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CarMax (KMX) is trading lower after reporting its Q4 (Feb) results this morning. The company beat expectations on the top and bottom line, though it still faced yr/yr declines. Adjusted EPS of $0.34 fell from $0.64 in the prior-year quarter, while revenue fell 1% yr/yr to $5.95 bln. KMX does not provide formal guidance, but its FY27 capital plan calls for about $400 mln in capex, including four new stores, two offsite reconditioning and auction locations, and two offsite auction locations, to support long-term growth.

• Used comps declined 1.9% yr/yr. While still negative, it marks a sharp improvement from Q3's -9% decline, reflecting its strategic actions to lower prices, increase acquisition marketing, and roll out new digital enhancements.
• Total unit sales returned to growth, increasing 0.7% yr/yr following a 7.2% decline in Q3. Retail used unit sales decreased 0.8% yr/yr, improving from an 8.0% decline in Q3, while wholesale units increased 3.0% yr/yr after falling 6.2% in Q3.
• Total gross profit fell to $605.3 mln, down 9.4% yr/yr, while gross margin declined 90 bps to 10.2%. Retail used vehicle gross profit decreased 9.6%, with gross profit per used unit (GPU) falling $207 to $2,115, reflecting its actions to lower prices. Wholesale used vehicle gross profit declined 7.3% yr/yr, reflecting lower GPU, which fell $105 to $940.
• CAF income decreased 10% yr/yr to $144 mln, reflecting a smaller held-for-investment receivables base and higher loan loss provisioning tied to its Tier 2 expansion. Provision for loan losses increased to $73.9 mln from $68.3 mln.
• New CEO Keith Barr is putting the customer first, with priorities centered on competitive pricing, broader selection, and a better end-to-end experience, while also leveraging AI and data to improve efficiency and conversion.
• On the capital plan, KMX paused buybacks in the quarter to improve flexibility, but remains committed to returns depending on market conditions. Additionally, it will continue to optimize sales performance, with FY27 used margins expected to decline broadly in line with Q4, with Q1 expected to see the largest yr/yr decline.

Briefing.com Analyst Insight

Despite beating expectations and showing improved sales trends, KMX is trading lower, which likely reflects that KMX is still in the early innings of its turnaround. The quarter did show some encouraging progress, particularly in used unit comps, but that improvement came at the expense of lower GPUs as KMX leaned on pricing to support demand, keeping pressure on profitability, while comps still remained negative overall. New CEO Keith Barr outlined broad priorities around the customer, pricing, technology, and urgency, but stopped short of offering a more detailed strategic roadmap. The decision to keep optimizing performance at the expense of margins is also likely weighing on shares today. Overall, while results were better than expected, profitability pressure and the early-stage nature of the turnaround appear to be driving the negative reaction today, particularly with the strong move heading into the report.