CarMax reported Q2 FY2025 total sales of $7.0 billion, down 1% year over year, as softer average selling prices offset higher retail unit volumes. The quarter showcased resilience in the core used-vehicle business with retail unit volume up 5.1% YoY and used unit comps up 4.3%, while ASP declined roughly 5% (about $1,250 per unit). Gross profit rose 9% YoY to $760 million, supported by higher EPP and stronger service margins, even as the company faced industry-wide auto loan loss pressure. Net income was $132.8 million and diluted EPS was $0.85, up 13% YoY despite higher provisions in CAF, underscoring the leverage in the blended CarMax model. Management emphasized ongoing cost discipline, SG&A leverage (4 percentage points), and a sharper focus on omni-channel efficiency, logistics optimization, and sourcing improvements.
The company advanced a multi-year growth plan anchored in (1) expanding full-spectrum lending with Tier 2/3 underwriting pilots, (2) funding growth through securitizations, (3) accelerating omnichannel capabilities (order processing, customer shopping accounts, AI-assisted CECs), and (4) optimizing logistics and reconditioning to protect margins. The CAF loan-loss provision rose in the quarter owing to industry-wide credit tightening and a specific uptick in lifetime losses on existing loans, but the reserve build is viewed as a prudent response to evolving credit dynamics. CarMax remains financially robust on a cash-flow basis, generating $619 million of operating cash flow and about $510 million in free cash flow, with a strong balance sheet position and substantial buyback activity ($106 million in Q2). Looking ahead, management indicated confidence in the second-half sales trajectory under current conditions, while continuing to test and refine credit models and operating efficiencies.
Key questions for investors center on: (i) the trajectory of auto-loan losses and the pace of CAF profitability as rate environments evolve; (ii) the degree and speed at which Tier 2/3 lending expands and contributes to earnings; (iii) the sustainability of margin gains from logistics reengineering and omni-channel investments; and (iv) the sensitivity of cash-flow to working-capital dynamics in a slower auto-cycle backdrop. Overall, CarMax’s strategic pivot toward full-spectrum lending, combined with meaningful operating efficiencies and a robust cash-generating engine, supports a cautious but constructive longer-term investment thesis, contingent on credit-cycle normalization and execution of its cost-structure initiatives.