CarMax Rallies as Profit Beat Eases Fears of Deeper Sales Slump
The used-car retailer surpassed Wall Street's gloomy expectations, but an 8% drop in retail units sold highlights persistent pressure on consumer demand.
CarMax (NYSE: KMX) shares gained traction in early trading Thursday after the company reported third-quarter profits that, while lower than last year, surpassed Wall Street’s severely diminished expectations. The stock rose as much as 1.7% in pre-market activity as investors breathed a sigh of relief that the results were not as dire as feared.
The nation's largest retailer of used vehicles posted revenue of $5.79 billion for the third quarter of fiscal year 2026, a 7% decline from the prior year but ahead of the consensus estimate of $5.69 billion. Net earnings per share landed at $0.43, comfortably beating the analyst forecast of $0.37 and the even lower whisper number of $0.32 that had circulated among traders.
The positive market reaction, however, masks persistent weakness in CarMax's underlying business. The core driver of the revenue decline was an 8% drop in retail used unit sales, a clear sign that vehicle affordability issues continue to weigh heavily on consumers. Total wholesale vehicle sales also decreased by 4.9%.
Investors are grappling with a complex picture. On one hand, the earnings beat suggests CarMax is managing its costs and margins effectively in a difficult environment. On the other, the steady erosion of sales volumes points to a fundamental challenge that has yet to abate. The stock's performance coming into the report tells a story of battered expectations; shares were down nearly 50% year-to-date, setting a low bar for the earnings announcement to clear.
"The market is rewarding CarMax for clearing a very low hurdle," noted a market analyst. "While the headline numbers provided a relief rally, the underlying sales data shows the company is still navigating a tough consumer landscape shaped by high interest rates and inflation."
For the quarter, retail gross profit per used unit was $2,221, and wholesale gross profit per unit was $971. The company's financing arm, CarMax Auto Finance (CAF), reported income of $148.9 million, down from $194.2 million in the same quarter last year, reflecting higher provisions for loan losses as credit conditions tighten.
The results come as the broader used-vehicle market faces a strategic crossroads. After a period of unprecedented price appreciation, the combination of higher financing costs and economic uncertainty has dampened demand. CarMax, with its no-haggle, big-box model, is particularly exposed to these macro pressures.
Wall Street has maintained a cautious stance on the company. Prior to Thursday's report, consensus ratings were heavily skewed towards "Hold" or "Sell," with an average price target that suggested a slight downside from its recent trading levels. The stock is trading significantly off its 52-week high of $91.25, reflecting deep-seated concerns about its growth trajectory.
Looking ahead, CarMax did not provide a specific forecast but emphasized its focus on managing costs and optimizing its omnichannel platform. The key question for investors remains whether the current sales decline is a cyclical dip or a more permanent shift in consumer behavior. Thursday's rally indicates a glimmer of optimism, but the 8% fall in retail cars sold will remain the central focus for analysts assessing the company's long-term health.