2025 saw the company is struggling with sales growth, management mistakes like buying used cars at the wrong time, etc resulted in the CEO being replaced by the 3Q, Dec 2025.
For 2026, carmax listed their priorities are:
- Find a permanent CEO
- Increase unit sales by sacrificing unit level margin
- Fix their digital strategy
- Fine-tune CAF (carmax finance)
The challenges I see are:
- $KMX has only 2% used market share; So they can gain market share even with heavy competition (read it as carvana price pressures)
- How much gross margin hit $KMX can take?
- Can $KMX reduce SGA by leveraging digital strategy, this is important to mitigate the hit on gross margin
- The move to older used vehicles and subprime are desperate moves to increase the sales; But they carry significant risks;
- The immigration drive by the administration is creating significant risks to the subprime and older used vehicles market
- If there is any credit hiccup, the ABS market will freeze and that will be a big risk for subprime loans; IF ABS market freezes $KMX will face significant write-off; or hit to the sales; Remember the first set of companies to get hit during GFC were subprime used car lenders and sellers.
- The used car prices are stubbornly high and affordability is hurting the sales
- Lastly, they can genuinely claim weather for 4Q; We are already seeing this on nationwide sales numbers;
- Even though the stock has recovered more than 50% from the post 3Q decline to $30 on Nov-06th, the price is vulnerable at here.
I have been following up this name and had some exposure hoping for a turnaround. This is a classical example of turnarounds take more time, and could potentially the story getting further bad. This doesn’t mean $KMX is going to go away, but there is no clear path for better days either.