobile  loan  receivables  were recorded for the three months ended May
     31, 2002;  gains of $13.1 million on sales of automobile  loan  receivables
     were recorded for the three months ended May 31, 2001.

     The fair value of retained  interests at May 31, 2002, was $127.9  million,
     with a  weighted-average  life of 1.6  years.  The fair  value of  retained
     interests at February 28, 2002, was $120.7 million, with a weighted-average
     life of 1.6 years.  The following table shows the key economic  assumptions
     used in measuring the fair value of retained interests at May 31, 2002, and
     a sensitivity analysis showing the hypothetical effect on the fair value of
     those interests when there are unfavorable  variations from the assumptions
     used.  Key  economic  assumptions  at May  31,  2002,  are  not  materially
     different  from  assumptions  used to measure  the fair  value of  retained
     interests  at  the  time  of   securitization.   These   sensitivities  are
     hypothetical and should be used with caution.  In this table, the effect of
     a variation  in a particular  assumption  on the fair value of the retained
     interest is calculated  without  changing any other  assumption;  in actual
     circumstances,  changes in one  factor  may  result in changes in  another,
     which might magnify or counteract the sensitivities.

 

                                                        Impact on Fair     Impact on Fair
                                        Assumptions      Value of 10%       Value of 20%
     (Dollar amounts in millions)           Used        Adverse Change     Adverse Change
     ------------------------------------------------------------------------------------
     Prepayment rate.................  1.5%-1.6%            $3.8               $7.8
     Annual default rate.............  1.0%-1.2%            $2.1               $4.3
     Annual discount rate............      12.0%            $1.4               $2.8


6.   Financial Derivatives

     On behalf of CarMax,  the Company enters into amortizing  swaps relating to
     automobile  loan  receivable   securitizations  to  convert   variable-rate
     financing costs to fixed-rate  obligations to better match funding costs to
     the receivables being securitized. During the first quarter of fiscal 2003,
     the Company entered into three 40-month amortizing interest rate swaps with
     an initial  notional amount  totaling  approximately  $248.0  million.  The
     current  amortized  notional amount of all outstanding swaps related to the
     automobile loan receivable securitizations was approximately $633.7 million
     at May 31, 2002,  and $413.3 million at February 28, 2002. At May 31, 2002,
     the fair value of swaps  totaled a net  liability  of $2.1 million and were
     included in accounts payable. At February 28, 2002, the fair value of swaps
     totaled a net liability of $841,000 and were included in accounts payable.

     The market and credit risks associated with interest rate swaps are similar
     to those relating to other types of financial  instruments.  Market risk is
     the  exposure  created by potential  fluctuations  in interest  rates.  The
     Company does not anticipate significant market risk from swaps because they
     are  used on a  monthly  basis  to  match  funding  costs to the use of the
     funding.  Credit risk is the exposure to nonperformance of another party to
     an  agreement.  The Company  mitigates  credit risk by dealing  with highly
     rated bank counterparties.

7.   Recent Accounting Pronouncements

     In June 2001, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 142,  "Goodwill  and Other  Intangible
     Assets,"  effective  for fiscal years  beginning  after  December 15, 2001.
     Under the provisions of SFAS No. 142, goodwill and intangible assets deemed
     to have indefinite lives are no longer amortized but instead are subject to
     annual  impairment  tests  in  accordance  with  the  pronouncement.  Other
     intangible  assets that are identified to have finite useful lives continue
     to be amortized  in a manner that  reflects  the  estimated  decline in the
     economic  value of the  intangible  asset and are  subject  to review  when
     events or circumstances arise which indicate impairment. Application of the
     nonamortization  provisions  of SFAS No. 142 in the first quarter of fiscal
     2003 did not have a material impact on the financial  position,  results of
     operations  or cash flows of the CarMax  Group.  During  fiscal  2003,  the
     Company will perform the first of the required impairment tests of goodwill
     and  indefinite-lived  intangible

                                 Page 50 of 62

     assets, as outlined in the pronouncement.  Based on preliminary  estimates,
     as well as ongoing periodic  assessments of goodwill,  the Company does not
     expect to recognize any material impairment losses from these tests.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  For Asset
     Retirement  Obligations." This statement addresses financial accounting and
     reporting  for  obligations  associated  with the  retirement  of  tangible
     long-lived  assets and the associated asset retirement costs. It applies to
     legal obligations  associated with the retirement of long-lived assets that
     result from the acquisition,  construction,  development  and/or the normal
     operation of a long-lived asset, except for certain obligations of lessees.
     This standard requires entities to record the fair value of a liability for
     an asset  retirement  obligation  in the period  incurred.  SFAS No. 143 is
     effective for fiscal years  beginning  after June 15, 2002. The Company has
     not yet determined the impact, if any, of adopting this standard.

