What Happened?
Shares of used automotive vehicle retailer Carmax (NYSE: KMX) jumped 2.8% in the afternoon session as the stock attempted a slight recovery after a major sell-off prompted by the sudden termination of its CEO and a dire preliminary financial report. The steep drop in the stock's price followed the company's announcement that CEO Bill Nash had been fired. CarMax also issued a disappointing preliminary outlook for its third quarter, forecasting a decrease in comparable store sales of 8% to 12%. In addition, the company projected earnings per share in a range of only $0.18 to $0.36, which was significantly below analysts' expectations of $0.69. Compounding the company's troubles, Morgan Stanley downgraded the stock from "Overweight" to "Equal-weight" and slashed its price target, pointing to execution problems and uncertainty around new leadership.
After the initial pop the shares cooled down to $34.09, up 2.6% from previous close.
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What Is The Market Telling Us
CarMax’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 23.4% on the news that the company reported third-quarter 2025 results that significantly missed Wall Street's expectations. The company posted earnings of $0.64 per share, which fell far short of the anticipated $1.03 per share and marked a 24.7% drop from the previous year. Revenue also disappointed, coming in at $6.59 billion, below the consensus estimate of $7.07 billion and representing a 6% decrease year-over-year. The poor performance was driven by weakening demand, as same-store sales fell 7.1%. Adding to concerns, profitability worsened, with the operating margin declining to 1.8% from 2.9% in the same quarter last year.
CarMax is down 58% since the beginning of the year, and at $34.09 per share, it is trading 61.8% below its 52-week high of $89.19 from February 2025. Investors who bought $1,000 worth of CarMax’s shares 5 years ago would now be looking at an investment worth $364.93.
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