Buy Or Sell CarMax Stock Ahead Of Q1 Earnings?

CarMax (NYSE:KMX), the nation's largest used car retailer, is set to release its first-quarter fiscal year 2026 financial results on Friday, June 20th, before the market open. This earnings report is highly anticipated by investors and analysts alike, as it will provide crucial insights into the health of the used car market and CarMax's performance within it amidst evolving economic conditions.

Market expectations for CarMax's Q1 FY'26 performance are generally positive, reflecting a projected rebound compared to the previous year. According to consensus analyst estimates, revenue for the quarter is anticipated to reach approximately $7.56 billion. This forecast represents a notable increase of roughly 6% when compared to the $7.13 billion reported in the first quarter of fiscal year 2025. This expected revenue growth suggests a potential stabilization or improvement in sales volume and average selling prices, a key metric for the used car industry.

On the profitability front, analysts are forecasting adjusted earnings per share (EPS) of around $1.19 for the upcoming quarter. This would mark a significant improvement from the $0.97 per share earned in the same period last year, representing a year-over-year increase of approximately 23%. The projected rise in EPS indicates potential improvements in operational efficiency, cost management, or potentially higher margins on vehicle sales.

The used car market has faced a period of volatility over the past couple of years, influenced by factors such as fluctuating vehicle supply, changing consumer demand, interest rate hikes impacting financing costs, and broader economic uncertainty. CarMax's Q1 results will offer a clearer picture of how the company is navigating these dynamics and whether the anticipated improvements in revenue and earnings are sustainable.

Investors will be closely watching several key metrics beyond the headline numbers. These include comparable store sales growth, gross profit per vehicle, selling, general, and administrative (SG&A) expenses, and the performance of CarMax Auto Finance (CAF), the company's in-house financing arm. The health of CAF is particularly important, as it provides a significant portion of CarMax's financing and contributes to its overall profitability. Any changes in loan originations, credit quality, or loss provisions will be scrutinized.

Management commentary during the earnings call will also be critical. Investors will be listening for insights into current market conditions, inventory levels, pricing strategies, initiatives to drive sales and efficiency, and forward-looking guidance for the remainder of fiscal year 2026. Any commentary on consumer financing trends and the impact of interest rates will be particularly relevant.

Investment Considerations Ahead of Earnings:

• Bull Case: If CarMax beats analyst expectations on both revenue and EPS, and provides optimistic guidance, it could signal a stronger-than-anticipated recovery in the used car market and effective execution by the company. This could lead to positive stock price movement.
• Bear Case: Conversely, if CarMax misses estimates, reports weak comparable store sales, or provides cautious guidance, it could indicate ongoing challenges in the market or company-specific issues. This could pressure the stock price.
• Market Sentiment: The broader economic outlook and consumer confidence will also play a role. A strengthening economy and stable interest rates could be tailwinds for CarMax, while a slowdown or rising rates could be headwinds.

Given the potential for significant price swings around earnings announcements, investors should carefully consider their risk tolerance and investment horizon before buying or selling CarMax stock. The earnings report on June 20th will provide essential data points for evaluating the company's current performance and future prospects.