CarMax Reports Second Quarter Fiscal Year 2026 Results

CarMax reported a challenging second quarter for fiscal year 2026, with net earnings per diluted share falling to $0.64 from $0.85 year-over-year, as total net sales and operating revenues decreased 6.0% to $6.59 billion. This decline was primarily driven by a 5.4% drop in retail used unit sales and a 2.2% decrease in wholesale units. CarMax Auto Finance (CAF) income also fell 11.2% to $102.6 million, largely due to a significant increase in the provision for loan losses, particularly from 2022 and 2023 loan vintages. In response, the company reduced SG&A by 1.6% and announced plans for at least $150 million in further SG&A reductions over the next 18 months, while also repurchasing $180 million in shares and expecting a $25-30 million gain from a recent non-prime securitization in Q3.

Analysis

CarMax reported a challenging second quarter, with net earnings per diluted share declining 24.7% to $0.64 from $0.85 a year ago, driven by a confluence of lower sales volumes and deteriorating credit performance. Total net sales and operating revenues fell 6.0% to $6.59 billion, reflecting a 5.4% decrease in retail used unit sales and a 6.3% drop in comparable store used unit sales, indicating persistent headwinds in consumer demand. Despite the volume decline, the company demonstrated pricing discipline by maintaining stable gross profit per unit, with retail GPU at $2,216 and wholesale GPU at $993, both consistent with the prior year. However, a significant headwind was the 11.2% decrease in CarMax Auto Finance (CAF) income to $102.6 million. This was caused by a substantial increase in the provision for loan losses to $142.2 million, attributed to worsening performance in the 2022 and 2023 loan vintages. In response, management is taking decisive action by targeting at least $150 million in incremental SG&A reductions over 18 months, continuing an accelerated share repurchase program with $180.0 million executed in the quarter, and de-risking its loan portfolio through a non-prime securitization expected to generate a $25-30 million gain in the third quarter.

Key Decisions for Investors

• Investors should closely monitor future sales volume trends and the performance of the CarMax Auto Finance portfolio, as the 11.2% decline in CAF income driven by higher loan loss provisions from 2022-2023 vintages signals a key risk to profitability.
• Consider the company's proactive measures to support earnings, including the plan for at least $150 million in incremental SG&A reductions and the ongoing accelerated share repurchase program, which may partially offset top-line weakness.
• Factor in the near-term financial benefit and de-risking effect of the post-quarter non-prime securitization, which is expected to contribute a $25-30 million gain in Q3 and remove a pool of loans from the balance sheet.
• Evaluate whether the stability in gross profit per unit demonstrates sufficient pricing power to navigate the current demand environment, or if the 6.3% decline in comparable store sales points to a more fundamental market challenge.