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CARMAX INC (KMX)

Business Summary

CarMax, Inc. operates in the highly competitive and fragmented U.S. used vehicle marketplace, where it is the nation's largest retailer of used vehicles . The company sold 780,684 used vehicles at retail during the fiscal year ended February 28, 2026 . The broader automotive retail industry is sensitive to economic conditions, including downturns, inflation, interest rates, and unemployment levels, which can impact consumer demand, credit availability, and vehicle affordability . The supply of late-model used vehicles is influenced by factors such as the total number of vehicles in operation, new vehicle sales, and remarketing through various channels . As of December 31, 2025, there were approximately 297 million light vehicles in operation in the U.S. , with an estimated 16 million new vehicles and 39 million used vehicles sold at retail in calendar year 2025 .

CarMax's competitive positioning is built on providing a high degree of customer satisfaction through competitive, no-haggle prices, a customer-friendly sales process, a broad selection of popular makes and models, vehicle quality, proprietary information systems, transparent financing options, and strategically located retail stores . The company's omni-channel experience, which seamlessly connects digital and physical interactions, is a key differentiator in the market . CarMax also highlights its willingness to appraise and purchase customer vehicles, regardless of whether a purchase is made, as a competitive sourcing advantage . In calendar 2025, CarMax estimates it sold approximately 3.6% of the age 0- to 10-year old vehicles nationwide , a decrease from 3.7% in calendar 2024 .

The core business model of CarMax, Inc. involves two reportable segments: CarMax Sales Operations and CarMax Auto Finance (CAF) . The CarMax Sales Operations segment generates revenue from retail sales of used vehicles, wholesale vehicle sales, sales of extended protection plan (EPP) products, advertising and subscription revenues from its Edmunds business, and vehicle repair services . The CAF segment provides financing solely to customers purchasing retail vehicles from CarMax, aiming to capture additional profits, cash flows, and sales . The company's revenue mix includes both transactional income from vehicle sales and recurring income from EPPs and financing. Primary customer segments include individuals purchasing used vehicles and licensed dealers buying vehicles at wholesale auctions .

The CarMax Sales Operations segment is responsible for all aspects of auto merchandising and service, excluding CAF financing . This segment sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options . Key offerings include no-haggle pricing, a 10-day money-back guarantee, and a 30-day limited warranty on retail used vehicles . As of February 28, 2026, the company had approximately 61,000 saleable retail vehicles in its inventory . In fiscal 2026, approximately 38% of vehicles sold were transferred at customer request . The segment also operates wholesale vehicle auctions for vehicles not meeting retail standards, selling 538,203 vehicles in fiscal 2026 with an average auction sales rate of approximately 99% .

The CarMax Auto Finance (CAF) segment focuses on providing financing to CarMax retail customers . CAF utilizes proprietary scoring models based on credit history and other data to predict repayment likelihood, with offers designed to meet a targeted risk profile . After accounting for 3-day payoffs and vehicle returns, CAF financed 42.4% of retail used vehicle unit sales in fiscal 2026 . As of February 28, 2026, CAF serviced approximately 1.0 million customer accounts in its $16.37 billion portfolio of auto loans . CAF income primarily reflects interest and fee income from auto loans, less interest expense on funding debt, a provision for estimated loan losses, and direct expenses .

For the fiscal year ended February 28, 2026, CarMax reported total net sales and operating revenues of $25,881.1 million , a decrease of 1.8% from fiscal 2025 . Gross profit was $2,806.6 million , representing a 3.2% decrease from the prior year . The gross profit margin was 10.8% of net sales and operating revenues . CarMax Auto Finance income was $562.7 million , a 3.3% decrease from fiscal 2025 . Selling, general and administrative expenses totaled $2,453.4 million , an increase of 0.7% . Net earnings for the period were $247.3 million , a 50.6% decrease from fiscal 2025 . Diluted EPS was $1.68 , down 47.7% . As of February 28, 2026, cash and cash equivalents were $122.826 million , and total debt was $18,051.313 million .

