Exchange: NYSE | Sector: Consumer Cyclical | Industry: Auto Dealerships
Q4 2025
Published: Apr 11, 2025
Earnings Highlights
Revenue of $6.00B up 6.7% year-over-year
EPS of $0.58 increased by 81.3% from previous year
Gross margin of 11.1%
Net income of 89.87M
"We're very pleased with the continuing momentum across our diversified business during the fourth quarter. Our results reflect solid execution and the strength of our business model. We delivered robust year-over-year EPS growth as we drove unit volume increases in sales and buys, materially increased gross profit, grew cap income, and realized additional cost efficiencies." - Bill Nash, President and CEO
CarMax Inc (KMX) QQ4 2025 Earnings Analysis: Omni-Channel Momentum, CAF Expansion, and Resilient Demand in a Turbulent Macro Environment
Executive Summary
CarMax reported Q4 FY2025 with solid top-line momentum and meaningful gross profit expansion, but the quarter carried a negative operating income due to non-recurring impairment and ongoing investment in growth initiatives. Revenue reached $6.00 billion, up 6.7% year over year, while gross profit rose 28.2% to $668 million, underscoring better per-unit margins and higher volume. Despite the improvement in gross profitability, the company posted an operating loss of $99.6 million, reflecting SG&A deleveraging on higher compensation and timing-driven advertising; management emphasized ongoing efficiency gains and cost controls as key drivers behind the earnings momentum.
Management highlighted the durability of the omni-channel model and the acceleration of CarMax Auto Finance (CAF) within a full credit spectrum. CAF delivered income of $159 million, up 8% year over year, with net interest margin at 6.2% and a CAP strategy anchored by the expansion into Tier 2/3 origination and non-prime securitization. While near-term credit costs are expected to rise—the company forecast a larger provision in Q1 due to seasonality and the ongoing mix shift—the longer-term framework anticipates meaningful earnings expansion driven by higher CAF penetration, EPP enhancements, and continued SG&A efficiency. The company also announced capex of roughly $575 million for FY2026, six new stores, and four stand-alone reconditioning/auction centers, signaling a continued investment in capacity to support mid-single-digit unit growth and mid-to-high-teens EPS growth over the medium term.
Overall, CarMax remains well-positioned to gain market share via its integrated digital tools, augmented sourcing capabilities (MAX Offer), and a scalable CAF program, even as it navigates near-term provisioning pressures and macro uncertainty. The stock trades with a strong earnings-power narrative but faces execution risk and balance-sheet leverage that investors should monitor as the company progresses through FY2026.
Net Income: $89.87M, YoY +78.77%, QoQ -28.36%; Net margin ≈ 1.50%
Earnings per share (diluted): $0.58, YoY +81.25%, QoQ -27.50% (EPS of $0.64 adjusted for a $12M Edmunds lease impairment)
Financial Highlights
Revenue and profitability
- Revenue: $6.003B, YoY +6.69%, QoQ -3.54% (Q4 FY2025)
- Gross Profit: $668.0M, YoY +28.24%, QoQ -1.44%; Gross margin ≈ 11.13%
- Operating Income: -$99.55M, YoY change +21.90%, QoQ change -70.00%; Operating margin ≈ -1.66%
- Net Income: $89.87M, YoY +78.77%, QoQ -28.36%; Net margin ≈ 1.50%
- Earnings per share (diluted): $0.58, YoY +81.25%, QoQ -27.50% (EPS of $0.64 adjusted for a $12M Edmunds lease impairment)
Cash flow and balance sheet
- Net cash provided by operating activities: $146.38M; Capital expenditures: -$127.62M; Free cash flow: $18.76M
- Cash at end of period: $960.31M; Debt outstanding: $19.22B; Net debt: $18.98B
- Cash flow highlights: FCF per share ≈ $0.122; Operating cash flow per share ≈ $0.953
- Balance sheet: Total assets $27.404B; Total liabilities $21.161B; Total stockholders’ equity $6.243B
- Liquidity and leverage: Current ratio 2.31; Quick ratio 0.52; Debt-to-equity 3.08; Debt-to-capitalization 0.755; Net debt to EBITDA not disclosed, but leverage remains elevated
- Perimeter metrics: Inventory $3.935B; Accounts receivable $188.7M; Cash & cash equivalents $247.0M
Operational and strategic highlights
- Omni-channel progress: Approximately 58% of retail unit sales were omni-channel; approximately 67% were omni across updated definition; >80% of sales supported by digital capabilities
- Sourcing and inventory: Vehicles purchased totaled ~269k in the quarter (+15% YoY); dealer purchases were ~46k (+114% YoY); MAX Offer adoption widened dealer network and sourcing volumes; ~15% of retail unit sales were online; 29% of total revenue from online transactions
- CAF performance and guidance: CAF income $159M (+8% YoY); net interest margin 6.2%; expected higher loan loss reserves in Q1 due to seasonality and higher loss-typical origination; long-term plan to expand full-spectrum lending including Tier 2/3 origination and securitization programs
