RBC Capital sets a new price target for CarMax, Inc. (NYSE:KMX) at $59, suggesting a potential increase of 29.39% from the current price.CarMax's stock experienced a significant decline following its second-quarter earnings report, with a decrease of 20.07%.The company's market capitalization stands at approximately $6.84 billion, indicating its significant presence in the market despite recent challenges.CarMax, Inc. (NYSE:KMX) is a leading used car retailer in the United States, known for its no-haggle pr ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents CarMax's unaudited consolidated financial statements and detailed notes for periods ended August 31, 2025 and 2024 [Consolidated Statements of Earnings (Unaudited)](index=3&type=section&id=Consolidated%20Statements%20of%20Earnings%20(Unaudited)) Consolidated Statements of Earnings (Unaudited) – Key Metrics | Metric | Three Months Ended Aug 31, 2025 (in thousands) | Three Months Ended Aug 31, 2024 (in thousands) | Change (%) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Net Sales and Operating Revenues | $6,594,684 | $7,013,529 | -6.0% | | Gross Profit | $717,666 | $760,467 | -5.6% | | CARMAX AUTO FINANCE INCOME | $102,638 | $115,580 | -11.2% | | Selling, general and administrative expenses | $601,093 | $610,562 | -1.6% | | Net Earnings | $95,378 | $132,809 | -28.2% | | Diluted Net Earnings Per Share | $0.64 | $0.85 | -24.7% | | Metric | Six Months Ended Aug 31, 2025 (in thousands) | Six Months Ended Aug 31, 2024 (in thousands) | Change (%) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Net Sales and Operating Revenues | $14,141,225 | $14,126,926 | 0.1% | | Gross Profit | $1,611,289 | $1,552,362 | 3.8% | | CARMAX AUTO FINANCE INCOME | $244,288 | $262,550 | -7.0% | | Selling, general and administrative expenses | $1,260,736 | $1,249,140 | 0.9% | | Net Earnings | $305,759 | $285,249 | 7.2% | | Diluted Net Earnings Per Share | $2.02 | $1.82 | 11.0% | [Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Consolidated Statements of Comprehensive Income (Unaudited) – Key Metrics | Metric | Three Months Ended Aug 31, 2025 (in thousands) | Three Months Ended Aug 31, 2024 (in thousands) | Change (%) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Net Earnings | $95,378 | $132,809 | -28.2% | | Other comprehensive loss, net of taxes | $(13,060) | $(52,621) | -75.2% | | TOTAL COMPREHENSIVE INCOME | $82,318 | $80,188 | 2.6% | | Metric | Six Months Ended Aug 31, 2025 (in thousands) | Six Months Ended Aug 31, 2024 (in thousands) | Change (%) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Net Earnings | $305,759 | $285,249 | 7.2% | | Other comprehensive loss, net of taxes | $(24,386) | $(50,222) | -51.4% | | TOTAL COMPREHENSIVE INCOME | $281,373 | $235,027 | 19.7% | [Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Consolidated Balance Sheets (Unaudited) – Key Metrics | Metric | As of Aug 31, 2025 (in thousands) | As of Feb 28, 2025 (in thousands) | Change (%) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Cash and cash equivalents | $540,374 | $246,960 | 118.8% | | Inventory | $3,149,570 | $3,934,622 | -20.0% | | Auto loans held for investment, net | $16,386,236 | $17,242,789 | -4.9% | | TOTAL ASSETS | $27,079,644 | $27,404,206 | -1.2% | | TOTAL LIABILITIES | $20,879,122 | $21,161,218 | -1.3% | | TOTAL SHAREHOLDERS' EQUITY | $6,200,522 | $6,242,988 | -0.7% | [Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Consolidated Statements of Cash Flows (Unaudited) – Key Metrics (Six Months Ended Aug 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :--------------------------------- | :------------------ | :------------------ | :--------- | | NET CASH PROVIDED BY OPERATING ACTIVITIES | $1,085,037 | $501,414 | 116.4% | | NET CASH USED IN INVESTING ACTIVITIES | $(272,466) | $(215,463) | 26.5% | | NET CASH USED IN FINANCING ACTIVITIES | $(467,706) | $(283,067) | 65.9% | | Increase in cash, cash equivalents, and restricted cash | $344,865 | $2,884 | 11865.1% | | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $1,305,175 | $1,253,294 | 4.1% | [Consolidated Statements of Shareholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)) Consolidated Statements of Shareholders' Equity (Unaudited) – Key Metrics (Six Months Ended Aug 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :--------------------------------- | :------------------ | :------------------ | :--------- | | Net earnings | $305,759 | $285,249 | 7.2% | | Other comprehensive loss | $(24,386) | $(50,222) | -51.4% | | Share-based compensation expense | $54,328 | $54,036 | 0.5% | | Repurchases of common stock | $(384,873) | $(213,305) | 80.4% | | Balance as of August 31 | $6,200,522 | $6,179,609 | 0.3% | [Notes to Consolidated Financial Statements (Unaudited)](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) [1. Background](index=13&type=section&id=1.%20Background) CarMax operates in two segments: CarMax Sales Operations and CarMax Auto Finance, emphasizing an omni-channel customer experience - CarMax operates in two reportable segments: **CarMax Sales Operations** and **CarMax Auto Finance (CAF)**[25](index=25&type=chunk) - The company offers an **omni-channel experience**, empowering customers to buy vehicles online, in-store, or through a seamless combination[27](index=27&type=chunk) - ASU 2025-05 (credit losses for accounts receivable) is effective for fiscal year beginning **March 1, 2026**, and is not expected to have a material effect[31](index=31&type=chunk)[32](index=32&type=chunk) - ASU 2025-06 (internal-use software costs) is effective for fiscal year beginning **March 1, 2028**, and its effects are currently being evaluated[33](index=33&type=chunk) [2. Revenue](index=15&type=section&id=2.