How CarMax’s (KMX) Sharp Earnings Decline and Cost Cuts Could Reshape Its Growth Trajectory

• In late September 2025, CarMax reported a significant year-over-year drop in both revenue and profit for its second-quarter fiscal year 2026 results, prompting management to announce a US$150 million cost-cutting plan targeting selling, general, and administrative expenses over the next 18 months.
• This financial update, which included higher loan loss provisions and a drop in used vehicle sales, also resulted in multiple law firms launching investigations into whether the company may have misled investors about its loan portfolio quality.
• We'll explore how heightened investor scrutiny following larger-than-expected credit losses at CarMax could shift the company's growth outlook.

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CarMax Investment Narrative Recap

Shareholders in CarMax generally need to believe that the company can balance its expansion in digital sales and full credit spectrum lending with the risks of rising credit losses and margin pressures. The recent surge in loan loss provisions and a sharp drop in used vehicle sales represent a material setback, weighing directly on CarMax’s most important near-term catalyst: stabilizing credit trends and profitable growth. The biggest risk right now is that sustained credit deterioration might further impact both financing income and net margins.

Among CarMax's recent announcements, the $150 million cost-cutting plan stands out as most relevant given current earnings and margin pressures. Management aims to reduce selling, general, and administrative expenses over the next 18 months, a direct response to rising costs and lower profits, both of which are central to the stock's short-term outlook and investor confidence.

By contrast, investors should pay close attention to potential risks around loan portfolio quality and the long-term impact on CarMax’s earnings power if...

Read the full narrative on CarMax (it's free!)

CarMax's narrative projects $29.8 billion in revenue and $919.9 million in earnings by 2028. This requires 1.3% yearly revenue growth and a $361.4 million increase in earnings from the current $558.5 million.

Uncover how CarMax's forecasts yield a $57.79 fair value, a 31% upside to its current price.

Exploring Other Perspectives

Five Simply Wall St Community fair value estimates for CarMax range from US$39.76 to US$99.80 per share, showing significant variation. With heightened credit risk at the forefront after recent results, consider how these wide opinions reflect current uncertainty in the company's performance trajectory.

Explore 5 other fair value estimates on CarMax - why the stock might be worth 10% less than the current price!

Build Your Own CarMax Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your CarMax research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.
• Our free CarMax research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate CarMax's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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