CarMax Q2 Profit Jumps 73% as Used-Vehicle Sales Rebound; Buybacks to Resume

CarMax’s second-quarter profit jumped 73.3% as used-vehicle sales rebounded, giving the retailer a much stronger quarter after a sluggish start to its fiscal year. Net earnings rose to $165.3 million from $95.4 million a year earlier, while diluted earnings per share increased 81.3% to $1.16.

Revenue rose 19.5% to $7.88 billion for the quarter ended August 31, helped by higher retail and wholesale unit volumes as well as higher average selling prices. CarMax sold 387,735 retail and wholesale vehicles combined, up 14.7% from the same period last year.

The company’s SEC-filed earnings release also said CarMax plans to resume share repurchases at a modest level in its fiscal third quarter. No shares were repurchased during the second quarter, and $1.31 billion remained available under the existing authorization as of August 31.

Used-car sales rebound, but per-vehicle margins narrow

Retail used-vehicle unit sales rose 13.8% to 227,391, while comparable-store used-unit sales increased 13.0%. Retail used-vehicle revenue climbed 19.7%, reflecting both the increase in vehicles sold and a roughly $1,600, or 6.3%, rise in the average retail selling price to $27,623.

The improvement was a sharp change from the first quarter. In CarMax’s fiscal first-quarter results, retail used-unit sales were essentially flat and comparable-store units were down 0.8%. Net earnings in that quarter fell 11.8% from a year earlier. The second-quarter figures therefore show substantially stronger volume and earnings performance than the company reported three months earlier.

CarMax did not get the higher volume without giving up some margin per vehicle. Gross profit per retail used unit fell $111 to $2,105. Management attributed the decline to pricing actions intended to support improved sales trends. Because unit volume rose sharply, total retail used-vehicle gross profit still increased 8.1% to $478.6 million.

The wholesale business showed the same tradeoff more clearly. Wholesale unit sales rose 15.9% to 160,344, and wholesale revenue increased 18.2%. Gross profit per wholesale vehicle, however, declined $135 to $858. Total wholesale gross profit was nearly flat at $137.6 million, up just 0.2% from the prior-year quarter despite the double-digit increase in units.

Other gross profit provided more support. It increased 33.1% to $183.3 million, helped by higher Extended Protection Plan revenue and improved service profitability. Extended Protection Plan margin per retail unit rose $46 to $623. Altogether, CarMax reported total gross profit of $799.5 million, up 11.4%.

Auto finance and cost leverage lift the bottom line

CarMax Auto Finance was another important contributor. Finance income rose 32.1% to $135.6 million, helped by a $28.8 million reduction in the provision for loan losses to $113.4 million. The finance business also recorded a $16.6 million gain on the sale of auto loans and a $6.1 million year-over-year increase in servicing fees.

CarMax continued to expand its lending activity farther down the credit spectrum. The company said its finance arm funded 22% of Tier 2 volume during the quarter, compared with 10% a year earlier. Its weighted average contract rate was 11.8%, up 60 basis points, while the total interest margin remained at 6.6% of average auto loans outstanding.

At the company level, selling, general and administrative expenses increased 4.6% to $628.6 million. That increase was much slower than the growth in vehicle volume, so SG&A per total unit fell $157, or 8.8%, to $1,621. CarMax said ongoing cost reductions were partly offset by higher variable costs tied to stronger unit sales and by comparison with unusually low incentive compensation in the prior-year period.

The retailer is still targeting $200 million of annualized SG&A savings, measured on an exit-rate basis, by the end of fiscal 2027. The second quarter suggests that higher volume can improve expense efficiency even when absolute operating expenses increase. That operating leverage, together with the stronger contribution from auto finance, helped net earnings grow faster than gross profit.

Earnings per share rose even faster than net income partly because the share count was lower. Diluted weighted average shares outstanding declined 4.8% to 142.5 million from 149.6 million a year earlier. CarMax had not repurchased shares in either the first or second quarter of the current fiscal year, so the lower year-over-year diluted share count reflects repurchases and equity activity from earlier periods rather than fresh buying during the quarter.

Buybacks return as CarMax prepares a strategy update

Management tied the planned restart of repurchases to the stronger quarter, continued operating momentum and improving leverage. The company did not commit to a fixed amount. It said the timing and size of future purchases will depend on market conditions, leverage and capital needs, and the board can modify, suspend or end the program.

The decision marks a change from the first half of fiscal 2027, when CarMax made no purchases under the authorization. At the end of the first quarter, the company had also reported $1.31 billion of remaining capacity and said it intended to resume repurchases when conditions were appropriate. The new second-quarter statement is more specific about timing, pointing to a modest restart in the third quarter.

CarMax is making that capital-allocation decision while continuing to invest in its broader operating strategy. Digital tools supported 81% of retail unit sales in the second quarter, with 68% classified as omni sales and 13% completed fully online. The company also bought 310,107 vehicles from consumers and dealers, up 5.9%, expanding the supply flowing through its retail and wholesale channels.

The next major checkpoint comes before the next earnings report. CarMax plans to hold a virtual strategic update on November 3 at 8 a.m. Eastern, where management is expected to provide more detail on its growth strategy, initiatives and milestones. The company has also scheduled fiscal third-quarter results for December 17, when investors will be able to see whether the sales rebound carried into the new quarter and how aggressively the planned buybacks actually resumed.