CarMax (KMX) Stock Drops Despite Earnings Beat — Here’s Why

TLDR

• CarMax posted Q1 adjusted EPS of $1.31, beating the Wall Street estimate of 96 cents
• Revenue rose 6.2% to $8.01 billion, topping forecasts of $7.43 billion
• Gross profit per used vehicle fell $230 year-over-year to $2,177 due to pricing cuts
• Comparable-store used-vehicle sales declined 0.8%, better than the 2% drop analysts expected
• New CEO Keith Barr outlined a four-pillar turnaround strategy, with a full update planned later this year

CarMax (KMX) stock edged lower in premarket trading on Wednesday, down about 0.3% to $51.95, even after the used-car retailer posted a stronger-than-expected fiscal first quarter.

CarMax, Inc., KMX

Adjusted earnings came in at $1.31 per share for the quarter ended May 31, well above the 96-cent analyst estimate from FactSet. That compares to $1.38 per share in the same quarter last year.

Revenue climbed 6.2% to $8.01 billion, topping Wall Street’s consensus estimate of $7.43 billion.

Net profit, however, fell to $185.6 million from $210.4 million a year ago. The company said lower gross profit reflected pricing cuts put in place to stimulate sales.

Gross profit per used retail vehicle came in at $2,177, down $230 from last year’s record. CarMax said this was a direct result of those “pricing actions.”

Comparable-store used-vehicle sales declined 0.8% in the quarter. That was better than the 2% drop analysts had forecast.

Total retail used-vehicle sales ticked up slightly to 230,293 units, from 230,210 in the prior-year period. Combined retail and wholesale unit sales rose 3.3% to 392,357 units. The company said it saw a boost from tariff-driven demand.

Revenue from retail used vehicles grew 4.7%, helped by an average retail selling price increase of about $1,200 per unit, or roughly 4.5%.

Barr’s Turnaround Strategy Takes Shape

CEO Keith Barr, who took the top job in March, laid out a four-pillar strategy in Wednesday’s earnings release. The plan focuses on competitive pricing, improving the customer experience, growing profitability, and restructuring costs.

This is Barr’s first full quarter at the helm. He took over after CarMax wrapped up its fourth straight fiscal year of declining sales.

Activist investor Starboard Value revealed a $350 million stake in the company back in March, pushing for cost reviews and improvements to the digital trade-in experience.

Cost Cuts and Digital Upgrades on the Roadmap

CarMax said it plans to lower reconditioning costs through technology and operational efficiency. It also intends to enhance its logistics network and cut selling, general, and administrative expenses.

The company is also working to improve its digital capabilities and in-store experience.

CarMax said it plans to host an investor update later this year to share more details on its growth strategy.

Rival Carvana (CVNA) slipped a fraction in premarket trading. AutoNation (AN) was flat, while Group 1 Automotive (GPI) gained 0.6%.

CarMax said its plans to host a strategy update later in the year, where Barr is expected to give more detail on the four pillars.

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