Comparing fiscal 2026 to fiscal 2025, used vehicle revenues decreased by 1.8% , driven by a 1.1% decrease in used unit sales and a 0.6% decrease in average retail selling price . Wholesale vehicle revenues also decreased by 1.8% , due to a 1.1% decrease in unit sales and a 1.0% decrease in average selling price . Other sales and revenues decreased by 1.8% , primarily due to an increase in net third-party finance fees from higher Tier 3 volume and lower Tier 2 volume . Used vehicle gross profit decreased by 3.5% , and wholesale vehicle gross profit decreased by 6.0% . Other gross profit, however, increased by 1.2% , mainly due to an $18.4 million improvement in service department margins . SG&A as a percentage of gross profit increased to 87.4% in fiscal 2026 from 84.0% in fiscal 2025 .

During fiscal 2026, CarMax opened six new stores and four stand-alone reconditioning/auction centers . The company recorded a non-cash goodwill impairment charge of $141.3 million during the fourth quarter of fiscal 2026 , attributed to a significant decline in market capitalization, pressured financial performance, and downward revisions to its forecasted financial outlook . Additionally, the company completed a non-prime securitization transaction on September 24, 2025, selling approximately $930 million of auto loans and recognizing a gain on sale of $26.9 million . Restructuring changes were also implemented during the fourth quarter of fiscal 2026, expected to result in annualized savings of approximately $60 million .

Business Outlook & Financial Sufficiency

For fiscal year 2027, CarMax anticipates opening a total of eight locations, comprising four stores, two stand-alone reconditioning/auction centers, and two stand-alone auction facilities . The company estimates capital expenditures will total approximately $400 million in fiscal 2027 , a decrease from $541.0 million in fiscal 2026 . This reduced spending rate is due to significant investments made in fiscal 2026 and slowed growth in store openings in upcoming fiscal years .

CarMax Auto Finance (CAF) plans a measured expansion by recapturing profitable portions of Tier 1 originations that were previously shifted to Tier 2 lenders and testing expanded lending in the top half of the Tier 2 space . This is the initial step towards an overall goal of increasing CAF penetration to 50% . The company expects each additional percentage point of CAF penetration to generate $10 million to $12 million in lifetime pre-tax income per year of origination, net of the impact to finance partner participation fees . In fiscal 2027, the target originations for Tier 2 are expected to increase to approximately 30% of the total volume across the Tier 2 spectrum, with a continued focus on the top half of the Tier 2 space . There are no plans to increase target originations for Tier 3 in fiscal 2027 .

Regarding operational outlook, CarMax aims to achieve $200 million in exit rate savings in SG&A expense by the end of fiscal 2027 , an increase from the previous goal of $150 million . However, year-over-year savings in fiscal 2027 are expected to be offset by the annualization of materially reduced corporate bonus and share-based compensation expense in fiscal 2026, which accounts for approximately half of the anticipated savings . Inflationary pressures and new location growth will also impact savings . The full impact from these savings is expected to occur in fiscal 2028 . The company expects to leverage SG&A per total unit in fiscal 2027 when excluding the restructuring charges incurred in fiscal 2026 . CarMax also remains focused on reducing its cost of sales by pursuing incremental efficiency opportunities across its logistics network and reconditioning operations .

For fiscal 2027, CarMax expects used margins for the full fiscal year to decline at a rate broadly in line with the year-over-year trend for the fourth quarter of fiscal 2026, though this may vary . The first quarter of fiscal 2027 is projected to reflect the largest year-over-year decline at close to $300 per unit, as it laps record margins from the prior year . This outlook incorporates pricing actions and ongoing efforts to reduce logistics and reconditioning cost of sales to support more competitive pricing and stronger sales . The company expects to achieve a nationwide rollout of EPP product enhancements by the second quarter of fiscal 2027, which is anticipated to result in an increase in EPP margin per unit of approximately $35 in fiscal 2027 . This increase is expected to ramp throughout the fiscal year, driven by the rollout plan .

