CarMax's Q2 2026 Earnings Call: Contradictions Emerge in Inventory, Pricing, and CAF Income Outlooks

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 25, 2025

Financials Results

• Revenue: $6.6B, down 6% YOY
• EPS: $0.64 per diluted share, compared to $0.85 in the prior year

Guidance:

• Marketing spend per unit to increase in H2, especially Q3, to support the Wanna Drive? brand launch.
• Service margin to face pressure in H2 due to seasonality; full-year service margin still expected positive.
• At least $150M SG&A reductions over next 18 months; majority realized by fiscal 2027 exit rate; some savings in FY26.
• Additional ~$125 per unit COGS savings target for FY26 (separate from SG&A program).
• Expect to gain market share for the full year.
• CAF full-year income now expected flat to slightly down vs FY25; Q3 to recognize ~$25–$30M gain on 2025-B securitization.
• Additional ~$40–$45M CAF servicing/retained income over life of 2025-B; no loss provision on that pool.
• Future quarterly CAF provisions expected roughly $70–$80M; minimal further true-ups.

Business Commentary:

* Sales Performance and Inventory Management: - CarMax's total sales for the second quarter were $6.6 billion, down 6% compared to the previous year. - Total unit sales declined by 5.4%, with used unit comps down 6.3%. - The decline was partly due to ramping up inventory in response to tariff speculation and subsequent depreciation impacting price competitiveness. - Inventory was managed by intentionally slowing buys to balance sales and improve pricing position.

• Credit and Financial Adjustments:
• CarMax Auto Finance (CAF) originated over $2 billion in sales penetration, up 0.6% net of 3-day payoffs, but the provision for the quarter increased to $142 million.
• The increase in provision was mainly due to adjustments for higher losses in the 2022 and 2023 vintages, reflecting challenges faced by customers with high ASP and rising inflation.

• CAF's full-quarter increase in penetration was impacted by factors like tariff pull-forward and customer credit mix changes.

• Cost-Savings and Efficiency Initiatives:

• CarMax's SG&A expenses decreased by 2% to $601 million, driven by lower stock-based compensation costs.
• The company is committed to further reducing SG&A by $150 million over the next 18 months through initiatives such as modernizing technology infrastructure and automating manual processes.

• These savings are part of a broader strategy to offset inflationary pressures and reinvest in sales-driving areas.

• Marketing and Branding Efforts:

• CarMax launched its new Wanna Drive? brand campaign to emphasize its unique omnichannel experience, with a focus on enhancing conversion rates and customer satisfaction.
• Net Promoter Score reached a record high, driven by high satisfaction among online and omnichannel customers.
• Increased advertising spend is planned to support the new brand positioning and drive sales through enhanced marketing efforts.

Sentiment Analysis:

• Management acknowledged Q2 fell short and sales were soft, but cited improved pricing/inventory into Q3 and a plan for at least $150M SG&A cuts. "Total sales of $6.6 billion, down 6%..." and EPS of $0.64 vs $0.85. CAF: "full year... flat to slightly down." Yet they expect to gain market share for the year and highlighted a $25–$30M Q3 gain from the 2025-B deal and ongoing efficiency gains.

Q&A:

• Question from Brian Nagel (Oppenheimer & Co. Inc., Research Division): Was Q2 weakness mainly a Q1 pull-forward, and have sales normalized into Q3?
  Response: Biggest hit was rapid depreciation after inventory build; September is stronger than Q2 but still YOY soft; pricing and inventory positions have improved for Q3.

• Question from Brian Nagel (Oppenheimer & Co. Inc., Research Division): Are you increasing pricing focus due to more aggressive competition?
  Response: They were less competitive in Q2 amid ~$1,000 depreciation but moved quickly; will remain highly nimble to keep pricing competitive.

• Question from Rajat Gupta (JPMorgan Chase & Co, Research Division): Update on full-year CAF income and why the provision spiked so much?
  Response: Full-year CAF now flat to slightly down; higher provision reflects worsening in 2022–2023 vintages after extensions rolled off, while 2024–2025 vintages track expectations.

• Question from Rajat Gupta (JPMorgan Chase & Co, Research Division): Detail the $150M SG&A cuts and impact on growth; how does higher marketing fit?
  Response: $150M savings from tech modernization, automation, contract rationalization; won’t hinder growth and some savings will fund marketing; savings are net of ongoing costs to realize them.

• Question from Sharon Zackfia (William Blair & Company L.L.C., Research Division): Will you reinvest most of the $150M to price/selection to drive share?
  Response: Yes, part of savings and other profit levers will support competitive pricing/selection to drive sales, with a nimble approach.

• Question from Sharon Zackfia (William Blair & Company L.L.C., Research Division): Is there accretive price elasticity if you cut GPU?
  Response: They continuously test elasticity; decisions depend on variable costs, capacity, and attachment rates; will adjust pricing when the equation is favorable.

• Question from Christopher Bottiglieri (BNP Paribas Exane, Research Division): Economics of the $40–$45M servicing income and push into subprime risk?
  Response: Servicing income comes with costs but adds value within CAF reporting; expansion is into top half of Tier 2, not deep subprime, with a prudent approach.

• Question from David Bellinger (Mizuho Securities USA LLC, Research Division): Path back to positive comps and macro vs competitive pressures?
  Response: Aggressive environment persists and higher-FICO demand is softer, but they still target full-year share gains; Q2 CAF true-up largely behind them.

• Question from Joshua Young (Truist Securities, Inc., Research Division): Is the sales slowdown top-of-funnel or conversion-driven?
  Response: Web traffic is up and funnel conversion is improving; the gap is fewer actionable ‘selling opportunities’ from top-of-funnel, which they are enhancing.

• Question from David Whiston (Morningstar Inc., Research Division): Why were units down if traffic and conversion improved?
  Response: High-FICO application volumes are down and not all traffic converts equally; the main issue is turning visits into actionable leads.

• Question from Jeffrey Lick (Stephens Inc., Research Division): Does reserved inventory hinder sales and will you change the policy?
  Response: Reserves enable transfer-driven sales; they monitor hold times to keep cars moving; non-transferable units are typically title-related; economics remain favorable.

• Question from Michael Montani (Evercore ISI Institutional Equities, Research Division): Delinquency trends and provision outlook into Q3?
  Response: Delinquencies are seasonally normal outside 2022–2023 vintages; expect future quarterly provisions roughly $70–$80M with minimal further true-ups.

• Question from Christopher Pierce (Needham & Company, LLC, Research Division): Should retail GPU expectations be reset lower given pricing?
  Response: Full-year retail and wholesale GPUs expected roughly similar YOY, but Q3 should revert to historical ranges versus last year’s record Q3.

• Question from Rajat Gupta (JPMorgan Chase & Co, Research Division): How does the Q3 gain on sale offset lost NIM from the off-balance sheet deal?
  Response: Q3 recognizes upfront gain while NIM drops on removed receivables; servicing/retained interest provide tailwinds; likely full-year CAF slightly down vs FY25.

• Question from Brian Nagel (Oppenheimer & Co. Inc., Research Division): Any notable mix shifts by vehicle type/price band and outlook?
  Response: Under-$25K mix increased; overall units down across bands; they will add more older/higher-mileage cars while maintaining later-model selection.