- Cost efficiency and margin trajectory: GM per unit improvements; guidance for continued COGS efficiency (approx. $125 per unit realized in FY2025 with another $125 per unit targeted for FY2026); SG&A leverage of 770 basis points in Q4; targeted omni-cost neutrality in FY2026; higher marketing investment timing alignment
- Capital allocation: Q4 share repurchases of ~1.2M shares for $99M; remaining buyback authorization ≈ $1.94B
- Growth outlook: Capital plan includes roughly $575M capex in FY2026, six new stores and four offsite reconditioning/auction centers; 250th store milestone achieved; aim for ongoing double-digit EPS growth with mid-single-digit unit growth; long-term targets adjusted to reflect macro uncertainty
Commentary takeaway
- The quarter demonstrates resilient demand and per-unit profitability, but the operating margin remains pressured by higher SG&A and non-cash impairment in prior periods. The CAF franchise and digital-enabled sourcing provide a strong platform for continued market-share gains if macro conditions stabilize. Management’s emphasis on cost discipline, omni-channel growth, and higher CAF penetration underpins the long-term earnings trajectory, albeit with near-term headwinds from credit provisioning and tariff-related cost pressures.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.00B
6.69%
-3.54%
Gross Profit
667.89M
28.24%
-1.44%
Operating Income
-99.55M
21.90%
-70.00%
Net Income
89.87M
78.77%
-28.36%
EPS
0.58
81.25%
-27.50%
Key Financial Ratios
currentRatio
2.31
grossProfitMargin
11.1%
operatingProfitMargin
-1.66%
netProfitMargin
1.5%
returnOnAssets
0.33%
returnOnEquity
1.44%
debtEquityRatio
3.08
operatingCashFlowPerShare
$0.95
freeCashFlowPerShare
$0.12
priceToBookRatio
2.04
priceEarningsRatio
35.47
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and execution momentum: Management underscored ongoing strong momentum across the business and emphasized that the results reflect solid execution, scalable traffic through online and in-store channels, and a focus on customer-centric experiences. Quote: “We’re very pleased with the continuing momentum across our diversified business during the fourth quarter… Our results reflect solid execution and the strength of our business model.” (Speaker: Bill Nash)
- EPS growth and gross profit expansion: The leadership highlighted robust YoY EPS growth driven by higher unit volumes, improved gross profit, and increased cap income, with SG&A leverage from gross profit gains. Quote: “We delivered robust year-over-year EPS growth as we drove unit volume increases in sales and buys, materially increased gross profit, grew cap income, and realized additional cost efficiencies.” (Speaker: Bill Nash)
- Omni-channel and digital transformation: The company stressed the growing role of digital tools in driving sales and efficiency, including Sky AI assistant and MAX Offer adoption. Quote: “Sky, our AI-powered virtual assistant, is now able to independently answer over half of the questions our customers ask it… fully self-progressed online sales grew by 25% across fiscal 2025.” (Speaker: Bill Nash)
- CAF and credit expansion: The call highlighted CAF’s full spectrum lending strategy, Tier 2/3 expansion, and securitization programs as growth levers, with expectations of higher provisioning in the near term. Quote: “We remain excited about CAF’s continued efforts in this space, as well as the tremendous growth potential unlocked by the broadening of our securitization program.” (Speaker: Jon Daniels)
- Near-term provisioning and guidance stance: Management acknowledged expectations for a higher loan loss provision in Q1 due to seasonality and the higher loss nature of recaptured receivables, while signaling that the longer-term path remains positive through CAF expansion and operational efficiency. Quote: “In the first quarter, we are forecasted to have a larger provision sequentially and year-over-year driven by new origination volume.” (Speaker: Jon Daniels)
- Long-term earnings framework and obstacles: Executives stressed a long-term objective of double-digit EPS growth and high-teens CAGR with mid-single-digit unit growth, but also noted macro uncertainty leading to postponement of certain long-term targets. Quote: “We are positioned to achieve ongoing growth in retail and wholesale unit sales and market share with double-digit EPS growth for years to come. Our model is designed to deliver an earnings per share growth CAGR in the high-teens when retail unit growth is in the mid-single-digits.” (Speaker: Bill Nash)
We're very pleased with the continuing momentum across our diversified business during the fourth quarter. Our results reflect solid execution and the strength of our business model. We delivered robust year-over-year EPS growth as we drove unit volume increases in sales and buys, materially increased gross profit, grew cap income, and realized additional cost efficiencies.
— Bill Nash, President and CEO
We are testing EPP product enhancements that will focus on increasing penetration and per unit margins. These enhancements are expected to drive a small year-over-year increase in per unit EPP margin in FY 2026 with the potential for more expansion in fiscal 2027.
