Morningstar

CarMax Earnings: Magnitude of Consumers’ Unwillingness to Buy Is a Negative Surprise

Lowering our fair value estimate on CarMax stock as macro headwinds hit.

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Securities in This Article
CarMax Inc
(KMX)

Key Morningstar Metrics for CarMax

What We Thought of CarMax’s Earnings

CarMax KMX stock fell over 23% during Sept. 25 trading after reporting second-quarter fiscal 2026 diluted EPS of $0.64, down 24.7% year over year and drastically missing LSEG consensus of $1.05. Comparable store retail unit volume fell 6.3%, its worst decline since 9% in second-quarter fiscal 2024.

Why it matters: We believe the market expected a tough retail environment for fiscal 2026 used vehicle selling, but the degree of weakness for fiscal second quarter is disappointing. Near-term quarters could also be weak as high credit quality vehicle purchases are down.

  • We pressed management on why total retail volume fell over 5% despite improving website traffic. CEO Bill Nash said that many higher-quality FICO score customers are not shopping right now, and many consumers are looking rather than buying. Low FICO (550 and below) app traffic is not down.
  • Nash said conversion is improving, but the challenge is to get more consumers to start shopping on the website, and many are not ready to do that. Further interest rate cuts will help, and average selling prices fell 1% to $25,993, but consumers need more help and confidence to buy.

The bottom line: We don’t see CarMax’s business model impaired, and we think its problems are macroeconomic related. We maintain our narrow moat rating but are lowering our fair value estimate to $111 from $120 on 5.5% less revenue modeled and lower long-term income growth.

  • CarMax announced a $150 million overhead cost reduction program that won’t be fully realized until the end of fiscal 2027, though some benefits will come in fiscal 2026. Details were thin but the cuts involve process automation and eliminating redundancies, which could mean headcount cuts.
  • The stock on Sept. 25 fell to levels not seen since March 2020. We do not consider our modeling assumptions aggressive through fiscal 2030, so we do not think the stock trades anywhere close to its long-term intrinsic value. However, we think the stock will stay depressed for a while.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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