CarMax Shares Plunge on Q4 Profit Miss: What You Need to Know!

Ladies and gentlemen, buckle up! CarMax (KMX) just took a nosedive in premarket trading, and you need to know why. The used-car giant reported its fourth-quarter earnings, and let me tell you, it was a bloodbath. The stock tumbled nearly 8% after the company missed profit expectations by a whopping $0.07 per share. But don't just take my word for it—let's dive into the numbers and see what's really going on here.



First things first, CarMax reported earnings per share (EPS) of $0.58, which was a far cry from the $0.68 that Wall Street was expecting. Revenue came in at $6.0 billion, slightly ahead of the $5.93 billion consensus forecast, but that wasn't enough to save the day. The company sold a total of 301,811 used vehicles, including 182,655 retail and 119,156 wholesale units, each below consensus. Analysts were looking for 312,800 units of combined sales, consisting of 185,900 retail and 126,900 wholesale vehicles. Ouch!

Now, let's talk about the elephant in the room: the profit miss. CarMax's net revenues increased by 6.7% to $6.0 billion, but that wasn't enough to offset the costs and expenses that outpaced revenue increases. The company's gross profit per retail used unit reached a fourth-quarter record of $2,322, up $71 per unit, but the service margin loss of $4 per retail unit, an improvement of $257 per retail unit, indicates that the company is still facing challenges in its service operations. And let's not forget about the SG&A expense control, which has been excellent, with SG&A as a percent of gross profit decreasing 770 basis points to 91.4%. But even that wasn't enough to save the day.

So, what does this all mean for CarMax's market share and competitive position in the used car industry? Well, the company's market share of the nationwide age 0-10 year old used vehicle market remained at 3.7% in calendar year 2024, but the decision to suspend the timelines for its previously announced long-term growth targets "given the potential impact of broader macro factors" suggests that CarMax is exercising caution in the face of external market conditions.

But don't despair, my friends! CarMax still has a few tricks up its sleeve. The company can focus on increasing its unit sales and buys, as this has been a key driver of its earnings growth in the past. For example, in the fourth quarter of fiscal year 2025, CarMax achieved a 6.2% increase in retail used unit sales and a 3.1% growth in wholesale units. By continuing to drive these metrics, CarMax can improve its financial performance and regain investor confidence.

Second, CarMax can leverage its omnichannel strategy to enhance its market reach beyond physical locations. In the fourth quarter of fiscal year 2025, online retail sales accounted for 15% of retail unit sales, with total online transactions representing 29% of net revenues. By continuing to invest in its digital capabilities, CarMax can attract more customers and increase its market share.

Third, CarMax can focus on operational efficiencies to improve its gross profit margins. In the fourth quarter of fiscal year 2025, the company achieved a fourth quarter record gross profit per retail used unit of $2,322, up $71 per unit. By continuing to drive operational efficiencies, CarMax can improve its financial performance and regain its competitive edge.

Finally, CarMax can consider expanding its store footprint to increase its market share. In fiscal year 2026, the company plans to open six new stores and four stand-alone reconditioning/auction centers. By expanding its physical presence, CarMax can attract more customers and increase its market share.

So, what's the bottom line? CarMax's fourth-quarter profit miss is a wake-up call, but it's not the end of the world. The company still has a strong market position and a few tricks up its sleeve to regain its footing. But you need to stay vigilant and keep an eye on the numbers. This is a no-brainer!