%20Revenue) CarMax recognizes revenue upon transfer of control, primarily from vehicle sales, EPPs, and third-party finance fees - Revenue is recognized when control of the good or service has been transferred to the customer, generally at the time of sale or upon delivery[34](index=34&type=chunk) Disaggregation of Revenue (Three Months Ended August 31) | Revenue Type | 2025 (in millions) | 2024 (in millions) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | | Used vehicle sales | $5,270.7 | $5,677.1 | -7.2% | | Wholesale vehicle sales | $1,149.6 | $1,154.5 | -0.4% | | Extended protection plan revenues | $115.1 | $121.4 | -5.2% | | Total net sales and operating revenues | $6,594.7 | $7,013.5 | -6.0% | - Profit-sharing revenues from ESPs are generally not recognized before they are paid due to variable consideration constraints[39](index=39&type=chunk) [3. CarMax Auto Finance](index=16&type=section&id=3.%20CarMax%20Auto%20Finance) CAF provides financing for CarMax retail vehicle purchases, aiming for additional profits and reduced reliance on third-party sources - CAF provides financing to qualified retail customers purchasing vehicles from CarMax to capture additional profits, cash flows, and sales while managing reliance on third-party finance sources[43](index=43&type=chunk) Components of CAF Income (Three Months Ended August 31) | Metric | 2025 (in millions) | 2024 (in millions) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | | Interest and fee income | $489.8 | $464.5 | 5.4% | | Interest expense | $(199.2) | $(193.7) | 2.8% | | Total interest margin | $290.6 | $270.8 | 7.3% | | Provision for loan losses | $(142.2) | $(112.6) | 26.3% | | CarMax Auto Finance income | $102.6 | $115.6 | -11.2% | Components of CAF Income (Six Months Ended August 31) | Metric | 2025 (in millions) | 2024 (in millions) | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | | Interest and fee income | $975.2 | $917.0 | 6.3% | | Interest expense | $(396.7) | $(376.0) | 5.5% | | Total interest margin | $578.5 | $541.0 | 6.9% | | Provision for loan losses | $(243.9) | $(193.8) | 25.8% | | CarMax Auto Finance income | $244.3 | $262.6 | -7.0% | - CAF income does not include any allocation of indirect costs[45](index=45&type=chunk) [4. Auto Loans Held for Investment](index=17&type=section&id=4.%20Auto%20Loans%20Held%20for%20Investment) Auto loans held for investment are customer loans for retail vehicle sales, net of allowance for estimated loan losses Auto Loans Held for Investment, Net (in millions) | Metric | As of Aug 31, 2025 | As of Feb 28, 2025 | Change (%) | | :--------------------------------- | :----------------- | :----------------- | :--------- | | Auto loans held for investment | $16,779.7 | $17,594.6 | -4.6% | | Less: allowance for loan losses | $(507.3) | $(458.7) | 10.6% | | Auto loans held for investment, net | $16,386.2 | $17,242.8 | -4.9% | - The allowance for loan losses as a percent of total auto loans held for investment increased by **41 basis points** during the first six months of fiscal 2026, primarily due to unfavorable loan loss performance in loans originated in **2022 and 2023**[58](index=58&type=chunk) Past Due Loans (As of August 31, 2025, in millions) | Delinquency Status | Total Auto Loans Held for Investment | % of Total | | :--------------------------------- | :--------------------------------- | :--------- | | Current | $15,835.6 | 94.37% | | 31-60 days past due | $530.2 | 3.16% | | 61-90 days past due | $338.6 | 2.02% | | Greater than 90 days past due | $75.3 | 0.45% | | Total past due | $944.1 | 5.63% | | Total auto loans held for investment | $16,779.7 | 100.00% | [5. Derivative Instruments and Hedging Activities](index=21&type=section&id=5.%20Derivative%20Instruments%20and%20Hedging%20Activities) CarMax uses derivative instruments, mainly interest rate swaps, to manage interest rate risks on debt issuances - CarMax uses derivative instruments to manage exposures related to future known receipt or payment of uncertain cash amounts, primarily impacted by interest rates[63](index=63&type=chunk) Interest Rate Swaps Designated as Cash Flow Hedges (Notional Amount) | Date | Notional Amount (in billions) | | :--------------------------------- | :---------------------------- | | As of August 31, 2025 | $4.31 | | As of February 28, 2025 | $3.76 | - An estimated **$20.3 million** will be reclassified from AOCL as an increase to CAF income during the next **12 months**[64](index=64&type=chunk) [6. Fair Value Measurements](index=21&type=section&id=6.%20Fair%20Value%20Measurements) CarMax measures assets and liabilities at fair value using a three-tier hierarchy based on input observability Items Measured at Fair Value on a Recurring Basis (As of August 31, 2025, in thousands) | Category | Level 1 | Level 2 | Total | | :--------------------------------- | :-------- | :-------- | :-------- | | Assets: Money market securities | $1,186,946 | — | $1,186,946 | | Assets: Mutual fund investments | $31,906 | — | $31,906 | | Assets: Derivative instruments designated as hedges | — | $734 | $734 | | Total assets at fair value | $1,218,852 | $734 | $1,219,586 | | Liabilities: Derivative instruments designated as hedges | — | $(11,899) | $(11,899) | Fair Value of Financial Instruments Not Carried at Fair Value (As of August 31, 2025, in thousands) | Instrument | Carrying Value | Fair Value | | :--------------------------------- | :------------- | :----------- | | Auto loans held for sale | $921,928 | $959,724 | | Senior unsecured notes | $400,000 | $395,202 | - Derivative instruments are classified as **Level 2** because their valuation models include inputs other than quoted prices in active markets, such as market-based expectations for interest rates and contractual terms[73](index=73&type=chunk) [7. Cancellation Reserves](index=24&type=section&id=7.