Key Takeaways CarMax posted Q3 EPS of $0.51, topping estimates, while revenues of $5.8B declined 6.9% year over year.KMX used-vehicle sales fell 7% as units dropped 8%, partly offset by a 0.9% rise in average selling price.CarMax saw wholesale revenues down 6.3%, auto finance income up 9.3%, and repurchased $201.6M in shares.CarMax Inc. (KMX) reported third-quarter fiscal 2026 (ended Nov. 30, 2025) adjusted earnings per share of 51 cents, which beat the Zacks Consensus Estimate of 32 cents. The bottom line ...

Financial Data and Key Metrics Changes - Total sales for the third quarter were $5.8 billion, down 6.9% year-over-year, reflecting lower volume [12] - Retail unit sales declined by 8%, with used unit comps down 9% [12] - Average selling price increased to $26,400, a year-over-year increase of $230 per unit [13] - Net earnings per diluted share were $0.43, down from $0.81 a year ago, impacted by $0.08 of restructuring expenses [14] - Total gross profit was $590 million, down 13% from the previous year [15] - SG&A expenses were $581 million, up 1% from the prior year, driven by marketing investments and restructuring expenses [15] Business Line Data and Key Metrics Changes - Used retail margin decreased by 11% to $379 million, with profit per used unit at $2,235, down approximately $70 from last year's record high [15] - Wholesale vehicle margin decreased by 17% to $115 million, with gross profit per unit declining by approximately $120 year-over-year [15] - CarMax Auto Finance income increased by 9% to $175 million, supported by underwriting and pricing adjustments [19] Market Data and Key Metrics Changes - The company purchased approximately 238,000 vehicles during the quarter, down 12% from last year [14] - The average wholesale selling price declined by $40 per unit to $8,100 [13] Company Strategy and Development Direction - The company is focused on narrowing the price gap between its offerings and the marketplace, lowering margins, and increasing marketing spend [8][10] - A renewed emphasis on customer experience and digital selling capabilities is being prioritized to drive conversion and improve customer satisfaction [9][10] - The company aims to reduce SG&A expenses by at least $150 million by the end of fiscal year 2027 [16] - The board is actively searching for a permanent CEO who can drive sales and strengthen the brand [5][6] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that recent results have been unacceptable and emphasized the need for immediate change [4][5] - There is optimism that immediate pricing and marketing actions will improve sales performance, although they may pressure earnings in the near term [11] - The company believes it has the necessary attributes for a successful turnaround and is committed to strengthening performance [11][23] Other Important Information - The company is undergoing leadership changes, with an interim CEO and chair in place while searching for a permanent CEO [4][5] - The company is committed to transparency about its progress and performance [23] Q&A Session Summary Question: What is the magnitude of the GPU reset expected in the February quarter? - Management indicated that margin reductions will be meaningful and are optimistic about improving retail sales trends [28][29] Question: Are there specific customer cohorts where CarMax has become less competitive? - Management noted a loss of volume in the higher FICO segments and is focused on recapturing those customers [30][31] Question: Will CarMax adjust interest rates to be more competitive? - Management stated they monitor market rates and will adjust accordingly, focusing on the overall offering rather than just interest rates [32][33] Question: What is the baseline SG&A from which the company expects to cut $150 million? - The baseline SG&A is approximately $2.5 billion, with reductions compared to last year [46][47] Question: What is the strategy for reducing COGS? - The company is focused on COGS reduction through initiatives like regional reconditioning centers and improved parts selection tools [78][79] Question: How is the board approaching the search for a new CEO? - The board is looking for a leader with experience in complex businesses and digital transformation, with urgency in the search process [96]

Core Viewpoint - The article discusses a securities class action lawsuit against CarMax, Inc. alleging that the company misled investors about its business stability and growth prospects, resulting in significant stock declines [2][4]. Summary by Sections Lawsuit Details - The lawsuit claims that CarMax and its executives concealed critical information regarding the company's operational challenges, leading to two major stock crashes [2][5]. - The class period for the lawsuit is defined as June 20, 2025, to November 5, 2025 [3]. Allegations - The complaint identifies two main issues that allegedly inflated the stock price: - **Unsustainable Demand**: CarMax reported strong growth for Q1 2026 but failed to disclose that this was due to a temporary surge in customer demand driven by anticipated tariffs [4]. - **CarMax Auto Finance Risk**: Management assured investors about the stability of their loan reserves, which later revealed a significant increase in loan loss provisions amounting to $142 million, a 40% sequential increase [4]. Impact on Business - The lawsuit highlights a distortion in core retail demand that could not be maintained in subsequent quarters, leading to a drastic cut in forward guidance and signaling systemic weaknesses in business operations [4]. - The stock experienced a 20% decline following the announcement of disappointing Q2 results, which included a 24% drop in net EPS and the unexpected loan loss provision [4]. Investor Actions - Investors who purchased CarMax securities during the class period and suffered losses are encouraged to contact Hagens Berman to discuss their rights and potential involvement in the lawsuit [5][6].

