8-K: CarMax Q3 Earnings Plunge Amid Sales Decline, Leadership Shake-Up

CarMax reported a significant drop in third-quarter net earnings and sales, alongside a leadership change and plans for strategic adjustments.

Summary

• Net earnings per diluted share decreased 46.9% to $0.43, down from $0.81 in the prior year, including a $0.08 impact from restructuring charges.
• Total net sales and operating revenues declined 6.9% to $5.79 billion.
• Retail used unit sales decreased 8.0%, and comparable store used unit sales declined 9.0%.
• Wholesale units decreased 6.2%, with both margin and volume impacted by steep market depreciation.
• Gross profit per retail used unit was $2,235, a decrease of $71 from the prior year's record.
• CarMax Auto Finance (CAF) income increased 9.3% to $174.7 million, partly due to a $27.0 million gain on sale from a non-prime securitization transaction.
• Selling, General, and Administrative (SG&A) expenses increased 1.0% to $581.4 million, driven by increased advertising spend and restructuring charges.
• The company repurchased 4.6 million shares of common stock for $201.6 million, with $1.36 billion remaining under authorization.
• David McCreight was named Interim President and CEO, and Tom Folliard became Interim Executive Chair of the Board, effective December 1, 2025, with a search for a permanent CEO underway.

Sentiment

Score: 3

Explanation: The overall sentiment is negative due to significant declines in key financial metrics such as net earnings, sales, and gross profit. While CAF income increased and share repurchases occurred, these positives are overshadowed by the core business's underperformance, leadership changes, and restructuring charges, indicating a challenging period for the company.

Positives

• CarMax Auto Finance (CAF) income increased 9.3% to $174.7 million, benefiting from a $27.0 million gain on sale from a non-prime securitization.
• The allowance for loan losses as a percentage of auto loans held for investment decreased to 2.87% from 3.02% as of August 31, 2025.
• The company repurchased $201.6 million in shares of common stock, demonstrating a commitment to shareholder returns.
• On track to achieve SG&A reductions of at least $150 million in exit rate savings by the end of fiscal 2027, with initial workforce reductions already implemented.
• Digital capabilities supported 81% of retail unit sales, indicating strong omni-channel adoption.
• Opened two new store locations in Tulalip, Washington, and Rogers, Arkansas, expanding physical footprint.

Negatives

• Net earnings per diluted share decreased significantly by 46.9% to $0.43, compared to $0.81 in the prior year.
• Total net sales and operating revenues declined 6.9% to $5.79 billion.
• Retail used unit sales decreased 8.0%, and comparable store used unit sales declined 9.0%.
• Wholesale units decreased 6.2%, and wholesale revenues declined 6.3%.
• Gross profit per retail used unit decreased by $71 to $2,235.
• Gross profit per wholesale unit decreased by $116 to $899, impacted by steep market depreciation.
• Total gross profit was down 12.9% to $590.0 million.
• SG&A expenses increased 1.0% to $581.4 million, leading to SG&A as a percent of gross profit rising to 98.5% from 85.0%.
• The quarter was impacted by $0.08 per diluted share due to restructuring charges related to leadership change and workforce reductions.
• Vehicles purchased from consumers and dealers decreased 11.7% overall.

Risks

• Changes in the competitive landscape and/or failure to successfully adjust to such changes.
• Changes in general or regional U.S. economic conditions, including economic downturns, inflationary pressures, fluctuating interest rates, tariffs, or the effect of trade policies, and the potential impact of international events.
• Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
• Events that damage the company's reputation or harm the perception of its brand quality.
• Significant changes in prices of new and used vehicles.
• A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
• Inability to realize the benefits associated with the omni-channel platform or initiatives designed to leverage evolving technologies, including AI.
• Factors related to geographic and sales growth, including the inability to effectively manage growth.
• Inability to recruit, develop, and retain associates and maintain positive associate relations.
• The loss of key associates from store, regional, or corporate management teams, the failure to effectively execute key executive succession plans, or a significant increase in labor costs.
• Changes in economic conditions or other factors that result in greater credit losses for CAF's portfolio of auto loans than anticipated.
• The failure or inability to realize the benefits associated with strategic investments.
• Changes in consumer credit availability provided by third-party finance providers.
• Changes in the availability of extended protection plan products from third-party providers.
• The performance of third-party vendors relied on for key components of the business.
• Adverse conditions affecting one or more automotive manufacturers.
• The inaccuracy of estimates and assumptions used in the preparation of financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
• The failure or inability to adequately protect intellectual property.
• The occurrence of severe weather events.
• The failure or inability to meet environmental goals or satisfy related disclosure requirements.
• Factors related to the geographic concentration of stores.
• Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.
• The failure of or inability to sufficiently enhance key information systems.
• Factors related to the regulatory and legislative environment in which the company operates.
• The effect of evolving regulations, disclosure requirements, standards, and expectations relating to environmental, social, and governance matters.
• The effect of various litigation matters.
• The volatility in the market price for common stock.

