CarMax Q2 EPS Jumps 81% on Higher Vehicle Sales and CAF Income

CarMax (NYSE: KMX) reported a sharp increase in fiscal second-quarter earnings as stronger retail and wholesale volumes, higher income from CarMax Auto Finance and tighter expense control offset pressure on vehicle gross profit. Diluted earnings per share rose 81.3% year over year to $1.16, while net earnings increased 73.3% to $165.3 million.

Net sales and operating revenue for the quarter ended Aug. 31, 2026, reached $7.88 billion, up 19.5% from a year earlier. Total gross profit increased 11.4% to $799.5 million, a slower rate than revenue growth as used-vehicle and wholesale cost of sales rose.

Higher volumes support revenue growth

Retail used-vehicle unit sales increased 13.8%, including a 13.0% rise at comparable stores. CarMax attributed the stronger retail performance to more competitive pricing supported by reconditioning efficiencies, dynamic management of gross profit per unit and enhanced pricing algorithms. The company also cited the Federal Trade Commission’s focus on price transparency.

Wholesale unit sales rose 15.9%, bringing total unit growth to 14.7%. Used-vehicle revenue increased 19.7% to $6.31 billion, while wholesale revenue advanced 18.2% to $1.36 billion.

CarMax bought approximately 310,000 vehicles during the quarter, 5.9% more than a year earlier. Purchases from consumers were nearly unchanged, rising 0.2%, while vehicles acquired from dealers increased 53.7%.

Other gross profit climbed 33.1%, driven by growth in extended protection plans and service operations. That increase helped lift total gross profit even as used-vehicle cost of sales rose 20.8% and wholesale cost of sales increased 20.6%.

Selling, general and administrative expenses increased 4.6% to $628.6 million, well below the growth in unit sales. SG&A per total unit declined 8.8%, or $157, to $1,621. CarMax said it remains on track to achieve $200 million in annualized SG&A exit-rate savings during fiscal 2027.

Auto-finance income rises as CarMax expands Tier 2 lending

CarMax Auto Finance income increased 32.1% to $135.6 million. The unit’s total interest margin remained unchanged at 6.6%, while the loan-loss provision fell 20.3% to $113.4 million. Management said credit-loss performance was in line with its expectations.

CAF financed 40.9% of CarMax units during the quarter, down 170 basis points from the prior year. However, its share of Tier 2 financing rose to 22% from 10%, making CAF the company’s largest Tier 2 lender. The expansion is part of CarMax’s effort to develop a full-credit-spectrum underwriting and funding model and move CAF’s overall penetration toward an initial target of 50%, compared with 42% for the fiscal year to date.

The finance business also completed its second sale of a residual financial interest tied to non-prime asset-backed securities transaction 2026-B. CarMax recognized a $16.6 million gain on the sale and $6.1 million of additional servicing fees during the quarter. The company said the transaction provides additional flexibility to support growth.

Growth strategy centers on pricing, digital tools and efficiency

CarMax’s “Shift into GEAR” strategy focuses on improving its vehicle offering, simplifying the customer experience, increasing profitability across CAF and extended protection plans, and operating more efficiently. Current initiatives include lowering reconditioning costs, enhancing logistics, connecting digital capabilities with store operations and using artificial intelligence to support customer interactions and business decisions.

During the quarter, CarMax expanded its use of AI-based voice technology and redesigned its online vehicle-detail pages. It also appointed Elizabeth Dirgins as executive vice president and chief digital and customer officer, a newly created position overseeing the customer experience, marketing, product and Edmunds teams.

Jeff Campbell joined the senior leadership team as senior vice president of strategy. He will lead a centralized function combining strategy, data science, AI and pricing. CarMax plans to provide further details on its growth initiatives and milestones at a virtual strategic update on Nov. 3.

The company said it plans to resume share repurchases at a modest level in the third quarter. Its net leverage ratio was 1.9 times at the end of the period, within its target range of 1.5 to 2.0 times. CarMax’s capital-allocation priorities remain maintaining balance-sheet flexibility, investing in its core business, pursuing accretive acquisitions and strategic investments, and returning excess capital to shareholders.

For the first six months of fiscal 2027, revenue rose 12.4% to $15.89 billion, while diluted EPS increased 22.3% to $2.47. Retail used-unit sales were up 6.5%, wholesale units rose 12.0% and total gross profit increased 2.6% to $1.65 billion.

CarMax identified several uncertainties that could affect its plans, including economic conditions, inflation, interest rates, tariffs, used-vehicle pricing, inventory availability, consumer credit access and higher-than-expected loan losses. The company also cited execution risks related to its growth strategy, technology investments, leadership transition, cost reductions and expansion of CAF’s non-prime financing activities.