CarMax, Inc. — Q1 FY26 Retail Strength and Finance Risk

Executive Summary#

CarMax (KMX posted a striking Q1 FY26: a record gross profit per retail used unit of $2,407 alongside a substantial increase in loan‑loss provisioning to $101.7M, creating a clear trade‑off between retail execution and auto‑finance stress.

Per the company’s Q1 press materials, retail used unit sales were 230,210 (up +9.00% YoY) and comparable‑store used unit sales rose +8.10% YoY; total retail used vehicle revenue grew +7.50% YoY while used ASPs eased -1.50% YoY — factors that combined to lift per‑unit margins despite lower prices CarMax press release SEC filing.

Simultaneously, CarMax Auto Finance (CAF) reported financing income dynamics and credit reserve increases: CAF income fell -3.60% to $141.7M while the provision for loan losses rose to $101.7M, and the allowance for loan losses reached $474.2M (2.76% of loans held for investment) — actions management described as prudent given seasoning in 2022–2023 vintages CarMax press release.

Quarter Mechanics: Retail vs. Auto Finance#

Retail strength in Q1 was volume‑led and mix‑sensitive. CarMax sold 230,210 retail used units (+9.00% YoY) and set a record $2,407 gross profit per retail used unit (up +$60, approximately +2.56% YoY), indicating effective sourcing and inventory mix even as used ASPs moved modestly lower (‑1.50% YoY) CarMax press release. Segmental strength (hybrids/EVs and luxury vehicles) and tighter wholesale flows supported GPU expansion, per market commentary Carfax Used Car Index.

CAF was the swing factor. CAF income declined -3.60% to $141.7M as the provision for loan losses increased to $101.7M (up +$20.5M, +25.22% YoY) and financing penetration fell to 41.8% of units (from 43.3% a year earlier). Management also identified an expanded non‑prime funding effort and earmarked approximately $632M of non‑prime receivables for off‑balance‑sheet sale to manage balance‑sheet exposure CarMax press release.

Those moves improved funding flexibility but compressed near‑term CAF upside: total interest margin on the finance portfolio rose to 6.50% (up +0.30 percentage points YoY), offsetting some credit pressure but leaving CAF earnings more volatile in the near term CarMax press release.

Q1 FY26 Selected Metrics#

(All metrics from CarMax Q1 FY26 earnings materials and SEC release.)

Market Context, Competitive Positioning, and Financial Metrics#

Used‑vehicle pricing and supply continue to show blocky segmental movement: wholesale used‑vehicle prices dipped modestly in recent weeks but remain above year‑ago levels in many segments; hybrid/EV and luxury listings have held stronger than average, supporting GPU on the right inventory mix CBT News Carfax Used Car Index.

On the balance sheet and operating results side, fiscal 2025 reported revenue was $26.35B (vs $26.54B in FY24, a -0.69% change) with net income $500.56M (+4.46% YoY); long‑term debt ended the period near $18.62B and net debt approximately $18.98B, while the current ratio stood at 2.39x and net‑debt‑to‑EBITDA at 10.15x, per Monexa AI consolidated financials Monexa AI (company filings aggregated by Monexa AI).

Capital allocation showed ongoing buybacks: FY25 common stock repurchases totaled $428.45M while net cash from operating activities was $624.44M and free cash flow $156.5M, reflecting tighter working capital and elevated provisioning needs Monexa AI.

FY2025 Income Statement Snapshot#

(Primary financials and cash‑flow items from Monexa AI aggregation of company filings.)

What Explains CarMax's Q1 Beat?#

CarMax’s Q1 outperformance was driven primarily by higher retail volumes and per‑unit margin gains, which offset modest weakness in ASPs and a material increase in CAF provisioning.

Retail execution: scale and mix favored items with stronger residuals (hybrids, EVs, luxury), enabling GPU expansion despite a small decline in ASPs; management credited omnichannel merchandising and tighter wholesale supply for part of the lift CarMax press release Carfax Used Car Index.

Finance headwinds: CAF provision increases and lower financing penetration materially reduced CAF income (CAF income $141.7M, provision $101.7M) and converted what had been an earnings tailwind into a near‑term headwind; management’s expanded non‑prime funding and receivable sales are explicit mitigation steps but also cap upside CarMax press release.

Key Takeaways & What This Means For Investors#

CarMax’s Q1 FY26 establishes three near‑term investment focal points: retail execution, CAF credit trajectory, and funding strategy. Management has demonstrated operational control in retail (GPU record) while proactively adjusting finance exposure through higher reserves and off‑balance‑sheet funding.

1. Retail momentum: 230,210 units (+9.00% YoY) and record GPU suggest structural competitiveness in used‑car merchandising; sustained mix advantage would support margins even if ASPs remain pressured.
2. CAF variability: Provision up to $101.7M and allowance $474.2M make CAF the primary swing factor for EPS volatility — watch delinquencies and net charge‑offs in coming vintages.
3. Capital allocation: continued share repurchases ($428.45M FY25) alongside elevated provisioning shows prioritization of shareholder return while managing credit risk — a balanced but fiscally constrained posture Monexa AI.

Strategically, the data support a pragmatic two‑track assessment: if retail GPU and volume trends persist, CarMax can re‑rate on operating leverage; if CAF credit metrics deteriorate, provisioning could materially compress earnings. Monitoring proprietary CAF delinquencies, securitization/funding costs, and wholesale price trajectories (Carfax / CBT News) will be the most actionable near‑term signals CarMax press release CBT News.

Bottom Line#

Q1 FY26 is a clear example of CarMax’s retail operating strength offset by elevated auto‑finance volatility. The company has bought time by increasing reserves and diversifying funding, but CAF remains the key determinant of near‑term earnings stability. Investors should track GPU trends, CAF vintage performance, and funding spreads as primary indicators of whether retail gains will sustainably outpace finance headwinds.