8.   Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
     presentation. For the quarter ended May 31, 2001, wholesale sales have been
     reclassified and reported in net sales and operating revenues.  In previous
     periods, wholesale sales were recorded as a reduction to cost of sales. The
     reclassification  of wholesale  sales to sales  increased sales and cost of
     sales by $84.5  million for the quarter  ended May 31, 2001.  An additional
     reclassification  between  sales and cost of sales  made to  conform to the
     current presentation  decreased sales and cost of sales by $2.3 million for
     the quarter ended May 31, 2001.



                                     ITEM 2.

                CARMAX GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


In this discussion,  "we," "our" and "Circuit City Stores" refer to Circuit City
Stores,  Inc. and our wholly  owned  subsidiaries,  unless the context  requires
otherwise.  "Circuit  City  business"  and  "Circuit  City"  refer to the retail
operations  bearing the Circuit City name and to all related  operations such as
product  service and Circuit  City's  finance  operation.  "Circuit  City Group"
refers to the Circuit  City  business  and the  reserved  CarMax  Group  shares.
"CarMax business," "CarMax" and "CarMax Group" refer to retail locations bearing
the  CarMax  name  and  to all  related  operations  such  as  CarMax's  finance
operation.  All references to "month,"  "quarter" and "year" refer to our fiscal
year periods rather than calendar year periods unless stated otherwise.

On February 22, 2002,  Circuit City  Stores,  Inc.  announced  that its board of
directors had  authorized  management to initiate a process that would  separate
the CarMax auto superstore  business from the Circuit City consumer  electronics
business  through a tax-free  transaction  in which  CarMax,  Inc.,  presently a
wholly  owned  subsidiary  of  Circuit  City  Stores,   Inc.,  would  become  an
independent,  separately traded public company. CarMax, Inc. holds substantially
all  of  the  businesses,  assets  and  liabilities  of the  CarMax  Group.  The
separation  plan calls for Circuit City Stores,  Inc. to redeem the  outstanding
shares of CarMax  Group  Common  Stock in exchange for shares of common stock of
CarMax, Inc. Simultaneously,  shares of CarMax, Inc. common stock,  representing
the shares of CarMax Group Common Stock reserved for the holders of Circuit City
Group Common Stock,  would be distributed as a tax-free  dividend to the holders
of Circuit City Group Common Stock.

In the  proposed  separation,  the holders of CarMax  Group  Common  Stock would
receive one share of CarMax,  Inc.  common  stock for each share of CarMax Group
Common Stock redeemed by the Company. Management anticipates that the holders of
Circuit City Group  Common Stock would  receive a fraction of a share of CarMax,
Inc.  common  stock for each share of Circuit City Group Common Stock they hold.
The exact fraction would be

                                 Page 51 of 62

determined on the record date for the  distribution.  The separation is expected
to be completed by late summer or early fall,  subject to  shareholder  approval
and final approval from the board of directors.

CRITICAL ACCOUNTING POLICIES

See the discussion of critical  accounting policies included on the Circuit City
Stores,  Inc. 2002 Annual Report to  Shareholders.  These policies relate to the
calculation of the value of retained interests in securitization transactions.

RESULTS OF OPERATIONS

Effective in the first quarter of fiscal 2003,  CarMax  classifies  revenue from
the sale of wholesale vehicles in net sales and operating revenues.  Previously,
CarMax wholesale vehicle sales were recorded as reductions to cost of sales. The
reclassification  of wholesale  sales to sales increased sales and cost of sales
by  $84.5   million  for  the  quarter   ended  May  31,  2001.   An  additional
reclassification  between sales and cost of sales made to conform to the current
presentation  decreased  sales and cost of sales by $2.3 million for the quarter
ended May 31, 2001.

Net Sales and Operating Revenues and General Comments

Total sales for the CarMax Group for the first quarter of fiscal 2003  increased
14 percent to $1.00 billion from $879.0 million in last year's first quarter.

