$KMX · CARMAX INC

CarMax filed its 10-Q for Q2 FY2027 (ended August 31, 2026), reporting net sales and operating revenues of $7.878B, up 19.5% YoY. Used vehicle unit sales rose 13.8% to 227,391, and wholesale units increased 15.9%. Net earnings were $165.3M, or $1.16 diluted EPS, compared to $95.4M ($0.64) in the prior-year quarter. Gross margin contracted to 10.1% from 10.9%, driven by higher used vehicle cost of sales.

Stock down 4.37% to $56.64 in regular trading, reflecting concern over the 80 bps gross margin compression despite strong top-line growth. The margin erosion in the core used-vehicle business is outweighing the revenue beat.

The 80 bps gross margin decline at the nation's largest used-vehicle retailer signals that volume growth is coming at the expense of per-unit profitability — a tradeoff investors are punishing.

CarMax's 10.1% gross margin trails the 10.9% from a year ago, reflecting the same used-vehicle pricing and affordability headwinds pressuring peers like Carvana and traditional franchised dealers. The 19.5% revenue surge suggests market-share gains even as per-unit economics weaken.

Gross margin compression is the central risk: used vehicle cost of sales rose to 74.0% of revenue from 73.2%, squeezing per-unit profitability even as volumes grew 13.8%. Rising interest expense (+12% YoY for the quarter) and a $209M six-month loan-loss provision signal credit cost pressure in the $