Is CarMax (KMX) Facing Cyclical Weakness?

Core Insights - Ariel Investments' "Ariel Mid Cap Value Strategy" reported a strong performance in Q3 2025, with a return of +9.62% gross of fees, outperforming both the Russell Midcap Value Index (+6.18%) and the Russell Midcap Index (+5.33%) [1] - CarMax, Inc. (NYSE:KMX) was highlighted as a significant detractor in performance due to disappointing earnings, lower unit sales, and increased loan loss provisions [3] Company Performance - CarMax, Inc. experienced a one-month return of -8.77% and a 52-week decline of 54.84%, closing at $38.20 per share with a market capitalization of $5.733 billion as of November 27, 2025 [2] - The company reported total sales of $6.6 billion in the fiscal second quarter of 2026, reflecting a 6% decline from the previous year due to lower volume [4] Management Commentary - Management indicated that the decline in performance was due to normalized demand after customers previously bought in advance of potential tariffs, and the rise in loan loss provisions was primarily linked to pandemic-era loans [3] - The credit deterioration is viewed as largely contained, with newer loans performing in line with expectations, suggesting that the current weakness is cyclical rather than structural [3] Market Position - CarMax is recognized as the market share leader in used vehicles, with its scale and omnichannel capabilities positioning it well for long-term growth once market conditions stabilize [3]