CarMax, Inc. (KMX) Earnings & Analysis

Latest quarter

CarMax reported Q2 FY2027 revenue above the consensus, with revenue up 19.5% from a year earlier. Earnings per share also exceeded the consensus, according to the company’s reported results.

Diluted earnings per share rose to $1.16 from $0.64. CarMax said used-vehicle revenue increased as both unit sales and average retail prices rose. Comparable-store used-unit sales increased 13.0%, and the company attributed part of its sales performance to more competitive pricing.

The filing shows that wholesale revenue also increased as unit sales and average prices rose. CarMax Auto Finance income grew, primarily because of a lower loan-loss provision and a gain on the sale of auto loans.

CarMax reported a gross margin of 10.1%, compared with 10.9% a year earlier, while operating margin rose to 3.00% from 2.30%. The filing says pricing actions reduced used-vehicle gross profit per unit, while higher unit volume lifted total used-vehicle gross profit. Free cash flow rose to $806.0 million from $654.3 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Keith Barr said CarMax’s comparable-unit growth was driven largely by improved price competitiveness. CFO Enrique Mayor-Mora said efficiencies in vehicle preparation and changes to pricing helped the company pass savings to customers. He also credited greater enforcement of advertised-price rules with making comparisons across dealers easier.

Asked how much of the comparable-sales improvement came from that enforcement, Mayor-Mora said roughly half came from factors CarMax controlled, including cost efficiencies, lower gross profit per unit, pricing algorithms and customer experience. He attributed the other half to enforcement benefits. Barr said the company’s approach to price transparency helped its competitiveness.

On consumer demand, Barr described customers across income levels as resilient. He said the number of customers in the lowest-income group was unchanged from a year earlier, while higher-income groups grew. CarMax sold more newer, higher-priced vehicles during the quarter, although Barr said that mix could change.

Asked about margins, Mayor-Mora said CarMax had changed its customer warranty from a longer to a shorter term and returned the savings through lower prices. He said the company would continue managing profit per vehicle dynamically to support sales. Barr said the longer-term aim was to fund competitive pricing through efficiencies rather than lower unit profit.

Barr said CarMax expanded AI voice technology across inbound store and customer experience center calls and redesigned its vehicle-detail page. Mayor-Mora said web traffic fell during the quarter, but sales opportunities, customer engagement and conversion increased.

For the quarter ahead, Mayor-Mora said CarMax intended to restart share repurchases at a modest pace, below its average pace before the pause. He said the company’s objective was to manage leverage while retaining financial flexibility.

Guidance

Mayor-Mora said CarMax now expects full-year FY2027 retail gross profit per unit to decline by less than $200.00 from FY2026, compared with its previous outlook for a $200.00 decline per unit. He said CarMax also expects year-over-year declines in the third and fourth quarters as it continues to manage margins dynamically.