Retail  Vehicle  Sales.  Retail  vehicle  sales  increased  14 percent to $870.1
million in the first  quarter of fiscal  2003 from  $761.0  million in the first
quarter of fiscal 2002. In the first quarter of fiscal 2003,  used vehicle sales
increased 20 percent to $737.8  million from $615.1 million in the first quarter
of fiscal 2002. In the first quarter of fiscal 2003, new vehicle sales decreased
9 percent to $132.3  million from $145.8  million in the first quarter of fiscal
2002.  CarMax  stores are  included in  comparable  store retail sales after the
store has been open for a full year.  Comparable  store vehicle  dollar and unit
sales for the first quarter of fiscal years 2003 and 2002 were as follows:



       ================================== ==============================
                                                   1st Quarter
               Comparable Store           ------------------------------
                 Sales Change                  FY03          FY02
       ---------------------------------- -------------- ---------------
       Vehicle dollars:
       ---------------------------------- -------------- ---------------
            Used vehicles                      14 %           28%
       ---------------------------------- -------------- ---------------
            New vehicles                       (4)%           23%
       ---------------------------------- -------------- ---------------
        Total                                  11 %           27%
       ---------------------------------- -------------- ---------------

       ---------------------------------- -------------- ---------------
       Vehicle units:
       ---------------------------------- -------------- ---------------
            Used vehicles                      12 %           20%
       ---------------------------------- -------------- ---------------
             New vehicles                      (4)%           19%
       ---------------------------------- -------------- ---------------
       Total                                   10 %           20%
       ================================== ============== ===============

                                 Page 52 of 62


The  overall  increase in retail  sales is  attributed  to the 12 percent  sales
growth in comparable store used-unit  sales, the three additional  CarMax stores
opened  since the first  quarter of fiscal  2002 and the slight  increase in the
average retail selling price for used  vehicles.  The comparable  store new-unit
sales decline was in line with the new-car industry's performance.


       ================================== ================================
                                                    1st Quarter
                Average Retail            --------------------------------
                Selling Prices                 FY03            FY02
       ---------------------------------- --------------- ----------------
       Used vehicles                          $15,500         $15,100
       ---------------------------------- --------------- ----------------
       New vehicles                           $23,000         $23,200
       ---------------------------------- --------------- ----------------
       Blended average                        $16,300         $16,200
       ================================== =============== ================




       ================================== ==============================
                                                   1st Quarter
                 Retail Vehicle           ------------------------------
                   Sales Mix                  FY03           FY02
       ---------------------------------- -------------- ---------------
       Vehicle dollars:
       ---------------------------------- -------------- ---------------
             Used vehicles                     85%            81%
       ---------------------------------- -------------- ---------------
            New vehicles                       15             19
       ---------------------------------- -------------- ---------------
       Total                                  100%           100%
       ---------------------------------- -------------- ---------------

       ---------------------------------- -------------- ---------------
       Vehicle units:
       ---------------------------------- -------------- ---------------
            Used vehicles                      89%            87%
       ---------------------------------- -------------- ---------------
            New vehicles                       11             13
       ---------------------------------- -------------- ---------------
       Total                                  100%           100%
       ================================== ============== ===============


Wholesale  Vehicle Sales.  Wholesale  vehicle sales totaled $92.5 million in the
first  quarter of fiscal 2003,  compared  with $84.5  million in the same period
last year. The increase was consistent with increased traffic at CarMax stores.

Other Sales and Revenues.  Other sales and revenues  include  extended  warranty
revenues,  service department sales and processing fees collected from consumers
for the purchase of their vehicles at a CarMax retail location and totaled $39.0
million in the first quarter of fiscal 2003,  compared with $33.5 million in the
same period last year.

CarMax sells  extended  warranties on behalf of unrelated  third parties who are
the primary obligors.  Under these third-party warranty programs,  CarMax has no
contractual  liability  to the  customer.  Extended  warranty  revenue was $16.7
million  in the first  quarter  of fiscal  2003 and $13.5  million  in the first
quarter of fiscal 2002. The increase  reflects  improved  penetration and strong
sales growth for used cars, which achieve a higher extended warranty penetration
rate than new cars.

Service sales were $15.5  million in the first quarter of fiscal 2003,  compared
with $13.9  million in the same period last year.  The  increase  relates to the
overall increase in CarMax's customer base.

Processing fees were $6.8 million in the first quarter of fiscal 2003,  compared
with $6.1 million in the same period last year.  Consumers are assessed this fee
when selling a vehicle to a CarMax retail location after the appraisal  process.
The increase was the result of increased traffic and increased consumer response
to CarMax's vehicle purchase program.

