Key Takeaways
- CarMax reported a fourth-quarter net loss of $120.7 million, or $0.85 per share, primarily due to a $141.3 million goodwill impairment.
- Shares declined 6.8% during premarket hours on Tuesday.
- On an adjusted basis, EPS reached $0.34, surpassing analyst projections of $0.18; quarterly revenue of $5.95 billion exceeded the $5.65 billion forecast.
- Gross profit margins on retail used vehicles declined to $2,115 per unit from $2,322 year-over-year; wholesale margins fell to $940 from $1,045.
- The company announced plans to launch four additional stores and four reconditioning/auction centers during fiscal 2027, allocating approximately $400 million in capital spending.
CarMax (KMX) shares tumbled 6.8% in early trading Tuesday following the company’s disclosure of a fourth-quarter loss accompanied by a significant $141.3 million goodwill impairment.
The Richmond, Virginia-headquartered retailer reported a quarterly loss totaling $120.7 million, equivalent to 85 cents per share. This marks a sharp reversal from the year-ago quarter when the company generated earnings of $89.9 million, or 58 cents per share.
However, excluding the goodwill impairment, results painted a more favorable picture. CarMax’s adjusted earnings per share of 34 cents substantially exceeded Wall Street’s consensus forecast of 18 cents.
Quarterly revenue totaled $5.95 billion, representing a modest 1% decline from the prior-year period but surpassing analyst expectations of $5.65 billion.
The goodwill reduction came as little shock to market observers. CarMax attributed the charge to declining market capitalization, disappointing operating results throughout fiscal 2026, and adjustments to future performance expectations.
Profitability Per Unit Deteriorates
Margin compression remained a persistent challenge. The gross profit earned on each retail vehicle sold decreased to $2,115 during the quarter, compared with $2,322 in the comparable period last year. Similarly, wholesale profits per vehicle contracted to $940 from $1,045.
To stimulate sales velocity, the company implemented pricing reductions. This strategy yielded some success — wholesale unit volume increased 3% to 122,781 vehicles. However, average wholesale pricing declined approximately $270 per vehicle, significantly eroding profitability gains.
Retail used vehicle sales volume edged down 0.8% year-over-year to 181,188 units. Same-store sales decreased 1.9%, while average retail transaction prices fell roughly $110 per vehicle.
Total unit volume across retail and wholesale channels remained essentially unchanged, rising a mere 0.7% to 303,969 vehicles.
Consumer purchasing behavior has also proven challenging. Gasoline prices lingering around $4 per gallon have dampened buyer confidence. This has accelerated interest in electric and hybrid vehicles, fundamentally altering demand dynamics within the pre-owned automotive market.
Leadership Change Brings Strategic Shift
Newly appointed President and CEO Keith Barr utilized his inaugural earnings announcement to outline a strategic pivot.
“We are moving with urgency to improve execution, drive efficiencies, and sharpen our customer offering,” Barr stated. He emphasized that competitive pricing and extensive vehicle selection would serve as primary tools for recapturing market share.
Barr elaborated that the objective is positioning CarMax as “the obvious choice for customers” by delivering superior pricing, maintaining robust inventory levels, and enhancing the complete customer journey.
Looking ahead to fiscal 2027, CarMax outlined expansion plans including four new retail locations and four additional reconditioning and auction sites. The company expects capital investments to approximate $400 million.
For the complete fiscal year, quarterly revenue decreased 1% to $5.95 billion.
Full-year adjusted earnings per share contracted to 34 cents from 64 cents in the previous fiscal year, underscoring the challenging margin landscape confronting the business.
