Breaking Down CarMax, Inc. (KMX) Financial Health: Key Insights for Investors

If you are looking at CarMax, Inc. (KMX), the financial health story is defintely a sharp turn, so you need to look beyond the full-year numbers: the company closed fiscal year 2025 with annual revenue of $26.353 billion and a strong fourth quarter where net earnings per diluted share surged 81.3% to $0.58, but that momentum evaporated quickly. The latest data shows a clear near-term risk, with comparable store used unit sales dropping 6.3% in the second quarter of fiscal 2026, forcing management to announce plans for at least $150 million in selling, general, and administrative (SG&A) expense reductions over the next 18 months. That sales slowdown, plus rising credit loss provisions in their CarMax Auto Finance (CAF) arm, means the market for used vehicles is tightening up fast, and you need to know exactly where the pressure points are.

Revenue Analysis

You need to know where the money is coming from, and for CarMax, Inc. (KMX), the story is straightforward: it is a used car retailer first, and a finance company second. For the full Fiscal Year 2025 (FY 2025), which ended February 28, 2025, the company reported total Net Sales and Operating Revenues of $26,353.4 million. That's a massive number, but it represents a slight year-over-year decline of 0.7% from FY 2024, signaling a tough, high-interest-rate environment where vehicle affordability remains a real challenge for the consumer.

The primary revenue streams fall into two main reportable segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The Sales Operations segment is the behemoth, encompassing all vehicle and related product sales. Here's the quick math on how the total revenue broke down in FY 2025:

The core business is, defintely, selling used cars directly to you, the retail customer. With 789,050 used vehicles sold at retail in FY 2025, this segment provides the bulk of the top line. The wholesale business, where the company auctions off older, higher-mileage trade-ins, is a crucial secondary stream, moving 544,312 vehicles in the same period. The fact that retail sales dominate by such a margin means that the health of the consumer and the used car market are paramount to CarMax's success.

The 'Other Sales and Revenues' segment, which includes revenue from Extended Protection Plans (EPPs) and vehicle service, is small in terms of total revenue percentage, but it is a high-margin business that drives significant gross profit. This is a key part of their diversified model. You also have to consider CarMax Auto Finance (CAF), which is a separate segment providing financing. In FY 2025, CAF financed 42.7% of all retail used vehicle unit sales, and its income is a critical profit lever, with CAF income alone reaching $159.3 million in the fourth quarter of FY 2025. This is what gives the company its competitive edge-being able to capture both the sale and the financing profit. You can read more about the company's long-term strategy here: Mission Statement, Vision, & Core Values of CarMax, Inc. (KMX).

The significant change in revenue streams is less about a pivot in business model and more about market dynamics. The slight decline in total revenue was primarily due to lower average selling prices for both retail and wholesale vehicles, which was partially offset by an increase in retail unit volume. The drop in prices, while challenging for revenue, is a positive trend for consumers struggling with affordability and could fuel future unit growth. The company is leaning into its omni-channel platform, with online transactions generating approximately 29% of net revenues in Q4 FY 2025.

• Used Retail Sales: 80% of Sales Operations revenue.
• Wholesale Sales: 17% of Sales Operations revenue.
• CAF: Financed 42.7% of retail unit sales.

The company's strategy is clear: sell more units at a slightly lower price point to gain market share while maintaining a strong per-unit gross profit and leveraging the high-margin finance and protection plan business. Finance: draft 13-week cash view by Friday.

Profitability Metrics

CarMax, Inc. (KMX) is showing a stabilizing and improving profitability picture as we move through 2025, which is a clear signal that their cost management is working despite a challenging used-car market. For the fiscal year 2025 (FY2025), which ended February 28, 2025, the company delivered a gross profit margin of approximately 11.0%, an operating profit margin of 0.79%, and a net profit margin of 1.90%.

Here's the quick math on profitability for FY2025, based on total revenue of $26.353 billion and total gross profit of $2.898 billion. The key takeaway is that their gross margin, while historically volatile, is on a solid upward trajectory, but the operating margin remains razor-thin. That's a common challenge in high-volume, low-margin retail like this. You need to watch those operating expenses like a hawk.

