CarMax $KMX ( ▼ 0.6% ) shocked investors last week with a steep quarterly earnings miss, sending earnings per share down 25% (to $0.64 versus $1.04 expected by analysts), and raising questions about used car market stability heading into Q4.
First things first: The used car retailer reported a 6.3% decline in comp sales of vehicles in Q3 (when Wall Street expected 0.7% growth), and attributed the steep drop to depreciating used car values and aggressive competitive pricing.
The used vehicle market, which hit a Manheim Used Vehicle Value Index high of 208.5 in May, began depreciating toward the end of the summer.
More recently, the Manheim Index has mostly stabilized as supply thins out.
CarMax saw used car values drop by $1,000 per vehicle in a single month during the quarter, leaving its prices higher than competitors.
What they're saying: "For the quarter, each month was down year over year, and each month got a little weaker throughout the quarter," Bill Nash, President and CEO of CarMax, told investors on the company's quarterly call Thursday (via CNBC).
Bill Nash
"But certainly, we put ourselves in a better position with the start of this quarter, both on an inventory position as well as from a pricing standpoint,” he added."
Between the lines: The Q3 miss appears to stem largely from pull-forward demand, according to Dave Thomas, director of content marketing at CDK Global.
"CarMax may be a canary in the coal mine when it comes to Q3 sales," Thomas told Daily Dealer Live hosts Sam D'Arc and Uli de' Martino. "This Q4 is going to not be pretty until we kind of stabilize and recover from all that pulled forward demand."
Dave Thomas
OUTSMART THE CAR MARKET IN 5 MINUTES A WEEK
No-BS insights, built for car dealers. Free, fast, and trusted by 55,000+ car dealers.
Between the lines: Thomas noted that franchise dealers improving their used vehicle operations may have contributed to CarMax’s earnings stumble, likely prompting the national retailer to ramp up acquisitions.
Franchise dealers have been doing everything they can to build up used vehicle inventory over the past year, adding pressure on CarMax.
The retailer’s inventory challenges have been visible at its superstores, including one in Schaumburg, Illinois, which has shown gaps on its lot in recent months.
"Expect that machine they've built, in terms of acquisition, almost a gold standard that many franchise dealers kind of want to emulate," Thomas said. "They'll spin that back up as hard as they can."
The bottom line: The used car market is entering a volatile stretch where rapid depreciation, compressed margins, and pull-forward demand effects could reshape dealer strategies through year-end. Managing inventory velocity becomes critical when every car turns faster but costs more to replace.
A quick word from our partner
Reclaim Wrench Time with Pencilwrench.
You don’t hire technicians to be writers. Yet their pay — and your reimbursement — depend on clear, accurate, OEM-specific repair stories. Pencilwrench by StoneEagle makes it simple:
Guided, point-and-click workflows
OEM-specific cause-and-correction phrasing
Warranty and “Problem Not Found” claims supported
Recall documentation that stands up to review
Save time, prevent denials, and keep revenue flowing.