Core Viewpoint - CarMax, Inc. will report its financial results for the third quarter ended November 30, 2025, on December 18, 2025, and will host a conference call to discuss these results [1][2]. Company Overview - CarMax is the largest retailer of used autos in the United States, known for its integrity, honesty, and transparency in automotive retail [4]. - In the fiscal year ending February 28, 2025, CarMax sold approximately 790,000 used vehicles and 540,000 wholesale vehicles at its auctions [4]. - CarMax Auto Finance originated over $8 billion in receivables during fiscal 2025, contributing to a nearly $18 billion portfolio [4]. - The company operates more than 250 store locations and employs over 28,000 associates [4]. - CarMax has been recognized for 21 consecutive years as one of the Fortune 100 Best Companies to Work For® [4]. Leadership Changes - David McCreight has been appointed as Interim President and Chief Executive Officer, while Tom Folliard serves as Interim Executive Chair of the Board [6].

Core Viewpoint - Faruqi & Faruqi, LLP is investigating potential claims against CarMax, Inc. due to allegations of misleading statements regarding the company's growth prospects and financial performance, particularly in light of recent financial disclosures and stock price decline [1][3][4]. Group 1: Allegations and Legal Actions - The complaint alleges that CarMax and its executives violated federal securities laws by making false and misleading statements about the company's growth prospects, which were overstated and based on temporary market conditions [3]. - Investors are reminded of the January 2, 2026 deadline to seek the role of lead plaintiff in a federal securities class action against CarMax [1][5]. - The firm encourages anyone with information regarding CarMax's conduct, including whistleblowers and former employees, to come forward [6]. Group 2: Financial Performance - CarMax reported a decrease in income from CarMax Auto Finance by 11.2%, attributed to a $142.2 million provision for loan losses in the second quarter of fiscal 2026, compared to $112.6 million in the same period the previous year [4]. - The provision for loan losses included a $71.3 million increase in the estimate of lifetime losses on existing loans, primarily due to worsening performance among the 2022 and 2023 vintages [4]. - Following the financial results announcement, CarMax's stock price fell by $11.45 per share, approximately 20%, closing at $45.60 per share on September 26, 2025 [4].

Financial Data and Key Metrics Changes - The second quarter net earnings per diluted share was $0.64, down from $0.85 a year ago, primarily due to lower volume and a CAF loss provision adjustment [17][22] - Total gross profit was $718 million, a decrease of 6% from the previous year's second quarter [17] - SG&A expenses for the second quarter were $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation [18][20] Business Line Data and Key Metrics Changes - Total sales for the quarter were $6.6 billion, down 6% compared to last year, reflecting lower volume [8] - Retail unit sales declined by 5.4%, with used unit comps down 6.3% [8] - Wholesale unit sales decreased by 2.2% year-over-year, while average wholesale selling price increased by approximately $125 per unit to $7,900 [9] Market Data and Key Metrics Changes - The average selling price for used vehicles was $26,000, a year-over-year decrease of approximately $250 per unit [9] - The retail gross profit per used unit was $2,216, in line with historical averages [18] - The weighted average contract rate charged to new customers was 11.2%, down from 11.4% in the previous quarter [13] Company Strategy and Development Direction - The company is focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth [5] - Key priorities include maintaining competitive prices, enhancing consumer awareness of their differentiated experience, and delivering SG&A reductions of at least $150 million over the next 18 months [6][7] - The launch of the "Wanna Drive" brand campaign aims to highlight the company's unique omnichannel experience [10][11] Management's Comments on Operating Environment and Future Outlook - Management noted that while second quarter results fell short of expectations, they remain confident in their strategy and earnings model, which is expected to produce high EPS growth with mid-single-digit retail unit growth [5][21] - There is an expectation of increased marketing spend in the back half of the year to support the new brand positioning [21] - Management acknowledged that consumer sentiment is currently low, particularly among mid to high FICO customers, which may impact sales [72] Other Important Information - The company purchased approximately 293,000 vehicles during the quarter, down 2% from last year [9] - The net promoter score is the highest since the rollout of digital capabilities, indicating high customer satisfaction [10] - The company is committed to further reducing SG&A by leveraging technology and operational efficiencies [20] Q&A Session Summary Question: Impact of pull forward in demand on used unit sales - Management indicated that the most disruptive factor was the depreciation of inventory, which impacted pricing competitiveness and sales [27][28] Question: Pricing strategy and market competitiveness - Management acknowledged the need to be more competitive with pricing and emphasized the importance of being nimble in response to market conditions [31][32] Question: Update on CarMax Auto Finance (CAF) income expectations - Management revised expectations for CAF income to be flat to slightly down year-over-year due to a larger provision impact this quarter [37][38] Question: Areas of cost reduction in SG&A - Management clarified that cost reductions will not impact growth strategy and will be reinvested in areas that drive sales, such as marketing [42][46] Question: Consumer sentiment and market conditions - Management noted that consumers, especially those with mid to high FICO scores, are currently more cautious, impacting app volume and sales [72][73] Question: Reserved inventory policy and its effect on sales - Management explained that reserved inventory is beneficial for customer interest but acknowledged the need to manage how long a vehicle can be reserved [95][96]

