Core Viewpoint - Analysts project that CarMax (KMX) will report quarterly earnings of $1.03 per share, reflecting a year-over-year increase of 21.2%, with revenues expected to reach $7.05 billion, a 0.6% increase from the same quarter last year [1]. Earnings Estimates - Over the last 30 days, the consensus EPS estimate has been revised upward by 0.1%, indicating a collective reassessment by analysts [2]. - Revisions to earnings estimates are significant indicators for predicting investor actions regarding the stock, with empirical research showing a strong correlation between earnings estimate trends and short-term stock price performance [3]. Key Metrics Projections - Analysts estimate 'Net sales and operating revenues- Used vehicle' at $5.78 billion, a 1.9% increase from the prior-year quarter [5]. - 'Net sales and operating revenues- Wholesale vehicle' is projected at $1.16 billion, reflecting a 0.4% increase from the year-ago quarter [5]. - 'Net sales and operating revenues- Other sales and revenues' is expected to be $186.64 million, indicating a year-over-year change of 2.6% [6]. - 'Other sales and revenues- Extended protection plan revenues' is forecasted to reach $126.26 million, suggesting a 4% year-over-year change [6]. Operational Metrics - The total number of stores is projected to be 252, up from 247 in the same quarter last year [7]. - The average selling price for used vehicles is expected to be $26.29 thousand, slightly up from $26.25 thousand in the same quarter of the previous year [7]. - The consensus estimate for 'Gross Profit per Unit - Used vehicle' stands at $2,294.14, compared to $2,269.00 in the same quarter last year [8]. - 'Unit Sales - Wholesale vehicles' are expected to reach 145,484, up from 141,458 in the same quarter last year [9]. - 'Unit Sales - Combined retail and wholesale used vehicle' is projected at 361,780, compared to 352,478 a year ago [9]. - 'Unit Sales - Used vehicles' is estimated at 216,296, compared to 211,020 in the same quarter last year [10]. Market Performance - Over the past month, CarMax shares have returned -2.7%, while the Zacks S&P 500 composite has changed by +4% [11].

Core Insights - CarMax is launching a new brand positioning with the tagline "Wanna Drive?" to emphasize its customer-centric, omni-channel car-buying experience [1][4][10] - The new approach aims to empower customers by allowing them to shop online, in-store, or switch between both seamlessly, setting a new standard in the used car retail industry [3][10] Brand Positioning - The new tagline "Wanna Drive?" replaces the previous tagline that had been in use for over 20 years, reflecting the evolution of CarMax and its commitment to customer empowerment [7][10] - CarMax's omni-channel experience allows customers to have control over their car-buying journey, providing clarity and confidence [10][12] Customer Experience - CarMax has achieved its highest Net Promoter Score since the rollout of its digital capabilities, indicating increased customer satisfaction, particularly among those using online and mixed shopping options [4][10] - The company emphasizes honesty, integrity, and innovation as core values that differentiate it from traditional and online-only dealers [4][10] Marketing Campaign - The campaign features the CarMax House Band, which represents the journey of car buying and selling, with creative spots designed to resonate with customers [11][12] - The marketing strategy includes a phased rollout across various platforms, including linear TV, streaming, social media, and audio [12]

Stock Recommendations - Uber is near its all-time high and is expected to reach $100 [1] - IBM is 20% off its recent highs and trades at a reasonable 21 times earnings [1] - Alexandria Real Estate is showing signs of bottoming, offering a 7% yield [1] - CarMax trades at 14 times earnings with a 75% free cash flow yield and an anticipated 20% earnings growth [2] Industry Focus - Life Sciences Real Estate is starting to bottom [2] - Tariffs may benefit certain companies [2]

Group 1 - The average cost of a new light vehicle has reached $48,000, indicating a significant increase in automobile prices in recent years [1] - The introduction of tariffs is expected to further drive up new car prices, providing potential tailwinds for the automotive market [1] - Observing megatrends can yield insights into societal advancements and investment opportunities, although identifying the right companies to capitalize on these trends is challenging [1] Group 2 - The focus on fundamentals, quality of leadership, and product pipeline is essential for uncovering investment opportunities, especially in medium-sized companies and startups [1] - The analyst has experience in evaluating startups and emerging industries, which can provide valuable insights into market dynamics [1]