                                 Page 53 of 62

Seasonality.  Our  operations,  in common with other  retailers in general,  are
subject  to  seasonal   influences.   Historically,   the  CarMax  business  has
experienced  more of its net sales in the first half of the fiscal year. The net
earnings  of any  quarter  are  seasonally  disproportionate  to net sales since
administrative and certain operating expenses remain relatively  constant during
the year. Therefore,  quarterly results should not be relied upon as necessarily
indicative of results for the entire fiscal year.

Retail Stores.  During the first quarter of fiscal 2003,  CarMax  integrated the
new-car  stand-alone  Chrysler  franchise in the Orlando,  Fla.,  market with an
existing  CarMax  superstore  and  opened  a  standard-sized  superstore  in the
mid-sized  market of  Sacramento,  Calif.  CarMax  expects  to open four to five
stores  in the  second  half of the  fiscal  year,  including  entries  into the
Knoxville, Tenn., and Las Vegas, Nev., markets.

 

The following table provides detail on the CarMax retail stores:

      ====================================== ==================== =================== =================== ==================
                                                                                       Estimate Feb. 28,
                    Store Mix                   May 31, 2002         May 31, 2001            2003           Feb. 28, 2002
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Mega superstores                                13                  13                  13                  13
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Standard superstores                            18                  16                  20                  17
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Prototype satellite stores                       5                   4                   8                   5
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Co-located new-car stores                        2                   2                   2                   2
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Stand-alone new-car stores                       2                   5                   2                   3
      -------------------------------------- -------------------- ------------------- ------------------- ------------------
      Total                                           40                  40                  45                  40
      ====================================== ==================== =================== =================== ==================



Cost of Sales

Total gross profit  margin for the CarMax Group was 11.8 percent of sales in the
first quarter of both fiscal 2003 and fiscal 2002.

Retail Vehicle Gross Profit  Margin.  The retail vehicle gross profit margin was
9.9 percent in the first quarter of fiscal 2003 versus 10.0 percent for the same
period last year.  CarMax  achieved its average per unit gross profit targets on
used cars;  however,  the positive gross margin impact of a higher percentage of
used cars in the mix was  substantially  offset by the higher average retails on
used cars,  which reduced the used-car margin on a percentage  basis. The result
was a retail  vehicle gross profit margin that slightly  declined in relation to
last year's first quarter.

Wholesale Vehicle Gross Profit Margin. The wholesale vehicle gross profit margin
was 6.7 percent in the first  quarter of fiscal 2003,  compared with 5.6 percent
for the same  period  last year.  Both the  average  wholesale  cost and average
wholesale  sales price declined  compared with the first quarter of fiscal 2002;
however,  the  decrease in the average  wholesale  sales price was less than the
decrease in the average wholesale cost.

Other Gross Profit Margin.  The gross profit margin for other sales and revenues
was 66.5 percent in the first quarter of fiscal 2003, compared with 68.1 percent
for the same period last year.

Selling, General and Administrative Expenses

The  selling,  general and  administrative  expense  ratio for the CarMax  Group
increased  to 6.8 percent of sales in the first  quarter of fiscal 2003 from 6.7
percent of sales for the same period last year. The higher expense ratio in this
year's first quarter compared with last year's first quarter  reflects  expenses
associated  with  geographic  expansion and $1.9 million of one-time  separation
costs, partly offset by increased income from financing.

                                 Page 54 of 62


Finance  Income.  For the first quarter of fiscal 2003 and 2002,  pretax finance
income, which is recorded as a reduction to selling,  general and administrative
expenses, was as follows:

                                        Three Months Ended   Three Months Ended
     (Amounts in millions)                 May 31, 2002         May 31, 2001
     --------------------------------------------------------------------------
     Securitization income..........          $23.3                $18.4
     Payroll and fringe expenses....            1.7                  1.3
     Other direct expenses..........            1.7                  1.4
                                        ---------------------------------------
     Finance operation income.......           19.9                 15.7

     Third-party financing fees.....            4.2                  3.8
                                        ---------------------------------------
     Total finance income...........          $24.1                $19.5
                                        =======================================

Receivables   generated  by  the  CarMax  finance  operation  are  sold  through
securitization  transactions.  CarMax continues to service these  receivables in
exchange for a contractually  specified servicing fee. For the quarter ended May
31, 2002 serviced receivables averaged $1.56 billion,  compared to $1.28 billion
for the period ended May 31, 2001.