• Gross Profit Margin: 11.0% (FY2025)
• Operating Profit Margin: 0.79% (FY2025)
• Net Profit Margin: 1.90% (FY2025)

Trends in Profitability and Operational Efficiency

The trend in CarMax's profitability over the last couple of years is one of recovery. The gross profit margin increased in FY2025, a positive change from the low of 11.1% seen in FY2023. This improvement is defintely a result of better operational efficiency (cost management) and strong unit margins. In the fourth quarter of FY2025 alone, the company achieved a record gross profit per retail used unit of $2,322, showing their ability to extract more profit from each vehicle sale.

On the operational front, management is actively driving down costs. They achieved savings of approximately $125 per unit in FY2025 across their logistics and reconditioning operations, and they anticipate realizing at least another $125 per unit in fiscal year 2026. This focus on cost of goods sold (COGS) is crucial. Also, Selling, General & Admin (SG&A) expenses amounted to $2.435 billion in FY2025, a massive number that needs constant scrutiny to ensure it doesn't eat into the small operating profit.

Industry Comparison and Competitive Edge

When you compare CarMax, Inc.'s unit economics to the broader used-car retail industry in 2025, their model stands out. While the general used vehicle market saw average gross margins of just 5.4% in the second quarter of 2025, CarMax's gross profit margin, even at 11.0% for the full FY2025, is substantially higher. This is a testament to the higher-margin services like CarMax Auto Finance (CAF) and Extended Protection Plans (EPP) that are bundled with the vehicle sale.

However, when looking at publicly traded auto retailers, CarMax's overall gross profit margin of 12.3% (latest twelve months) still lags behind peers like Lithia Motors Inc. at 15.4% and Group 1 Automotive Inc. at 16.1%. The difference is often due to the mix of new versus used vehicle sales and the size of their fixed operations (service and parts) business. CarMax is a pure-play used car retailer, so its unit profit is a more telling metric.

For a deeper analysis of the company's financial structure, including its capital allocation and debt position, you can review the full post at Breaking Down CarMax, Inc. (KMX) Financial Health: Key Insights for Investors.

Debt vs. Equity Structure

You need to look past the headline numbers on CarMax, Inc. (KMX)'s balance sheet to understand its true debt picture. The company's financing structure is heavily skewed toward debt, but a significant portion of that is non-recourse debt tied directly to its CarMax Auto Finance (CAF) subsidiary, not its core retail operations.

As of the end of fiscal year 2025 (February 28, 2025), CarMax, Inc. reported total liabilities of over $21.161 billion. The crucial distinction is between corporate debt and the non-recourse notes payable used to fund the auto loan portfolio.

• Long-Term Corporate Debt: Approximately $1.570 billion, excluding the current portion.
• Non-Recourse Notes Payable (CAF): Approximately $16.567 billion, excluding the current portion.

This business model of securitizing (selling off) auto loan receivables is how CarMax, Inc. manages its massive financing arm, CarMax Auto Finance (CAF). It's a financing lever, not a sign of a struggling core retail business.

The debt-to-equity ratio (D/E) for CarMax, Inc. is high, which is typical for a company with a captive finance arm. For fiscal year 2025, the D/E ratio was around 311.2% (or 3.11:1). More recent data from November 2025 puts the ratio at 2.87, or 287%. That's a lot of debt for every dollar of shareholder equity.

To be fair, the industry standard for a pure automotive retailer is much lower. For instance, a peer like Asbury Automotive Group Inc. had a Debt / Total Equity of about 120.5%. The difference shows the unique capital structure of CarMax, Inc. as both a retailer and a major auto lender. Honestly, you need to mentally separate the two segments when assessing risk.

The company is defintely active in the debt markets. In 2025, CarMax, Inc. continued its strategy of asset-backed securitization (ABS) to fund its loan portfolio. This included the CarMax Auto Owner Trust 2025-4 issuance in October 2025, backed by prime auto loan receivables, and the CarMax Select Receivables Trust 2025-B issuance in September 2025, backed by nonprime loans. This constant issuance of notes is the primary source of debt financing, not a sign of corporate distress.

