CarMax Inc

CarMax, the largest retailer of used cars in the US, has been a disappointment. We entered 2025 with hopes that an improved omnichannel offering in an improving used vehicle market would drive increased sales volumes, market share, and profit growth. Instead, we’ve watched management make a series of missteps. The company withdrew its 2030 unit sales targets at the beginning of the year, citing tariff-related uncertainty expected to have little impact five years from now. Management mistakenly expected their strong fiscal first quarter to continue. They overbought inventory at elevated prices, which they were then forced to work through in the second quarter, causing them to lose market share. Investors have punished the company for its mistakes, and shares have declined by 47% year to date. Despite our disappointment in management's execution, the company's share price appears inexpensive to us.

CarMax, the largest retailer of used cars in the US, has been a disappointment. We entered 2025 with hopes that an improved omnichannel offering in an improving used vehicle market would drive increased sales volumes, market share, and profit growth. Instead, we’ve watched management make a series of missteps. The company withdrew its 2030 unit sales targets at the beginning of the year, citing tariff-related uncertainty expected to have little impact five years from now. Management mistakenly expected their strong fiscal first quarter to continue. They overbought inventory at elevated prices, which they were then forced to work through in the second quarter, causing them to lose market share. Investors have punished the company for its mistakes, and shares have declined by 47% year to date. Despite our disappointment in management's execution, the company's share price appears inexpensive to us.

CarMax is the largest used car retailer in the U.S. and has a strong position in the wholesale market and captive finance business. Despite a 5% decline in retail volumes due to market volatility and demand shifts, CarMax's year-to-date volumes and profits are up. The company possesses competitive advantages such as customer experience, brand strength, scale, vertical integration, and an omnichannel approach, which position it well to gain market share. Although currently under-earning, CarMax is expected to grow volumes and leverage fixed costs, leading to substantial earnings increases as the market normalizes. The company has a solid balance sheet, generates significant free cash flow, and is actively buying back shares.

CarMax is the largest used car retailer in the U.S. and has a strong position in the wholesale market and captive finance business. Despite a 5% decline in retail volumes due to market volatility and inflation, CarMax's year-to-date volumes and profits are up. The company possesses competitive advantages such as customer experience, brand strength, scale, vertical integration, and an omnichannel approach, which position it well to gain market share. Although currently under-earning, CarMax is expected to grow volumes and leverage fixed costs, leading to substantial earnings increases as the market normalizes. The company has a solid balance sheet and is generating significant free cash flow while buying back shares.

CarMax is the largest used car retailer in the U.S. and has a strong position in the wholesale market and captive finance business. Despite a 5% decline in retail volumes due to market volatility and demand shifts, CarMax's year-to-date volumes and profits are up. The company possesses competitive advantages such as customer experience, brand strength, scale, vertical integration, and an omnichannel approach, which position it well for long-term growth. Although currently under-earning, CarMax is expected to leverage fixed costs and increase earnings as the market normalizes. The company has a solid balance sheet, generates significant free cash flow, and is actively buying back shares.

CarMax is the largest used car retailer in the U.S. and has a strong position in the wholesale market and captive finance business. Despite a 5% decline in retail volumes due to market volatility and demand shifts, CarMax's year-to-date volumes and profits are up. The company possesses competitive advantages such as customer experience, brand strength, scale, vertical integration, and an omnichannel approach, which position it well for long-term growth. With a solid balance sheet, significant free cash flow, and ongoing share buybacks, we believe CarMax is well-positioned to increase earnings as the market normalizes.

The 'healing' process within the U.S. used car market has taken longer than we anticipated. Pricing appears to be stabilizing, but the market remains short on late model year vehicles (i.e., 'younger' used cars), which CarMax typically traffics in. Auto market dynamics suggest this supply constraint should improve in the coming years as more cars come off leases, and in the interim, we believe CarMax’s brand has not been impaired. We continue to monitor developments closely and size the position accordingly.

The 'healing' process within the U.S. used car market has taken longer than we anticipated. Pricing appears to be stabilizing, but the market remains short on late model year vehicles (i.e. 'younger' used cars), which CarMax typically traffics in. Auto market dynamics suggest this supply constraint should improve in the coming years as more cars come off leases, and in the interim, we believe CarMax’s brand has not been impaired. We continue to monitor developments closely and size the position accordingly.

The Fund resized its CarMax holding through sales at the higher end of its recent stock price range.

Carmax has faced a challenging environment in recent years, with increased competition from Carvana impacting its market share. Despite this, the manager believes that Carmax's customer-friendly business model remains attractive. The company reported encouraging operating results in early April, but the manager noted that it is not gaining market share despite significant investments in online selling capabilities. As a result, the position size was adjusted to reflect these challenges.