CarMax swung to a $120.7 million net loss in its fiscal fourth quarter, a stark reversal from $89.9 million in earnings a year earlier. Shares plunged 16% the day after the April 14 disclosure. The culprit? Aggressive price cuts aimed at luring back price-sensitive buyers who’d abandoned the no-haggle giant for cheaper rivals.
Revenue dipped 1% to $5.95 billion, beating analyst forecasts of $5.7 billion, according to CarMax’s official earnings release. Retail used units fell 0.8% to 181,188, with comparable-store sales down 1.9%. Average selling price for used vehicles slipped 0.4% to $26,019—about $110 less per car. Gross profit per retail used unit cratered $207 to $2,115. Pricing actions drove that hit.
New CEO Keith Barr, who started in March after a leadership shakeup, didn’t mince words. “We are moving with urgency to improve execution, drive efficiencies, and sharpen our customer offering,” he said on the earnings call, as reported by Barron’s. Barr’s plan targets older, higher-mileage cars, now 35% of inventory versus 20% a decade ago. Affordability rules. Borrowing costs pinch everyone but the credit elite.
But. Investors balked. The company paused its share buyback after $630 million last year, with $1.3 billion left authorized. A $141 million goodwill impairment and $34 million in restructuring charges—tied to CEO changes, layoffs, and ditching the Edmunds lease—turned profits into red ink. Adjusted EPS came in at 34 cents, topping 23-cent estimates.
December marked the pivot. Interim CEO David McCreight admitted defeat. “Based on recent results, it is clear CarMax needs change,” he told analysts then. “Our average selling prices have drifted upward and appear to be less attractive to customers.” The fix: shrink the gap to market prices. Cut hundreds of jobs. Starboard Value, with its $350 million stake, piled on. “We believe a more dynamic pricing framework is required,” the activist wrote in a letter detailed by Yahoo Finance. They pushed $100-$300 drops per vehicle, real-time adjustments to local conditions. Rigid gross-profit targets failed in volatile 2025-2026.
Used-car prices climbed anyway. Cox Automotive’s Manheim index hit a post-2023 peak in March, up 6.2% year-over-year. CarMax bought 270,000 vehicles, up 0.4%, mostly from consumers. Wholesale units rose 3%. Yet retail stalled.
Cost controls ramp up. SG&A target jumps to $200 million savings by fiscal 2027’s end, from $150 million. Expenses hit 95.4% of gross profit, adjusted. Four new stores, two auction sites, two reconditioning centers planned. Capex: $400 million. Omni-channel shines—83% of sales touch digital, 70% omni, 13% pure online.
Analysts split. William Blair’s Sharon Zackfia sees worry over growth costs, especially sans buybacks. She holds Market Perform. Truist notes volume gains but shrinking profit per unit, trimming 2026-2027 EPS views, per Finimize. RBC flags GPU compression and loan income drops ahead, via Streetwise Reports.
Fiscal 2026 full-year? Revenue down 1.8% to $25.9 billion. Net earnings halved to $247 million. Units off 1.1%. GPU down to $2,253 retail used. CarMax Auto Finance income slipped 3.3% to $563 million, provisions up amid subprime push—now 20% of volume, doubled.
CBT News captures the shift: lower-priced stock amid softening demand, as they report. Shares shed 37% over the past year, despite a 27% YTD run-up pre-earnings. Skepticism reigns. Can volume offset margins long-term? Or does this signal deeper used-car woes?
CarMax bets yes. Algorithmic pricing slashed 20% of inventory by $1,000. Traffic ticks up. Trends beat Q3 comps, per Moneywise. But Wall Street demands proof. Higher-mileage mix. Subprime lending. Efficiency drives. Fiscal 2027 tests the thesis.
No quick fix. Used market volatility lingers. Activist pressure mounts. Leadership freshens. CarMax fights for relevance in a buyer’s standoff.