The balance between debt and equity funding is maintained by this debt-heavy structure for CAF, plus a commitment to equity funding through buybacks. In the fourth quarter of fiscal year 2025, CarMax, Inc. repurchased 1.2 million shares of common stock for $98.5 million, a clear use of capital to return value to shareholders and manage the equity side of the equation. If you want to dive deeper into who is buying and selling the stock, you should be Exploring CarMax, Inc. (KMX) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

You need to know if CarMax, Inc. (KMX) can cover its near-term obligations, and the quick answer is yes, but with a caveat typical for a high-inventory retailer. Their liquidity position as of the fiscal year (FY) ended February 28, 2025, is primarily driven by their massive inventory, which is a key distinction from a purely financial firm.

The standard liquidity measures show a split picture. The Current Ratio, which compares all current assets to current liabilities, stood at a strong 2.31 for FY 2025. A ratio above 1.0 is generally good, so 2.31 suggests they have more than twice the assets to pay off all short-term debt. But when you strip out inventory, the Quick Ratio (also known as the acid-test ratio) tells a different story.

CarMax, Inc.'s Quick Ratio hit a 5-year low in FY 2025 at 0.2x, which is a 42.4% decrease from the prior year. This low number is normal for a used-car retailer-their current assets are heavily skewed toward vehicles (inventory), which are not easily converted to cash at full value. Still, a quick ratio of 0.2x means that without selling a single car, they could only cover about 20 cents of every dollar of immediate liabilities. That's a tight spot for non-inventory assets.

Here's the quick math on their working capital for FY 2025 (in millions USD):

Working capital, the difference between current assets and current liabilities, was a healthy $2.88 billion at the end of FY 2025. The trend here is that the sheer volume and value of their car inventory keep the working capital figure high, but the low Quick Ratio is a constant reminder that their liquidity is fundamentally tied to the health of the used-car market and their ability to move that inventory quickly. If the market suddenly freezes, their actual cash liquidity suffers fast. You can dig deeper into the market dynamics in Exploring CarMax, Inc. (KMX) Investor Profile: Who's Buying and Why?

Cash Flow Statements Overview

Looking at the cash flow statement for FY 2025 shows where the money is actually moving, and it points to a company prioritizing its core operations and internal investment over cash accumulation. Here are the key cash flow trends for the fiscal year (in millions USD):

• Cash Flow from Operating Activities (CFO): $624.4 million. This is the cash generated from the core business-selling cars and providing auto finance-and it was positive, which is defintely a strength.
• Cash Flow from Investing Activities (CFI): -$461.0 million. This negative number is expected and mostly reflects capital expenditures (CapEx), such as building new stores and reconditioning centers, which totaled around $467.9 million. They are investing in future growth.
• Cash Flow from Financing Activities (CFF): -$453.5 million. This was negative primarily due to net repayments of debt and the repurchase of common stock, which totaled $428.5 million in FY 2025. They are returning capital to shareholders and managing their debt structure.

What this cash flow overview hides is the decline in their cash and equivalents, which fell from about $574 million at the end of the prior year to about $272 million by Q4 2025. The company used more cash on investing and financing activities than it generated from operations, which drew down the cash balance. Still, the positive operating cash flow is the engine that keeps things running.

Potential Liquidity Concerns and Strengths

The primary strength is the robust Current Ratio of 2.31 and the positive $624.4 million in operating cash flow. The core business is generating cash. The main potential liquidity concern is the low Quick Ratio of 0.2x combined with the significant decline in the cash balance. If a sudden economic shock were to hit the used-car market, causing inventory to sit longer and CarMax Auto Finance (CAF) loan defaults to rise, the company would have limited non-inventory cash to cover its short-term obligations without resorting to new borrowing or asset sales. The reliance on inventory turnover is the biggest risk here.

Action for you: Monitor the inventory turnover ratio and the allowance for loan losses in the next two quarters. If inventory days start to climb past their historical average, that low 0.2x quick ratio becomes a real problem, not just a retail accounting quirk.

Valuation Analysis

You need to know if CarMax, Inc. (KMX) is a bargain or a trap right now, and the numbers suggest it's a classic Hold-a company trading at a significant discount to its historical norms, but facing near-term headwinds that justify the caution. The stock is currently trading around $35.33 as of November 21, 2025, which is a massive drop from its 52-week high of $91.25.