Future Outlook

The company anticipates improved sales performance trends in the fourth quarter of fiscal year 2026 by lowering retail used unit margins and increasing marketing spend year-over-year, with a focus on driving vehicle acquisitions and sales. They are also on track to achieve at least $150 million in SG&A exit rate savings by the end of fiscal 2027.

Management Comments

• "I'm honored to serve as Interim President and CEO at this important juncture for CarMax. Our unmatched physical and digital infrastructure, beloved national brand, and award-winning culture provide us with incredible advantages."
• "Despite these advantages, based on recent results, it is clear CarMax needs change."
• "Tom and I are committed to positioning CarMax for success while the Board identifies the right permanent CEO to lead CarMax."

Industry Context

The automotive retail industry is facing challenges, as evidenced by CarMax's wholesale volume and gross profit per unit being negatively impacted by steep market depreciation. This suggests a broader trend of declining used vehicle values affecting profitability across the sector. The company's strategic shift to lower retail margins and increase marketing spend in the upcoming quarter indicates an aggressive response to competitive pressures and market conditions.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• NA

Related Party Transactions

• NA

Stakeholder Impact

• **Shareholders:** Experienced a significant decline in net earnings per diluted share and overall stock volatility. Share repurchases offer some return, but the leadership change and strategic adjustments introduce uncertainty.
• **Employees:** Workforce reductions in the Customer Experience Center (CEC) were implemented as part of restructuring charges, impacting employee count.
• **Customers:** The company plans to improve price competitiveness by lowering retail used unit margins, potentially benefiting customers with better pricing. Increased marketing spend aims to attract more customers.
• **Creditors/Investors in CAF:** The non-prime securitization transaction, upsized to $900 million, provides liquidity and off-balance sheet treatment, which could be viewed positively by those involved in CAF's financing activities.

Next Steps

• The Board will identify a permanent CEO to lead CarMax.
• The company plans to lower retail used unit margins in the fourth quarter to improve price competitiveness.
• Marketing spend on a total unit basis is expected to increase year-over-year in the fourth quarter, focusing on acquisition to drive buys and sales.
• CarMax is on track to achieve SG&A reductions of at least $150 million in exit rate savings by the end of fiscal 2027.
• Results for the fourth quarter ending February 28, 2026, are planned to be released on Tuesday, April 14, 2026.

Key Dates

Recommendation

CarMax's third-quarter results show significant underperformance with substantial declines in sales, gross profit, and net earnings, indicating a challenging operating environment and internal issues. The immediate leadership changes and announced restructuring efforts, while necessary, signal a period of uncertainty and strategic re-evaluation. While the CarMax Auto Finance segment performed well and share repurchases offer some support, the core used car retail business is struggling. The forward outlook includes plans to lower margins and increase marketing, which could further pressure short-term profitability. A 'hold' recommendation is appropriate for investors who believe in the long-term potential of the company under new leadership and its ability to execute the announced strategic adjustments, but acknowledge the current headwinds and the need for a turnaround. Investors should monitor the effectiveness of the new leadership and the impact of the strategic initiatives on sales trends and profitability in the coming quarters.

Keywords

CarMax, KMX, Used Car Sales, Auto Retail, Financial Results, Earnings Report, Q3 2026, Vehicle Sales, Auto Finance, Leadership Change, Share Repurchase, SEC Filing