CarMax(US:KMX)2025-06-26 14:15PART I. FINANCIAL INFORMATION Financial Statements 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 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 customers22 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 sale50 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 share84 - As of May 31, 2025, $1.74 billion remained available for repurchase under the board's authorization84 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 spectrum144 - The company anticipates achieving approximately $125 per unit in cost of sales efficiencies in fiscal 2026, matching the savings achieved in fiscal 2025142 - 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 2026143145 Results of Operations – CarMax Sales Operations 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 $20,000153158 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 revenues163171 - 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 management173175 Results of Operations – CarMax Auto Finance 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 margin186188 - 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 sale188195 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 growth144181 Financial Condition, Liquidity and Capital Resources 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/sale193197 - 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 stores189 - 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 year191201 - 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 covenants75204 Quantitative and Qualitative Disclosures About Market Risk 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, 2025214 Controls and Procedures 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 quarter217 - There were no material changes in the company's internal control over financial reporting during the quarter ended May 31, 2025218 PART II. OTHER INFORMATION Legal Proceedings 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 statements220 Risk Factors 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-K221 Unregistered Sales of Equity Securities and Use of Proceeds 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 program224 Exhibits 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 files226