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the three months ended May 31, 2025, and 2024, including Statements of Earnings, Comprehensive Income, Balance Sheets, Cash Flows, and Shareholders' Equity, reporting net sales of $7,546,541 thousand and net earnings of $210,381 thousand for the quarter ended May 31, 2025, with total assets of $27,386,405 thousand Consolidated Statements of Earnings Highlights | Indicator | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net Sales and Operating Revenues | $7,546,541 thousand | $7,113,397 thousand | | Gross Profit | $893,623 thousand | $791,895 thousand | | Net Earnings | $210,381 thousand | $152,440 thousand | | Diluted Net Earnings Per Share | $1.38 | $0.97 | Consolidated Balance Sheets Highlights | Indicator | As of May 31, 2025 | As of February 28, 2025 | | :--- | :--- | :--- | | Total Current Assets | $5,452,591 thousand | $5,077,636 thousand | | Total Assets | $27,386,405 thousand | $27,404,206 thousand | | Total Current Liabilities | $2,277,352 thousand | $2,197,971 thousand | | Total Liabilities | $21,099,496 thousand | $21,161,218 thousand | | Total Shareholders' Equity | $6,286,909 thousand | $6,242,988 thousand | Consolidated Statements of Cash Flows Highlights | Indicator | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $299,543 thousand | ($117,689) thousand | | Net Cash Used In Investing Activities | ($141,189) thousand | ($105,870) thousand | | Net Cash Used In Financing Activities | ($129,425) thousand | ($112,384) thousand | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on the company's accounting policies and financial data, covering revenue recognition, CarMax Auto Finance (CAF) operations, auto loan portfolio composition and credit quality, debt structure, and share-based compensation, with the allowance for loan losses at **2.76%** of auto loans held for investment and total debt at **$18,786,084 thousand** as of May 31, 2025 - CarMax operates two reportable segments: CarMax Sales Operations (auto merchandising and service) and CarMax Auto Finance (CAF), which provides financing to customers[22](index=22&type=chunk) Disaggregation of Revenue (In millions) | Revenue Source | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Used vehicle sales | $6,103.4 | $5,677.5 | | Wholesale vehicle sales | $1,252.7 | $1,256.4 | | Extended protection plan revenues | $131.7 | $118.8 | | **Total net sales and operating revenues** | **$7,546.5** | **$7,113.4** | CarMax Auto Finance Income (In millions) | Component | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Total interest margin | $287.9 | $270.2 | | Provision for loan losses | ($101.7) | ($81.2) | | Total direct expenses | ($44.5) | ($42.0) | | **CarMax Auto Finance income** | **$141.7** | **$147.0** | - The allowance for loan losses increased to **$474.2 million** (**2.76%** of loans held for investment) as of May 31, 2025, up from **$458.7 million** (**2.61%**) at the end of the prior fiscal year, driven by unfavorable loan loss performance, particularly from 2022 and 2023 originations, partially offset by the release of allowance for loans reclassified to held for sale[50](index=50&type=chunk) Debt Composition as of May 31, 2025 (In thousands) | Debt Description | Amount | | :--- | :--- | | Term loan | $699,808 | | Senior notes | $400,000 | | Financing obligations | $483,977 | | Non-recourse notes payable | $17,202,299 | | **Total debt** | **$18,786,084** | - During Q1 FY2026, CarMax repurchased **2,952,500 shares** of its common stock at an average cost of **$67.66 per share**[84](index=84&type=chunk) - As of May 31, 2025, **$1.74 billion** remained available for repurchase under the board's authorization[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for Q1 FY2026, highlighting a **6.1%** increase in net sales and a **38.0%** rise in net earnings year-over-year, driven by a **9.0%** increase in used unit sales, covering performance of CarMax Sales Operations and CarMax Auto Finance (CAF) segments, strategic updates, cost efficiencies, and future outlook Q1 FY2026 Financial Highlights vs. Q1 FY2025 | Metric | Q1 FY2026 | Change from Q1 FY2025 | | :--- | :--- | :--- | | Net sales and operating revenues | $7,546.5 million | 6.1% | | Gross profit | $893.6 million | 12.8% | | Net earnings | $210.4 million | 38.0% | | Net earnings per diluted share | $1.38 | 42.3% | | Used unit sales | 230,210 | 9.0% | | Wholesale unit sales | 149,517 | 1.2% | - Strategic initiatives for fiscal 2026 include leveraging data science and AI for better digital experiences, launching a new marketing campaign, streamlining the online appraisal process, and expanding CAF's participation across the credit spectrum[144](index=144&type=chunk) - The company anticipates achieving approximately **$125 per unit** in cost of sales efficiencies in fiscal 2026, matching the savings achieved in fiscal 2025[142](index=142&type=chunk) - Management's goal is to achieve an SG&A to gross profit leverage rate in the **mid-70% range** on an annual basis, requiring low-single-digit gross profit growth in fiscal 2026[143](index=143&type=chunk)[145](index=145&type=chunk) [Results of Operations – CarMax Sales Operations](index=36&type=section&id=Results%20of%20Operations%20%E2%80%93%20CarMax%20Sales%20Operations) For Q1 FY2026, used vehicle revenue increased **7.5%** due to a **9.0%** rise in unit sales, partially offset by a **1.5%** decrease in average selling price, while total gross profit grew **12.8%** to **$893.6 million**, with SG&A expenses