CarMax (NYSE:KMX) reported fiscal 2027 second-quarter results marked by higher vehicle sales, expanded earnings and improving operating leverage, as the used-car retailer pointed to early benefits from its “Shift into GEAR” strategy.
President and CEO Keith Barr said used-vehicle comparable sales increased 13% during the quarter, while total used and wholesale vehicle units rose 15%. Diluted earnings per share increased 81% from a year earlier to $1.16.
Sales Growth and Pricing
Total sales rose 19% year over year to $7.9 billion, according to Executive Vice President and CFO Enrique Mayor-Mora. CarMax sold approximately 388,000 retail and wholesale vehicles during the quarter, up 15% from the prior-year period.
Retail used-unit comparable sales climbed 13%, and total used-unit sales rose 14%. Mayor-Mora attributed the retail performance primarily to more competitive pricing, cost-of-sales efficiencies and improved pricing capabilities. Average retail selling price increased $1,630 year over year to $27,623.
Wholesale unit sales rose 16%, while the average wholesale selling price increased $145 to $8,036. CarMax acquired roughly 310,000 vehicles during the quarter, up 6%. The company purchased about 262,000 vehicles directly from consumers, roughly flat from the prior year, and sourced approximately 48,000 vehicles from dealers through its Edmunds sales team, up 54%.
Management also cited increased Federal Trade Commission regulatory focus on transparent advertised vehicle pricing as a tailwind. Mayor-Mora said the company estimated that roughly half of its comparable-sales performance came from actions it directly controlled, such as pricing, cost efficiencies and customer-experience improvements, while the other half reflected the impact of FTC enforcement.
CarMax has historically emphasized no-haggle and transparent pricing. Barr said the share of its vehicles rated as “great deals” on Cars.com more than doubled compared with the same quarter a year earlier.
Margins, Expenses and Product Offerings
Total gross profit increased 11% to $799 million. Used retail gross profit rose 8% to $479 million, driven by higher unit volume, though profit per used unit declined $111 year over year to $2,105.
The company said it is managing gross profit per unit, or GPU, more dynamically as it uses reconditioning efficiencies to support lower customer prices. Management now expects fiscal 2027 retail margins to decline by less than the previously projected $200 per retail vehicle versus fiscal 2026. However, executives said retail GPU is expected to be lower year over year in both the third and fourth quarters.
Wholesale vehicle gross profit was flat at $138 million, as higher volume was offset by a $135 decline in wholesale GPU to $858.
Other gross profit rose 33%, or $46 million, to $183 million. Extended Protection Plan margin dollars increased $27 million, aided by higher unit volume and a $46 per-unit increase in margins. CarMax said its redesigned protection products, including a wheel, tire and dent offering, have helped improve results. The company maintained its expectation for approximately $35 per unit of incremental EPP margin for the full fiscal year.
Second-quarter SG&A expenses increased 4.6% to $629 million, but SG&A expense per total unit declined $157, or 9%, to $1,621. The company said it remains on track to achieve $200 million in identified savings at its fiscal 2027 exit rate. It also expects approximately $6 million in severance expense during the third quarter from additional corporate cost-streamlining actions.
Auto Finance Performance
CarMax Auto Finance, or CAF, generated $136 million in income, up 32% from a year earlier. The increase was driven in part by a $29 million decline in the loan-loss provision, a $17 million gain on sale and a $6 million increase in servicing fees, according to Executive Vice President of Auto Finance Jon Daniels.
CAF originated $2.3 billion during the quarter and had sales penetration of 40.9%, compared with 42.6% a year earlier. The weighted average contract rate for new customers was 11.8%, up 60 basis points.
The company continued to expand its lending presence in the Tier 2 credit segment. CAF financed 22% of Tier 2 volume during the quarter, compared with 10% a year earlier, and Daniels said observed credit performance in that segment remained in line with the company’s expectations.
Despite the Tier 2 growth, overall CAF penetration declined because of lower Tier 1 penetration. Daniels said higher funding costs led CAF to raise Tier 1 rates, where customers have more financing alternatives. CarMax expects CAF income for fiscal 2027 to be slightly below fiscal 2026 levels while it plans to originate nearly $1 billion in Tier 2 loans by year-end.
Capital Returns and Leadership Changes
Following the quarter’s performance and its outlook for the remainder of the year, CarMax said it plans to resume share repurchases at a modest pace in the third quarter. The company had $1.31 billion remaining under its repurchase authorization at quarter-end.
CarMax also announced leadership additions intended to support its strategy. Elizabeth Dirgins will join the company effective Oct. 5 as executive vice president and chief digital and customer officer, a newly created position overseeing marketing, product and Edmunds. Jeff Campbell joined the senior leadership team in August as senior vice president of strategy, leading a centralized function for strategy, data science, artificial intelligence and pricing.
The company plans to provide further details on its strategic initiatives and milestones during a virtual strategic update scheduled for Nov. 3.
About CarMax (NYSE:KMX)
CarMax, Inc is a specialty retailer of used vehicles and one of the largest automotive retailers in the United States. The company sells a broad selection of used cars, trucks and sport utility vehicles through its retail locations and online platform. CarMax also purchases vehicles from consumers and other sources, providing customers with a streamlined alternative to traditional private-party sales.
In addition to retail sales, CarMax operates wholesale vehicle auctions for vehicles that do not meet its retail standards or business requirements.
