CarMax (NYSE:KMX) executives used the company’s fiscal 2026 third-quarter earnings call to address leadership changes, outline early turnaround priorities, and walk through results that reflected lower volumes and reduced profitability compared with a year ago.
Leadership changes and CEO search
Interim Executive Chair Tom Folliard said the board determined “more immediate change was required” following what he called “unacceptable” recent results. Folliard said the board is conducting an urgent search for a permanent CEO, seeking a leader who can drive sales, maximize the omnichannel model, strengthen the brand, improve operations, and champion the company’s culture. He added that conversations are underway and that the board has “some promising candidates,” though he did not provide a timeline for an announcement.
Strategic observations: pricing, digital, costs, and profitability levers
McCreight said CarMax’s average selling prices have “drifted upward” and appear “less attractive to customers.” He said the company will work to “shrink the gap” between its offering and the broader marketplace by lowering margins, supporting that move with marketing, and improving how it communicates value to consumers. Management also said it is conducting a comprehensive review of costs associated with “bringing a car to market,” with the goal of eliminating unproductive costs while maintaining a high-quality fleet.
Executives also emphasized a sharper customer focus, including “customer-insighted decision-making rooted in fact-based consumer research,” and said CarMax has an opportunity to develop a clearer “selling voice” online. McCreight said the company has built capabilities for customers to shop in multiple ways, but now needs to make the digital experience easier and more conversion-oriented.
On expenses, McCreight said the company’s expense structure is too high and that CarMax is committed to “eliminating unproductive costs.” CFO Enrique Mayor-Mora later reiterated the company is “on track to achieve at least $150 million in exit rate savings by the end of fiscal year 2027.” In the Q&A, management said the baseline for that savings target was roughly $2.5 billion of SG&A, with the $150 million described as an exit run rate by Q4 of fiscal 2027.
McCreight also highlighted profitability opportunities in CarMax Auto Finance (CAF) and ancillary products, including steps to capture incremental flow-through in the extended protection plan business. He cautioned, however, that the company expects its pricing and marketing actions to improve sales performance while “pressure earnings in the near term.”
Third-quarter results: lower volume and earnings, with CAF growth
Mayor-Mora reported total sales of $5.8 billion, down 6.9% year-over-year, reflecting lower volume. Retail total unit sales declined 8%, and used unit comps were down 9%. The company cited weaker performance in its age 0-to-5 inventory, partially offset by increased sales of older, higher-mileage vehicles, which represented more than 40% of quarterly sales—about five percentage points higher than both the second quarter and the prior-year quarter.
Average retail selling price was $26,400, up $230 per unit year-over-year, which management attributed to higher acquisition costs driven by higher market prices, partially offset by the sales shift toward older, higher-mileage vehicles.
Wholesale unit sales declined 6.2% year-over-year, and average wholesale selling price fell by $40 to $8,100. Mayor-Mora said wholesale volume and margin were impacted by “steep depreciation.” Later in the Q&A, he said depreciation in the quarter was “greater than 10%,” calling it “very sharp,” and noted that it weighed on wholesale performance.
CarMax purchased about 238,000 vehicles during the quarter, down 12% year-over-year. The company bought roughly 208,000 vehicles from consumers, with more than half of those purchases coming through the online instant appraisal experience. With support from Edmunds’ sales team, CarMax sourced approximately 30,000 vehicles through dealers, down 9% from last year.
Net earnings per diluted share were $0.43, down from $0.81 a year ago. The quarter included $0.08 of restructuring expenses “related primarily to our CEO change and the workforce reductions in our customer experience centers,” management said.
Total gross profit was $590 million, down 13% year-over-year. Used retail margin was $379 million, down 11%, driven by lower volume and profit per used unit (GPU) of $2,235—described as in line with historical averages but about $70 below last year’s record. Wholesale vehicle margin was $115 million, down 17%, with wholesale GPU of $899, about $120 lower year-over-year. Other gross profit was $96 million, down 16%, driven primarily by lower retail unit volume’s impact on extended protection plans.
Cost actions, marketing, and capital allocation
SG&A expense was $581 million, up 1% year-over-year, driven by marketing investments tied to a new brand positioning launch and restructuring expenses, partially offset by a lower corporate bonus accrual.
Mayor-Mora said CarMax took a “first significant step” toward the SG&A reduction goal with an approximately 30% reduction in customer experience center (CEC) workforce. He said the reduction was supported by continued process and technology enhancements intended to increase associate efficiency and enable customers to complete more shopping activities themselves.
Looking ahead, management said it expects marketing spend per total unit to be up year-over-year in the fourth quarter, though to a lesser degree than in the third quarter, with emphasis on “investing in acquisition to drive buys and sales.” Mayor-Mora also said the company expects pressure on service margins in the fourth quarter due to seasonal sales and as CarMax annualizes cost coverage leverage taken last year. In the Q&A, management said service margin was negative in the third quarter and that full-year service profitability could be “a little unprofitable or a little profitable,” depending on fourth-quarter sales.
On capital allocation, CarMax repurchased 4.6 million shares for $202 million during the quarter, ending with about $1.36 billion remaining under its authorization.
CAF performance and product initiatives
Jon Daniels, EVP of CarMax Auto Finance, said CAF originated $1.8 billion in the quarter, with sales penetration of 42.6% net of three-day payoffs, compared with 43.1% last year. The weighted average contract rate charged to new customers was 11%, down from 11.2% in the prior quarter. Daniels said CAF penetration benefited from underwriting and pricing adjustments implemented since the start of the fiscal year, estimated to be 100 to 150 basis points in the quarter, but was offset by lower application volume in the prime credit segment and stronger performance from tier three partner lenders.
CAF income was $175 million, up 9% year-over-year. Results included a $27 million gain on sale and $5 million of servicing fees tied to the closing of what Daniels referred to as the “25B deal” in September. Net interest margin was 6.2%, down from 6.6% last quarter and flat year-over-year, which Daniels said largely reflected higher-margin receivables removed from the balance sheet as part of that transaction.
CAF recorded a loan loss provision of $73 million, bringing the reserve balance to $475 million, or 2.87% of auto loans held for investment. Daniels said losses observed during the quarter were in line with expectations used to set reserves at the end of the second quarter.
Daniels also discussed ancillary product plans, saying the company’s redesigned MaxCare plan (mechanical coverage) and new MaxCare Plus plan (cosmetic protection) have moved from test to pilot in multiple markets, with an expectation of near-nationwide rollout during the first quarter of fiscal 2027.
In the Q&A, executives said newly implemented pricing changes were too recent to provide results, describing the rollout as underway. Management also reiterated that pricing and marketing were the “two biggest” levers to change sales trends, while emphasizing that pricing adjustments would be dynamic through the quarter.
About CarMax (NYSE:KMX)
CarMax (NYSE: KMX) is a leading retailer of used vehicles in the United States, offering customers a streamlined, no-haggle purchasing experience. The company’s inventory spans a broad range of makes and models, each of which undergoes a comprehensive inspection process before being offered for sale. Customers can shop in person at CarMax’s retail locations or browse the company’s online platform, which provides detailed vehicle histories, virtual tours and contactless purchasing options.
Originally launched in 1993 as a division of Circuit City, CarMax became an independent, publicly traded company in 1997.