%20Cancellation%20Reserves) A refund liability is recorded for estimated contract cancellations of Extended Protection Plan products, based on forecasted curves - A reserve, or refund liability, is recorded for estimated contract cancellations of **EPP products**, recognized on a net basis at the time of sale[80](index=80&type=chunk) Cancellation Reserves (Six Months Ended August 31, in millions) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :--- | :--- | :--------- | | Balance as of beginning of period | $133.9 | $128.3 | 4.4% | | Cancellations | $(39.9) | $(43.9) | -9.1% | | Provision for future cancellations | $41.9 | $49.3 | -15.0% | | Balance as of end of period | $135.9 | $133.7 | 1.6% | - The current portion of estimated cancellation reserves was **$72.3 million** as of **August 31, 2025**[81](index=81&type=chunk) [8. Income Taxes](index=24&type=section&id=8.%20Income%20Taxes) CarMax reported gross unrecognized tax benefits of $20.6 million; recent tax act changes are not expected to materially impact the effective tax rate Gross Unrecognized Tax Benefits (in millions) | Date | Amount | | :--------------------------------- | :----- | | As of August 31, 2025 | $20.6 | | As of February 28, 2025 | $18.0 | - The **One Big Beautiful Bill Act (OBBBA)**, enacted **July 4, 2025**, made **100% bonus depreciation permanent** and modified the business interest expense limitation calculation[83](index=83&type=chunk) - These changes increased deferred tax expense and decreased current tax expense, but are not expected to materially impact the **fiscal 2026 effective tax rate**[83](index=83&type=chunk) [9. Debt](index=24&type=section&id=9.%20Debt) CarMax's total debt was $18.64 billion, primarily non-recourse notes, with a $2.00 billion revolving credit facility available Total Debt (in thousands) | Date | Amount | | :--------------------------------- | :------------- | | As of August 31, 2025 | $18,643,782 | | As of February 28, 2025 | $18,707,207 | - Non-recourse notes payable totaled **$17.06 billion** as of **August 31, 2025**, primarily funding auto loans held for investment[84](index=84&type=chunk) - The **$2.00 billion unsecured revolving credit facility** had **$2.00 billion** of unused capacity fully available as of **August 31, 2025**[85](index=85&type=chunk) - CarMax was in compliance with all financial covenants and non-recourse funding vehicle performance triggers as of **August 31, 2025**[93](index=93&type=chunk) [10. Stock and Stock-Based Incentive Plans](index=26&type=section&id=10.%20Stock%20and%20Stock-Based%20Incentive%20Plans) CarMax has $1.56 billion remaining for common stock repurchases under a $2.0 billion authorization; share-based compensation decreased - As of **August 31, 2025**, **$1.56 billion** remained available for common stock repurchases under a **$2.0 billion** board authorization[94](index=94&type=chunk) Common Stock Repurchases (Three Months Ended August 31) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :--------- | :--------- | :--------- | | Number of shares repurchased (in thousands) | 2,921.0 | 1,376.7 | 112.2% | | Average cost per share | $61.63 | $77.04 | -20.1% | Share-Based Compensation Expense (Before Income Taxes, in thousands) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $24,813 | $35,221 | -29.5% | | Six Months Ended August 31 | $72,472 | $84,016 | -13.8% | [11. Net Earnings Per Share](index=27&type=section&id=11.%20Net%20Earnings%20Per%20Share) Basic and diluted net earnings per share are computed by dividing net earnings by weighted average common shares outstanding Net Earnings Per Share | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Basic Net Earnings Per Share | $0.64 | $0.85 | $2.03 | $1.82 | | Diluted Net Earnings Per Share | $0.64 | $0.85 | $2.02 | $1.82 | - For the three months ended **August 31, 2025**, options to purchase **8,610,659 shares** of common stock were not included in diluted EPS calculation because their inclusion would have been antidilutive[100](index=100&type=chunk) [12. Accumulated Other Comprehensive (Loss) Income](index=28&type=section&id=12.%20Accumulated%20Other%20Comprehensive%20(Loss)%20Income) This section details changes in AOCL, reflecting unrecognized actuarial losses and cash flow hedge gains/losses Accumulated Other Comprehensive (Loss) Income (in thousands) | Date | Amount | | :--------------------------------- | :------- | | Balance as of February 28, 2025 | $3,080 | | Other comprehensive loss (6 months ended Aug 31, 2025) | $(24,386) | | Balance as of August 31, 2025 | $(21,306) | Net Change in Cash Flow Hedge Unrecognized Gains, Net of Tax (Six Months Ended August 31, in thousands) | Year | Amount | | :--------------------------------- | :------- | | 2025 | $(24,538) | | 2024 | $(50,391) | [13. Leases](index=28&type=section&id=13.%20Leases) CarMax's leases include operating and finance leases for stores and equipment, with ROU assets and lease liabilities measured at present value Lease Assets and Liabilities (As of August 31, 2025, in thousands) | Metric | Amount | | :--------------------------------- | :------- | | Operating lease assets | $476,367 | | Finance lease assets | $152,483 | | Total lease assets | $628,850 | | Current portion of operating lease liabilities | $57,948 | | Operating lease liabilities, excluding current portion | $463,844 | | Total lease liabilities | $720,426 | Lease Term and Discount Rate (As of August 31, 2025) | Metric | Operating Leases | Finance Leases | | :--------------------------------- | :--------------- | :------------- | | Weighted Average Remaining Lease Term (in years) | 15.51 | 14.13 | | Weighted Average Discount Rate | 5.28% | 16.67% | Total Lease Cost (Six Months Ended August 31, in thousands) | Year | Amount | | :--------------------------------- | :------- | | 2025 | $70,593 | | 2024 | $66,490 | [14. Supplemental Cash Flow Information](index=30&type=section&id=14.