Financial Data and Key Metrics Changes - The second quarter net earnings per diluted share was $0.64, down from $0.85 a year ago, primarily due to lower volume and CAF loss provision adjustments [16][19] - Total gross profit was $718 million, a decrease of 6% from the previous year [16] - SG&A expenses for the second quarter were $601 million, down 2% from the prior year, driven mainly by lower stock-based compensation [17][19] Business Line Data and Key Metrics Changes - Total sales for the quarter were $6.6 billion, down 6% year-over-year, reflecting lower volume [7] - Retail unit sales declined by 5.4%, with used unit comps down 6.3% [7] - Wholesale unit sales decreased by 2.2% compared to the second quarter last year, while average wholesale selling price increased by approximately $125 per unit to $7,900 [8] Market Data and Key Metrics Changes - The average selling price for used vehicles was $26,000, a year-over-year decrease of approximately $250 per unit [8] - The retail gross profit per used unit was $2,216, consistent with historical averages [16] - The weighted average contract rate charged to new customers by CarMax Auto Finance was 11.2%, down from 11.4% in the previous quarter [11] Company Strategy and Development Direction - The company aims to focus on driving sales, gaining market share, and delivering significant year-over-year earnings growth [4] - Key priorities include maintaining competitive prices, enhancing consumer awareness, delivering SG&A reductions of at least $150 million over the next 18 months, and generating additional profit through diversified business components [5][10] - The launch of the "Wanna Drive" brand campaign is part of a multiphase strategy to enhance the omnichannel experience [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the second quarter results fell short of expectations but expressed confidence in their strategy and earnings model [4] - The company noted that while there was a pull forward of demand into the first quarter, they have improved their inventory position and pricing competitiveness for the third quarter [6][7] - Management highlighted that consumer sentiment is currently strained, particularly among mid to high FICO customers, but they remain focused on gaining market share [62] Other Important Information - The company is committed to reducing SG&A expenses while continuing to invest in initiatives that support future growth [19] - CarMax Auto Finance originated over $2 billion during the second quarter, resulting in a sales penetration of 42.6% [11] - The company repurchased approximately 2.9 million shares for a total expenditure of $180 million during the second quarter [20] Q&A Session Summary Question: What factors contributed to the decline in used unit sales? - Management indicated that the most disruptive factors were inventory depreciation and a pull forward of demand into the first quarter, with September showing stronger performance than the second quarter [24][25] Question: Is CarMax seeing increased pricing competition in the market? - Management confirmed that they are always focused on competitive pricing and have recently improved their pricing position after experiencing depreciation [26][27] Question: What is the outlook for CarMax Auto Finance income? - Management expects CAF income to be flat to slightly down year-over-year due to a larger provision impact this quarter [30][31] Question: How will SG&A reductions impact growth strategy? - Management assured that SG&A reductions will not impact growth strategy, as investments in technology and marketing will continue to drive sales [38][39] Question: What is the company's approach to subprime lending? - Management clarified that they are not pushing into deep subprime but are cautiously expanding into the top half of Tier 2 lending [50][51] Question: How is the company addressing inventory management? - Management stated that they are actively monitoring reserved inventory and are considering adjustments to improve sales opportunities [78][79]