For  the  CarMax  Group,  securitization  income  includes  the  gain on sale of
receivables  and other income  related to servicing  these  receivables.  CarMax
recorded  gains on sale of  receivables  totaling  $15.6 million for the quarter
ended May 31, 2002  compared to gains of $13.1  million for the period ended May
31,  2001.  This change  resulted  from an increase in loan  origination  volume
driven by increased  sales. In recording these gains,  management  estimates key
assumptions  such as finance  charge income,  default  rates,  payment rates and
discount rates  appropriate for the type of asset and risk. If these assumptions
change, or the actual results differ from the projected results,  securitization
income would be affected.

For the CarMax Group,  finance  operation income does not include any allocation
of  indirect  costs or income.  Examples  of  indirect  costs not  included  are
corporate expenses such as human resources,  administrative services, marketing,
information systems,  accounting,  legal, treasury and executive payroll as well
as retail store expenses.  Direct expenses include collection expenses, rent and
facility expenses and loan processing costs.  Payroll,  fringes and other direct
expenses increased proportionately to the average managed receivable balance.

Fees received from arranging customer automobile financing through third parties
increased  by $0.4  million  over the same period last year.  The increase was a
result of the total increase in retail vehicle sales.

Interest Expense

Interest  expense for the CarMax  Group  declined to $1.0  million for the first
quarter  of  fiscal  2003  from  $2.6  million  in the same  period  last  year,
reflecting both lower average debt levels and lower interest rates.

Income Taxes

The effective income tax rate increased to 39.5 percent for the first quarter of
fiscal 2003 from 38.0 percent for the first quarter of fiscal 2002. The increase
reflects the $1.9 million of one-time,  non-tax-deductible costs associated with
the proposed separation of CarMax from Circuit City Stores, Inc.

Net Earnings

The CarMax  Group's  first  quarter  fiscal 2003 net earnings rose 10 percent to
$29.2  million from $26.6  million in the first  quarter of fiscal  2002.  First
quarter    fiscal   2003   earnings    include   $1.9   million   of   one-time,
non-tax-deductible  costs associated with the proposed separation of CarMax from
Circuit  City Stores.  Excluding  the one-time  separation  costs,  net earnings
increased 17 percent to $31.1 million.

                                 Page 55 of 62

In the first quarter of fiscal 2003, net earnings attributed to the CarMax Group
Common Stock were $10.5 million  compared with $6.8 million in the first quarter
of last fiscal  year.  The  remainder  of the CarMax  Group's net  earnings  was
attributed  to the shares of CarMax Group Common Stock  reserved for the Circuit
City Group or for issuance to the holders of Circuit City Group Common Stock.

Operations Outlook

For more than two years,  CarMax has  demonstrated  that its consumer  offer and
business model can produce strong sales and earnings growth. At the beginning of
fiscal 2002,  CarMax announced that it would resume geographic  growth,  opening
two  superstores in fiscal 2002,  four to six superstores in fiscal 2003 and six
to eight stores in each of fiscal years 2004,  2005 and 2006.  This expansion is
proceeding as planned with four or five more used-car  superstores  scheduled to
open during the second half of the fiscal year.

Comparable  store  used-unit  sales growth  drives  CarMax's  profitability.  We
currently  anticipate that comparable store used-unit growth will most likely be
in the low teens in the first half of fiscal  2003.  For the second  half of the
fiscal  year,  we continue to expect  used-unit  comparable  store growth in the
high-single to low-double digits.

We expect  fiscal 2003 to be a year of  transition  for CarMax as we ramp up the
growth pace. Additional  growth-related costs, such as training,  recruiting and
employee  relocation for our new stores, and additional expenses expected in the
second half if the planned separation is approved will moderate earnings growth,
offsetting  the  expense  leverage  we would  otherwise  expect  from  used-unit
comparable  store growth.  In addition,  we had anticipated  that interest rates
would rise above the low levels  experienced in fiscal 2002 resulting in reduced
yield spreads from the CarMax finance  operation  throughout fiscal 2003. If the
current favorable interest rate environment continues, CarMax may not experience
the reduction in yield spreads that we originally anticipated.

Refer to the "Circuit City Stores, Inc. Management's  Discussion and Analysis of
Results of Operations and Financial Condition" for the estimated contribution of
the CarMax business earnings  attributed to the outstanding  Carmax Group Common
Stock in fiscal 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to the "Circuit City Stores, Inc. Management's  Discussion and Analysis of
Results of Operations and Financial Condition" for a review of recent accounting
pronouncements.

