Revenue and profitability
- Revenue: $5.7939 billion, down 6.90% YoY; QoQ decline not disclosed in the provided data but implied by the quarterly commentary. YoY and QoQ declines reflect lower volumes and mix shifts toward older, higher-mileage inventory.
- Gross profit: $521.105 million; gross margin 8.99%. YoY gross profit down 23.10%; QoQ down 30.80%.
- Operating income: -$145.225 million; operating margin -2.50%. YoY change: -147.99%; QoQ: -195.59% (reflecting deleveraging and acquisition/marketing investments).
- EBITDA: $367.25 million; EBITDA margin 6.33%.
- Net income: $62.215 million; net margin 1.07%; EPS $0.43 (diluted).
- Key drivers of profitability: reductions in unit profitability due to volume declines, impact of depreciation on wholesale margins, and higher SG&A associated with marketing and CEO-transition costs.
Cash flow and balance sheet
- Net cash provided by operating activities: $1.253 billion.
- Free cash flow: $1.113 billion.
- Capital expenditures: $(139.758) million.
- Cash at end of period: approximately $0.913 billion (various data lines show around $205 million on the balance sheet, but reported end-of-period cash is $912.8 million; small discrepancy present in the data).
- Net income and cash conversions support a strong near-term cash generation profile, enabling ongoing buybacks and deleveraging opportunities, albeit with a high absolute debt level.
- Total assets: $25.56 billion; total liabilities: $19.50 billion; stockholders’ equity: $6.06 billion.
- Total debt: $16.676 billion; net debt: $16.471 billion; debt-to-equity approximately 2.7x.
Strategic and operating highlights
- SG&A and cost structure: Third-quarter SG&A expenses were $581 million, up 1% YoY, with commitments to reduce SG&A by at least $150 million on an exit-rate basis by end of FY2027. A ~30% reduction in CarMax Experience Center workforce was executed as a first step toward savings.
- Marketing and pricing: Management indicated margin reductions would be supported by increased marketing spend to narrow the price gap with the broader marketplace and improve retail demand. The cumulative impact will be monitored in Q4 and an outlook provided at the year-end call.
- CarMax Auto Finance (CAF): CAF income was $175 million, up 9% YoY, aided by gains on sale ($27 million) and servicing fees ($5 million) tied to a strategic deal (25 b). CAF penetration remained strong at 42.6% (net of three-day payoffs). The net interest margin was 6.2% (flat YoY, down from 6.6% last quarter) as higher margin receivables were removed from the balance sheet via 25 b.
- Inventory and turnover: Management highlighted ongoing efforts to optimize inventory mix, reduce WIP, and accelerate vehicle turns. Several regional reconditioning centers were rolled out (five centers; two open for about a year) to improve efficiency and reduce per-vehicle costs.
- Digital and omnichannel: The leadership transition emphasizes sharpening the digital shopping experience and aligning omnichannel capabilities with a more sales-focused digital voice, while continuing to leverage the brand’s physical footprint (250+ locations) to reach about 85% of the US population.
Outlook and guidance
- The company aims to reduce SG&A by at least $150 million by the end of FY2027 and has started with staff reductions in the customer experience centers. Marketing spend is expected to be higher on a per-unit basis in Q4, to support acquisition and sales momentum.
- Near-term profitability may remain under pressure due to cost coverage levers taken in the prior year and ongoing margin optimization efforts. Management expects the fourth quarter to exhibit continued service-margin headwinds and higher marketing costs.
- CAF growth remains a major driver, with ongoing expansion into full-spectrum lending and ancillary products (MaxCare and MaxCare Plus), with near-national rollout planned for 2027.
- The board is actively pursuing a permanent CEO to lead a broader strategic turnaround; governance is focused on restoring earnings power while protecting core assets.
Conclusion
- CarMax’s QQ3 2026 results reflect a transitional period with meaningful operational and strategic actions underway. While near-term profitability is under pressure from volume declines and investment in transformation, the balance sheet and cash generation are solid enough to fund the ongoing turnaround. Investors should monitor the execution of SG&A savings, the effectiveness of pricing and marketing actions in stabilizing unit velocity, CAF expansion and its impact on gross yields, and progress toward the $150 million SG&A exit-rate target by FY2027.