leveraged by **680 basis points** as a percentage of gross profit - Used vehicle unit sales increased **9.0%** YoY, with comparable store used unit sales up **8.1%**, driven by strong sales of vehicles priced under **$20,000**[153](index=153&type=chunk)[158](index=158&type=chunk) Gross Profit Per Unit (GPU) | Category | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Used vehicle GPU | $2,407 | $2,347 | | Wholesale vehicle GPU | $1,047 | $1,064 | - Other gross profit increased **31.3%**, primarily due to higher service department margins from cost coverage measures and increased efficiencies, as well as a **10.8%** increase in EPP revenues[163](index=163&type=chunk)[171](index=171&type=chunk) - SG&A as a percentage of gross profit improved to **73.8%** from **80.6%** in the prior year, a leverage of **680 basis points**, driven by gross profit growth and cost management[173](index=173&type=chunk)[175](index=175&type=chunk) [Results of Operations – CarMax Auto Finance](index=40&type=section&id=Results%20of%20Operations%20%E2%80%93%20CarMax%20Auto%20Finance) CAF income decreased by **3.6%** to **$141.7 million** in Q1 FY2026, primarily due to a higher provision for loan losses (**$101.7 million** vs. **$81.2 million** YoY), partially offset by an increased total interest margin (**6.5%** vs. **6.2%** YoY), with the net loan penetration rate declining to **41.8%** - CAF income decreased by **$5.3 million** (**3.6%**) due to a **$20.5 million** increase in the provision for loan losses, partially offset by a **$17.7 million** increase in total interest margin[186](index=186&type=chunk)[188](index=188&type=chunk) - The provision for loan losses increased primarily due to unfavorable performance of loans originated in 2022 and 2023, partially offset by a **$26.5 million** release of allowance for loans reclassified as held for sale[188](index=188&type=chunk)[195](index=195&type=chunk) CAF Origination and Performance | Metric | Q1 FY2026 | Q1 FY2024 | | :--- | :--- | :--- | | Net penetration rate | 41.8% | 43.3% | | Weighted average contract rate | 11.4% | 11.4% | | Allowance for loan losses % | 2.76% | 2.79% | | Past due accounts % | 5.48% | 5.38% | - CarMax plans to execute a programmatic sale of a non-prime securitization once per year to provide funding flexibility and mitigate risk while pursuing growth[144](index=144&type=chunk)[181](index=181&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=44&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash from operations, non-recourse funding, and its revolving credit facility, with net cash from operating activities at **$299.5 million** in Q1 FY2026, a significant improvement from a **$117.7 million** use of cash in the prior year, and total debt at **$18.79 billion** with full availability on its **$2.0 billion** credit facility - Net cash provided by operating activities was **$299.5 million**, compared to a use of **$117.7 million** in the prior year, primarily reflecting changes in inventory and auto loans held for investment/sale[193](index=193&type=chunk)[197](index=197&type=chunk) - Capital expenditures are estimated to be approximately **$575 million** for fiscal 2026, up from **$467.9 million** in fiscal 2025, to support growth in reconditioning facilities and new stores[189](index=189&type=chunk) - The company repurchased **$204.0 million** of common stock in Q1 FY2026 and intends to modestly accelerate the pace of share repurchases for the full fiscal year[191](index=191&type=chunk)[201](index=201&type=chunk) - As of May 31, 2025, the company had **$2.0 billion** of unused capacity under its revolving credit facility and was in compliance with all financial covenants[75](index=75&type=chunk)[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risk since the end of the previous fiscal year, February 28, 2025, referring readers to its Annual Report on Form 10-K for detailed discussion - There have been no material changes to the company's market risk since February 28, 2025[214](index=214&type=chunk) [Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were effective as of May 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[217](index=217&type=chunk) - There were no material changes in the company's internal control over financial reporting during the quarter ended May 31, 2025[218](index=218&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 15 of the consolidated financial statements for a discussion of the company's legal proceedings - For information on legal proceedings, the report directs readers to Note 15 of the financial statements[220](index=220&type=chunk) [Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2025 - There have been no material changes to the risk factors discussed in the company's most recent Form 10-K[221](index=221&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activity for the first quarter of fiscal 2026, with **2,952,458 shares** repurchased under its **$2 billion** authorization Common Stock Repurchases - Q1 FY2026 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 1 - 31, 2025 | 487,700 | $74.22 | | April 1 - 30, 2025 | 1,247,488 | $66.71 | | May 1 - 31, 2025 | 1,217,270 | $66.01 | | **Total** | **2,952,458** | | - As of May 31, 2025, approximately **$1.74 billion** remained available for repurchase under the publicly announced program[224](index=224&type=chunk) [Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, and XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350, as well as XBRL data files[226](index=226&type=chunk)

