CarMax, Inc. (KMX) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals a decline in key financial metrics such as EPS and total gross profit, coupled with a decrease in CAF income expectations. The Q&A section highlights challenges in used unit sales, competitive pricing issues, and flat or declining CAF income. Although cost reductions are planned, they are not expected to impact growth. The negative sentiment from analysts, along with unclear management responses, further supports a negative outlook.
Key Financial Performance
Total Sales $6.6 billion, down 6% compared to last year, reflecting lower volume.
Retail Unit Sales Declined 5.4% year-over-year, with used unit comps down 6.3%. Performance was pressured across age 0 to 5 inventory but partially offset by increased sales in older, higher mileage vehicles.
Average Selling Price (Retail) $26,000, a year-over-year decrease of approximately $250 per unit.
Retail Gross Profit Per Used Unit $2,216, similar to last year but down approximately $200 from the first quarter. The sequential decline was more than twice the historical average, reflecting strategic actions to improve price competitiveness.
Wholesale Unit Sales Down 2.2% year-over-year. Average wholesale selling price increased approximately $125 per unit to $7,900.
Wholesale Gross Profit Per Unit $993, historically strong and similar to last year.
Vehicles Bought Approximately 293,000 vehicles, down 2% from last year. Purchases from consumers were approximately 262,000, with more than half through online instant appraisal. Dealer-sourced vehicles were approximately 31,000, slightly up from last year.
CarMax Auto Finance (CAF) Income $103 million, down $13 million from FY '25. Net interest margin on the portfolio was 6.6%, up over 50 basis points from last year.
Loan Loss Provision $142 million, with $71 million attributed to new originations and $71 million as an adjustment to the loss expectation of the existing portfolio. The adjustment was driven by additional losses anticipated within the 2022 and 2023 vintages.
Net Earnings Per Diluted Share $0.64, down from $0.85 a year ago, driven primarily by lower volume and the CAF loss provision adjustment.
Total Gross Profit $718 million, down 6% from last year's second quarter. Used retail margin decreased by 8%, with lower volume and relatively stable per unit margins.
SG&A Expenses $601 million, down 2% from the prior year, driven primarily by lower stock-based compensation. SG&A to gross profit deleveraged 350 basis points to 84% due to lower volume.
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Operating Highlights
Wanna Drive? brand campaign: Launched a new brand campaign to highlight CarMax's omnichannel experience, aiming to empower customers to buy their way with clarity, confidence, and control.
Market share and sales focus: Focused on driving sales and gaining market share despite a 6% decline in total sales to $6.6 billion compared to last year.
SG&A reductions: Targeting incremental SG&A reductions of at least $150 million over the next 18 months through technology and efficiency improvements.
AI technology deployment: Leveraging AI-powered tools like Skye 2.0 to improve operational efficiency and customer experience.
Inventory and pricing strategy: Adjusted inventory and pricing strategies to improve price competitiveness and align inventory with sales.
CAF penetration and profitability: Increased CarMax Auto Finance (CAF) penetration to 42.6%, with a focus on full credit spectrum expansion and securitization strategies.
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Risk or Challenges
Sales Volume Decline: Total sales decreased by 6% year-over-year, with retail unit sales down 5.4% and used unit comps declining by 6.3%. This reflects lower consumer demand and competitive pressures.
Inventory Management Challenges: The company ramped up inventory in anticipation of higher demand, but subsequent depreciation of $1,000 per unit negatively impacted price competitiveness and sales.
Economic and Market Conditions: Macroeconomic factors, including inflation and tariff speculation, have impacted consumer demand and pricing strategies.
Loan Loss Provisions: CarMax Auto Finance (CAF) had to adjust its loan loss provisions by $71 million due to anticipated losses in 2022 and 2023 loan vintages, reflecting increased credit risk.
SG&A Cost Pressures: Despite efforts to reduce SG&A expenses, cost pressures and lower sales volume led to a 350 basis point deleverage in SG&A to gross profit.
