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CarMax (KMX -20%) is driving in reverse after wrapping up FY25 on a down note. The nation's largest retailer of used autos missed on Q4 (Feb) EPS, following big EPS upside in Q3. To be fair, Q4 was impacted by a $0.06 Edmunds non-cash lease impairment, but it was still a miss when backing that out. KMX does not guide, but has provided general long term objectives. Today, KMX removed the timeframes related to prior stated goals due to macro factors.

• Revenue rose 6.7% yr/yr to $6.00 bln, which was generally in-line. Growth was mostly fueled on the retail side with revs up 7.5% yr/yr, primarily driven unit sales being up 6.2% yr/yr to 182,655 with a same store comp of +5.1%, up from +4.3% in Q3. Wholesale revenue increased 3.5% yr/yr, also primarily driven by an increase in wholesale units sold.
• KMX further explained that comp trends in December and January were very strong, but February was a little softer, as expected, because there was Leap Day last year. Also February may have been slightly impacted by a delay in tax refunds. On the positive side, KMX saw a step-up in comps in March, which continued and then accelerated into the first few days of April. This bodes well for Q1 (May) comps, which KMX estimates are running high single digits thus far.
• CarMax concedes that its market share came under pressure during 1H24, but it recovered in 2H24 with particular strength in aged 0 to 4 vehicles. Industry data indicates that its market share continued to grow yr/yr in January 2025 and KMX remains confident it will achieve further market share gains across 2025 and beyond.
• CarMax also addressed tariffs on the call. Basically, car tariffs will drive prices higher for new cars. That should create a bigger spread between late model used and new cars. KMX says this dynamic may help explain the recent rise in CarMax comps in Mar/Apr. The company thinks tariffs will push some folks into looking at late model used cars and CarMax is seeing a lot of interest right now. Over time, what could happen is that used car prices will also go up.

The stock appears to be reacting to the EPS miss, but likely more so to CarMax's decision to remove the timeframes related to prior stated goals. This seems to be spooking investors. We also suspect the weakness and profit taking in the overall market is impacting the stock today. However, we thought the commentary on the Mar/Apr comps was quite positive and shows that CarMax should benefit from tariffs. President Trump paused many tariffs, but he did not pause the 25% tariffs on automotive imports.