CarMax Inc. (NYSE: KMX) Q2 2026 Earnings Call | 09/25/2025

CarMax reported a challenging second quarter with results falling short of expectations. The primary drivers were lower sales volume and a significant increase in loan loss provisions within its CarMax Auto Finance (CAF) unit. Earnings per share dropped to $0.64 from $0.85 the previous year.

Key Financial Highlights (Q2)

• Revenue: Total sales fell 6% to $6.6 billion.

• Unit Sales: Retail unit sales declined 5.4%, and wholesale unit sales were down 2.2%.

• Profitability: Retail gross profit per unit (GPU) was $2,216, in line with historical averages but down sequentially. The company cited aggressive pricing actions to clear inventory.

• CAF Performance: CAF income fell to $103 million. A substantial $142 million provision for loan losses was recorded, primarily due to worse-than-expected performance from 2022 and 2023 loan vintages.

Challenges & Strategic Response

Management identified two main headwinds for the quarter:

1. Inventory Depreciation: The company ramped up inventory ahead of anticipated demand that did not materialize, leading to about $1,000 in depreciation per car, which hurt price competitiveness.

2. Demand Pull-Forward: They believe some demand was pulled forward into Q1 due to tariff speculation.

In response, CarMax is executing on four key priorities:

1. Focus on Price & Selection: Being more nimble with pricing to stay competitive and balancing inventory with sales.

2. Drive Consumer Awareness: Launching a new "Want to Drive" brand campaign to highlight its omnichannel experience.

3. Significant Cost Reduction: Committing to at least $150 million in SG&A savings over the next 18 months through technology consolidation, automation, and contract renegotiation.

4. Generate Additional Profit: Expanding CAF penetration across the credit spectrum and finding efficiencies in other business areas.

Business Segment & Consumer Insights

• CAF & Credit: While 2022-2023 vintages are underperforming, they remain profitable. Newer 2024-2025 vintages are performing in line with expectations. The company is cautiously expanding into the upper half of the Tier 2 credit segment.

• Consumer Behavior: The company noted softer demand, particularly from higher FICO (credit score) customers, who appear to be "sitting on the sidelines." Web traffic is up, but converting that traffic into tangible selling opportunities is the key challenge.

• Online & Omnichannel: The Net Promoter Score (NPS) is at a record high, driven by strong satisfaction among online and omnichannel customers. A third of sales come from vehicle transfers between locations.

Outlook & Guidance

• Sales: The company expects year-over-year buy performance to improve in Q3 and remains committed to gaining market share for the full fiscal year.

• Profitability: Retail and wholesale GPU are expected to normalize in Q3 after record highs in the prior year.

• CAF: Full-year CAF income is now expected to be flat to slightly down year-over-year.

• Capital Allocation: The company continues to repurchase shares aggressively, with $1.56 billion remaining in its authorization.