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SEC filingQ2 FY26 revenue fell 6% YoY on lower used unit sales and margin pressure; net income dropped 28%.
In the second quarter of fiscal 2026, CarMax reported net sales of $6.59 billion, a 6.0% decline from the prior year, primarily driven by a 5.4% decrease in used unit sales and a 1.0% drop in average selling price. The sales decline was exacerbated by a pull-forward of demand into Q1 due to tariff speculation, which left the company with elevated inventory that subsequently depreciated by approximately $1,000 per unit in late May and June. In response, management lowered retail margins to clear inventory, resulting in a $53 sequential decline in used gross profit per unit from Q1 to $2,216. Total gross profit fell 5.6% to $717.7 million, with used vehicle gross profit down 7.6%. Wholesale vehicle gross profit was relatively flat, down 0.4%. SG&A expenses decreased 1.6% to $601.1 million, driven by a $9.7 million reduction in share-based compensation, but deleveraged 350 basis points as a percentage of gross profit. Net earnings dropped 28.2% to $95.4 million, and diluted EPS fell 24.7% to $0.64.
CarMax Sales Operations saw used vehicle revenues decline 7.2% to $5.27 billion, with comparable store used unit sales down 6.3%. Wholesale revenues slipped 0.4% to $1.15 billion on 2.2% fewer units. Other revenues decreased 4.2% to $174.4 million, primarily due to lower extended protection plan revenues tied to the retail unit decline. Used vehicle gross profit per unit was $2,216, down 2.3% year-over-year, while wholesale gross profit per unit improved 1.8% to $993. CAF income fell 11.2% to $102.6 million, as a $142.2 million provision for loan losses (up from $112.6 million) offset a higher interest margin (6.6% vs. 6.1%). CAF net penetration increased 60 basis points to 42.6%, but net loan originations decreased 5.6% to $2.04 billion due to lower used sales. The allowance for loan losses rose to 3.02% of ending loans held for investment from 2.82%, reflecting unfavorable loss performance on 2022-2023 vintages.
Management provided several forward-looking indicators. For Q3, they expect used vehicle gross profit per unit to be consistent with historical averages but down from the prior year's record, and wholesale gross profit per unit also historically strong but down. CAF income is expected to decline slightly year-over-year for fiscal 2026, with the provision for loan losses in Q3 expected to be less than $100 million. The company expects to achieve an annual SG&A-to-gross profit rate in the mid-70% range, supported by at least $150 million in SG&A expense reductions over the next 18 months, with most savings realized by the end of fiscal 2027. Marketing spend per total unit for the full year is expected to be in line with or slightly above fiscal 2025. Capital expenditures are planned at approximately $575 million, primarily for store and capacity expansion. A non-prime securitization completed in September 2025 is expected to contribute a $25-30 million gain in Q3 and an additional $40-45 million in servicing and retained interest income over the life of the transaction. The company also noted that it plans to accelerate share repurchases in fiscal 2026.
Only the CAF segment is detailed in the Notes. CarMax Sales Operations segment data is not provided. CAF's interest and fee income (proxy for revenue) was $489.8M for Q2, up 5.5% YoY. CAF income (operating profit) was $102.6M, down 11.2% YoY, driven by a higher provision for loan losses ($142.2M vs $112.6M) and increased direct expenses. Operating margin was 20.9%, down from 24.9% last year. No geographic breakdown is given.
The Notes reveal share repurchase activity: 2.9M shares were repurchased in Q2 at an average cost of $61.63, with $1.56B remaining under the board authorization as of August 31, 2025. No dividend, debt change, or capex details are disclosed in the Notes.
No purchase commitments, supply agreements, or similar obligations are reported in the Notes. The only contractual obligations mentioned are debt payments and lease liabilities, but those are part of the primary financials, not the Notes section.
Balance sheet figures (cash, debt, equity) are not restated in the Notes; only auto loans held for investment net ($16.39B) and allowance for loan losses ($507.3M) are detailed. No other balance sheet highlights are available from the Notes alone.
Operating cash flow (CFO) of $1,085M significantly exceeded net earnings of $305.8M, indicating strong cash generation relative to accrual income. The primary drivers were non-cash charges (depreciation, share-based comp, provisions) and a net working capital inflow of ~$366M (driven by a $785M decrease in inventory and a $613M increase in auto loans held for investment, offset by a $922M increase in auto loans held for sale and a $230M decrease in payables).
Capital expenditures of $268.2M represented 24.7% of CFO, a moderate reinvestment rate. Proceeds from disposals were negligible.
Share repurchases of $384.9M were 35.5% of CFO, indicating healthy coverage despite the increase from the prior year. No dividends were paid.
The large swing in auto loans held for sale (-$922M) reflects CAF's securitization activity; the net increase in auto loans held for investment ($613M) shows portfolio growth. The $230M decrease in payables and accrued expenses is a notable outflow. Overall, CFO quality is supported by strong working capital management.