CarMax: Revenue Grows, EPS Falls Short

Used car retailer CarMax (NYSE:KMX) reported fiscal 2025 fourth-quarter and full-year earnings on Thursday, April 10, that fell short of analysts' consensus expectations. While it missed estimates of $0.66, earnings grew substantially year over year, with EPS hitting $0.58. Revenue for the quarter $6 billion rose 6.7% year over year but came in just below the forecasted $6.035 billion.

Overall, the quarter exemplified CarMax's operational growth, although inventory and market challenges persisted.

Source: CarMax. Note: Analysts' consensus estimates for the quarter provided by FactSet. YOY = Year over year. SG&A = Selling, general, and administrative.

About CarMax: Business Overview

CarMax is a giant in the used car retail sector, providing a diverse selection of vehicles through its robust omnichannel platform. This approach enables customers to buy cars online, in-store, or by combining both experiences. Customer-centricity through digital channels remains a core strategy, as reflected by the fact that 95% of customers engage online before making purchases. Additionally, 70% complete their transactions using digital features. CarMax's key focus areas include maintaining a responsive inventory, optimizing vehicle sourcing, and expanding CarMax Auto Finance (CAF), which finances a significant portion of its sales.

CarMax recently directed attention toward CAPEX -- capital expenditure -- aiming to boost its network with new stores and vehicle reconditioning centers. The company looks for ongoing retail unit growth, backed by its omnichannel strategy. Success hinges on adapting to consumer demands, effectively managing inventory, and leveraging internal finance operations.

Quarterly Highlights and Performance

CarMax boosted earnings 81.3% year over year, signaling a solid ability to manage costs. The earnings boost was aided by significant revenue growth and the advantages its omnichannel platform -- an integrated digital and in-store buying process -- provides. Retail used unit sales of 182,655 grew by 6.2%, with online transactions accounting for 15% of retail unit sales. CarMax said the average selling price for used cars was $26,133, up 0.6% from the same period a year ago.

The company's vehicle sourcing from consumers and dealers shot up by 15.3% year over year, enhancing inventory capabilities. This growth came despite competitive pressures, as 36% of sales involved vehicles transferred at customers' requests, which could strain logistics and inventory management. Management has planned strategic expansions with an approximate investment of $575 million in capital expenditure to tackle these issues.

CarMax Auto Finance (CAF) contributed significantly, with income climbing by 8.2% to $159.3 million. CAF financing covered 42.3% of units sold, maintaining parity with the previous year. Wholesale vehicle sales rose by 3.1%, but a $75 decrease in gross profit per unit highlighted pricing pressures. Despite the fall, wholesale units fetched historically high profits of $1,045 each, underlined by a substantial auction market presence.

Investments in technology and digital transformation remain pivotal to CarMax's competitive edge, even though specifics about advancements were not disclosed in this report. Such investments aim to augment customer experience, driven by data science and artificial intelligence, creating a robust foundation for future growth.

Looking Ahead

CarMax's future looks to be guided by $575 million in strategic investments in operations and expansions, emphasizing continued improvement across omnichannel offerings and financing capabilities. For fiscal 2026, CarMax management expects new store growth of six locations, as well as four stand-alone reconditioning/auction centers.The company's fiscal 2026 outlook anticipates double-digit EPS growth and mid-single-digit retail unit expansion. Management said it remains focused on cost efficiencies, carefully balancing costs to maintain profitability despite potential macroeconomic headwinds.

Investors should monitor CarMax's inventory management strategies and competitive positioning as it navigates market changes. Adjustments to wholesale profit margins, fueled by broader market influences, will be crucial. Strengthening customer engagement through continued technological integration forms the bedrock of its growth strategy, presenting a promising future for CarMax.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends CarMax. The Motley Fool has a disclosure policy.