Management Sentiments & Priorities

Management's message to shareholders emphasizes a focus on driving sales and earnings, maximizing the benefits of its omni-channel experience, strengthening the brand, improving operations, and championing its culture to capture future opportunities. The company acknowledges the need for change, particularly following a leadership transition with Keith Barr appointed President and CEO effective March 16, 2026. Initial priorities for fiscal 2027 include making CarMax the obvious and easy choice for customers by consistently delivering fair, competitive prices, broad selection of high-quality vehicles, and an end-to-end experience that meets their needs. Management also plans to use technology, including software, data, and AI, to drive more differentiated experiences and efficiencies, making it easier for customers and associates. A key strategic priority is to act with more urgency and intention, ensuring organizational alignment, changing what is not working, doubling down on what is, and continuously evaluating opportunities and risks to build a durable, long-term growth engine. The company aims to achieve $200 million in exit rate savings in SG&A expense by the end of fiscal 2027 , although year-over-year savings in fiscal 2027 are expected to be partially offset by the annualization of reduced corporate bonus and share-based compensation expense in fiscal 2026, as well as inflationary pressures and new location growth , . The full impact of these savings is anticipated in fiscal 2028 .

Risk Factors

CarMax operates in a highly competitive and fragmented industry, facing competition from franchised dealers, online and mobile sales platforms, independent used car dealers, and private parties, with a risk that failure to adapt to increasing digital and online tools could adversely affect its business . The automotive retail industry is sensitive to economic conditions, including downturns, inflation, interest rates, unemployment, and geopolitical events like the conflict in the Middle East, which can negatively impact consumer demand, credit availability, and vehicle affordability . The business is dependent on capital to operate, fund growth, and support CAF, with changes in capital and credit markets, including the asset-backed securitization market, potentially leading to higher funding costs or a curtailment of lending practices . A failure to maintain a reputation of integrity and enhance its brand, particularly due to perceived failures in quality, customer experience, or safety issues, could significantly undermine customer confidence . The business is sensitive to changes in new and used vehicle prices, where an overall increase in used vehicle prices or monthly payments, or a narrowing price gap with new vehicles due to manufacturer incentives, could adversely affect sales and margins . Access to vehicle inventory and reconditioning parts is critical, and a reduction in availability or obstacles to acquisition, including competition for appraisal vehicles, could materially affect the business . The company also faces risks if it fails to realize the benefits from its omni-channel platform or initiatives leveraging evolving technologies like AI, or if it experiences greater credit losses in CAF's auto loan portfolio than anticipated . Furthermore, reliance on third-party finance and EPP providers, as well as other third-party vendors for key business components, exposes CarMax to risks if these parties fail to perform as expected or experience financial distress . The business is sensitive to conditions affecting automotive manufacturers, such as tariffs or recalls, which could impact vehicle supply, valuations, and expose the company to litigation . Cybersecurity threats, including breaches of sensitive customer or associate information, could damage the company's reputation and disrupt business operations . CarMax is also subject to a wide range of federal, state, and local laws and regulations, including those related to privacy, cybersecurity, consumer protection, and ESG matters, where non-compliance or evolving requirements could result in penalties, reputational harm, or significant expenses .

