CarMax Beat Expectations, But Here's What Could Still Hold It Back

RBC Capital analyst Steven Shemesh maintained CarMax (NYSE:KMX) with an Outperform and raised the price target from $80 to $81 on Friday.

CarMax reported first-quarter earnings per share of $1.38, beating the analyst consensus estimate of $1.21. Quarterly sales of $7.55 billion outpaced the analyst consensus estimate of $7.47 billion.

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

Retail used unit sales rose by 9.0%, while comparable store used unit sales grew by 8.1%. Wholesale unit sales also saw a modest increase of 1.2%.

CarMax posted better-than-feared results, with notable upside surprises on used unit comp and gross profit, Shemesh said.

The analyst was encouraged by momentum but remains somewhat cautious about the sustainability of the current comp trend, given macro uncertainty.

He said that retail used unit comp sales grew +8.1%, topping the consensus of +6.3%.

Management shared that each month of the quarter was positive, with April the strongest, Shemesh noted.

The analyst noted that strength was driven by a sequential improvement in category demand (in part due to tariff-related pull forward) and market share gains.

He noted that SG&A as a percentage of gross profit levered ~680 bps to 73.8%, driven by ongoing cost management efforts, partially offset by an increase in compensation and benefits costs (related to unit volume growth).

Shemesh said this is the first quarter since the first quarter of 2024 that CarMax has delivered SG&A as a proportion of gross profit below ~80%.

The analyst noted that CarMax repurchased $200 million of shares in the quarter, a sizable step up from the recent trend.

He said that, for context, CarMax repurchased $429 million and $94 million in 2024 and 2023, respectively.

As of May 31, the company has $1.74 billion left in repurchase authorization, Shemesh noted.

Management indicated that vehicles priced below $20,000 and above $40,000 were the biggest contributors to sales during the quarter, the analyst noted. Specifically, he highlighted that sales of their "Value Max" vehicles — which are older models — rose by 5 percentage points.

Among the stock negatives, CAF income declined 3.6% to $141.7, roughly in line with consensus of $143 million, due to an increase in loan loss provisions, as first-quarter typically requires larger provisions due to seasonally higher sales and lower credit quality period, loss performance, particularly from 2022 and 2023 vintages as well as an uncertain economic outlook and the continued build-out of full spectrum lending capabilities, Shemesh noted.

For 2025 and 2026, Shemesh modeled net sales growth of +1.9% and +3.9% (down from +2.6% and +5.3% prior) and adjusted EPS $3.88 and $4.52 (up from prior $3.66 and $4.31 prior).

Price Action: KMX stock is down 5.46% at $64.68 at last check Monday.

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