CarMax’s third quarter results were met with a significant negative market reaction, reflecting both top-line and bottom-line misses relative to Wall Street’s expectations. Management attributed the underperformance to inventory and pricing missteps following a demand pull-forward caused by tariff speculation earlier in the year, as well as ongoing consumer caution. CEO Bill Nash explained that the company “fell into a spot where we weren’t as competitive” on pricing, which impacted sales volumes and required rapid adjustments to inventory and price strategy. Management’s commentary was notably cautious as they described softening demand and heightened competitive pressure in the used car retail market.
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CarMax (KMX) Q3 CY2025 Highlights:
- Revenue: $6.59 billion vs analyst estimates of $7.07 billion (6% year-on-year decline, 6.7% miss)
- Adjusted EPS: $0.64 vs analyst expectations of $1.05 (39.3% miss)
- Adjusted EBITDA: $229.4 million vs analyst estimates of $283.1 million (3.5% margin, 18.9% miss)
- Operating Margin: 2.3%, in line with the same quarter last year
- Locations: 250 at quarter end, up from 245 in the same quarter last year
- Same-Store Sales fell 7.1% year on year (-0.2% in the same quarter last year)
- Market Capitalization: $6.76 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From CarMax’s Q3 Earnings Call
- Brian Nagel (Oppenheimer) asked how CarMax quantified the demand pull-forward and whether sales trends normalized after the inventory buildup. CEO Bill Nash explained the impact was hard to quantify but said, “each month got a little weaker throughout the quarter,” with some improvement in September but continued year-over-year softness.
- Rajat Gupta (JPMorgan) pressed on CarMax Auto Finance income volatility and the magnitude of the provision increase. CFO Enrique Mayor-Mora detailed the unique challenges of the 2022 and 2023 loan vintages, adding, “We feel like we have a much better understanding of them now.”
- Sharon Zackfia (William Blair) questioned whether the $150 million SG&A reduction would be reinvested in pricing to stimulate sales. Nash acknowledged some savings would go into price competitiveness, stating, “We want to be as nimble as possible… and have several levers to do that.”
- Chris Bottiglieri (BNP Paribas) probed the company’s approach to expanding credit penetration into riskier segments. Nash clarified, “We are not talking about deep subprime,” and emphasized a disciplined approach to credit expansion.
- David Bellinger (Mizuho) asked about the path to positive unit comps and whether market weakness was more macro- or competition-driven. Nash responded that “the environment has been aggressive for a while” and noted that higher-FICO customers are “sitting on the sidelines a little bit,” affecting demand.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will be closely watching (1) the pace and impact of CarMax’s SG&A cost reductions and whether these translate into sustained margin improvement, (2) early results from the “Wanna Drive” campaign and any lift in conversion rates and traffic, and (3) stabilization in credit performance as new loan vintages replace riskier past cohorts. The effectiveness of dynamic pricing and inventory management will also be critical signposts for recovery.
CarMax currently trades at $46, down from $57.06 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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