FINANCIAL CONDITION

Liquidity and Capital Resources

Operating Activities. In the first quarter of fiscal 2003, CarMax generated cash
from operating activities of $9.1 million. In last year's first quarter,  CarMax
used  cash of $19.1  million  for  operating  activities.  The  improvement  was
primarily the result of CarMax's enhanced ability to better manage its inventory
levels to meet sales demands.

Investing Activities. Net cash used in investing activities was $28.5 million in
the first  quarter  of fiscal  2003,  compared  with $3.3  million  in the first
quarter  of  last  year.  The  increase  of  $25.2  million   reflects   capital
expenditures for geographic expansion.

Financing  Activities.  Net cash  provided  by  financing  activities  was $77.5
million in the first quarter of fiscal 2003,  compared with $24.1 million in the
first quarter of last year. In the first quarter of fiscal 2003,  CarMax entered
into a  $200  million  credit  agreement  with  DaimlerChrysler  Services  North
America, LLC and Toyota Financial Services. This agreement,  which is secured by
vehicle inventory,  includes a $100 million revolving loan commitment and a $100
million term loan commitment. The terms for both commitments are LIBOR-based and
have initial  two-year terms. As of May 31, 2002, the amount  outstanding  under
this credit  agreement was $100  million.  CarMax  anticipates  that some of the
proceeds  from the agreement  will be used

                                 Page 56 of 62

for the repayment of allocated  debt,  the payment on the  separation  date of a
one-time special  dividend to Circuit City Stores of $28.4 million,  the payment
of transaction  expenses  incurred in connection with the separation and general
corporate purposes.

In December 2001, CarMax entered into an $8.5 million secured promissory note in
conjunction  with the  purchase of land for new store  construction.  This note,
which is payable in August 2002,  was included in short-term  debt as of May 31,
2002. At May 31, 2002, a $100 million outstanding term loan due in July 2002 was
classified  as a current  liability.  Although  the  Company  has the ability to
refinance this debt, we intend to repay it using existing working capital.

At May 31,  2002,  the  Company  allocated  cash and cash  equivalents  of $61.4
million  and debt of $165.1  million to the CarMax  Group.  Circuit  City Stores
maintains a $150 million  unsecured  revolving  credit  facility that expires on
August 31, 2002.  The Company does not anticipate  renewing this  facility.  The
Company also maintains  $195 million in committed  seasonal lines of credit that
are renewed annually with various banks. At May 31, 2002, total balances of $2.4
million were outstanding under these facilities.

At May 31, 2002, the aggregate  principal amount of securitized  automobile loan
receivables  totaled $1.61  billion.  During the second  quarter of fiscal 2003,
CarMax completed an asset securitization  transaction totaling $512.6 million of
automobile  loan  receivables.  At May 31,  2002,  the  unused  capacity  of the
automobile loan variable  funding  program was $115.0 million.  At May 31, 2002,
there were no provisions  providing recourse to the Company for credit losses on
the securitized automobile loan receivables.  CarMax anticipates that it will be
able to expand or enter into new securitization  arrangements to meet the future
needs of the automobile loan finance operation.

We expect that proceeds from the credit agreement secured by vehicle  inventory,
sale-leaseback  transactions and cash generated by operations will be sufficient
to fund capital expenditures of the CarMax business for the foreseeable future.



                           FORWARD-LOOKING STATEMENTS

This  report  on Form  10-Q  contains  "forward-looking  statements,"  which are
subject  to risks  and  uncertainties,  including,  but not  limited  to,  risks
associated  with plans to separate the CarMax business from Circuit City Stores,
Inc. and create an independent,  separately  traded public  company.  Additional
discussion of factors that could cause actual results to differ  materially from
management's projections,  forecasts, estimates and expectations is contained in
the  Company's SEC filings,  including the Company's  Annual Report on Form 10-K
for the year ended February 28, 2002, and the registration statement on Form S-4
filed by CarMax, Inc. (File No. 333-85240) related to the proposed separation.


                                 Page 57 of 62


                                     ITEM 3.

                    CARMAX GROUP QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK


RECEIVABLES RISK

The Company manages the market risk  associated with the automobile  installment
loan portfolio of CarMax's  finance  operation.  A portion of this portfolio has
been securitized in transactions  accounted for as sales in accordance with SFAS
No. 140 and, therefore, is not presented on the Group balance sheets.


