CarMax Q2 FY2027: Strong Unit Growth, but What Is Happening to Vehicle Margins?

CarMax Q2 FY2027: Strong Unit Growth, but What Is Happening to Vehicle Margins?

CarMax reported a strong fiscal Q2 2027, ended August 31, 2026, with a clear rebound in unit volumes and a sharp improvement in earnings versus the prior-year quarter. Revenue rose to $7,877.9 million, net earnings increased to $165.3 million, and diluted EPS reached $1.16. The main issue within the quarter was margin mix rather than demand: used and wholesale unit sales grew strongly, but both used vehicle gross profit per unit and wholesale gross profit per unit declined year on year. 33

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Volume growth was the main driver of the quarter

Used unit sales increased 13.8% year on year to 227,391 vehicles in fiscal Q2 2027, while comparable-store used unit sales rose 13.0%. Wholesale unit sales also strengthened, increasing 15.9% to 160,344 vehicles. This compares with fiscal Q2 2026, when used unit sales declined 5.4%, comparable-store used unit sales fell 6.3%, and wholesale unit sales decreased 2.2%.3

The first-half trend was also positive. For the six months ended August 31, 2026, used unit sales rose 6.5% to 457,684 and wholesale unit sales increased 12.0% to 322,408. 3

Inventory sourcing supported the higher sales volumes. Total vehicle purchases increased 5.9% to 310,107 units in fiscal Q2 2027. Within that total, vehicles purchased from consumers were broadly flat at 262,570 units, up 0.2%, while vehicles purchased from dealers rose 53.7% to 47,537 units. 3

Vehicle margins weakened despite higher gross profit dollars

The central question in the quarter is the decline in per-unit vehicle profitability. Used gross profit per unit fell 5.0% year on year to $2,105 in fiscal Q2 2027 from $2,216 in fiscal Q2 2026. Wholesale gross profit per unit declined 13.6% to $858 from $993. 33

This indicates that gross profit growth came primarily from higher sales volumes rather than stronger margin per vehicle. Gross profit increased 11.4% to $799.5 million in fiscal Q2 2027, while revenue grew faster at 19.5%. 3

The first-half figures show the same pattern. For the six months ended August 31, 2026, used gross profit per unit was $2,141, down 7.6%, while wholesale gross profit per unit was $953, down 6.7%. 3

The reported figures therefore point to a volume-led recovery with lower per-unit economics in both retail and wholesale.

Expense leverage and CAF income offset weaker vehicle margins

Although vehicle margins narrowed, earnings improved strongly because operating costs grew more slowly than sales and CAF income increased materially. Selling, general and administrative expenses rose 4.6% to $628.6 million in fiscal Q2 2027, well below the increase in revenue and gross profit. SG&A per total unit declined 8.8% to $1,621. 3

CAF income increased 32.1% year on year to $135.6 million in fiscal Q2 2027 from $102.6 million in fiscal Q2 2026. For the first six months of fiscal 2027, CAF income rose 12.9% to $275.8 million. 3

CarMax states that it began a measured expansion in fiscal 2026 as part of its plan to increase CAF penetration to 50%, including recapturing profitable Tier 1 originations previously shifted to Tier 2 lenders and testing expanded lending in Tier 2. The company also states that each additional percentage point of CAF penetration is expected to generate $10 million to $12 million in lifetime pre-tax income per year of origination, net of the impact to finance partner participation fees. 26

These factors supported a strong bottom-line outcome. Net earnings increased 73.3% to $165.3 million and diluted EPS rose 81.3% to $1.16 in fiscal Q2 2027. 3

Financing flexibility remains an important part of the earnings model

In the prior-year filing, CarMax disclosed that as of August 31, 2025, it had identified $921.9 million of non-prime auto loans held for sale as part of a non-prime securitization transaction. On September 24, 2025, the company executed that transaction with $900 million of notes and stated that it expected to recognize a gain on sale of approximately $25 million to $30 million in fiscal Q3 2026, as well as an additional $40 million to $45 million in CAF income over the life of the transaction through servicing fees and retained beneficial interest. The company also stated that there would be no loss allowance or provision for that loan pool once sold. 26

In the current filing, CarMax states that it typically uses securitizations or other funding arrangements to fund loans originated by CAF and that certain loan pools may be sold in a way that transfers nearly all continuing financial interests while retaining servicing income. 26

This supports the view that CAF is an increasingly important earnings component alongside retail and wholesale vehicle operations.

Balance sheet figures were broadly stable during the quarter

According to the reported financial statements, cash and cash equivalents were $170.5 million at fiscal Q2 2027, ended August 31, 2026, compared with $132.2 million at fiscal Q1 2027. Long-term debt was $16,786 million at fiscal Q2 2027 versus $17,561 million at fiscal Q1 2027, while short-term debt was $589.4 million versus $571.3 million at fiscal Q1 2027. Total liabilities were $19,764 million at fiscal Q2 2027 compared with $20,508 million at fiscal Q1 2027.

On a full-year basis, revenue was $25,881 million in FY2026 versus $26,353 million in FY2025. Net income was $247.3 million in FY2026 compared with $500.6 million in FY2025. Operating cash flow was $1,784 million in FY2026 and free cash flow was $1,243 million.

Digital sales metrics remained stable

Digital engagement remained high and broadly stable year on year in fiscal Q2 2027. Digitally enabled transactions represented 81% of sales versus 80% a year earlier. Omni sales were 68%, unchanged from fiscal Q2 2026, while online retail sales were 13% versus 12% in the prior-year quarter. 33

Overall assessment

CarMax’s fiscal Q2 2027 showed strong execution on volume growth, improved cost efficiency per unit, and significantly higher CAF income. Those factors drove clear earnings improvement versus fiscal Q2 2026. At the same time, used and wholesale gross profit per unit both declined, indicating that the quarter’s improvement was driven more by scale and financing contribution than by stronger vehicle margin performance. 33