CarMax (KMX) Sees Revenue Growth Return Amid Resilient Margins and Strategic Adjustments

CarMax delivered a strong performance in its third fiscal quarter of 2025, marking a notable return to year-over-year revenue growth after nine consecutive quarters of declines. This milestone, alongside a double-digit earnings beat, drove the company’s shares to 52-week highs before some profit-taking tempered gains.

While the results demonstrate CarMax’s ability to adapt to a challenging macroeconomic environment, lingering concerns around interest rates and consumer financing remain key considerations for investors.

CarMax reported revenue growth of 1.2% year-over-year to $6.22 billion, surpassing analyst expectations for a decline. The improvement was driven by a strategic focus on margin preservation and targeted adjustments to pricing and operations.

Retail gross profit per used vehicle rose over 1% to $2,306, while wholesale margins improved by more than 5% to $1,015 per unit. These gains reflect CarMax’s disciplined approach to balancing profitability with competitive pricing to stimulate volume growth.

The company’s efforts to adjust average selling prices downward played a significant role in boosting unit sales. Used vehicle prices declined by approximately 4%, and wholesale vehicle prices dropped by 6%, leading to volume increases of 5% and 6%, respectively. Used unit comps grew 4.3%, maintaining momentum from the prior quarter and signaling strong consumer demand despite broader economic uncertainties.

CarMax also addressed a key concern from its previous quarter: the provision for loan losses. After a sharp increase in Q2, provisions stabilized in Q3, ending at $73 million compared to $68 million in the prior year. This represents a significant improvement from the $113 million provision reported in Q2, suggesting that CarMax has managed to contain credit risks while continuing to serve its customer base.

Although CarMax did not provide formal guidance, its positive sales momentum bodes well for the near term. The company’s performance exceeded its earlier expectations for slightly lighter comp growth in Q3, indicating an improved outlook as it heads into 2025.

However, headwinds remain, particularly in the financing segment, where elevated interest rates and inflationary pressures during 2022 and 2023 created challenges for many borrowers. CarMax has been proactive in mitigating these risks, offering payment extensions and refining its credit scoring models to better assess risk across a diverse customer base.

Looking forward, the company’s ability to navigate a high-interest-rate environment will be a critical factor in sustaining its recent gains. While delinquency rates are expected to remain a concern, CarMax’s strategic adjustments and operational resilience position it well to weather near-term challenges and build on its Q3 performance.

CarMax’s return to revenue growth and disciplined margin management highlight its adaptability and strategic focus. While challenges in consumer financing and macroeconomic pressures persist, the company’s proactive measures and improving sales trends signal a promising trajectory. For investors, CarMax’s strong Q3 results suggest a company that is not only stabilizing but also laying the groundwork for sustained growth in 2025 and beyond.