10-K: CarMax Reports Fiscal Year 2025 Results, Navigates Competitive Landscape

CarMax's fiscal year 2025 saw a slight revenue decrease but improved gross profit, strategic investments in omni-channel platform, and focus on operational efficiencies.

Summary

• CarMax's net sales and operating revenues decreased slightly by 0.7% to $26.35 billion in fiscal 2025.
• Used unit sales increased by 3.1%, while wholesale unit sales decreased by 0.4%.
• Gross profit increased by 6.8% to $2.89 billion, driven by improvements in used vehicle and other gross profit categories.
• CAF income increased by 2.4% to $581.7 million.
• SG&A expenses increased by 6.5%, but excluding a prior-year legal settlement, SG&A leveraged by 270 basis points due to gross profit growth and expense efficiencies.
• Net earnings increased by 4.5% to $500.6 million, with diluted net earnings per share increasing by 6.3% to $3.21.
• The company is focused on its omni-channel platform, aiming for cost neutrality in fiscal 2026, and expects to open six new stores and four reconditioning/auction centers in fiscal 2026.
• CarMax estimates capital expenditures of approximately $575 million in fiscal 2026.
• The company aims for high-teens EPS CAGR with mid-single-digit used unit growth.
• CarMax estimates it sold approximately 3.7% of the age 0to 10-year old vehicles sold on a nationwide basis in calendar 2024, consistent with calendar 2023.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there are positive aspects such as increased gross profit and CAF income, there are also negative aspects such as decreased revenue and wholesale unit sales. The company is making strategic investments and focusing on operational efficiencies, but there are also risks and uncertainties related to economic conditions and competition.

Positives

• Gross profit increased by 6.8% to $2.89 billion, driven by improvements in used vehicle and other gross profit categories.
• CAF income increased by 2.4% to $581.7 million.
• Net earnings increased by 4.5% to $500.6 million, with diluted net earnings per share increasing by 6.3% to $3.21.
• The company is focused on its omni-channel platform, aiming for cost neutrality in fiscal 2026.
• CarMax is implementing cost coverage measures that have improved service department margins.
• The company is expanding CAFs participation across the credit spectrum to grow penetration and capture profitable returns.

Negatives

• Net sales and operating revenues decreased slightly by 0.7% to $26.35 billion in fiscal 2025.
• Wholesale unit sales decreased by 0.4%.
• SG&A expenses increased by 6.5%, although this was offset by a prior-year legal settlement.
• The average retail selling price of used vehicles decreased by 2.8%.

Risks

• The automotive retail industry and CarMax's business are sensitive to economic conditions, which could adversely affect the company's business, sales, results of operations, and financial condition.
• Changes in capital and credit markets could adversely affect CarMax's business, sales, results of operations, and financial condition.
• Failure to maintain a reputation of integrity and to otherwise maintain and enhance the CarMax brand could adversely affect the company's business, sales, and results of operations.
• The business is sensitive to changes in the prices of new and used vehicles, and any significant changes in retail prices could have a material adverse effect on sales and results of operations.
• CarMax's business is dependent upon access to vehicle inventory and the parts used to recondition such inventory, and a failure to expeditiously liquidate that inventory could have a material adverse effect on the company's business, sales, and results of operations.
• Failure to realize the benefits associated with the omni-channel platform or initiatives designed to leverage evolving technologies, including AI, could have a material adverse effect on the company's business, sales, and results of operations.
• CarMax may experience greater credit losses in CAFs portfolio of auto loans receivable than anticipated.
• The company relies on third-party finance providers to finance a significant portion of its customers' vehicle purchases, and its sales and results of operations are partially dependent on the actions of these third parties.
• CarMax is subject to evolving regulations, disclosure requirements, standards and expectations relating to environmental, social and governance matters, and failure to satisfy these could adversely affect the business.
• The company collects sensitive confidential information from its customers, and a breach of this confidentiality, whether due to a cybersecurity or other incident, could result in harm to its customers and damage to the brand.

Future Outlook

CarMax is focused on its omni-channel platform, aiming for cost neutrality in fiscal 2026, and expects to open six new stores and four reconditioning/auction centers in fiscal 2026. The company estimates capital expenditures of approximately $575 million in fiscal 2026 and aims for high-teens EPS CAGR with mid-single-digit used unit growth.

Management Comments

• The associate and customer facing tools we launched during fiscal 2025 are supporting our results and enable us to provide the most customer centric car buying and selling experience.
• We achieved savings of approximately $125 per unit in fiscal 2025 and anticipate that we will achieve another $125 per unit in fiscal 2026.
• We have positioned the company to achieve gains in retail and wholesale unit sales and market share, with double-digit EPS growth for years to come.

Industry Context

The U.S. used car marketplace is highly fragmented and competitive, with CarMax facing competition from franchised dealers, online platforms, independent dealers, and private parties. The company is adapting to the increasing demand for EVs and evolving technologies in the automotive industry.

Comparison to Industry Standards

• CarMax estimates it sold approximately 3.7% of the age 0to 10-year old vehicles sold on a nationwide basis in calendar 2024, consistent with calendar 2023.
• CAF operates in the auto finance sector of the consumer finance market, which represented approximately $1.7 trillion in outstanding receivables as of December 31, 2024.

Legal Proceedings

• CarMax is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan, Ford and Volkswagen related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2019.

Stakeholder Impact

• Shareholders: The company aims for high-teens EPS CAGR with mid-single-digit used unit growth and is returning excess capital to shareholders through share repurchases.
• Employees: The company is investing in talent acquisition, engagement, and development activities, and offers a comprehensive safety and security program.
• Customers: The company is focused on delivering a customer-driven, omni-channel buying and selling experience and improving efficiency in stores and CECs as well as logistics and reconditioning operations to reduce waste.
• Creditors: The company is managing leverage based on a number of factors, including internal financial forecasts, consideration of CAFs operational and capital needs, external peer benchmarking, requirements of debt agreements and macroeconomic conditions.

Next Steps

• Open six new stores and four stand-alone reconditioning/auction centers in fiscal 2026.
• Continue expanding CAFs participation across the credit spectrum to grow penetration and capture profitable returns.
• Continue leveraging data science and AI to offer even better digital experiences for associates and consumers, driving conversion and efficiency.
• Launch a new marketing campaign that will bring our best-in-class omni-channel experience to the forefront for the consumer.
• Streamline the online appraisal checkout process, expand appraisal pick-up availability to new markets and further enhance MaxOffer to attract new dealers, expanding our access to directly sourced vehicles.

Key Dates

Keywords

CarMax, used vehicles, auto finance, omni-channel, retail, wholesale, market share, financial results, earnings, inventory, credit, financing, securitization