Exchange: NYSE | Sector: Consumer Cyclical | Industry: Auto Dealerships
Q2 2026
Published: Sep 25, 2025
Earnings Highlights
Revenue of $6.59B down 6% year-over-year
EPS of $0.64 decreased by 23.5% from previous year
Gross margin of 10.9%
Net income of 95.38M
""While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come."" - Bill Nash, President & CEO
CarMax Inc (KMX) Q2 FY2026 Comprehensive Results Analysis: Navigating a Moderating Used-Vehicle Cycle with CAF Growth, Omnichannel Transformation, and SG&A Efficiency
Executive Summary
CarMax’s QQ2 FY2026 results reflect a modest year-over-year revenue decline amid a softer used-vehicle environment, offset by meaningful near-term cost reductions and CAF financing contributions. Management emphasized a multi-pronged plan to restore growth and profitability through price/selection discipline, brand investment via the Wanna Drive campaign, and substantial SG&A efficiencies of at least $150 million over the next 18 months. The quarter featured robust CAF activity in aggregate (over $2 billion originated) with a CAF income of $103 million, but a notable loan-loss reserve adjustment (provision) of $142 million reflecting vintage-specific delinquencies and loss expectations adjustments. The company also advanced its funding strategy via a $900 million securitization (25-B) with off-balance-sheet treatment and expects gain on sale in Q3, plus servicing-related income of $40–$45 million over the life of the transaction. Strong operating cash flow supported a solid free cash flow delivery of $654 million, enabling continued share repurchases and a resilient balance sheet, though net debt remained elevated at roughly $17.2 billion. Management remains optimistic about gaining market share in a large, fragmented market, aided by pricing agility, improved inventory positioning, and a more favorable brand trajectory. The near-term path will hinge on consumer credit dynamics, macro volatility, and the pace at which SG&A savings translate into topline enhancements and margin expansion.
Key QQ2 FY2026 metrics and succinct YoY/QoQ context:
- Revenue: $6.595B; YoY -5.97%; QoQ -12.61% (per earnings metrics)
- Gross Profit: $717.666M; YoY -5.63%; QoQ -19.69%
- Gross Margin: ~10.88% (717.666M on 6.594B revenue)
- Operating Income: $308.269M; YoY +105.64%; QoQ +31.75%
- Operating Margin: ~4.67%
- Net Income: $95.378M; YoY -28.18%; QoQ -54.66%
- EPS (diluted): $0.64; GAAP EPS $0.65
- CAF Income: $103.0M; Net interest margin on CAF 6.6%; Loan loss provision $142M; Reserve balance $507M (3.02% of managed receivables)
- Free Cash Flow: $654.026M; Operating Cash Flow: $785.494M; Capex: $131.468M
- Cash and equivalents end of period: $1.305B; Net Debt: ~$17.226B; Total Debt: $17.767B
- Inventory: $3.150B; Receivables: $173.556M; Current assets: $5.542B; Total assets: $27.080B
- SG&A: $601.0M, down 2% YoY; SG&A to gross profit deleveraged ~84%
- Buy activity: ~293k vehicles purchased (down ~2% YoY); Consumer buys via online instant appraisal comprised >50% of consumer buys
- Brand & marketing: Wanna Drive campaign launched August to highlight omnichannel experience; Net Promoter Score at its highest since nationwide digital capabilities rollout
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.59B
-5.97%
-12.61%
Gross Profit
717.67M
-5.63%
-19.69%
Operating Income
308.27M
105.64%
31.75%
Net Income
95.38M
-28.18%
-54.66%
EPS
0.65
-23.53%
-52.90%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ2 2026 earnings call, grouped by theme:
- Strategy and growth framework:
- Bill Nash: “While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come.”
- Nash: emphasis on price/selection discipline, brand investment via Wanna Drive, and at least $150M in incremental SG&A reductions over 18 months; goal of high-teen EPS growth with mid-single-digit retail unit growth.
- Nash: intent to stay nimble on pricing, with a focus on maintaining competitive prices, improving inventory position, and leveraging the omnichannel advantage.
- Brand and consumer experience:
- Nash: Wanna Drive rollout is a phased, multi-channel campaign designed to highlight CarMax’s omnichannel experience and improve conversion from web traffic to sale/sell decisions.
- Nash: net promoter score is the highest since full digital capabilities rollout, reflecting strong customer satisfaction online and via omnichannel experiences.
- CarMax Auto Finance (CAF) and credit strategy:
- Jon Daniels: CAF originated over $2B in Q2; CAF penetration was 42.6% (net of 3-day payoffs), ~60 bps above prior year; weighted average contract rate 11.2% (down from 11.4% prior quarter) due to rate testing.