%20Supplemental%20Cash%20Flow%20Information) This section provides supplemental disclosures of non-cash investing and financing activities for the six months ended August 31 Non-Cash Investing and Financing Activities (Six Months Ended August 31, in thousands) | Metric | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Increase in accrued capital expenditures | $8,228 | $816 | | Increase in financing obligations | $6,836 | — | [15. Contingent Liabilities](index=31&type=section&id=15.%20Contingent%20Liabilities) CarMax is involved in legal proceedings and provides a limited warranty; management expects no material adverse effect - CarMax received **$59.3 million** in net recoveries from Takata airbag settlements on **April 21, 2023**, and **$7.9 million** in additional residual funds on **August 9, 2023**[109](index=109&type=chunk) - The company guarantees retail used vehicles with a **90-day/4,000-mile limited warranty**[112](index=112&type=chunk) Liability for Vehicle Warranty (in millions) | Date | Amount | | :--------------------------------- | :----- | | As of August 31, 2025 | $30.3 | | As of February 28, 2025 | $28.8 | - Management believes the ultimate resolution of legal proceedings will not have a **material adverse effect** on financial condition, results of operations, or cash flows[110](index=110&type=chunk) [16. Subsequent Event](index=31&type=section&id=16.%20Subsequent%20Event) CarMax executed a non-prime securitization transaction, selling $930 million of auto loans, expecting a gain on sale and additional CAF income - On **September 24, 2025**, CarMax executed a non-prime securitization transaction, selling approximately **$930 million** of auto loans[113](index=113&type=chunk) - The transaction is expected to result in a **gain on sale** of approximately **$25 million to $30 million** (net of transaction expenses) in the **third quarter of fiscal 2026**[113](index=113&type=chunk) - CarMax expects to receive approximately **$40 million to $45 million** in additional CAF income related to servicing fees and retained beneficial interest over the life of the transaction[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of CarMax's financial condition and results of operations for periods ended August 31, 2025 [OVERVIEW](index=32&type=section&id=OVERVIEW) CarMax, the largest used vehicle retailer, operates CarMax Sales Operations and CAF, focusing on omni-channel experience and strategic growth - CarMax operates in two reportable segments: **CarMax Sales Operations** and **CarMax Auto Finance (CAF)**[117](index=117&type=chunk) Key Performance Indicators (Six Months Ended August 31) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :--------- | :--------- | :--------- | | Used unit sales | 429,939 | 422,152 | 1.8% | | Wholesale unit sales | 287,819 | 289,143 | -0.5% | | Total vehicle purchases | 629,218 | 613,866 | 2.5% | | Digitally enabled transactions | 80% | 72% | 8% pts | | Omni sales | 67% | 57% | 10% pts | | Online retail sales | 13% | 15% | -2% pts | - Strategic priorities include investing in digital capabilities, expanding CAF's full credit spectrum, pursuing new growth opportunities, and returning excess capital to shareholders, with plans to accelerate **share repurchases in fiscal 2026**[127](index=127&type=chunk) - Initiatives for fiscal 2026 include leveraging data science and AI for digital experiences, improving online vehicle transfer, expanding Skye (AI virtual assistant) functionality, launching a new brand positioning campaign, streamlining online appraisal, and expanding CAF's credit spectrum[131](index=131&type=chunk) - The company achieved **$125 per unit savings** in cost of sales in **fiscal 2025** and anticipates another **$125 per unit** in **fiscal 2026**[132](index=132&type=chunk) - CarMax aims to achieve SG&A as a percent of gross profit in the **mid-70% range annually** and expects at least **$150 million in SG&A expense reductions** over the next **18 months**[133](index=133&type=chunk)[134](index=134&type=chunk) - The earnings model is designed to deliver an earnings per share compound annual growth rate (CAGR) in the **high teens** when used unit growth is in the **mid-single digits**[136](index=136&type=chunk) [Revenues and Profitability](index=33&type=section&id=Revenues%20and%20Profitability) Net sales and operating revenues decreased in Q2 but increased for the first six months, with varied performance across vehicle sales Net Sales and Operating Revenues (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $6,594.7 | $7,013.5 | -6.0% | | Six Months Ended August 31 | $14,141.2 | $14,126.9 | 0.1% | Unit Sales | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Used vehicles (3 months) | 199,729 | 211,020 | -5.4% | | Used vehicles (6 months) | 429,939 | 422,152 | 1.8% | | Wholesale vehicles (3 months) | 138,302 | 141,458 | -2.2% | | Wholesale vehicles (6 months) | 287,819 | 289,143 | -0.5% | Average Selling Prices | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Used vehicles (3 months) | $25,993 | $26,245 | -1.0% | | Wholesale vehicles (3 months) | $7,891 | $7,768 | 1.6% | Comparable Store Used Vehicle Sales Changes (Units) | Period | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Three Months Ended August 31 | -6.3% | 4.3% | | Six Months Ended August 31 | 0.9% | 0.1% | Other Sales and Revenues (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $174.4 | $182.0 | -4.2% | | Six Months Ended August 31 | $364.8 | $361.5 | 0.9% | Used Vehicle Financing Penetration by Channel (Six Months Ended August 31) | Channel | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | CAF | 42.1% | 42.6% | | Tier 2 | 17.1% | 18.2% | | Tier 3 | 7.7% | 7.1% | | Other | 30.4% | 29.7% | | Total | 100.0% | 100.0% | [GROSS PROFIT](index=38&type=section&id=GROSS%20PROFITS) Total gross profit decreased in Q2 but increased for the first six months, with used vehicle gross profit per unit intentionally lowered Total Gross Profit (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $717.7 | $760.5 | -5.6% | | Six Months Ended August 31 | $1,611.3 | $1,552.4 | 3.8% | Gross Profit Per Unit | Metric | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Used vehicle gross profit per unit | $2,216 | $2,269 | $2,318 | $2,308 | | Wholesale vehicle gross profit per unit | $993 | $975 | $1,021 | $1,020 | | Other gross profit per used unit | $690 | $682 | $746 | $671 | - Used vehicle gross profit per unit was intentionally lowered in **Q2 fiscal 2026** to drive sell-through of inventory in response to depreciation[159](index=159&type=chunk) - Other gross profit increased **13.2%** in the first six months of **fiscal 2026**, primarily driven by increases in service department margins and EPP revenues[163](index=163&type=chunk) - Expect used vehicle gross profit per unit for **Q3 fiscal 2026** to be consistent with historical average but down from the prior year's record high[159](index=159&type=chunk) - Expect wholesale vehicle gross profit per unit for **Q3 fiscal 2026** to be consistent with historical average but down from the prior year's historically strong performance[161](index=161&type=chunk) [SG&A Expenses](index=40&type=section&id=SG%26A%20Expenses) SG&A expenses decreased in Q2 due to lower share-based compensation but increased for the six-month period due to higher compensation Total SG&A Expenses (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $601.1 | $610.6 | -1.6% | | Six Months Ended August 31 | $1,260.7 | $1,249.1 | 0.9% | SG&A as a % of Gross Profit | Period | 2025 | 2024 | Change (bps) | | :--------------------------------- | :----- | :----- | :----------- | | Three Months Ended August 31 | 83.8% | 80.3% | 350 | | Six Months Ended August 31 | 78.2% | 80.5% | -230 | - The decrease in SG&A expenses in **Q2 fiscal 2026** was primarily driven by a **$9.7 million decrease** in share-based compensation expense, related to cash-settled restricted stock units and the company's stock price change[167](index=167&type=chunk) - An increase in marketing spend on a per total unit basis is expected for the remainder of **fiscal 2026**, particularly in **Q3**, to support the new brand positioning launch[170](index=170&type=chunk) [Interest Expense](index=42&type=section&id=Interest%20Expense) Interest expense for Q2 and the first six months remained consistent, excluding interest on non-recourse notes payable Interest Expense (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | | Three Months Ended August 31 | $28.5 | $27.0 | 5.6% | | Six Months Ended August 31 | $55.5 | $58.4 | -5.0% | [Other Income](index=42&type=section&id=Other%20Income) Other income for Q2 and the first six months remained relatively consistent with prior year periods Other Income (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | | Three Months Ended August 31 | $3.6 | $3.3 | 9.1% | | Six Months Ended August 31 | $3.9 | $2.9 | 34.5% | [Income Taxes](index=42&type=section&id=Income%20Taxes) The effective income tax rate for Q2 and the first six months was slightly lower than the prior year periods Effective Income Tax Rate | Period | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Three Months Ended August 31 | 25.0% | 25.3% | | Six Months Ended August 31 | 25.5% | 25.8% | [RESULTS OF OPERATIONS – CARMAX AUTO FINANCE](index=42&type=section&id=RESULTS%20OF%20OPERATIONS%20%E2%80%93%20CARMAX%20AUTO%20FINANCE) CAF income decreased due to increased provision for loan losses, partially offset by higher interest margin; CAF penetration is expanding CarMax Auto Finance Income (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $102.6 | $115.6 | -11.2% | | Six Months Ended August 31 | $244.3 | $262.6 | -7.0% | Total Interest Margin as a Percent of Average Auto Loans Outstanding | Period | 2025 | 2024 | | :--------------------------------- | :----- | :----- | | Three Months Ended August 31 | 6.6% | 6.1% | | Six Months Ended August 31 | 6.5% | 6.1% | Provision for Loan Losses (in millions) | Period | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Three Months Ended August 31 | $142.2 | $112.6 | 26.3% | | Six Months Ended August 31 | $243.9 | $193.8 | 25.8% | - The allowance for loan losses as a percentage of auto loans held for investment was **3.02%** as of **August 31, 2025**, compared with **2.82%** as of **August 31, 2024**[188](index=188&type=chunk) CAF Origination Information (Six Months Ended August 31) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Net auto loans originated (in millions) | $4,358.0 | $4,425.5 | -1.5% | | Vehicle units financed | 181,195 | 179,924 | 0.7% | | Net penetration rate | 42.1% | 42.6% | -0.5% pts | | Weighted average contract rate | 11.3% | 11.4% | -0.1% pts | | Weighted average loan-to-value (LTV) | 89.6% | 89.3% | 0.3% pts | | Weighted average term (in months) | 68.5 | 66.9 | 1.6 months | | Weighted average credit score | 723 | 723 | 0 | - CarMax expects CAF income to be **down slightly year-over-year** for **fiscal 2026**[184](index=184&type=chunk) - The company aims to increase CAF penetration to **50%**, with each