References

  1. [1] Item 1, Business Overview
  2. [2] Item 1, Business Overview
  3. [3] Item 1A, Risk Factors — The automotive retail industry in general and our business in particular are sensitive to economic conditions. These conditions could adversely affect our business, sales, results of operations and financial condition.
  4. [4] Item 1, Business — Suppliers for Used Vehicles
  5. [5] Item 1, Business — Suppliers for Used Vehicles
  6. [6] Item 1, Business — Suppliers for Used Vehicles
  7. [7] Item 1, Business — Competition
  8. [8] Item 1, Business — Competition
  9. [9] Item 1, Business — Competition
  10. [10] Item 7, MD&A — Strategic Update and Future Outlook
  11. [11] Item 7, MD&A — Strategic Update and Future Outlook
  12. [12] Item 1, Business — CarMax Business
  13. [13] Item 7, MD&A — CarMax Sales Operations
  14. [14] Item 7, MD&A — CarMax Auto Finance
  15. [15] Item 1, Business — CarMax Sales Operations
  16. [16] Item 1, Business — CarMax Business
  17. [17] Item 1, Business — CarMax Sales Operations
  18. [18] Item 1, Business — Purchasing a Vehicle
  19. [19] Item 1, Business — Purchasing a Vehicle
  20. [20] Item 1, Business — Purchasing a Vehicle
  21. [21] Item 1, Business Overview
  22. [22] Item 1, Business — Selling us a Vehicle
  23. [23] Item 1, Business — CarMax Auto Finance
  24. [24] Item 1, Business — CarMax Auto Finance
  25. [25] Item 7, MD&A — CarMax Auto Finance
  26. [26] Item 1, Business Overview
  27. [27] Item 7, MD&A — CarMax Auto Finance
  28. [28] Item 7, MD&A — Revenues and Profitability
  29. [29] Item 7, MD&A — Revenues and Profitability
  30. [30] Item 7, MD&A — Revenues and Profitability
  31. [31] Item 7, MD&A — Revenues and Profitability
  32. [32] Item 8, Consolidated Statements of Earnings
  33. [33] Item 7, MD&A — Revenues and Profitability
  34. [34] Item 7, MD&A — Revenues and Profitability
  35. [35] Item 7, MD&A — Revenues and Profitability
  36. [36] Item 7, MD&A — Revenues and Profitability
  37. [37] Item 7, MD&A — Revenues and Profitability
  38. [38] Item 7, MD&A — Revenues and Profitability
  39. [39] Item 7, MD&A — Revenues and Profitability
  40. [40] Item 7, MD&A — Revenues and Profitability
  41. [41] Item 7, MD&A — Total Debt and Cash and Cash Equivalents
  42. [42] Item 7, MD&A — Total Debt and Cash and Cash Equivalents
  43. [43] Item 7, MD&A — Used Vehicle Sales
  44. [44] Item 7, MD&A — Used Vehicle Sales
  45. [45] Item 7, MD&A — Used Vehicle Sales
  46. [46] Item 7, MD&A — Wholesale Vehicle Sales
  47. [47] Item 7, MD&A — Wholesale Vehicle Sales
  48. [48] Item 7, MD&A — Wholesale Vehicle Sales
  49. [49] Item 7, MD&A — Other Sales and Revenues
  50. [50] Item 7, MD&A — Other Sales and Revenues
  51. [51] Item 7, MD&A — Used Vehicle Gross Profit
  52. [52] Item 7, MD&A — Wholesale Vehicle Gross Profit
  53. [53] Item 7, MD&A — Other Gross Profit
  54. [54] Item 7, MD&A — Other Gross Profit
  55. [55] Item 7, MD&A — Components of SG&A Expenses Compared with Prior Periods
  56. [56] Item 7, MD&A — Change in Used Car Store Base
  57. [57] Item 7, MD&A — Goodwill Impairment
  58. [58] Item 7, MD&A — Goodwill Impairment
  59. [59] Item 7, MD&A — CarMax Auto Finance
  60. [60] Item 7, MD&A — CarMax Auto Finance
  61. [61] Item 7, MD&A — Strategic Update and Future Outlook
  62. [62] Item 7, MD&A — Planned Future Activities
  63. [63] Item 7, MD&A — Planned Future Activities
  64. [64] Item 7, MD&A — Planned Future Activities
  65. [65] Item 7, MD&A — Planned Future Activities
  66. [66] Item 7, MD&A — CarMax Auto Finance
  67. [67] Item 7, MD&A — CarMax Auto Finance
  68. [68] Item 7, MD&A — CarMax Auto Finance
  69. [69] Item 7, MD&A — CarMax Auto Finance
  70. [70] Item 7, MD&A — CarMax Auto Finance
  71. [71] Item 7, MD&A — Strategic Update and Future Outlook
  72. [72] Item 7, MD&A — Strategic Update and Future Outlook
  73. [73] Item 7, MD&A — Strategic Update and Future Outlook
  74. [74] Item 7, MD&A — Strategic Update and Future Outlook
  75. [75] Item 7, MD&A — Strategic Update and Future Outlook
