CarMax Reports Fiscal Q2 2026 Results, Citing Sales Contraction

CarMax Reports Fiscal Q2 2026 Performance Amidst Market Headwinds

CarMax Inc (KMX) reported its fiscal second quarter 2026 results, revealing a challenging period characterized by declines in sales and profitability. The company's total sales decreased 6% year-over-year to $6.6 billion. This contraction was accompanied by a significant drop in net earnings per diluted share, which fell to $0.64 from $0.85 in the prior year's quarter. These results underscore the pressures faced by the Automotive Retail Sector as consumer spending patterns evolve.

Financial Performance Overview

During the second quarter, CarMax experienced a 5.4% decline in retail unit sales, with used unit comparable store sales (comps) down 6.3%. Total gross profit for the quarter stood at $718 million, a 6% decrease from the previous year. Retail gross profit per used unit was $2,216, while wholesale gross profit per unit reached $993. Selling, General, and Administrative (SG&A) expenses were $601 million, marking a 2% reduction year-over-year, primarily due to lower stock-based compensation.

CFO Enrique Mayor-Mora stated, "Second quarter net earnings per diluted share was $0.64 versus $0.85 a year ago. The decrease was driven primarily by lower volume and the CAF loss provision adjustment."

CarMax Auto Finance (CAF) Performance and Loan Loss Provisions

The CarMax Auto Finance (CAF) segment also contributed to the overall financial picture with a reported income of $103 million for the quarter, a $13 million decrease from fiscal year 2025. This decline was largely attributed to substantial increases in loan loss provisions, which rose 26.3% year-over-year to $142.2 million. These elevated provisions were primarily driven by the performance of 2022 and 2023 loan vintages, impacted by macroeconomic inflation. The total reserve balance for loan losses stood at $507 million, representing 3.02% of managed receivables. Despite these challenges, CAF's net interest margin on its portfolio improved to 6.6%, up over 50 basis points from the prior year. The company is actively refining its credit strategy, with more recent originations (post-April 2024) performing in line with expectations due to tightened underwriting standards.

Strategic Initiatives and Cost Management

In response to the challenging market conditions and financial results, CarMax has outlined a clear strategy for cost reduction and operational efficiency. The company plans incremental SG&A reductions of at least $150 million over the next 18 months. CEO Bill Nash acknowledged that the second-quarter results "fell short of our expectations" and emphasized that these cost-cutting measures "does not impact our growth strategy as we will continue to invest in initiatives that position us for the future." CFO Mayor-Mora anticipates the "vast majority" of these savings will materialize by the end of fiscal 2027. These reductions are broad-based and aim to support the company's priorities, including maintaining competitive pricing and selection.

Market Reaction and Broader Implications

The reported earnings and sales contraction are likely to induce a bearish sentiment and high volatility for KMX stock in the short term. The results signal potential broader weakness in the used car market and indicate persistent pressures on consumer spending for big-ticket items. The depreciation in inventory value, a $1,000 impact, also affected price competitiveness. The effectiveness of CarMax's strategic cost reductions and market share growth initiatives in a challenging economic environment will be crucial for its long-term performance. Investors will be closely watching the execution of these plans and any subsequent impact on profitability.

Outlook and Key Factors Ahead

Looking ahead, the Automotive Retail Sector, and CarMax specifically, will face continued scrutiny. Key factors to monitor include the macroeconomic landscape, particularly inflation and interest rate trends, which directly influence consumer purchasing power and auto finance costs. The successful implementation of the $150 million SG&A reduction program and the performance of new loan vintages from CarMax Auto Finance will be critical indicators of the company's ability to navigate the current environment and return to growth. The company's efforts to grow its sales penetration through a full credit spectrum underwriting and funding model, targeting 50% from the current 42.6%, will also be a significant area of focus.