CarMax Undergoes Leadership Transition Amidst Sales Decline and Margin Pressures
CarMax, a leading retailer in the used-car market, is currently undergoing a pivotal period, marked by significant leadership transitions and a reevaluation of its strategic direction. The company recently reported its third-quarter results for fiscal year 2025, which, despite surpassing some analyst expectations, highlighted a concerning downturn in sales volumes and persistent pressure on profit margins. This challenging financial landscape has prompted the appointment of an interim leadership team and a firm commitment to implementing substantial operational changes to restore growth and profitability.
In the third quarter of 2025, CarMax announced earnings per share of 43 cents, outperforming the consensus analyst estimate of 39 cents. Adjusted earnings, excluding restructuring charges, reached 51 cents per share. Quarterly sales totaled $5.794 billion, exceeding the Street's projection of $5.678 billion, despite representing a 6.9% decrease from the previous year. However, selling, general, and administrative (SG&A) expenses saw a modest 1.0% year-over-year increase, reaching $581.4 million.
Effective December 1, 2025, CarMax initiated major leadership shifts. David McCreight, a sitting board member, assumed the role of Interim President and CEO, while Tom Folliard, the Board Chair, became Interim Executive Chair. This interim leadership is tasked with steering the company through its current challenges as the Board actively searches for a permanent CEO. McCreight acknowledged the company's strong foundational assets, including its extensive physical and digital infrastructure and brand recognition, but stressed that recent performance necessitates strategic overhauls.
Performance across key segments reflected the broader decline. Combined retail and wholesale used vehicle unit sales fell by 7.2% year-over-year, totaling 297,160 units. Specifically, retail used vehicle unit sales dropped 8% to 169,557, with comparable store sales experiencing a 9% decline. Wholesale vehicle unit sales also decreased by 6.2% to 127,603 units, largely due to significant market depreciation. Overall, retail used vehicle revenues dipped 7%, and wholesale revenues saw a 6.3% reduction. Other revenue streams also contracted by 9.2%, amounting to a $15.2 million loss, primarily from a decrease in Extended Protection Plan (EPP) revenues.
The company's total gross profit for the third quarter stood at $590.0 million, a 12.9% reduction compared to the same period last year. Despite the overall decline, unit margins remained robust, with a gross profit of $2,235 per retail used unit and $899 per wholesale unit. CarMax also continued its expansion, opening two new store locations in Tulalip, Washington, and Rogers, Arkansas, during the quarter. Furthermore, the company engaged in share repurchases, buying back 4.6 million shares for $201.6 million, leaving $1.36 billion available under its current authorization as of November 30, 2025. Cash and cash equivalents were reported at $204.9 million.
Looking ahead, CarMax is focused on improving its financial health and market position. The company plans to reduce SG&A expenses by at least $150 million by fiscal year 2027, with initial steps taken in the current quarter. To stimulate sales, CarMax intends to lower retail used unit margins to enhance price competitiveness and increase marketing investment per unit for customer acquisition, though at a more moderate pace than in the third quarter. The interim leadership is committed to foundational changes that will prepare the company for sustainable success under its future permanent leadership, addressing the market's evolving demands and competitive pressures.