Group 1 - The previous investment outlook for CarMax (NYSE: KMX) was a sell rating due to a lack of strong growth prospects and anticipated pressure on underlying demand despite digital enhancements [1] - The investment strategy focuses on long-term investments while also incorporating short-term shorts to identify alpha opportunities, emphasizing a bottom-up analysis of individual companies' fundamental strengths and weaknesses [1] - The investment duration is medium to long-term, aiming to identify companies with solid fundamentals, sustainable competitive advantages, and growth potential [1]

Financial Data and Key Metrics Changes - In FY 2025, the company spent approximately $425 million on share buybacks, with an expectation of a step-up in FY 2026 [21] - The first quarter of FY 2026 saw $200 million allocated for share buybacks, indicating a positive trend in free cash flow [21] Business Line Data and Key Metrics Changes - The company is focusing on diversifying inventory sourcing to ensure competitive pricing for consumers, which is crucial in the current economic environment [27] - Efforts are being made to improve efficiency measures that will impact both cost of goods sold and selling, general, and administrative expenses [27] Market Data and Key Metrics Changes - The impact of tariffs has been somewhat muted so far, with no significant inflation in parts observed, which is beneficial for the used car market [23][24] - As new car prices rise, the used car industry is expected to benefit, making used cars more affordable for consumers [23] Company Strategy and Development Direction - The company is committed to enhancing customer experience by ensuring the largest total addressable market compared to competitors [26] - New funding tools and strategies are being implemented to increase profits, which can be reinvested into the business [27] - The focus on ancillary profits, such as extended service plans, is part of the strategy to drive both top-line and bottom-line growth [28] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the dynamic environment due to tariffs but remains optimistic about the company's ability to manage costs effectively [23][24] - The company believes that continued growth in the past four quarters will positively influence stock performance [28] Other Important Information - The board of directors recommended voting against a shareholder proposal for special shareholder meeting rights, stating it is not in the best interest of the company [15] - The preliminary voting results indicated that all director nominees were elected, and the appointment of KPMG as auditors was ratified [18] Q&A Session Summary Question: How much was spent on share buybacks in 2024 and how much is expected in 2025? - The company spent approximately $425 million on share buybacks in FY 2025 and expects a step-up in FY 2026 [21] Question: How is the company positioning itself to handle tariffs? - The impact of tariffs has been muted, with no inflation in parts observed, and the company is focused on sourcing at the best prices [23][24] Question: What can be done to reward CarMax shareholders given the stock price comparison with Carvana? - The company is focusing on customer experience, diversifying inventory sourcing, and improving efficiency to drive growth and positively impact stock performance [26][27][28]

