CarMax’s fourth quarter saw revenue and profit ahead of Wall Street’s expectations, but the company faced continued sales declines and operating margin pressure. Management openly acknowledged disappointing recent performance, attributing the results to higher average selling prices that narrowed CarMax’s competitiveness and to cost structures that have become less efficient. Interim President and CEO David McCraight emphasized the need for urgent changes, stating, “It is clear CarMax needs change,” and outlined immediate actions aimed at regaining sales momentum, such as narrowing price gaps and reducing selling, general, and administrative expenses.
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CarMax (KMX) Q4 CY2025 Highlights:
- Revenue: $5.79 billion vs analyst estimates of $5.61 billion (6.9% year-on-year decline, 3.3% beat)
- Adjusted EPS: $0.51 vs analyst estimates of $0.31 (66% beat)
- Adjusted EBITDA: $204.8 million vs analyst estimates of $165.5 million (3.5% margin, 23.8% beat)
- Operating Margin: 2%, down from 3.2% in the same quarter last year
- Locations: 250 at quarter end, up from 245 in the same quarter last year
- Same-Store Sales fell 8.1% year on year (0.5% in the same quarter last year)
- Market Capitalization: $5.56 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From CarMax’s Q4 Earnings Call
- Sharon Zackfia (William Blair) asked about the magnitude of margin reductions and whether CarMax would consider lowering interest rates to boost sales. CFO Enrique Mayor-Mora stressed that margin reductions will be meaningful and supported by marketing, while Jon Daniels, EVP, clarified that the company remains focused on competitive APRs.
- Scott Ciccarelli (Truist) inquired about the specific price cut needed to trigger a sales inflection. Mayor-Mora responded that the required reduction is less than $500 per unit and that ongoing price elasticity testing supports more nuanced approaches.
- Rajat Gupta (JPMorgan) pressed for early signs of progress from the new pricing strategy. Mayor-Mora noted that price changes were just rolled out, with results to be shared in the following quarter, and that the goal is to change negative sales trends.
- Daniela Hagian (Morgan Stanley) questioned the digital platform overhaul and its effect on operating costs and customer experience. McCraight emphasized simplifying the online process and aligning digital initiatives with field operations for a more unified sales approach.
- John Babcock (Barclays) asked about the CEO search criteria and the future of the omnichannel model. Interim Chair Tom Folliard highlighted the need for a leader with digital transformation experience and reaffirmed the value of both physical locations and digital capabilities.
Catalysts in Upcoming Quarters
In future quarters, the StockStory team will closely track (1) the impact of price and margin resets on sales volumes and customer acquisition, (2) progress toward the $150 million in SG&A reductions and broader cost control initiatives, and (3) measurable improvements in digital conversion rates and customer satisfaction. Execution on new finance and protection products, as well as the pace of operational changes, will also be key areas of focus.
CarMax currently trades at $39.09, down from $41.07 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
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