additional percentage point generating **$10 million to $12 million** in lifetime pre-tax income per year of origination[179](index=179&type=chunk) [PLANNED FUTURE ACTIVITIES](index=46&type=section&id=PLANNED%20FUTURE%20ACTIVITIES) CarMax plans to open three stores and one reconditioning/auction center, with $575 million in capital expenditures for fiscal 2026 - CarMax anticipates opening **three additional store locations** and **one additional stand-alone reconditioning/auction center** for the remainder of **fiscal 2026**[185](index=185&type=chunk) - Estimated capital expenditures will total approximately **$575 million** in **fiscal 2026**, largely for future long-term growth in offsite reconditioning and auction facilities, as well as new stores[185](index=185&type=chunk) [FINANCIAL CONDITION](index=46&type=section&id=FINANCIAL%20CONDITION) CarMax's liquidity is supported by operations, funding vehicles, and credit facility, with increased operating cash flow and strong compliance - Net cash provided by operating activities totaled **$1.09 billion** in the first six months of **fiscal 2026**, compared with **$501.4 million** in the prior year period, an increase of **116.4%**[190](index=190&type=chunk) - Total inventory decreased by **$785.1 million** as of **August 31, 2025**, compared to the start of the fiscal year, due to a strategic reduction in response to lower consumer demand[191](index=191&type=chunk) Cash Flow Activities (Six Months Ended August 31, in millions) | Activity | 2025 | 2024 | | :--------------------------------- | :------- | :------- | | Net cash used in investing activities | $(272.5) | $(215.5) | | Capital expenditures | $(268.2) | $(213.1) | | Net cash used in financing activities | $(467.7) | $(283.1) | | Stock repurchases | $(384.9) | $(213.3) | Total Debt and Cash and Cash Equivalents (in thousands) | Metric | As of August 31, 2025 | As of February 28, 2025 | | :--------------------------------- | :-------------------- | :-------------------- | | Total debt | $18,643,782 | $18,707,207 | | Cash and cash equivalents | $540,374 | $246,960 | - As of **August 31, 2025**, CarMax was in compliance with all financial covenants in its credit facility, term loan, and senior note agreements[198](index=198&type=chunk) [FORWARD-LOOKING STATEMENTS](index=49&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section contains cautionary forward-looking statements about CarMax's future plans, highlighting various risks and uncertainties - Statements about future business plans, operations, challenges, opportunities, or prospects are **forward-looking statements**[206](index=206&type=chunk) - Key risk factors include changes in the competitive landscape, general or regional U.S. economic conditions (**inflation, interest rates**), availability or cost of capital, damage to reputation, significant changes in vehicle prices, and greater credit losses for CAF's auto loan portfolio[206](index=206&type=chunk) - The company disclaims any intent or obligation to update these forward-looking statements after the date they are made[206](index=206&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to CarMax's market risk exposure since February 28, 2025, as referenced in the Annual Report on Form 10-K - There have been **no material changes** to CarMax's market risk since **February 28, 2025**[207](index=207&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) CarMax's disclosure controls and procedures were effective as of August 31, 2025, with no material changes in internal control - CarMax's disclosure controls and procedures were **effective** as of **August 31, 2025**[208](index=208&type=chunk) - There was **no material change** in internal control over financial reporting during the quarter ended **August 31, 2025**[209](index=209&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Refer to Note 15 of the consolidated financial statements for a discussion of CarMax's legal proceedings - For a discussion of certain legal proceedings, refer to **Note 15** to the consolidated financial statements[212](index=212&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors discussed in CarMax's Form 10-K for fiscal year ended February 28, 2025 - There have been **no material changes** to the risk factors discussed in the Form 10-K for fiscal year ended **February 28, 2025**[213](index=213&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) CarMax's common stock repurchase program had $1.56 billion remaining under a $2.0 billion authorization as of August 31, 2025 - As of **August 31, 2025**, **$1.56 billion** remained available for repurchase under a **$2.0 billion** board authorization for common stock repurchases[214](index=214&type=chunk)[216](index=216&type=chunk) Common Stock Repurchase Activity (Second Quarter of Fiscal 2026) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------------- | :----------------------------- | :--------------------------- | | June 1 - 30, 2025 | 662,641 | $66.48 | | July 1 - 31, 2025 | 1,007,413 | $63.45 | | August 1 - 31, 2025 | 1,250,905 | $57.60 | | Total | 2,920,959 | $61.63 | [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (**31.1, 31.2, 32.1, 32.2**)[218](index=218&type=chunk) - Various **XBRL Taxonomy Extension Documents** (Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase) are included[218](index=218&type=chunk) [SIGNATURES](index=53&type=section&id=SIGNATURES) The report is duly signed by CarMax's President and CEO and Executive VP and CFO on September 26, 2025 - The report was signed by **William D. Nash**, President and Chief Executive Officer, and **Enrique N. Mayor-Mora**, Executive Vice President and Chief Financial Officer[221](index=221&type=chunk) - The signing date was **September 26, 2025**[221](index=221&type=chunk)