Automobile Installment Loan Receivables. At May 31, 2002, and February 28, 2002,
all loans in the  portfolio  of  automobile  loan  receivables  were  fixed-rate
installment  loans.  Financing for these automobile loan receivables is achieved
through  asset  securitization  programs  that,  in turn,  issue both fixed- and
floating-rate  securities.  Interest  rate  exposure  relating to floating  rate
securitizations  is managed through the use of interest rate swaps.  Receivables
held for investment or sale are financed with working capital.

The total principal amount of receivables  securitized or held for investment or
sale as of May 31, 2002, and February 28, 2002, was as follows:


(Amounts in millions)                        May 31        Feb. 28
------------------------------------------------------------------

Fixed-rate securitizations................   $  979         $1,122
Floating-rate securitizations
   synthetically altered to fixed.........      634            413
Floating-rate securitizations.............        1              1
Held for investment(1)....................       18             12
Held for sale.............................        3              2
                                           -----------------------

Total.....................................   $1,635         $1,550
                                           =======================

(1) Held by a bankruptcy-remote special purpose subsidiary.

Interest  Rate  Exposure.  Interest rate  exposure  relating to the  securitized
automobile  loan  receivables  represents a market risk  exposure that we manage
with matched funding and interest rate swaps matched to projected  payoffs.  The
Company does not anticipate  significant market risk from swaps because they are
used on a monthly basis to match funding costs to the use of the funding. Market
risk is the  exposure  created by  potential  fluctuations  in  interest  rates.
Generally,  changes only in interest rates do not have a material  impact on the
Company's results of operations.

Credit risk is the exposure to  nonperformance of another party to an agreement.
Credit risk is mitigated by dealing with highly rated bank  counterparties.  The
market and credit risks  associated  with financial  derivatives  are similar to
those relating to other types of financial  instruments.  Refer to Note 6 to the
CarMax Group consolidated financial statements for a description of these items.

                                 Page 58 of 62






PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

          As previously reported in the Company's Annual Report on Form 10-K for
          the fiscal year ended February 28, 2002, Kevin Smith, individually and
          on behalf of all others similarly situated, filed a complaint alleging
          federal  securities  law  violations  against  the Company and W. Alan
          McCollough  in the  United  States  District  Court  for  the  Eastern
          District of Virginia,  Richmond Division.  On May 16, 2002 and May 29,
          2002, the Company and Mr.  McCollough  were served with two additional
          complaints   filed  by   Douglass   Nichols  and   Patricia   Beaupre,
          respectively,  on  behalf  of  themselves  and  all  others  similarly
          situated.  Both complaints allege similar facts, assert similar claims
          and seek  similar  damages  as those in the Smith  case.  The  Company
          expects  that the three  cases will be  consolidated.  As in the Smith
          case,  the  Company   believes  that  the  allegations  in  these  two
          additional   cases  are  without   merit  and  that  the  Company  has
          substantial  defenses to the claims alleged.  As a result, the Company
          intends to defend these actions vigorously.


Item 4.   Submission of Matters to a Vote of Security Holders

          (a)     The annual meeting of the Company's shareholders was held June
                  18, 2002.

          (b)     (i)     At the annual meeting, the shareholders of the Company
                          elected Carolyn H. Byrd,  Michael T. Chalifoux,  Paula
                          G. Rosput and John W. Snow as directors for three-year
                          terms.  The  elections  were approved by the following
                          votes:


=====================================================================

       Directors                     For                 Withheld
=====================================================================
Carolyn H. Byrd                  211,412,961            3,738,189
---------------------------------------------------------------------
Michael T. Chalifoux             211,454,813            3,696,337
---------------------------------------------------------------------
Paula G. Rosput                  211,426,074            3,725,076
---------------------------------------------------------------------
John W. Snow                     211,477,061            3,674,089
---------------------------------------------------------------------

                    (ii)  At the annual meeting, the shareholders of the Company
                          voted in favor of a shareholder proposal regarding the
                          Company's  shareholder  rights plan. This proposal was
                          approved by the following votes:


==============================================================================
                                                                     Broker
 Shareholder Proposal       For           Against       Abstain      Non-Votes
                       =======================================================
                        123,326,840     44,873,754     2,430,150    44,520,406
==============================================================================

                                 Page 59 of 62





Item 6.       Exhibits and Reports on Form 8-K


              (a)      Exhibits

                       (3) (i)  Articles of Incorporation
                                (a)   Amended   and    Restated    Articles   of
                                      Incorporation   of  Circuit  City  Stores,
                                      Inc., effective February 3, 1997, filed as
                                      Exhibit 3 (i)(a) to the Company's  Amended
                                      Quarterly  Report on Form  10-Q/A  for the
                                      quarter  ended  May  31,  1999  (File  No.
                                      1-5767), are expressly incorporated herein
                                      by this reference.

