TenQ

The CarMax story

CarMax is the largest US used-car retailer, with its own financing arm, and faces the question of whether sharper pricing and lower costs can restart retail unit and earnings growth.

Written from CarMax's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $56.55share price, last close
  • $8.0Bmarket value
  • 15/36TenQ Score checks passed
  • -3.4%growth a year the price assumes

The story in brief

  • Wholesale leads growth. In the quarter to May 2026, wholesale unit sales increased 8.4%, while retail units were essentially flat and comparable store used unit sales declined 0.8%.
  • Costs move lower. In the quarter to May 2026, SG&A expenses decreased 3.7% to $635.2 million, with expense per total unit improving by $118 to $1,619.
  • Financing reaches more customers. In the quarter to May 2026, CarMax Auto Finance penetration expanded by 150 basis points to 43.3%, but CAF income decreased 1.0% to $140.2 million.

What drives the business

  • CarMax’s no-haggle pricing and connected online and store experience underpin its retail business, which operated 256 used car stores as of February 2026 and recorded 780,684 retail used vehicle sales in the fiscal year ended February 2026.
  • Consumer appraisals and MaxOffer, its digital appraisal product for dealers, feed both retail inventory and wholesale auctions, which handled 538,203 vehicles in fiscal 2026, including vehicles that did not meet retail standards.
  • CarMax Auto Finance finances only CarMax retail customers and serviced approximately 1.0 million customer accounts in a $16.37 billion auto loan portfolio as of February 2026.
  • Financing partners including Ally Financial, Bank of America and Capital One Auto Finance broaden access to credit, with CarMax bearing no recourse liability for credit losses on contracts held by third-party providers.
  • Keith Barr became chief executive in March 2026 and introduced a strategy centered on competitive pricing, a more seamless customer experience, greater financing and protection-plan profitability, and lower operating costs.

What the price assumes

At $56.55, the reverse DCF implies annual growth of -3.4% in free cash flow after stock pay for ten years, using a 10.2% discount rate.

That compares with delivered annual growth of 13.9% over the last 3 fiscal years and the TenQ check’s 8.9% bar, which slows that record halfway toward 4%.

The 12.4% free cash flow yield contrasts with a 37.5x earnings multiple, so the cash flow and earnings measures present different valuation pictures.

Value KMX on your own assumptions

What could change the story

  • Pricing actions reduced retail gross profit per used vehicle by $230 to $2,177 in the quarter to May 2026 without producing meaningful retail unit growth.
  • CAF’s $95.6 million loan loss provision in the quarter to May 2026 benefited from a $25.1 million allowance release for loans reclassified as held for sale, limiting what the lower provision alone says about credit performance.
  • As CAF expanded across credit tiers, its allowance for loan losses rose to 2.95% of loans held for investment as of May 2026, from 2.78% as of February 2026.
  • Total debt of $18.2 billion includes $16.1 billion of non-recourse notes backed by car loans and repaid through borrower payments, but access to securitization funding remains a business risk.
  • An operating margin of 1.8% and return on equity of 3.6% fail TenQ’s corresponding quality checks, underscoring weak profitability despite positive free cash flow.

What to watch next

  • CarMax said in the quarter to May 2026 that it remained on track for $200 million in SG&A exit rate savings by the end of fiscal 2027, making expense per total unit a key measure alongside comparable store units and retail gross profit per vehicle.
  • The planned late fall Strategic Update is intended to detail initiatives and milestones, including how pricing, reconditioning and logistics changes support unit and earnings growth.
  • CAF penetration, income and the loan loss allowance will help show whether broader credit coverage adds profitability without a disproportionate increase in credit losses.

Sources

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