CarMax (KMX, Financial) experienced a significant drop of 20% after concluding FY25 with disappointing results. The largest used auto retailer in the U.S. missed Q4 EPS expectations, following a strong Q3 performance. Despite a $0.06 non-cash lease impairment from Edmunds affecting Q4, the miss persisted even without it. CarMax has removed timeframes for its long-term goals due to macroeconomic factors, causing concern among investors.

Key Financial Highlights:

• Revenue increased by 6.7% year-over-year to $6.00 billion, aligning with expectations. Retail revenue grew by 7.5% year-over-year, driven by a 6.2% increase in unit sales to 182,655, with a same-store sales comp of +5.1%, up from +4.3% in Q3.
• Wholesale revenue rose by 3.5% year-over-year, primarily due to increased wholesale unit sales.

CarMax noted strong comp trends in December and January, but a slight dip in February was expected due to Leap Day last year and possible delays in tax refunds. However, March showed improved comps, with acceleration into early April, suggesting high single-digit growth for Q1 (May).

Despite market share pressure in 1H24, CarMax regained momentum in 2H24, especially with 0 to 4-year-old vehicles. Industry data shows continued market share growth year-over-year in January 2025, and CarMax remains optimistic about further gains in 2025 and beyond.

Regarding tariffs, CarMax indicated that higher new car prices due to tariffs could widen the price gap between new and late-model used cars, benefiting CarMax. This dynamic may explain the recent rise in comps for March and April, as customers show increased interest in used cars. Although President Trump paused many tariffs, the 25% tariff on automotive imports remains, potentially boosting used car demand and prices.

The EPS miss and removal of strategic goal timeframes have unsettled investors, contributing to the stock's decline. Broader market weakness and profit-taking may also be impacting CarMax's stock performance. However, positive commentary on March/April comps and potential benefits from tariffs suggest a promising outlook for CarMax.