CarMax (NYSE: KMX) reported better-than-expected second-quarter financial results, with earnings per share rising 81.25% to $1.16. The used-car retailer’s top-line growth of 19.5% coincided with significant profitability expansion, though shares fell 4.85% to $56.36 in Wednesday trading following the announcement.

Financial performance overview

The company’s top-line growth of nearly 20% coincided with a substantial expansion in profitability metrics. The divergence between revenue growth and earnings growth suggests improved operational leverage or margin expansion during the quarter.

What the numbers show

A key analytical observation is the disproportionate growth in earnings relative to sales. While revenue increased by 19.47%, earnings per share surged by 81.25%. This indicates that CarMax generated significantly more profit per dollar of sales compared to the prior year, suggesting either cost efficiencies or higher margins on the increased volume. The beat on both the bottom line and top line highlights strong demand and execution, with EPS exceeding estimates by nearly 60%, a much wider margin than the 13% sales beat.

RBC Capital Markets analyst Steven Shemesh noted that retail gross profit per unit (GPU) declined only around 5% year-on-year to $2,105, coming in higher than the consensus of $2,043. This performance puts the company on pace to over-deliver on initial guidance for a $200 reduction in annual GPU. Shemesh raised third-quarter estimates for retail comp unit growth from 5% to 15% and total company net sales growth from 3% to 15%.

Operational details and unit economics

Combined retail and wholesale used-vehicle sales increased 14.7% to 387,735 units. Retail used-vehicle sales rose 13.8% to 227,391 units, with comparable-store sales up 13%. Retail revenue climbed 19.7%, driven by higher volume and a $1,600 (or 6.3%) increase in average selling price.

However, retail gross profit per unit declined $111 to $2,105, despite an 8.1% increase in total retail gross profit. Wholesale vehicle sales rose 15.9% to 160,344 units, with revenue up 18.2%. Wholesale gross profit remained roughly flat at $137.6 million as higher volume offset a $135 decline in gross profit per unit to $858.

Digital capabilities supported 81% of retail unit sales, with omni-channel sales accounting for 68% and online retail sales representing 13%.

Truist Securities analyst Scot Ciccarelli highlighted that better-than-expected GPUs were aided by a sharp reduction in reconditioning costs. He noted that while web traffic declined, customer engagement and conversion drove the second-quarter results.

Finance segment and balance sheet

CarMax Auto Finance income increased 32.1% year over year to $135.6 million. The increase was partly driven by a $28.8 million decline in the provision for loan losses to $113.4 million. The finance business also recorded a $16.6 million gain from auto-loan sales and a $6.1 million increase in servicing fee income, though these were partly offset by a $1.2 billion decline in average managed receivables.

As of August 31, the allowance for loan losses stood at $497.3 million, equal to 3.07% of auto loans held for investment, compared with 2.95% as of May 31. Cash and cash equivalents stood at $170.5 million at the end of the quarter.

Management commentary and outlook

CEO Keith Barr stated that affordability remains "on everyone’s mind," but CarMax is seeing resilient demand across income groups despite a tougher macro environment, with its lowest-income customer cohort roughly flat from a year earlier. Management noted that about half of the comparable-sales improvement came from internal actions, including sharper pricing and cost efficiencies, while the other half reflected an FTC pricing-transparency tailwind.

Barr attributed the strong results to early progress against "Shift into GEAR," the company's four-pillar strategy. He highlighted strengthened price competitiveness, increased Extended Protection Plan margins, expanded CarMax Auto Finance share of Tier 2 originations, enhanced digital experiences, and material SG&A leverage.

The company remains on track to achieve $200 million in annualized SG&A savings by the end of fiscal 2027. CarMax plans to resume share repurchases at a modest level during the fiscal third quarter, having not repurchased shares during the second quarter. It had $1.31 billion remaining under its authorization as of August 31.

Analyst reactions and market movement

Following the earnings announcement, several analysts adjusted their price targets, reflecting mixed views on valuation versus operational momentum.

• B of A Securities: Analyst John Murphy maintained an Underperform rating but raised the price target from $45 to $50.
• BNP Paribas: Analyst Chris Bottiglieri reiterated an Underperform rating and raised the price target from $33 to $48.
• RBC Capital Markets: Analyst Steven Shemesh reiterated a Sector Perform rating and raised the price target from $45 to $56. He cited "another strong quarter with comp momentum" and the resumption of share repurchases.
• Truist Securities: Analyst Scot Ciccarelli reiterated a Hold rating and lifted the price target from $50 to $60. Truist raised its earnings estimates for 2026 from $2.85 to $3.25 per share and for 2027 from $3.45 to $3.80 per share.

During regular trading on Tuesday, CarMax shares rose 9.7% to $62.02. However, pre-market activity on the subsequent day saw a slight pullback, with shares falling 0.3% to $59.06. By Wednesday, shares were trading lower by 4.85% at $56.36.

Bernstein Liebhard LLP announced an investigation into potential breaches of fiduciary duty by certain directors and officers of CarMax, Inc. (NYSE: KMX). The inquiry aims to determine if leadership acted in shareholders' best interests and whether legal remedies are available.

Scope of the investigation

The law firm is examining whether CarMax’s leadership fulfilled their obligations to the company and its investors. The investigation focuses on publicly available information to assess if additional legal action is appropriate. Bernstein Liebhard has not alleged specific misconduct but seeks to clarify the duties owed by the company's board and executive team.

Eligibility for shareholders

Current shareholders who purchased CarMax shares before June 20, 2025, are encouraged to review their legal rights. The firm is offering confidential consultations to discuss potential claims arising from this period.

About Bernstein Liebhard

Bernstein Liebhard LLP is a nationally recognized investor rights law firm with over three decades of experience in securities and shareholder litigation. Since 1993, the firm has recovered more than $3.5 billion for its clients. The firm is frequently retained by large public and private pension funds to monitor investments and pursue claims on behalf of investors.

The firm’s track record includes thirteen appearances on The National Law Journal’s "Plaintiffs’ Hot List" and sixteen consecutive years of inclusion in The Legal 500. These recognitions reflect its longstanding commitment to protecting shareholder rights.

Contact information

Shareholders seeking to discuss their rights or obtain additional information regarding the investigation should visit the firm’s CarMax Shareholder Investigation page or contact Investor Relations Manager Peter Allocco at (212) 951-2030 or via email at pallocco@bernlieb.com .

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