                                (b)   Articles of  Amendment  to the Amended and
                                      Restated    Articles   of   Incorporation,
                                      effective April 28, 1998, filed as Exhibit
                                      3(i)(b) to the Company's Amended Quarterly
                                      Report  on Form  10-Q/A  for  the  quarter
                                      ended May 31, 1999 (File No. 1-5767),  are
                                      expressly   incorporated  herein  by  this
                                      reference.

                                (c)   Articles of  Amendment  to the Amended and
                                      Restated    Articles   of   Incorporation,
                                      effective June 22, 1999,  filed as Exhibit
                                      3(i)(c) to the Company's Amended Quarterly
                                      Report  on Form  10-Q/A  for  the  quarter
                                      ended May 31, 1999 (File No. 1-5767),  are
                                      expressly   incorporated  herein  by  this
                                      reference.



                       (3) (ii) Bylaws
                               (a)    Bylaws of Circuit  City Stores,  Inc.,  as
                                      amended and restated June 18, 2002,  filed
                                      herewith.

                       (10)     Material Contracts
                                (a)   Employee agreement between the Company and
                                      W.  Alan  McCollough  effective  March  1,
                                      2002, filed herewith.*

                                (b)   Employee agreement between the Company and
                                      John W.  Froman  effective  March 1, 2002,
                                      filed herewith.*

                                (c)   Employee agreement between the Company and
                                      Michael T.  Chalifoux  effective  March 1,
                                      2002, filed herewith.*

                                (d)   Employee agreement between the Company and
                                      Dennis J. Bowman  effective March 1, 2002,
                                      filed herewith.*

                                (e)   Employee agreement between the Company and
                                      W. Austin Ligon  effective  March 1, 2002,
                                      filed as Exhibit 10.4 to the CarMax,  Inc.
                                      Form   S-4/Amendment   No.  2  (File   No.
                                      333-85240) is incorporated  herein by this
                                      reference.*

                                (f)   Credit  Agreement,  dated  May  17,  2002,
                                      among  CarMax  Auto   Superstores,   Inc.,
                                      CarMax,     Inc.,     Various    Financial
                                      Institutions and DaimlerChrysler  Services
                                      North  America LLC filed as Exhibit  10.11
                                      to the CarMax, Inc. Form S-4/Amendment No.
                                      2 (File  No.  333-85240)  is  incorporated
                                      herein by this reference.

                                (g)   Security  Agreement,  dated May 17,  2002,
                                      among  CarMax  Auto   Superstores,   Inc.,
                                      various other debtors and  DaimlerChrysler
                                      Service North America LLC filed as Exhibit
                                      10.12   to   the   CarMax,    Inc.    Form
                                      S-4/Amendment  No. 2 (File No.  333-85240)
                                      is incorporated herein by this reference.


                                 Page 60 of 62


                                (h)   Guaranty,  dated May 17, 2002, executed by
                                      certain  CarMax  subsidiaries  in favor of
                                      DaimerChrysler  North  America LLC and the
                                      Lender  Parties  filed as Exhibit 10.13 to
                                      the CarMax,  Inc. Form S-4/Amendment No. 2
                                      (File  No.   333-85240)  is   incorporated
                                      herein by this reference.

                                     *Management contracts,  compensatory  plans
                                      or arrangements of the Company required to
                                      be filed as an exhibit

              (b)      Reports on Form 8-K

                       The Company filed a Form 8-K on June 19, 2002,  reporting
                       that the  Company  had issued a press  release  reporting
                       first quarter  results for the Company,  the Circuit City
                       Group and the CarMax Group.


                                 Page 61 of 62


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.


                             CIRCUIT CITY STORES, INC.




                             By:   s/ W. Alan McCollough
                                   --------------------------------------
                                   W. Alan McCollough
                                   Chairman, President and
                                   Chief Executive Officer



                             By:   s/ Michael T. Chalifoux
                                   --------------------------------------
                                   Michael T. Chalifoux
                                   Executive Vice President,
                                   Chief Financial Officer and
                                   Corporate Secretary



                             By:   s/ Philip J. Dunn
                                   --------------------------------------
                                   Philip J. Dunn
                                   Senior Vice President, Treasurer,
                                   Corporate Controller and
                                   Chief Accounting Officer




July 15, 2002

                                 Page 62 of 62