Business Context and Reporting Period
Company: CARMAX, INC. (KMX)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended February 28, 2026
Business Overview: CarMax is the nation's largest retailer of used vehicles, operating 256 stores across 110 U.S. television markets. The company operates two segments: CarMax Sales Operations (retail and wholesale vehicle sales, services) and CarMax Auto Finance (CAF), which provides financing to retail customers. The company utilizes an omni-channel platform and a no-haggle pricing model.
Key Financial Metrics
| Metric | Fiscal 2026 | Fiscal 2025 | Change |
|---|---|---|---|
| Net Sales and Operating Revenues | $25,881.1 million | $26,353.4 million | (1.8)% |
| Gross Profit | $2,806.6 million | $2,897.9 million | (3.2)% |
| CarMax Auto Finance (CAF) Income | $562.7 million | $581.7 million | (3.3)% |
| Net Earnings | $247.3 million | $500.6 million | (50.6)% |
| Diluted EPS | $1.68 | $3.21 | (47.7)% |
| Adjusted Diluted EPS (Non-GAAP) | $2.91 | $3.27 | (11.0)% |
| Used Unit Sales | 780,684 | 789,050 | (1.1)% |
| Wholesale Unit Sales | 538,203 | 544,312 | (1.1)% |
| Used Gross Profit Per Unit | $2,253 | $2,311 | (2.5)% |
| CAF Net Penetration Rate | 42.4% | 42.7% | (30 bps) |
| Total Debt | $18.05 billion | $18.71 billion | N/A |
| Cash and Cash Equivalents | $122.8 million | $247.0 million | N/A |
| Operating Cash Flow | $1.78 billion | $624.4 million | Significant Increase |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 1.8% due to a 1.1% drop in used unit sales and a 0.6% decrease in average retail selling prices. Comparable store used unit sales declined 2.0%.
- Profitability Pressure: Net earnings dropped 50.6% year-over-year. This was primarily driven by a non-cash goodwill impairment charge of $141.3 million recorded in Q4 2026, related to Edmunds goodwill, and a higher effective tax rate (35.5% vs. 25.2%).
- CAF Performance: CAF income decreased 3.3% due to an increased provision for loan losses ($391.2 million vs. $334.7 million) driven by unfavorable loss performance on loans originated in 2022-2023. However, total interest margin as a percent of average auto loans improved to 6.4%.
- SG&A Expenses: Selling, general, and administrative expenses increased slightly by 0.7% to $2.45 billion, driven by higher advertising spend ($22.3 million increase) and occupancy costs related to the abandonment of the Edmunds lease. Adjusted SG&A decreased 1.3%.
- Leadership Transition: Bill Nash stepped down as CEO in December 2025. Keith Barr was appointed President and CEO effective March 16, 2026.
Guidance, Outlook, and Risks
- Strategic Priorities: Management aims to achieve $200 million in exit rate SG&A savings by the end of fiscal 2027. The company plans to open four new stores and two stand-alone reconditioning/auction centers in fiscal 2027.
- Margin Outlook: Management expects used margins for fiscal 2027 to decline at a rate broadly in line with Q4 2026 trends, with the first quarter of fiscal 2027 reflecting the largest year-over-year decline (approx. $300 per unit) as the company laps record margins from the prior year.
- CAF Expansion: The company intends to increase CAF target originations for Tier 2 credit to approximately 30% of total volume in fiscal 2027, focusing on the top half of the Tier 2 space.
- Capital Allocation: Share buybacks were paused in Q4 2026 due to leverage being slightly above the targeted range. Approximately $1.31 billion remains available under the current repurchase authorization.
- Key Risks:
- Goodwill Impairment: Significant decline in market capitalization and pressured financial performance led to a full write-off of Edmunds goodwill.
- Credit Losses: Unfavorable loss performance in the CAF portfolio, particularly for loans originated during periods of elevated vehicle prices.
- Market Conditions: Sensitivity to economic conditions, interest rates, and the supply of late-model used vehicles.
- Leadership Transition: Uncertainty associated with the recent change in CEO and strategic direction.
Investor Verification Checklist
- Goodwill Impairment Details: Verify the specific assumptions used in the discounted cash flow analysis that led to the $141.3 million impairment charge.
- CAF Loss Trends: Monitor the provision for loan losses and delinquency rates in upcoming quarters to assess if the unfavorable performance on 2022-2023 originations has stabilized.
- SG&A Savings Execution: Track progress toward the $200 million SG&A savings target, specifically the impact of the 30% reduction in the Customer Experience Center (CEC) workforce.
- Market Share: Confirm if the decline in market share (3.6% in calendar 2025 vs. 3.7% in 2024) stabilizes or reverses under the new leadership strategy.
- Liquidity Position: Review the utilization of the $2.0 billion revolving credit facility and the status of non-recourse funding vehicles for CAF.