Profit Margin Decline: Retail gross profit per used unit decreased by $200 sequentially, more than twice the historical average, due to pricing adjustments to drive sales.
Customer Credit Risk: CAF's adjustments to underwriting criteria indicate increased risk in customer credit profiles, particularly in Tier 2 and Tier 3 segments.
Seasonal and Service Margin Pressures: Service margins are expected to face seasonal pressures in the second half of the year, potentially impacting overall profitability.
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Guidance & Outlook
Revenue Expectations: The company expects to see year-over-year improvement in vehicle buys in the third quarter, which could positively impact revenue. Additionally, the company is focused on maintaining price competitiveness and leveraging selection and margins to drive sales.
Margin Projections: The company aims to deliver incremental SG&A reductions of at least $150 million over the next 18 months, which will improve cost efficiency and provide flexibility for reinvestment. Service margin is expected to face pressure in the back half of the year due to seasonal sales volumes, but the company still expects to deliver positive margin for the full year.
Capital Expenditures: The company is investing in technology, systems, and processes to modernize and consolidate its technology infrastructure, automate manual processes, and eliminate redundancies. These investments are expected to support the $150 million SG&A reduction goal.
Market Trends: The company is observing a shift in consumer demand towards older, higher mileage vehicles. Additionally, the company is leveraging its new 'Wanna Drive?' brand campaign to increase consumer awareness and drive sales.
Business Segment Performance: CarMax Auto Finance (CAF) expects to see growth in penetration rates due to underwriting adjustments, with an anticipated gain on sale of $25 million to $30 million in third quarter income from a recent securitization transaction. The company also expects $40 million to $45 million in additional CAF income related to servicing fees and retained beneficial interest over the life of the transaction.
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Shareholder Return Plan
Share Repurchase: During the second quarter, we continued our share repurchases at an accelerated pace, buying back approximately 2.9 million shares for a total expenditure of $180 million. As of the end of the quarter, we had approximately $1.56 billion of our repurchase authorization remaining.
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Key Q&A
Q:What were the main factors affecting used unit sales in fiscal Q2?
A:The main factors were inventory buying and depreciation, which were hard to quantify, and a pull forward in demand into fiscal Q1. Each month in Q2 was down year-over-year, with September showing improvement but still soft year-over-year.
Q:Is CarMax focusing more on competitive pricing now?
A:Yes, CarMax is focusing more on competitive pricing. They acknowledged being less competitive in the quarter but have since adjusted and aim to remain nimble in pricing due to the aggressive market environment.
Q:What is the update on CAF income expectations for the full year?
A:CAF income is now expected to be flat to slightly down year-over-year, instead of the previously anticipated increase. This is due to larger provision impacts and adjustments in customer performance.
Q:What are the areas of cost reduction in SG&A, and will they impact growth strategy?
A:Cost reductions include retiring legacy systems, reducing licensing usage, automating processes, and leveraging AI. These are not expected to impact growth strategy, as some savings will be reinvested in areas like marketing to drive sales.
Q:Is CarMax considering reinvesting SG&A savings into pricing or selection to drive sales?
A:Yes, CarMax plans to reinvest some SG&A savings into pricing and selection to drive sales, while also generating additional profit from other parts of the business to maintain flexibility.
Q:Is there price elasticity of demand for CarMax?
A:Yes, CarMax acknowledges price elasticity of demand and continuously tests pricing to understand its impact. They consider factors like variable expenses, operational workforce capacity, and ancillary profit attachment when making pricing decisions.
Q:What is CarMax's approach to expanding into subprime credit?
A:CarMax is cautiously expanding into the top half of Tier 2 credit, not deep subprime. They aim to price, provision, and service correctly while being prudent in their approach.
Q:What is the impact of reserved inventory on sales?
A:Reserved inventory allows customers to hold cars they are interested in, which can limit availability for other buyers. CarMax is considering adding friction to reduce the hold time for reserved cars.
Q:What are the trends in used car demand and consumer behavior?
