CarMax Stock Just Tanked. Time to Buy?

Core Viewpoint - The recent sell-off in CarMax's stock has reset market expectations, but the long-term business fundamentals remain intact despite short-term challenges [1][3]. Financial Performance - For the quarter ended August 31 (fiscal Q2), CarMax reported total sales of $6.59 billion, a decrease of 6% year-over-year, with retail used unit sales down 5.4% and comparable store used units declining 6.3% [5]. - Earnings per share for the quarter was $0.64, down from $0.85 a year ago, while SG&A expenses decreased modestly to $601 million [6]. - Retail gross profit per used vehicle was $2,216, and wholesale gross profit per unit was $993, remaining consistent with the previous year's second quarter [6]. Market Reaction - The stock fell over 20% following weaker-than-expected results and concerns about consumer demand and credit trends within CarMax Auto Finance [2][11]. - The market's reaction reflects a combination of softened demand, increased credit costs, and earnings that missed analysts' forecasts [11]. Long-term Outlook - Despite the current challenges, key elements of CarMax's long-term model remain intact, including steady unit margins, strong digital capabilities supporting the omnichannel approach, and planned SG&A reductions [12]. - Management expressed confidence in the long-term strategy, targeting at least $150 million in incremental SG&A reductions over the next 18 months [7][8]. Financing and Loan Losses - CarMax Auto Finance income declined 11% to $103 million, with provisions for loan losses rising to $142 million from $113 million a year ago [9]. - The allowance for loan losses increased to just over 3% of auto loans held for investment, up from 2.8% as of May 31 [9]. Stock Valuation - Following the sell-off to new 52-week lows in the mid-$40s, the stock's valuation appears attractive for investors willing to wait for a recovery in volumes and normalization of credit [13][14]. - The market has priced in significant negative news, but CarMax remains a leading player with stable per-unit profitability and a proven omnichannel model [14].