CarMax (NYSE: KMX) reported Q2 FY2027 revenue of $7.88 billion, up 19.5% from $6.59 billion, while diluted EPS increased 81.3% to $1.16 from $0.64. Higher vehicle volumes, SG&A leverage, and a 32.1% increase in CarMax Auto Finance income more than offset lower gross profit per vehicle and an 80-basis-point contraction in gross margin.

Core Earnings Data

Revenue growth reflected both higher sales volumes and higher average selling prices. Combined retail and wholesale unit sales increased 14.7%, while average retail and wholesale selling prices rose 6.3% and 1.8%, respectively.

Gross profit increased more slowly than revenue because CarMax continued pricing actions intended to support retail sales, while wholesale gross profit per unit also declined. Even so, expense leverage and stronger finance income helped net earnings grow substantially faster than gross profit.

Business and Segment Performance

Retail used-vehicle revenue increased 19.7% to $6.31 billion. Unit sales rose 13.8% to 227,391, comparable-store used unit sales increased 13.0%, and the average selling price advanced 6.3% to $27,623. Retail gross profit grew by a slower 8.1% to $478.6 million because gross profit per unit declined by $111 to $2,105, reflecting CarMax’s pricing actions.

Wholesale revenue rose 18.2% to $1.36 billion as units increased 15.9% to 160,344 and the average selling price rose 1.8% to $8,036. Wholesale gross profit was nearly flat at $137.6 million because gross profit per unit fell by $135 to $858, offsetting the benefit of higher volume.

Other gross profit increased 33.1% to $183.3 million. Extended Protection Plan revenue rose 23.0% to $141.6 million, while EPP margin per retail unit increased by $46 to $623. Service margin improved by $22.0 million, primarily due to cost efficiencies and leverage from higher unit volume.

Digital capabilities supported 81% of retail unit sales, including 68% classified as omni-channel sales and 13% completed fully online. CarMax purchased 310,107 vehicles, up 5.9%; purchases from consumers were flat at 262,570, while dealer purchases rose 53.7% to 47,537.

Lower Vehicle Unit Margins Were Offset by SG&A Leverage and CAF

SG&A increased only 4.6% despite the 14.7% rise in total units. SG&A per unit declined 8.8% to $1,621, and SG&A as a percentage of revenue fell to 8.0% from 9.1%. Variable costs associated with higher sales and the normalization of incentive compensation partly offset savings from reduced field and corporate payroll.

CarMax Auto Finance income increased 32.1%, primarily because the loan-loss provision declined by $28.8 million to $113.4 million. CAF also recorded a $16.6 million gain from selling auto loans and $6.1 million in servicing income. These benefits were partly offset by a $1.2 billion year-over-year reduction in outstanding receivables and additional provisioning associated with Tier 2 originations.

CAF’s interest margin remained at 6.6% of average auto loans outstanding. Its net financing penetration declined to 40.9% from 42.6%, but CAF financed 22% of Tier 2 volume as CarMax expanded across the credit spectrum. The allowance for loan losses was $497.3 million, equal to 3.07% of loans held for investment, compared with 2.95% at the end of the preceding quarter.

Other income also increased to $18.6 million from $3.6 million, mainly due to unrealized gains on equity investments. In addition, a 4.8% reduction in diluted weighted average shares helped EPS grow faster than net earnings, although CarMax did not repurchase shares during the quarter.

Guidance

CarMax reiterated that it remains on track to achieve its existing SG&A reduction target. This target is measured as an exit-rate saving rather than a reduction in reported quarterly expenses.

Separately, CarMax plans to resume share repurchases at a modest level during Q3 FY2027. It had $1.31 billion remaining under its authorization as of August 31, 2026, but did not specify a repurchase amount and said activity would depend on leverage, capital needs, and market conditions.

Management Perspective

Management attributed the quarter’s improvement to early progress under its “Shift into GEAR” strategy. The four priorities are maintaining competitive vehicle pricing and available inventory, better connecting digital and in-store experiences, increasing profitability from CAF and EPP, and reducing reconditioning, logistics, and SG&A costs.

CarMax plans to provide more detail on its growth strategy, initiatives, and milestones during a virtual strategic update on November 3, 2026.

Risks Investors Should Monitor

• Vehicle margin pressure: Retail and wholesale gross profit per unit declined despite higher sales. Continued pricing actions could support volume while limiting gross-margin recovery.
• Credit expansion and loss reserves: CAF’s expansion into Tier 2 financing creates additional provisioning requirements, while the allowance ratio increased sequentially to 3.07%.
• CAF earnings composition: The quarter benefited from a lower loan-loss provision and a $16.6 million loan-sale gain, even as average auto loans outstanding declined year over year.
• Inventory sourcing: Vehicle purchases grew 5.9%, below the 14.7% increase in combined unit sales, and consumer purchases were flat. Dealer sourcing accounted for the increase in acquired vehicles.
• Cost-reduction execution: Achieving the $200 million exit-rate savings target while handling higher sales volumes is important to sustaining SG&A leverage.

Summary

CarMax’s Q2 FY2027 results combined double-digit retail and wholesale volume growth with substantially improved expense leverage and higher CAF income. The main trade-off was weaker gross profit per vehicle, which caused gross profit growth to trail revenue growth. Future results will depend on whether CarMax can preserve sales momentum while stabilizing unit economics, managing credit risk, and delivering its fiscal 2027 cost-reduction target.

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