Core Insights - CarMax, Inc. is positioned to benefit from its extensive footprint, strategic acquisitions, and investor-friendly initiatives, despite concerns over reciprocal tariffs and a stretched balance sheet [1] Strategic Initiatives - CarMax's extensive nationwide footprint and logistics network provide a competitive advantage, with the company building more reconditioning centers to enhance efficiency and reduce costs [2] - The acquisition of Edmunds has strengthened CarMax's position in the used auto market, improving its digital capabilities and technology expertise [3] - Collaboration with Recurrent offers insights into used EV batteries, reinforcing CarMax's leadership in the used EV sales sector [3] - The focus on omnichannel initiatives, including an online appraisal tool and MaxOffer for digital instant offers, is expected to drive higher vehicle purchase volumes [4] Financial Performance - In Q2 of fiscal 2026, CarMax repurchased $180 million worth of shares, with a total of 5.5 million shares bought back in fiscal 2025, leaving $1.56 billion in repurchase authorization [5] Challenges - CarMax's balance sheet is stretched, with cash and cash equivalents of $540.4 million and long-term debt of $1.37 billion as of August 31, 2025, resulting in a long-term debt-to-capital ratio of 0.74, significantly higher than the auto sector's 0.19 [7] - Reciprocal tariffs could impact the supply and cost of auto parts and vehicles, potentially increasing costs for acquiring used inventory and reducing profit margins [8] - The automotive retail market is highly competitive, with CarMax facing challenges from traditional dealers, online platforms, and private sellers, which could pressure margins and business models [9][10]

Core Viewpoint - CarMax's stock price has experienced a significant decline of 25% following the Q2 earnings release, reaching levels comparable to the lows seen during the COVID-19 pandemic, which may present a potential recovery opportunity in the future [1][2]. Financial Performance - CarMax reported a challenging Q2 with a 6% contraction in revenue, falling short of consensus estimates by 600 basis points, primarily due to weak unit sales and declining sales prices [7]. - The company experienced a 5.4% decline in retail units, despite an increase in store count, and a 6.3% drop in comparable store sales [8]. - GAAP EPS was reported at $0.64, down 21% year-over-year and approximately 4000 basis points below consensus expectations [9]. Market Outlook - Analysts have a 12-month stock price forecast for CarMax at $74.00, indicating a potential upside of 62.07%, with a moderate buy rating based on 14 analyst ratings [7]. - The stock is currently viewed as a deep value at around $45.50, significantly below the low-end target, but expectations for a robust price rebound are tempered until market sentiment improves [11]. Consumer Behavior and Economic Conditions - There are indications that consumers may continue to avoid large-ticket discretionary items, such as cars, for at least another quarter or two, which could lead to underperformance until 2026 [2]. - The Federal Open Market Committee (FOMC) is expected to reduce rates by another 75 basis points by mid-2026, which could signal a potential improvement in consumer demand [4]. Institutional Activity - Approximately 96% of CarMax's stock is owned by institutions, and while there is a risk of position trimming, it seems unlikely given the outlook for cash flow and growth resumption [12]. - Institutional buying has outpaced selling in Q1 and Q3, indicating a bullish sentiment for 2025 [11].

Monetary Policy and Economic Outlook - The People's Bank of China (PBOC) is focusing on significant adjustments to its financial strategy, recommending improvements in money policy changes and tightening control over money regulation, which may impact global markets and trade [2][10] - Canada's Carney describes the current global economic climate as a rupture rather than a transition, indicating profound economic shifts [3] Corporate Strategy - RBC's CEO McKay has announced an aggressive growth strategy to acquire U.S. companies, aiming to enhance their wealth adviser team and expand in the U.S. wealth management sector [4][10] - JPMorgan has lowered its target price for CarMax (KMX) from $65 to $50, reflecting a more cautious outlook on the company's future performance [5][10] Trade Relations - The European Union and Vietnam are advancing their Free Trade Agreement (FTA), with a task force set to address outstanding issues and anticipated investments in renewable energy and semiconductors, aiming for more balanced commerce [6][10] Inflation and Domestic Policy - A Citi/YouGov Poll indicates that UK short-term inflation expectations remain unchanged at 4.0% in September, while longer-term expectations have increased to 4.1% from 3.9%, suggesting persistent inflationary concerns [7][10] - Sir Keir Starmer announced that a new, free-of-charge digital ID will be mandatory in the UK by the end of the current Parliament, emphasizing that individuals will need this ID to work [8]

We recently published 10 Big Names Investors Are Dumping. CarMax, Inc. (NYSE:KMX) is one of the companies that heavily bled in Thursday’s trading. Shares of CarMax fell to an all-time low on Thursday, as investors disposed of positions after disappointing second-quarter earnings results. During the session, the company fell to its lowest 52-week price of $42.75 before slight buying trimmed its losses to end the day just down by 20.07 percent at $45.60 apiece. CarMax (KMX) Falls to All-Time Low as Q2 Ear ...