— Bill Nash, President and CEO
Forward Guidance
Near-term outlook and macro considerations: Management does not provide formal full-year guidance for the macro environment due to ongoing uncertainty (tariffs, used-vehicle demand volatility, parts costs). They expect higher Q1 CAF provisioning given seasonality and the profitable but higher-loss nature of recaptured Tier 1 origination. They anticipate CAF penetration to increase by 100–150 basis points in the near term as they recapture originations, aided by non-prime securitization capabilities. In the near term, service margins are expected to improve in FY2026, with a potential slight positive profit contribution given sales leverage. They project approximately $575M of capital expenditures in FY2026, including six new stores and four stand-alone reconditioning/auction centers, to support long-term growth of mid-single-digit retail unit volume and ongoing operating efficiencies.
Longer-term thesis and guidance framework: CarMax maintains the aspiration for mid-single-digit retail unit growth with an EPS growth trajectory in the high-teens, contingent on sustaining gross profit strength, expanding CAF’s credit spectrum, and maintaining SG&A leverage. They emphasize omni-channel neutrality and efficiency gains as key drivers of profitability, while de-emphasizing precise timing for long-range targets given macro ambiguity. Key risk factors to monitor include: (1) macroeconomic volatility and consumer credit conditions affecting used-vehicle demand and CAF losses; (2) tariff-driven cost pressures on reconditioning parts and new-vehicle price dynamics; (3) continued competitive intensity in the used-vehicle market; (4) execution risk around expanding CAF, securitizations, and offsite reconditioning capacities. Investors should track CAF provision trends in Q1 and beyond, GMV growth from omni-channel initiatives, and the pace of market-share gains that CarMax has demonstrated in recent periods.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
KMX Focus
11.13%
-1.66%
1.44%
35.47%
AN
17.20%
4.71%
7.57%
9.10%
ORLY
51.30%
18.00%
-40.20%
31.38%
AZO
52.50%
20.90%
-19.00%
15.01%
AAP
17.40%
-41.10%
-19.10%
-1.59%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
CarMax remains a defensible play in the used-vehicle space due to its omnichannel platform, robust sourcing capabilities, and CAF scale. The near-term earnings trajectory is clouded by elevated provisioning in CAF and a negative operating margin in QQ4 2025; however, the company’s long-term outlook rests on the continued expansion of full-spectrum lending, higher margins from EPP, and efficiency-led SG&A leverage. The strategic investments—six new stores, four offsite reconditioning centers, and maintenance of omni-cost neutrality—support the goal of mid-single-digit unit growth translating into high-teens EPS CAGR over the medium term. Investors should monitor CAF provisioning trends, commodity/parts costs, tariff developments, and the pace of market-share gains as indicators of sustainable profitability. Relative to peers in auto retail and parts, CarMax’s differentiated omni-channel approach and CAF scale provide a structural moat, though the leverage and near-term provisioning risk warrant a cautious stance until deleveraging and cash flow improvements become more evident.
Key Investment Factors
Growth Potential
Omni-channel strategy and full-spectrum CAF expansion are positioned to sustain mid-single-digit unit growth and high-teens EPS growth over the medium term, supported by higher per-unit EPP margins, improved service profitability, and cost efficiencies across logistics and reconditioning.
Profitability Risk
Near-term provisioning pressure in CAF (seasonality and Tier 2/3 originations), macroeconomic uncertainty (tariffs, consumer credit conditions), elevated leverage (debt-to-capitalization ~0.75), and potential volatility in used-vehicle pricing and parts costs.
Financial Position
Solid liquidity with cash of $0.96B, modest free cash flow generation ($18.76M in FCF for the quarter), and a large on-balance-sheet debt load ($19.22B total debt; net debt ~$19.0B). Leverage-driven earnings can be a risk if sales falter; however, the company continues to execute on sourcing optimization, capex discipline, and SG&A leverage.
SWOT Analysis
Strengths
Strong omni-channel capabilities with >80% of sales supported digitally
Large and improving market share in age zero to 10-year-old used vehicles
Robust sourcing via MAX Offer with expanded dealer network and enhanced appraisals
CAF full-spectrum lending expansion and securitization program
Operational efficiencies and cost savings per unit (targeting $125 per unit in 2025 and 2026)
Portfolio of offsite reconditioning and auctions increasing throughput
Weaknesses
Negative quarterly operating income in QQ4 2025 despite gross profit growth
High leverage and debt load, with net debt around $19B
Near-term credit provisioning risk tied to CAF and Tier 2/3 origination
Exposure to macro uncertainty (tariffs, consumer demand, mortgage-like credit conditions)
Opportunities
Further CAF penetration into the credit spectrum and additional securitization structures
Continued expansion of new stores and reconditioning/auction centers to support capacity
EPP margin expansion and service-margin improvements in FY2026
Higher efficiency and SG&A leverage to support margin expansion
Threats
Tariff-induced price pressures on new and used vehicles and reconditioning parts
Macro slowdown reducing used-vehicle demand and financing penetration
Competitive pressure from traditional dealers and new entrants in online auto platforms
Regulatory and macroeconomic volatility affecting auto financing costs