Carvana (NYSE:CVNA) shares fell roughly 6% on Wednesday following a roughly 7% drop in CarMax (NYSE:KMX) stock after CarMax published first-quarter results that topped analysts' estimates but underscored cost and credit challenges.
CarMax reported first-quarter earnings per share of $1.31, versus the analyst consensus of $0.96. Revenue for the period came in at $8.0 billion, above the $7.39 billion that analysts had expected.
Despite the top-line and earnings beat, the report highlighted margin deterioration that contributed to selling pressure across used-car retailers. CarMax said its used retail gross profit per unit decreased to $2,177, a decline of $230 from the prior year’s first quarter.
CarMax Chief Financial Officer Enrique Mayor said the company’s short-term approach "requires some margin concession to support sales growth," signaling an intentional trade-off between gross margins and volume expansion.
The company also recorded an increase in average selling price, which rose by $1,168 per unit to $27,288. Mayor attributed that rise to higher acquisition costs in the market. At the same time, CarMax reported that used unit comparable store sales were down 0.8% year over year.
Operational issues were also highlighted. Chief Executive Officer Keith Barr noted that the business transfers more than 2 million vehicles a year internally but has "too many unproductive transfers," pointing to inefficiencies in how inventory moves across the enterprise.
On the financing front, Jon Daniels, senior vice president of CarMax Auto Finance, said consumers are "continuing to be pressured by overall inflation," and added that delinquency rates across credit cards and auto loans are higher. CarMax increased its Tier 2 credit penetration from 10% to 25% of volume in the quarter and recorded a $96 million loan loss provision.
The combination of margin compression, rising acquisition costs and heightened consumer credit risk in CarMax’s results prompted investors to reassess potential vulnerabilities at Carvana, a company with an overlapping used-vehicle and financing footprint, contributing to Carvana’s share decline.
Market reaction
Following CarMax’s release, CarMax shares slid about 7%, while Carvana shares dropped about 6% as investors weighed the possibility that similar headwinds could affect Carvana’s business model.
What CarMax reported (selected metrics)
- First-quarter EPS: $1.31 (vs. $0.96 estimate)
- Revenue: $8.0 billion (vs. $7.39 billion estimate)
- Used retail gross profit per unit: $2,177 (down $230 year over year)
- Average selling price: $27,288 (up $1,168 per unit)
- Used unit comparable store sales: down 0.8%
- Tier 2 penetration: increased from 10% to 25% of volume
- Loan loss provision: $96 million
Executive comments cited in the filing
"Requires some margin concession to support sales growth," said CFO Enrique Mayor.
CEO Keith Barr said the company has "too many unproductive transfers" despite moving over 2 million cars annually.
Jon Daniels of CarMax Auto Finance said consumers are "continuing to be pressured by overall inflation" and that delinquency rates are higher across categories.
The report left investors and market participants focused on whether CarMax’s cost, operational and credit exposures signal broader risks for other players in the used-car retail and auto finance sectors.