CarMax Loan Delinquencies Tick Higher In May, Signaling Renewed Credit Strain

After two months of relative stability, new data from CarMax (NYSE:KMX) Auto Finance (CAF) shows a renewed uptick in loan delinquencies and net losses, raising concerns about credit quality across the used auto lender's portfolio.

Wedbush analyst Scott Devitt reiterated CarMax with an Outperform and $90 price target on Wednesday.

On Monday, CAF reported securitization trust data for May, Devitt noted.

The analyst noted that after two relatively encouraging months, the data resumed weaker trends that were observed earlier in the year.

Also Read: CarMax Faces ‘Acute’ Shortage Problem, And It Might Last Through 2025

He noted that, broadly, results were less favorable on a sequential basis compared to April but also worsened year over year.

May's delinquency and loss rates accelerated more sharply than typical seasonal trends, with newer securitizations performing no better—and in some cases worse—than older vintages.

Devitt warns that sustained weakness in credit performance could weigh on future loan loss provisions, particularly as the company leans deeper into lower-tier borrowers to maintain interest margins. The analyst noted that the data showed renewed deterioration, including a sharp jump in the combined delinquency and extension rate and an accelerated rate of increase in the cumulative net loss rate.

While newer securitization vintages benefit from tighter credit standards and should be performing better than older ones, Devitt noted that for the most recent prime securitization, the delinquency rate is already trending in line to higher than older vintages.

Devitt will continue to monitor the potential impact of sustained weaker trends on loan loss provisions. He also pointed to his near-term estimates, which already assume an increasing percentage of loan loss provisions as the company leans deeper into Tier 2 and Tier 3 credit to drive interest margins further.

Based on his calculations, the portfolio-level delinquency rate (excluding the new 2025-A non-prime for comparability) increased +36bps sequentially, worse than the historical seasonal average of +18bps. In contrast, the cumulative loss rate increased +8bps versus a +1bps historical seasonal average increase.

Devitt said that on a Y/Y basis, the portfolio-level delinquency rate increased by +16bps, trending less favorably versus the trailing three-month trend of -2bps. The analyst noted that the cumulative net loss rate increased by +52bps Y/Y, consistent with the trailing three-month trend of +48bps.

Recent supply/demand dynamics have promoted healthy gross profit margins for scaled retailers. While trends have mostly started to normalize following a pull-forward of demand early this year, the used auto market remains healthy, per his discussion with Jonathan Smoke, Chief Economist at Cox Automotive, last week.

Devitt noted that CarMax has been able to sustain robust sourcing methods and integrated credit capabilities, supporting healthy performance despite an uncertain macro backdrop and a range of potential outcomes this year. Additionally, CarMax trends have outperformed recent reports of used car comps by publicly traded franchised dealers.

Devitt projected first-quarter revenue of $7.67 billion and earnings per share of $1.23.

Price Action: KMX stock is down 0.03% at $64.41 at last check Wednesday.

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