CarMax Inc (NYSE:KMX), the nation's largest used vehicle retailer, reported financial results for its third quarter of fiscal 2026 that delivered a mixed picture. While the company surpassed analyst expectations on profitability, a significant decline in sales volume and a cautious outlook appear to be weighing on investor sentiment in early trading.
Earnings and Revenue Versus Estimates
The company's performance relative to Wall Street forecasts was a tale of two metrics. CarMax reported net earnings per diluted share of $0.43, which included $0.08 per share in restructuring charges. On a non-GAAP basis, adjusted earnings per share were $0.51. This figure notably exceeded the analyst consensus estimate of $0.38.
On the top line, total net sales and operating revenues came in at $5.79 billion, a 6.9% decrease compared to the same quarter last year. This result was essentially in line with analyst estimates, which had projected revenue of approximately $5.77 billion.
- Earnings Per Share (EPS): Reported $0.51 (non-GAAP) vs. Estimate of $0.38
- Revenue: Reported $5.79B vs. Estimate of $5.77B
Market Reaction and Price Action
Despite the earnings beat, the market's initial reaction was negative. In pre-market trading following the release, CarMax shares were down approximately 4.4%. This suggests investors are focusing more on the underlying challenges in the business, particularly the decline in unit sales, rather than the short-term profit outperformance driven in part by one-time financial gains. The stock had seen positive momentum in the month leading up to the report, gaining over 22%, indicating some investor optimism that may now be recalibrating.
Key Takeaways from the Quarter
The earnings report highlighted several critical pressures and strategic shifts within the business:
- Leadership in Transition: The quarter was marked by a significant leadership change. Board member David McCreight was named Interim President and CEO, while Chairman Tom Folliard assumed the role of Interim Executive Chair. The board has commenced a search for a permanent CEO.
- Declining Sales Volume: The core retail business faced headwinds. Combined retail and wholesale used vehicle unit sales fell 7.2% year-over-year. Specifically, retail used unit sales decreased 8.0%, with comparable store sales down 9.0%.
- Pressure on Gross Profit: Total gross profit declined 12.9% to $590.0 million. This was driven by lower unit volume and reduced profit per unit in both the retail and wholesale segments, which the company attributed to "steep market depreciation."
- Finance Segment Strength: A bright spot was the performance of CarMax Auto Finance (CAF), where income increased 9.3% to $174.7 million. This growth was fueled by a $27 million gain on sale from a securitization transaction.
- Cost-Cutting Initiatives: The company is embarking on a cost-reduction plan, aiming for at least $150 million in annual SG&A savings by the end of fiscal 2027. Restructuring charges related to leadership changes and workforce reductions impacted the current quarter's results.
Looking Ahead: Management Outlook vs. Analyst Estimates
In its preliminary outlook for the fiscal fourth quarter, CarMax management signaled a strategic pivot to stimulate sales. The company plans to improve price competitiveness by lowering retail used unit margins and will continue increased marketing spend, albeit at a lower rate than in Q3.
Analysts currently estimate CarMax will generate sales of approximately $5.70 billion in Q4 fiscal 2026. The company's stated intention to sacrifice margin for volume suggests the focus will be on arresting the sales decline, potentially at the expense of near-term profitability as it navigates a challenging used vehicle market.
For a detailed breakdown of future earnings estimates and historical performance, you can review the earnings and estimates page for KMX.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