Financial Performance - Net earnings per share decreased by 24.7% year-over-year to $0.64 in Q2 2026 [19, 22] - Total gross profit decreased by 5.6% year-over-year to $717.7 million [19] - SG&A expense decreased by 1.6% year-over-year to $601.1 million [19] - CarMax Auto Finance (CAF) income decreased by 11.2% year-over-year to $102.6 million [22] - Loan loss provision increased by 26.3% year-over-year to $142.2 million, driven by CY22/23 vintages [22] Sales Performance - Overall unit sales decreased by 5.4% [19] - Retail used unit sales decreased by 2.2% [19] - Wholesale unit sales decreased by 6.3% [19] - Comparable store used unit sales increased by 1.8% [19] Strategic Initiatives - Announced incremental SG&A reductions of at least $150 million over the next 18 months [12] - Digital capabilities supported 80% of retail unit sales [12, 45] - CAF is targeting an increase in penetration from 42% to 50% [51] Capital Allocation - The company is targeting a net leverage ratio between 1.50x and 2.00x [28] - Adjusted net cash from operating activities was $1.022 billion year-to-date [32] - The company returned $210 million to shareholders via share repurchases year-to-date [33]

Core Viewpoint - CarMax Inc experienced a significant decline in its second-quarter performance, with earnings and revenue falling short of analyst expectations due to weaker retail sales and increased loan loss provisions [1][2]. Financial Performance - The company reported second-quarter earnings per share of 64 cents, missing the analyst consensus estimate of $1.09 [1]. - Quarterly sales totaled $6.594 billion, down 6% year over year, and also missed the expected $7.024 billion [1]. - Total gross profit was $717.7 million, a decrease of 5.6% compared to the same quarter last year [6]. Segment Performance - CarMax Auto Finance (CAF) reported income of $102.6 million, down 11.2%, primarily due to higher loan loss provisions [2]. - Retail used vehicle unit sales declined by 5.4% to 199,729, with comparable store used unit sales down 6.3% [3]. - Wholesale vehicle unit sales decreased by 2.2% to 138,302, while wholesale revenues edged down 0.4% [3]. Sales and Operations - Combined retail and wholesale used vehicle unit sales fell 4.1% to 338,031 [2]. - The company purchased a total of 293,000 vehicles in the second quarter, a 2.4% decrease from the previous year [4]. - The company opened three new store locations and a stand-alone reconditioning/auction center to support market operations [6][7]. Margins and Expenses - Unit margins remained solid, with gross profit of $2,216 per retail used unit and $993 per wholesale unit [6]. - Quarterly SG&A expenses decreased by 1.6% to $601.1 million compared to the prior-year quarter, with plans for further efficiency improvements [7].

Core Insights - CarMax Inc. reported adjusted earnings per share of $1.38 for Q1 fiscal 2026, exceeding the Zacks Consensus Estimate of $1.18 and up from $0.97 in the prior year [1][9] - The company's revenues reached $7.55 billion, surpassing the Zacks Consensus Estimate of $7.52 billion and reflecting a 6% year-over-year increase [1] Segmental Performance - Used-vehicle net sales amounted to $6.1 billion, a 7.5% increase year-over-year, driven by a 9% rise in unit sales to 230,210 vehicles, exceeding the forecast of 207,124 units [2] - The average selling price (ASP) of used vehicles decreased by 1.5% to $26,120, which was below the projected ASP of $28,279 [2] - Comparable store used-vehicle units increased by 8.1%, with revenues rising by 6.6% year-over-year; gross profit per unit (GPU) was $2,407, up from $2,347 in the prior year but below the estimate of $2,376.8 [3] Wholesale Vehicle Performance - Wholesale vehicle revenues decreased by 0.3% year-over-year to $1.25 billion, falling short of the projection of $1.27 billion due to lower-than-expected ASP [4] - Units sold in the wholesale segment rose by 1.2% to 149,517, exceeding the forecast of 145,645; however, the ASP fell by 1.7% to $7,959, below the estimate of $8,717 [4] - Wholesale GPU was $1,047, down from $1,064 in the prior year but above the estimate of $1,033.3 [4] Other Revenues and Expenses - Other sales and revenues increased by 6.1% year-over-year to $190.4 million, missing the estimate of $196.2 million [5] - CarMax Auto Finance's income fell by 3.6% year-over-year to $141.7 million [5] - Selling, general, and administrative expenses rose by 3.3% to $659.6 million [5] Share Repurchase Activity - During the fiscal first quarter, CarMax repurchased shares worth $199.8 million and had $1.74 billion remaining under its share repurchase authorization as of May 31, 2025 [6]