The core of the valuation story is that the market is pricing in a rough patch for the used-vehicle market, driven by high interest rates and used car price depreciation. The stock is down over 56% in the last 12 months, which is a brutal cut. This drop has made the company look cheap on paper, but only if you believe its earnings power will quickly recover. It's a risk/reward trade-off, defintely.

Is CarMax, Inc. (KMX) Overvalued or Undervalued?

Based on traditional valuation multiples, CarMax, Inc. looks undervalued compared to the broader market, but you have to look past the sticker price. The Trailing Twelve Months (TTM) Price-to-Earnings (P/E) ratio is currently sitting at about 10.1. This is a low multiple, especially when compared to the S&P 500 average, suggesting the stock is cheap relative to its past year's earnings. However, the market is forward-looking, and analysts are worried about future earnings.

The Price-to-Book (P/B) ratio is a key indicator for a capital-intensive retailer like this, and at approximately 0.82, the stock is trading below its book value. This is a strong signal of potential undervaluation, meaning the market values the company less than the net value of its assets (what's left if all debts were paid).

Here's the quick math on the key valuation ratios:

• P/E Ratio (TTM): 10.1 (Low, suggests undervaluation based on current earnings).
• P/B Ratio: 0.82 (Below 1.0, a classic sign of deep value or distress).
• EV/EBITDA (TTM): 12.47 (A reasonable multiple that accounts for the company's significant debt load).

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio, which is a better measure because it includes the debt from the CarMax Auto Finance (CAF) segment, is around 12.47. This is higher than the P/E suggests, highlighting the debt that the market is factoring into the overall enterprise value. You need to account for that leverage. For a deeper dive into who is driving the institutional ownership, you should check out Exploring CarMax, Inc. (KMX) Investor Profile: Who's Buying and Why?

Stock Performance and Analyst Outlook

The stock price trend over the last 12 months has been unequivocally negative, declining by over 56% from its 52-week high of $91.25 to its current price of $35.33. The 52-week low of $30.26 shows we are still near the bottom of the recent range.

CarMax, Inc. is not a dividend stock; it focuses on reinvesting capital for growth and share buybacks. The dividend yield and payout ratio are both 0.00% for the 2025 fiscal year, so don't expect income here.

The analyst community is largely on the sidelines, with a consensus rating of Hold or Reduce. The average price target is approximately $45.75, suggesting a potential upside of about 29% from the current price. This consensus is based on a mix of ratings from 19 analysts, with the majority recommending a Hold.

The analyst target of $45.75 implies they see a path to recovery, but the high number of 'Hold' ratings-12 out of 19 tracked-tells you they are waiting for clearer signs of stabilization in used vehicle prices and consumer credit before upgrading their view. You're buying a turnaround story, not a growth one right now.

Risk Factors

You need to look past the strong brand name and focus on the current financial headwinds. CarMax, Inc. (KMX) is grappling with a triple threat: macroeconomic pressure, credit market deterioration in its finance arm, and the fixed-cost burden of its large physical footprint. It's a tough environment for big-ticket, discretionary purchases.

The biggest near-term risk is clearly the credit quality in CarMax Auto Finance (CAF). High interest rates and inflation have strained consumers, especially those with lower credit scores. This stress showed up dramatically in the company's Q2 Fiscal Year 2026 results (period ended August 31, 2025), where the provision for loan losses surged by 26.3% year-over-year to $142.2 million. That increase was largely an adjustment for expected lifetime losses on older loans, specifically the 2022 and 2023 loan vintages. That's a clear signal of deteriorating consumer financial health.

Operational and Market Headwinds

On the retail side, the high fixed costs of running a national network of stores and customer experience centers are a major vulnerability when sales volume declines. This is what we call operating leverage working against you, or 'deleverage.' For Q2 FY2026, Selling, General, and Administrative (SG&A) expenses jumped to 83.8% of gross profit. That's a huge burden. Plus, total net sales and operating revenues for the quarter fell 6.0% year-over-year to $6.59 billion, missing analyst expectations. Simply put, the costs didn't fall nearly as fast as the profit dollars did.

External competition is also a constant factor. While CarMax sold 789,050 used vehicles at retail during the full Fiscal Year 2025 (ended February 28, 2025), it faces intense competition for inventory from online players like Carvana and traditional dealers. These competitors are also leveraging technology to acquire cars directly from consumers, making sourcing profitable used cars a defintely tough operational challenge.