- Daniels: tariff pull-forward in Q1 impacted CAF share; underwriting adjustments added 100–200 bps of growth since the fiscal year start, with Tier 1/2 penetration outpacing Tier 2/3 in the quarter; no deep subprime currently contemplated—Tier 1 and upper Tier 2 focus with prudent risk management.
- Daniels: 25-B securitization closed (upsized to $900M) with residual interest sold to third-party investors; expected GAAP gain on sale in Q3 ($5–$30M) and servicing fee/retained interest of $40–$45M over life; going forward, no loss allowance or provisioning for this pool.
- Operational efficiency and cost discipline:
- Enrique Mayor-Mora: SG&A expenses $601M in Q2, down 2% YoY; ongoing AI and Sky platform driving efficiency gains; plan to reduce at least $150M in SG&A over the next 18 months, with most savings realized by fiscal 2027 exit rate; investments in technology to modernize infrastructure and reduce third-party contracts.
- Mayor-Mora: “The investments in technology, systems, and processes…will allow us to substantially reduce spend” while continuing to reinvest selectively in growth-driving areas (marketing, brand, top-line initiatives).
- Operational and credit performance signals:
- Daniels/Nash emphasized gross margins, price discipline, and margins sensitivity to depreciation and inventory de-risking; sequential Q/Q declines in gross profit per used unit were linked to depreciation effects and price competitiveness; management notes better pricing position and improved inventory health into Q3.
- JPMorgan/Sharon/others asserted ongoing focus on consumer credit mix, with caution around macro weakness; management reiterated discipline in CAF mix, and that 2024–2025 vintages continue to align with original loss expectations.
- Bottom-line implications:
- Despite a weaker top line, operating income rose YoY due to mix and cost controls; but net income declined sharply due to CAF provisions and loan losses and higher interest-related costs embedded in the financing stack.
- Cash generation remains robust, underpinning capital allocation choices like share repurchases and deleveraging via cost reductions.
- Strategic risk and market conditions:
- The company faces a soft used-vehicle environment in the near term, with consumer weakness and macro uncertainty; management stresses nimble pricing, selective inventory management, and continued investment in differentiating capabilities as mitigants.
- The elevated debt load and reliance on financing activities introduce sensitivity to credit cycles and securitization markets, though CAF financing also provides a meaningful profit engine when managed prudently.
"While our second quarter results fell short of our expectations, we remain focused on driving sales, gaining market share, and delivering significant year-over-year earnings growth for years to come."
— Bill Nash, President & CEO
"We are already making progress across these fronts and are confident in our strategy and our earnings model, which will produce high teen EPS growth with mid-single-digit retail unit growth."
— Bill Nash, President & CEO
Forward Guidance
Management’s near-term and medium-term outlook centers on a multi-pronged profitability and growth plan:
- SG&A reductions: At least $150 million in incremental SG&A reductions over the next 18 months, with much of the impact realized by the end of fiscal 2027. These savings are intended to be reinvested where they support revenue growth (e.g., marketing and brand investments) while also improving margin mix and profitability.
- Revenue and unit growth: High-teen EPS growth with mid-single-digit retail unit growth, implying improving productivity and variable cost leverage as volumes recover; management indicated net pricing and selection will remain a central driver of topline and profitability.
- Brand and demand generation: The Wanna Drive campaign is a key component of converting traffic into purchases via a more seamless buyer journey across channels, with the aim of improving conversion rates and online share of wallet.
- CAF and full-spectrum financing: Expect continued CAF growth through top-half Tier 1/2 penetration, with the 25-B securitization program expected to yield ongoing servicing income and residual interest gains; no further loss allowances anticipated for the securitized pool going forward. In Q3, a material gain on sale is anticipated from the residual interest; overall CAF income is expected to be flat to slightly down year over year, reflecting mix and macro conditions, but offset by servicing and retention income.
- Key risks to guidance: macro consumer weakness, credit losses in early vintages (2022–2023 cohorts) and potential shifts in interest rates, competitive pricing dynamics, seasonal volatility in auto cycles, and the ability to realize targeted SG&A savings on a timely basis. Investors should monitor CAF delinquencies, loss provisions, and the pace of SG&A savings realization.