  76. [76] Item 7, MD&A — Strategic Update and Future Outlook
  77. [77] Item 7, MD&A — Strategic Update and Future Outlook
  78. [78] Item 7, MD&A — Strategic Update and Future Outlook
  79. [79] Item 7, MD&A — Strategic Update and Future Outlook
  80. [80] Item 7, MD&A — Strategic Update and Future Outlook
  81. [81] Item 7, MD&A — Strategic Update and Future Outlook
  82. [82] Item 7, MD&A — Strategic Update and Future Outlook
  83. [83] Item 1A, Risk Factors — We operate in a highly competitive industry. Failure to develop and execute strategies to compete in the used vehicle marketplace and to adapt to the increasing use of digital and online tools to market, buy, sell and finance used vehicles could adversely affect our business, sales and results of operations.
  84. [84] Item 1A, Risk Factors — The automotive retail industry in general and our business in particular are sensitive to economic conditions. These conditions could adversely affect our business, sales, results of operations and financial condition.
  85. [85] Item 1A, Risk Factors — Our business is dependent upon capital to operate, fund growth and support the activities of our CAF segment. Changes in capital and credit markets could adversely affect our business, sales, results of operations and financial condition.
  86. [86] Item 1A, Risk Factors — CarMax was founded on the fundamental principle of integrity. Failure to maintain a reputation of integrity and to otherwise maintain and enhance our brand could adversely affect our business, sales and results of operations.
  87. [87] Item 1A, Risk Factors — Our business is sensitive to changes in the prices of new and used vehicles. Any significant changes in retail prices for new and used vehicles could have a material adverse effect on our sales and results of operations.
  88. [88] Item 1A, Risk Factors — Our business is dependent upon access to vehicle inventory and the parts used to recondition such inventory. A failure to expeditiously liquidate that inventory—or obstacles to acquiring inventory, including parts—whether because of supply, competition, or other factors could have a material adverse effect on our business, sales and results of operations.
  89. [89] Item 1A, Risk Factors — Our failure to realize the benefits associated with our omni-channel platform or initiatives designed to leverage evolving technologies, including AI, could have a material adverse effect on our business, sales and results of operations. and We may experience greater credit losses in CAF’s portfolio of auto loans than anticipated.
  90. [90] Item 1A, Risk Factors — We rely on third-party finance providers to finance a significant portion of our customers’ vehicle purchases. Accordingly, our sales and results of operations are partially dependent on the actions of these third parties. and We rely on third-party providers to supply EPP products to our customers. Accordingly, our sales and results of operations are partially dependent on the actions of these third-parties. and We rely on third-party vendors for key components of our business.
  91. [91] Item 1A, Risk Factors — Our business is sensitive to conditions affecting automotive manufacturers.
  92. [92] Item 1A, Risk Factors — We collect sensitive confidential information from our customers. A breach of this confidentiality, whether due to a cybersecurity or other incident, could result in harm to our customers and damage to our brand.
  93. [93] Item 1A, Risk Factors — We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations. Changes in these laws and regulations, or our failure to comply, could have a material adverse effect on our business, sales, results of operations and financial condition. and We are subject to evolving regulations, disclosure requirements, standards and expectations relating to environmental, social and governance matters. Failure to satisfy these regulations, requirements, standards and expectations could adversely affect our business, sales, results of operations and financial condition.

Analysis on 5/22/2026