CarMax drops 7% despite earnings beat as used-car margins shrink

CarMax reported Q1 EPS of $1.31 and revenue of $8.01 billion, both beating consensus, yet shares fell 7 percent.

"I came to CarMax because I saw a strong foundation, an award-winning, people-first culture, and significant potential to unlock growth," Keith Barr, chief executive officer of CarMax, said in his first earnings report since taking the role three months ago.

The beat was overshadowed by a $230 year-over-year decline in retail used-vehicle gross profit per unit to $2,177, reflecting pricing actions to drive volume. Net earnings fell 12 percent to $185.6 million. CarMax Auto Finance income slipped to $140.2 million even as CAF penetration climbed to 43 percent, partly reflecting more Tier 2 exposure. The allowance for loan losses rose to 3 percent of auto loans held for investment.

The selloff erased a 35 percent year-to-date gain through Tuesday's close at $52.11. Carvana, which carries $4.83 billion in long-term debt, fell 8 percent to about $64.65 as investors read the margin and credit data across the sector.

SG&A per total unit improved 7 percent to $1,619, and wholesale revenues rose 14 percent on higher wholesale unit volume. Comparable-store used unit sales declined 1 percent, signaling soft underlying demand despite the headline beat.

Barr introduced a four-pillar growth framework and reiterated a $200 million SG&A exit-rate savings target by fiscal year-end 2027. The company plans a formal Strategic Update in late fall.

The decline puts CarMax shares near $48.30, testing support after a strong first-half rally. Investors will watch CarMax's Q2 FY2027 earnings on Sept. 29 for evidence that margin pressure is easing and whether the new CEO's cost-savings plan is on track. For Carvana, its next catalyst is Q2 2026 earnings in late July, where credit trends will be the focus.

This article is for informational purposes only and does not constitute investment advice.