• Macro Risk: Elevated interest rates dampen used car affordability.
• Credit Risk: Loan loss provisions rose to $142.2 million in Q2 FY26.
• Volume Risk: Retail used unit sales decreased 5.4% in Q2 FY26.
• Legal Risk: Class action lawsuit filed in November 2025 alleging securities fraud.

Mitigation and Forward Action

Management is not sitting still; they are taking clear, aggressive action to manage these risks. The strategic response focuses on cost efficiency and de-risking the finance arm. To combat the SG&A deleverage, CarMax announced plans for at least $150 million in incremental SG&A reductions over the next 18 months. This involves leveraging AI technology and automating manual processes.

To address the credit risk, the company completed a non-prime asset-backed securitization (ABS) deal, effectively selling a pool of non-prime auto loans. This move is financial engineering at its best, designed to reduce the future earnings volatility that hit them so hard this quarter by eliminating the need for future loss provisions on that specific pool. This is a smart way to stabilize the financing division in a tightening credit market.

Here's a quick summary of the key financial risks and the company's mitigation response:

For a deeper dive into the valuation models and strategic frameworks, you should read the full blog post: Breaking Down CarMax, Inc. (KMX) Financial Health: Key Insights for Investors.

Growth Opportunities

You're looking for a clear path forward for CarMax, Inc. (KMX) beyond the recent market volatility, and the answer is simple: it's all about digital dominance and physical efficiency. The company's future growth is defintely anchored in its proprietary omnichannel platform-the ability for a customer to move seamlessly between online and in-store transactions-which reached a 67% penetration of retail unit sales in the fourth quarter of fiscal year 2025 (Q4 FY2025). This is the core growth driver, plus the financial strength of CarMax Auto Finance (CAF).

Key Growth Drivers: Digital, Data, and Distribution

CarMax, Inc. (KMX) is not just a used car dealer; it's a technology company that sells cars. The biggest driver is the continuous enhancement of their digital experience, using data science and artificial intelligence (AI) to improve everything from online appraisals to in-store order processing. This focus helps them capture more of the used vehicle market, which is a massive, fragmented space. Their physical expansion also continues, with plans for six new store openings and four standalone reconditioning and auction centers in fiscal year 2026, backed by approximately $575 million in capital expenditures. That's a serious commitment to long-term capacity.

• Digital: 67% omnichannel penetration in Q4 FY2025.
• Data: Using AI for knowledge management and customer experience.
• Distribution: Adding six new stores in fiscal year 2026.

Financial Projections and Earnings Outlook

While management aims for a strong rebound, the near-term outlook is a mixed bag, which is a trend-aware realist's view. CarMax, Inc. reported annual revenue of $28.21 billion for the full fiscal year 2025, which was essentially flat, down -0.02% year-over-year. However, the tailwinds are visible in the back half of the year: Q4 FY2025 net revenues were $6.0 billion, an increase of 6.7%, and diluted earnings per share (EPS) saw a massive jump of 81.3% to $0.58. Management is targeting double-digit EPS growth for fiscal year 2026, but some analysts are more cautious, projecting a forward 2-year EPS Compound Annual Growth Rate (CAGR) of (3.1%) as of November 2025. This shows the market is betting on operational efficiency gains, not just rapid top-line growth.

Strategic Edge and Financial Moat

The company's competitive advantage starts with its no-haggle pricing model, which has been a customer favorite since 1993. But the real financial moat is CarMax Auto Finance (CAF), their captive finance arm. CAF is a crucial, diversified revenue stream that financed 42.8% of all retail used vehicle unit sales in the first nine months of fiscal year 2025, providing a strong internal control over the customer financing experience and risk. For Q4 FY2025, CAF income was $159.3 million, an increase of 8.2%. They are also expanding their non-prime funding program, which gives them significant flexibility to grow their finance penetration across the full credit spectrum. We also shouldn't forget the 2021 acquisition of Edmunds, which continues to be leveraged to enhance digital capabilities and customer engagement, making the research and shopping experience more comprehensive. The integrated model is hard for competitors to replicate quickly. For a deeper look at who is investing in this strategy, check out Exploring CarMax, Inc. (KMX) Investor Profile: Who's Buying and Why?