CarMax Inc (KMX): CarMax’s F2Q27 earnings beat supports UBS’s view that its turnaround is taking hold

Overview

UBS’s earnings review argues that CarMax’s F2Q27 results were sufficiently strong to reinforce an emerging turnaround, led by used-vehicle unit growth and better cost leverage. The report expects a favorable immediate market response but maintains a Neutral rating because the stated target offers limited forecast price appreciation.

Core views

UBS argues that CarMax’s F2Q27 print should be well received because the operational evidence supports a turnaround. Retail used-vehicle units increased 13.8%, while comparable-store used-unit sales rose 13.0%, compared with consensus expectations of 5.1%. Retail used units totaled 227,391 vehicles, above 210,700 consensus and 199,729 a year earlier. UBS notes that this reacceleration addressed concern that stronger volumes or price cuts could cause a gross-profit-per-unit miss: retail GPU was US$2,105, above the US$2,041 consensus estimate, although US$111 per unit below the prior year. The revenue and earnings outcome materially exceeded consensus. Net sales and operating revenue were about US$7.9bn, up 19.5% year on year, versus approximately US$6.9bn consensus. Used-vehicle sales reached about US$6.31bn, up 19.7%, compared with US$5.58bn consensus; wholesale vehicle sales were about US$1.36bn, up 18.2%, versus US$1.19bn consensus; and other sales were about US$208.4m, up 19.5%, versus US$184.2m consensus. EPS was US$1.16, above US$0.73 consensus and US$0.64 in the prior year. Used-vehicle gross profit was US$478.6m, up 8.1% year on year and above US$429.9m consensus, while wholesale gross profit of US$137.6m was roughly flat year on year and slightly below US$140.6m consensus; wholesale GPU was US$858 versus US$974 consensus. Cost performance was another major driver of the beat. SG&A increased 4.6% to US$628.6m, but SG&A as a share of gross profit was 78.6%, better than the 86.2% consensus estimate. SG&A per total unit fell US$157 year on year, or 8.8%, to US$1,621. UBS attributes the reported SG&A increase partly to lower annualized incentive-based compensation and variable costs associated with strong unit growth, while noting that CarMax remains on track for US$200m of exit-rate SG&A savings by the end of FY2027. CarMax Auto Finance income was US$135.6m, up 32.1% year on year and modestly above the US$131.6m consensus expectation. UBS cautions that the result benefited from a US$16.6m gain on loan sale that it believes was not embedded in consensus. The company also intends to resume share repurchases in F3Q26 at a modest level and will hold an investor update on its turnaround plan on 3 November. UBS seeks management commentary on market conditions and the consumer, while identifying investor appetite for consumer- and rate-sensitive names as a potential near-term overhang. UBS values KMX using P/E and retains a Neutral 12-month rating with a US$57 price target, versus US$56.55 on 28 September 2026. The report shows forecast price appreciation of 0.8%, no dividend yield, and a 0.8% forecast stock return, below its 9.9% market return assumption.

Analysis framework

UBS compares reported quarterly operating and financial metrics with consensus expectations, focusing on retail unit volumes, gross profit per unit, revenue, SG&A efficiency and auto-finance income. It then evaluates whether the results support the company’s turnaround and applies a P/E-based valuation to its 12-month rating and price target.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  P/E valuation

  UBS states that it values KMX using P/E, relating the share price to expected earnings when setting its rating and price target.

• Industry AnalysisVolume-price decomposition

  Unit-volume and gross-profit-per-unit analysis

  The report separates used-vehicle performance into unit growth and GPU to assess whether higher volumes are being achieved without an unexpected deterioration in profitability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CarMax Inc (KMX.US)

  Primary covered company; UBS sees the F2Q27 beat as supportive of a turnaround.

  Strengths

  Retail used-unit growth, revenue outperformance, retail GPU above consensus and SG&A leverage.

  Weaknesses

  Wholesale GPU was below consensus, and CAF income included a US$16.6m loan-sale gain.

  Comparison

  EPS of US$1.16 versus US$0.73 consensus; comparable-store used-unit growth of 13.0% versus 5.1% consensus.

  Risks

  Cyclical vehicle demand, competitive pressure, adverse vehicle pricing, negative equity, weak consumer demand and higher oil prices.

Key data

• F2Q27 EPSUS$1.16Versus US$0.73 consensus and US$0.64 a year earlier.
• Net sales and operating revenue~US$7.9bn+19.5% year on year versus ~US$6.9bn consensus.
• Retail used-vehicle units227,391 vehiclesVersus 210.7k consensus and 199,729 a year earlier; retail units were +13.8%.
• Comparable-store used-unit sales+13.0%Versus +5.1% consensus.
• Retail used GPUUS$2,105Versus US$2,041 consensus and down US$111 per unit year on year.
• SG&A to gross profit78.6%Versus 86.2% consensus.
• CAF incomeUS$135.6m+32.1% year on year versus US$131.6m consensus; aided by a US$16.6m loan-sale gain.

Impact & implications

UBS views the broad earnings beat, strong retail volume growth and improved cost leverage as evidence that CarMax’s turnaround is becoming more established. The report nevertheless retains a Neutral rating because its US$57 target is only modestly above the stated share price.

Risks

• The automotive industry is cyclical and economic conditions could weaken vehicle demand.
• Competition and potential share losses at key customers could impair results.
• New- and used-vehicle pricing could be weaker than UBS expects, reducing sales and gross profit per unit.
• Rising negative equity could pressure vehicle financing and consumer demand.
• A weak consumer could defer durable-goods purchases.
• Higher oil prices could reduce automotive demand.

What to watch

• Management’s commentary on market conditions and the consumer during the earnings call.
• CarMax’s investor update on its turnaround plan scheduled for 3 November.
• Progress toward US$200m of exit-rate SG&A savings by the end of FY2027.
• The scale and execution of planned modest share repurchases in F3Q26.
• Investor appetite for consumer- and rate-sensitive stocks.