Used automotive vehicle retailer Carmax (NYSE: KMX) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 6.1% year on year to $7.55 billion. Its GAAP profit of $1.38 per share was 18.3% above analysts’ consensus estimates.
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CarMax (KMX) Q2 CY2025 Highlights:
- Revenue: $7.55 billion vs analyst estimates of $7.57 billion (6.1% year-on-year growth, in line)
- EPS (GAAP): $1.38 vs analyst estimates of $1.17 (18.3% beat)
- Adjusted EBITDA: $300.1 million vs analyst estimates of $359.2 million (4% margin, 16.5% miss)
- Operating Margin: 3.1%, in line with the same quarter last year
- Free Cash Flow was $144 million, up from -$221.6 million in the same quarter last year
- Locations: 250 at quarter end, up from 245 in the same quarter last year
- Same-Store Sales rose 6.6% year on year (-6.1% in the same quarter last year, beat vs expectations of up 6.3%)
- Market Capitalization: $9.8 billion
“We delivered our fourth consecutive quarter of positive retail comps and double-digit year-over-year earnings per share growth. These results highlight the strength of our earnings growth model, which is underpinned by our best-in-class omni-channel experience, the diversity of our business, and our sharp focus on execution,” said Bill Nash, president and chief executive officer.
Company Overview
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $26.79 billion in revenue over the past 12 months, CarMax is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth. For CarMax to boost its sales, it likely needs to adjust its prices or lean into foreign markets.
As you can see below, CarMax’s sales grew at a tepid 6.1% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts).
This quarter, CarMax grew its revenue by 6.1% year on year, and its $7.55 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, a slight deceleration versus the last six years. We still think its growth trajectory is satisfactory given its scale and suggests the market is baking in success for its products.
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Store Performance
Number of Stores
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
CarMax sported 250 locations in the latest quarter. Over the last two years, it has opened new stores quickly, averaging 2.6% annual growth. This was faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Same-Store Sales
A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
CarMax’s demand has been shrinking over the last two years as its same-store sales have averaged 2% annual declines. This performance is concerning - it shows CarMax artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, CarMax’s same-store sales rose 6.6% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.
Key Takeaways from CarMax’s Q2 Results
We enjoyed seeing CarMax beat analysts’ same-store sales and gross margin expectations this quarter. This led to nice EPS outperformance versus Wall Street’s estimates. Overall, this was a solid quarter. The stock traded up 9.3% to $70.30 immediately after reporting.
Is CarMax an attractive investment opportunity at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