A:Higher FICO customers are sitting on the sidelines, while lower FICO customers are more active. The used car market is seeing older vehicles (10+ years) performing better than newer ones, and under $25,000 cars are gaining a larger share of sales.
Q:What is the outlook for retail and wholesale GPU?
A:Retail GPU is expected to be similar year-over-year, but Q3 GPU will likely be lower than last year's record high. Wholesale GPU is also expected to align with historical averages after a strong Q3 last year.
Q:What is the status of delinquency rates and provisions in CAF?
A:Delinquency rates are in line with expectations for newer vintages, while older vintages required adjustments. Provisions for new originations are expected to be slightly higher but manageable, with minimal true-ups anticipated.
Q:What is the progress on cost savings in COGS and SG&A?
A:CarMax is on track to achieve $125 million in COGS savings this year, separate from the $150 million SG&A savings. Both initiatives are progressing as planned.
Q:What is CarMax's strategy for inventory mix?
A:CarMax is increasing the availability of older, higher-mileage vehicles while maintaining a selection of later-model used cars to appeal to a broad customer base.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer on the exact impact of inventory buying and depreciation on used unit sales, as well as the specific percentage of reserved inventory that converts to sales. They also did not provide a clear breakdown of servicing income versus beneficial interest in CAF.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI release
Auto Financing
CAF increase
CAF loss
CAF share
Finance expectation
Financing focus
Form report
Nikki conference
President Investor
Promoter Score
Recall convergence
Relations Nikki
Relations section
Relations statement
SEC addition
SGA efficiency
SGA reduction
SLAs AI
Score height
TV phase
approach
average
brand
buy decision
inventory sale
investor
loan sale
loss expectation
loss provision
model teen
note
partner
portfolio
price competitiveness
priority
process
reduction month
selection
size
vintage
volume CAF
web
KMX Transcript
CarMax, Inc. (KMX) Q1 2027 Earnings Call Transcript
Neutral6-17
CarMax, Inc. (KMX) Q4 2026 Earnings Call Transcript
Unknown4-14
The earnings call summary highlights several negative factors: declining revenue, net income, and EPS; increased operating expenses; and decreased sales volume. Despite improved gross profit per used vehicle, challenges such as market conditions, competition, regulatory hurdles, and supply chain disruptions pose significant risks. The lack of positive strategic initiatives or shareholder return plans further exacerbates concerns. Overall, these factors suggest a negative sentiment, likely leading to a stock price decrease of -2% to -8% over the next two weeks.
CarMax, Inc. (KMX) Q3 2026 Earnings Call Transcript
Positive12-18
The earnings call summary reveals strong financial performance expectations, optimistic guidance, and strategic initiatives, particularly in cost reductions and marketing. The Q&A section supports this sentiment, highlighting management's focus on competitive pricing, digital transformation, and strategic adjustments to drive sales. Despite some vague responses, the overall tone is positive, especially with the emphasis on SG&A reductions and market strategy improvements. The positive sentiment is further reinforced by optimistic guidance and strategic focus on growth opportunities, suggesting a likely positive stock price movement over the next two weeks.
CarMax, Inc. (KMX) Q2 2026 Earnings Call Transcript
Unknown9-25
The earnings call summary reveals a decline in key financial metrics such as EPS and total gross profit, coupled with a decrease in CAF income expectations. The Q&A section highlights challenges in used unit sales, competitive pricing issues, and flat or declining CAF income. Although cost reductions are planned, they are not expected to impact growth. The negative sentiment from analysts, along with unclear management responses, further supports a negative outlook.
KMX Slides
CarMax Q1 FY27 slides: earnings beat amid cost cuts, CAF growth2026-06-17
CarMax Q4 FY2026 slides: new CEO, margin pressure amid transformation2026-04-14
CarMax Q3 2026 slides: leadership change amid sales decline, CAF strength2025-12-18
CarMax Q2 2026 slides: Sales decline breaks growth streak as credit losses rise2025-09-25
KMX Report
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