The CNN Money Fear and Greed index showed a decline in the overall market sentiment, while the index remained in the “Greed” zone on Thursday.U.S. stocks settled lower on Thursday, with the Nasdaq Composite falling more than 100 points during the session. The S&P 500 fell for the third session in a row.Accenture (NYSE: ACN) posted better-than-expected fourth-quarter 2025 results on Thursday. Shares of CarMax, Inc. (NYSE: KMX) dipped 20% on Thursday after the company reported second-quarter EPS and sales bel ...

Economic Data and Federal Reserve Outlook - Recent economic data has created uncertainty regarding the Federal Reserve's future interest rate cuts, with initial jobless claims dropping by 14,000 to a seasonally adjusted 218,000 for the week ended September 20 [10][11] - The U.S. economy grew faster than previously estimated in the second quarter, driven by strong consumer spending and business investment [10][11] - Investor expectations for another 25 basis points cut in the Fed's October meeting have decreased to 83.4%, down from approximately 92% [10][11] Market Performance - Most S&P 500 sectors ended lower, with energy gaining 0.9% and technology increasing by 0.03%, largely due to Intel's shares rising by 8.9% [5][11] - The Dow Jones Industrial Average fell by 173.96 points (0.38%) to 45,947.32, the S&P 500 lost 33.25 points (0.50%) to 6,604.72, and the Nasdaq Composite decreased by 113.16 points (0.50%) to 22,384.70 [6][11] - CarMax shares dropped by 20.1% following a report of lower second-quarter profit, while Accenture shares fell by 2.7% despite reporting revenue above expectations [6][11] Investor Sentiment and Future Expectations - Investors are keenly awaiting upcoming quarterly results from companies, particularly as market valuations are considered high after recent record highs [7][11] - There is a mixed sentiment among monetary policymakers regarding the direction of interest rates, with some advocating for accelerated policy easing [8][11] - The upcoming monthly U.S. jobs report is anticipated to be significant for market direction [7][11]

Market Overview - The stock market experienced a downturn, with the S&P 500 and Nasdaq closing lower, and the Dow Jones declining over 170 points [1] - Major U.S. indices saw the Dow Jones Industrial Average down nearly 0.4% to 45,947.32, the S&P 500 off 0.5% to 6,604.72, and the Nasdaq lower by 0.5% at 22,384.69 [1] Costco Wholesale Corporation - Costco reported better-than-expected fourth-quarter results, with revenue rising 8% year-over-year to $86.16 billion and adjusted earnings at $5.87 per share [2] - Comparable sales increased by 5.7%, and membership fee revenue rose to $1.72 billion following the first fee hike since 2017 [2] - Costco shares dipped 0.88% to $935.04 in after-hours trading [2] Oracle Corporation - Oracle's stock fell by 5.55% to close at $291.33, with a high of $298.75 and a low of $288.55 [3] - The stock rose 0.44% to $292.60 in after-hours trading [3] - An executive order by President Trump approved a $14 billion deal for Oracle to manage TikTok's U.S. security operations and provide cloud services [4] International Business Machines Corporation (IBM) - IBM shares surged 5.20% to $281.44, with an intraday peak at $284.23 and a low of $271.15 [5] - The rise followed IBM's announcement of a quantum computing breakthrough in collaboration with HSBC, enhancing bond trading predictions [5] CarMax Inc - CarMax shares plummeted 20.07% to $45.60, marking a new 52-week low [6] - The decline followed disappointing second-quarter results, with EPS falling to $0.64 versus expectations of $1.09, and sales dropping 6% year-over-year to $6.59 billion [6] BlackBerry Limited - BlackBerry's stock rose 8.90% to $4.65, reaching a high of $4.66 and a low of $4.19 [7] - The company reported strong second-quarter results, with earnings of $0.04 per share, surpassing the consensus estimate of $0.01, and revenue rose 3% year-over-year to $129.6 million [8]

Core Insights - CarMax reported disappointing earnings, with revenue and vehicle sales falling short of analyst expectations, leading to a nearly 20% drop in stock price, reaching levels not seen since March 2020 [1] - The CEO indicated that performance worsened month by month during the quarter, highlighting a significant increase in loan loss provisions by 26% compared to the same quarter last year, indicating deteriorating loan quality [1][1] - The auto delinquency rate in the industry is currently at 2.54%, raising concerns about consumer strength and potential future delinquency rates reminiscent of the 2008-2009 financial crisis [1][1] Company Performance - CarMax's vehicle sales, both retail and wholesale, declined, contributing to the overall poor performance in key metrics [1] - The increase in loan loss provisions suggests a growing concern regarding delinquencies and defaults, particularly for loans issued in 2022 and 2023 [1][1] Industry Context - Despite CarMax's struggles, auto suppliers have performed well since early April, particularly after tariff announcements, as they have successfully passed on costs to automakers [1] - Stocks of auto suppliers such as Viston, Magna, BorgWarner, and Lear have outperformed major indices like the Dow Jones Industrial Average and S&P 500 over the past six months [1][1]