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CarMax Faces Legal Scrutiny Amid Missed Earnings and Withdrawn Goals

Cyrus ColeWednesday, Apr 23, 2025 1:17 am ET

8min read

The recent financial stumble of CarMax, Inc. (NYSE: KMX) has sparked a wave of legal scrutiny, with two prominent law firms now investigating potential securities fraud claims on behalf of investors. The investigation centers on CarMax’s abrupt withdrawal of long-term financial goals and its failure to meet earnings expectations, which sent its stock plummeting 17% in a single day. This article examines the roots of the controversy, its implications for investors, and what the future holds for the automotive retailer.

Background on CarMax

CarMax, a Fortune 500 company, operates as the largest retailer of used cars in the U.S., with over 100 locations. Known for its “no-haggle pricing” model, it has traditionally been a stable investment, with steady revenue growth fueled by its dominant market share in pre-owned vehicle sales. However, the April 10 release of its fiscal fourth-quarter and full-year 2025 results upended this narrative.

The Financial Disappointment

In Q4 2025, CarMax reported GAAP earnings per share (EPS) of $0.58, missing analyst estimates by $0.08. The bigger shock came with its admission that it would abandon the “timeframes” previously assigned to long-term revenue, unit sales, and market share goals. The company attributed this reversal to “broader macro factors,” a vague explanation that raised eyebrows among investors and analysts alike.

The decision to retreat from specific targets—without providing clarity on the nature of these macroeconomic challenges—suggested a lack of visibility into its own business trajectory. This uncertainty, coupled with the earnings miss, triggered a sharp selloff: CarMax’s stock dropped $13.61 (17%) to close at $66.45 on April 10, 2025.

Legal Investigations Take Center Stage

Two law firms—Bronstein, Gewirtz & Grossman, LLC and Pomerantz Law Firm—are now probing whether CarMax misled investors through materially false or misleading statements. The investigations focus on three key areas:

Earnings Guidance Accuracy: Did CarMax overstate its financial health or downplay risks before the Q4 results?
Withdrawal of Long-Term Goals: Was the removal of timeframes for revenue and market share targets a belated admission of prior missteps?
Transparency of Risks: Did the company’s references to “broader macro factors” constitute an inadequate disclosure of risks that should have been disclosed earlier?

Both firms operate on a contingency fee basis, meaning they only collect fees if they secure a recovery for investors. This structure incentivizes them to pursue cases with strong merit, as seen in their histories of recovering hundreds of millions in securities fraud cases.

Investor Considerations

For shareholders, the stakes are significant. The stock’s 17% drop alone represents a substantial loss for those holding KMX shares. If the lawsuits proceed, investors who purchased securities between specific dates (as yet undefined) may qualify to join a class action. Key steps for affected investors include:

Document Holdings: Keep records of purchases made during the relevant period.
Consult Legal Counsel: Contact the law firms to assess eligibility and potential recovery.
Monitor Updates: Follow official communications from the firms, as case details and deadlines are likely to evolve.

Conclusion: A Crossroads for CarMax’s Credibility

The investigation underscores a critical turning point for CarMax. With its stock price reeling and its leadership’s credibility under legal and market scrutiny, the company faces pressure to rebuild trust through transparency.

Historically, securities fraud class actions can take years to resolve, but the firms’ track records—Bronstein’s hundreds of millions in recoveries and Pomerantz’s 80-year litigation pedigree—suggest investors have a credible path to seek redress. However, success hinges on proving that CarMax’s statements were knowingly misleading or omitted material facts.

Investors should also note the broader implications: CarMax’s retreat from long-term goals signals a shift in its strategic confidence. In an industry where used-car sales are cyclical and margin-driven, the company’s ability to stabilize its performance and regain investor trust will be pivotal.

For now, the legal battle and market reaction serve as a stark reminder: in an era of heightened investor skepticism, companies must balance optimism with honest disclosures—or risk facing the consequences.

The path forward is uncertain, but one thing is clear: CarMax’s next move will determine whether it can recover from this reputational and financial setback—or become another cautionary tale in the annals of corporate governance.

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