CarMax sees surprise drop in used-car sales even at lower prices, and the stock dives

By Steve Gelsi

CarMax's stock was having its worst day in three years as quarterly profit, sales and average used-car prices all fell. Its CEO cites 'angst' among consumers.

CarMax said its most recent quarter was challenging.

CarMax Inc.'s stock price dropped to more than a five-year low Thursday after the used-car seller reported second-quarter profit and sales that declined from a year ago, as consumers have become more price sensitive even as vehicle prices have fallen.

That came as a shock to investors, who were expecting the company (KMX) to report increased profit, sales and car prices for the quarter that ended Aug. 31. It also marks a quick reversal from three months ago, when CarMax reported strong sales growth.

While there have been some signs of improvement, with September sales so far stronger than in the previous three months, sales are still "a little soft" compared with last year, Chief Executive William D. Nash said on the company's quarterly conference call with analysts.

The weakness is due to pressure on sales of newer cars, or those up to five years old. That's been partially offset by increased sales of older, higher-mileage vehicles, which tend to have lower prices.

Nash said "strained" consumers, even those with mid-range to high credit scores, seem to be sitting on the sidelines. And they have been distressed for a while.

"I think there's some angst. The consumer sentiment isn't great," Nash said, according to an AlphaSense transcript.

CarMax's stock tumbled 20.1% and was the biggest decliner in the S&P 500 index SPX on Thursday. The stock suffered its worst one-day performance since it sank 24.6% on Sept. 29, 2022, and it closed at its lowest price since March 20, 2020.

The company explained that one reason for the lower sales (see below), was that many consumers who might have bought cars during the latest quarter may have scrambled to buy them a quarter earlier, amid concerns that tariffs would lead to higher prices.

That also hurt profits for the quarter, as CarMax loaded up on inventory to meet that "pull-forward" of demand but was then forced to absorb higher-than-anticipated depreciation costs due the increased supply of unsold cars as sales dropped off in June, July and August, the company said.

For the three months that ended Aug. 31, CarMax said the average selling price for used vehicles fell to $25,993 from $26,245 a year ago, while the average analyst estimate compiled by FactSet was for an increase to $26,333.

Used-car sales dipped 7.2% to $5.271 billion, missing the FactSet consensus for a 0.8% increase to $5.725 billion. The margin of the miss was the biggest in at least five years, based on available FactSet data going back to September 2020.

Same-store sales dropped 6.3%, well short of the Wall Street estimate for growth of 1.1%.

CarMax's second-quarter profit fell to $95.4 million, or 64 cents a share, from $132.8 million, or 85 cents a share, in the year-ago quarter.

Analysts had expected earnings of $1.04 a share.

In a sign of other potential challenges ahead, CarMax hiked its provision for credit losses as customers fall behind on car payments for loans taken out in 2022 and 2023, when interest rates jumped as inflation spiked higher.

CarMax AutoFinance income for the latest quarter fell 11.2% to $102.6 million, as the money set aside for loan losses jumped 26.3% to $142.2 million, including a $71.2 million increase of lifetime losses on existing loans, primarily from 2022 and 2023.

Jon Daniels, a CAF executive vice president, said he believes the trouble with those loans was "kind of the perfect storm" of high average selling prices and consumers who got hit with inflation and higher interest rates.

"It's an industry issue," said Daniels said. "You look at other lenders out there, they would tell you those are some tough vintages."

-Steve Gelsi

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09-25-25 1652ET