Core Viewpoint - CarMax reported better-than-expected Q1 results, with revenue rising approximately 6% year-over-year to $7.55 billion and earnings exceeding predictions at $1.38 per share, leading to a nearly 6% surge in stock price [2] Financial Performance - CarMax experienced a 6.6% rise in same-store sales year-over-year during the quarter, indicating a positive shift after a slight decline over the past two years [2] - The company noted an improvement in gross margins, with retail gross profit per used unit nearing an all-time high due to increased demand and cost efficiencies [2] - Quarterly revenues grew 6.7% to $6.0 billion compared to $5.6 billion a year prior, contrasting with a 4.8% improvement for the S&P 500 [6] - CarMax's revenues have decreased 0.7% from $27 billion to $26 billion in the last 12 months, against a 5.5% growth for the S&P 500 [6] Valuation Comparison - CarMax's price-to-sales (P/S) ratio is 0.4 compared to 3.1 for the S&P 500, and its price-to-earnings (P/E) ratio stands at 19.7 versus 26.9 for the benchmark [6] - The current valuation of CarMax appears moderate when compared to its operational performance and financial health over recent years [3] Profitability Metrics - CarMax's operating income for the last four quarters was -$221 million, reflecting an operating margin of -0.8% [7] - The operating cash flow (OCF) for this period was $624 million, indicating an OCF margin of 2.4%, compared to 14.9% for the S&P 500 [7] - Net income for the four-quarter period was $501 million, resulting in a net income margin of 1.9%, against 11.6% for the S&P 500 [7] Financial Stability - CarMax's total debt was $19 billion at the end of the most recent quarter, with a market capitalization of $11 billion, leading to a debt-to-equity ratio of 194.8% compared to 19.4% for the S&P 500 [9] - Cash and cash equivalents amount to $247 million of the $27 billion in total assets, resulting in a cash-to-assets ratio of 0.9% [9] Downturn Resilience - KMX stock has historically performed worse than the S&P 500 during several downturns, indicating lower resilience in adverse market conditions [9] - The stock experienced a significant decline of 64.0% from a peak of $154.85 in November 2021 to $55.69 in October 2022, compared to a 25.4% drop for the S&P 500 [10] - During the COVID pandemic, KMX stock fell 56.6% from a high of $101.90 in February 2020 to $44.27 in March 2020, versus a 33.9% decline for the S&P 500 [11] Overall Assessment - CarMax's performance across key metrics indicates extremely weak operational performance and financial condition, leading to the conclusion that KMX is a very unattractive stock to buy [12][14]

Core Viewpoint - CarMax reported strong first-quarter earnings, exceeding analyst expectations, which led RBC Capital to maintain an Outperform rating and raise the price target from $80 to $81 [1]. Financial Performance - CarMax's first-quarter earnings per share were $1.38, surpassing the consensus estimate of $1.21 [1]. - Quarterly sales reached $7.55 billion, exceeding the analyst consensus estimate of $7.47 billion [1]. - Retail used unit sales increased by 9.0%, while comparable store used unit sales grew by 8.1%, both outperforming expectations [2][3]. Operational Insights - The company experienced a sequential improvement in category demand and market share gains, with each month of the quarter showing positive results, particularly April [3]. - SG&A as a percentage of gross profit improved to 73.8%, a reduction of approximately 680 basis points, attributed to cost management efforts despite rising compensation costs [4]. - CarMax repurchased $200 million in shares during the quarter, a significant increase compared to previous trends [4][5]. Challenges and Risks - CAF income declined by 3.6% to $141.7 million, primarily due to increased loan loss provisions, reflecting seasonal sales patterns and credit quality concerns [6]. - The company anticipates net sales growth of 1.9% and 3.9% for 2025 and 2026, respectively, with adjusted EPS estimates of $3.88 and $4.52 [7].

Financial Performance - CarMax reported earnings per share of $1.38, exceeding the analyst consensus estimate of $1.21 [1] - Quarterly sales reached $7.55 billion, surpassing the analyst consensus estimate of $7.47 billion [1] Business Expansion - The company opened two new stand-alone reconditioning/auction centers in El Mirage, Arizona, and Midlothian, Texas [2] Management Commentary - CEO Bill Nash highlighted the fourth consecutive quarter of positive retail comps and double-digit year-over-year earnings per share growth, emphasizing the strength of the company's earnings growth model [3] - Nash noted the importance of the omni-channel experience and the integration of associates, stores, technology, and digital capabilities in enhancing customer experience [3] Analyst Ratings and Price Targets - Truist Securities maintained a Hold rating and raised the price target from $72 to $74 [6] - RBC Capital maintained an Outperform rating and increased the price target from $80 to $81 [6] - Needham reiterated a Buy rating with a price target of $92 [6]