CarMax Says Even Its Lowest-Income Customers Are Holding Up Despite Affordability Squeeze

CarMax Inc. (NYSE:KMX) stock is trading higher Tuesday after the used-car retailer reported stronger-than-expected fiscal second-quarter results.

CarMax reported adjusted earnings of $1.16 per share, beating the analyst estimate of 73 cents.

Sales rose 19.5% year over year to $7.88 billion, beating the $6.98 billion estimate.

Gross profit increased 11.4% to $799.5 million. Selling, general and administrative expenses rose 4.6% to $628.6 million.

CarMax said it remains on track to achieve $200 million in annualized SG&A savings by the end of fiscal 2027.

The company also plans to resume share repurchases at a modest level during the fiscal third quarter. CarMax did not repurchase shares during the second quarter and had $1.31 billion remaining under its authorization as of Aug. 31.

Cash and cash equivalents stood at $170.5 million at the end of the quarter.

Used-Vehicle Sales Jump

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, while comparable-store used-vehicle sales increased 13%. Retail revenue climbed 19.7%, helped by higher sales volume and a $1,600, or 6.3%, increase in the average selling price.

Retail used-vehicle gross profit increased 8.1%. However, gross profit per unit declined $111 to $2,105.

Wholesale vehicle sales rose 15.9% to 160,344 units. Wholesale revenue increased 18.2%, supported by higher volume and a $145, or 1.8%, increase in the average selling price.

Wholesale gross profit was 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. Omni-channel sales accounted for 68%, while online retail sales represented 13%.

CarMax purchased 310,107 vehicles during the quarter, up 5.9%. Purchases from consumers were roughly flat at 262,570 vehicles, while purchases from dealers surged 53.7% to 47,537 vehicles.

CarMax Auto Finance Income Rises

CarMax Auto Finance income increased 32.1% year over year to $135.6 million.

The increase was driven partly 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. Those benefits were partly offset by a $1.2 billion decline in average managed receivables.

As of Aug. 31, the allowance for loan losses stood at $497.3 million, equal to 3.07% of auto loans held for investment. That compared with 2.95% as of May 31.

Earnings Call Highlights

Management said about half of CarMax’s comparable-sales improvement came from its own actions, including sharper pricing, cost efficiencies and customer-experience changes, while the other half reflected an FTC pricing-transparency tailwind.

CEO Keith Barr said affordability remains “on everyone’s mind,” but CarMax is still seeing resilient demand across income groups despite a tougher macro environment, with its lowest-income customer cohort roughly flat from a year earlier.

CarMax said it wants to self-fund future price competitiveness through efficiencies, rather than rely on deeper gross-profit-per-unit cuts.

Web traffic fell slightly, but engaged customers and conversion improved, which management attributed to better-quality traffic.

Barr also highlighted inventory productivity as a key opportunity, including faster turns and fewer unnecessary vehicle transfers.

KMX Price Action: CarMax shares were up 8.58% at $61.40 at the time of publication on Tuesday, according to Benzinga Pro data.

Photo via Shutterstock