- Bottom-line factors to monitor: ongoing cash flow generation, working capital efficiency (inventory turns and reserve levels), and the impact of any further share repurchases given the remaining authorization.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
KMX Focus
10.88%
N/A
N/A
N/A
AN
17.90%
4.24%
5.96%
12.56%
ORLY
50.70%
20.20%
-39.30%
23.94%
AZO
53.90%
17.90%
-10.90%
30.56%
AAP
41.50%
2.67%
1.73%
20.85%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base-case: CarMax is navigating a transitional period where topline growth is challenged by a softer macro backdrop and price/depreciation dynamics, but the combination of CAF financing strength, material SG&A efficiencies, and a multi-channel brand strategy positions the company to regain margin and market share over the next 12–24 months. The Think-through strategy—driving price/selection discipline, Wanna Drive marketing, and targeted reinvestment of savings—provides a clear path to moderate, profitable growth with high-teens EPS potential if mid-single-digit unit growth materializes. The near-term catalysts include: (1) the Q3 gain on sale from the 25-B securitization and ongoing CAF servicing income; (2) incremental SG&A savings realization; (3) improved inventory positioning and pricing flexibility supporting margins. Downside risks center on a continuing weak consumer environment, higher-than-expected credit losses in recent vintages, slower marketing ROI, or any negative shifts in securitization markets that could constrain funding flexibility. Upside scenarios would entail stronger-than-expected used-vehicle demand, accelerated CAF growth, and faster realization of SG&A savings into margin and cash flow. Overall, the stock could be attractive to investors seeking exposure to a large, incumbent U.S. used-vehicle retailer with a defensible omnichannel platform and a credible plan to improve profitability through disciplined pricing, leverage of AI and automation, and selective capital allocation.
Key Investment Factors
Growth Potential
Growth drivers include continued CAF penetration into higher-quality tiers, expanding the offer set across the credit spectrum, enhanced omnichannel selling from Wanna Drive, and higher-margin value creation from improved SG&A efficiency. The star growth lever is the combination of stronger pricing discipline, higher conversion rates from smarter web-to-sale funnels, and selective reinvestment of SG&A savings into marketing and customer experience to drive top-line gains.
Profitability Risk
Key risks include a slower consumer environment or increased delinquencies in mid-tier credit cohorts, potential mix shift toward higher-risk segments despite prudent underwriting, competitive pricing pressure eroding margins, and capital-market volatility impacting securitization gains and off-balance sheet financing structures. Net debt level remains elevated, and macro volatility (rates, inflation, consumer sentiment) could compress margins or restrain unit growth.
Financial Position
Solid cash generation with $785.5M operating cash flow and $654.0M free cash flow in QQ2; cash on hand $1.305B; total debt $17.767B with net debt around $17.227B; liquidity remains ample but leverage is a consideration given the financing-heavy operating model. CAF assets and securitization activity provide flexible funding and additional annuity-like revenue streams, albeit with inherent credit and securitization risk.
SWOT Analysis
Strengths
Large-scale national used-vehicle retailer with an omnichannel platform and high customer satisfaction (Net Promoter Score at record levels)
Diversified revenue model including CarMax Sales Operations and CarMax Auto Finance (CAF) with meaningful CAF income and funding flexibility via securitizations
Strong cash flow generation (free cash flow $654.0M in QQ2 2026) supporting buybacks and investments
Brand differentiation through Wanna Drive and ongoing investments in AI-driven customer experience (Sky 2.0)
omnichannel capabilities that improve conversion and broader market reach
Weaknesses
Revenue and unit-volume declines in QQ2 2026 (retail units down ~5.4%, used-unit comps down ~6.3%)
High debt load and dependance on financing activities which can introduce balance-sheet risk in adverse credit cycles
Near-term pressure on gross margins due to depreciation effects and pricing sensitivity in a competitive environment
Moderate to high sensitivity to used-vehicle price cycles and macro sentiment
Opportunities
Increased CAF penetration and top-half Tier 1/Tier 2 expansion with disciplined risk control
Leverage Wanna Drive and digital capabilities to improve web-to-sale conversion and online share of wallet
Off-balance-sheet securitization structures and servicing income to bolster cash flow and earnings resilience
SG&A efficiencies (targeting at least $150M over 18 months) to fund marketing and price competitiveness without sacrificing growth
Expansion of value-max inventory strategy (older, high-mileage vehicles) balanced with newer model selections
Threats
Macroeconomic headwinds and consumer credit tightening that could dampen used-vehicle demand
Competitive pricing pressure and potential elasticity risk reducing margin gain
Credit losses from 2022–2023 vintages if macro conditions worsen; volatility in vehicle financing markets
Regulatory and compliance risks across securitizations and finance operations
Commodity, freight, and logistical costs that could impact cost structure and inventory turns