CarMax’s Crisis: Three Decades of Growth Collide with a $13 Billion Market Reckoning
Board launches a performance overhaul as America’s top used-car retailer battles shrinking demand, bloated inventory, and a shaky finance arm
RICHMOND, Va. — On Wednesday, CarMax’s board of directors sent a blunt message to Wall Street: it’s time for a reset. The decision came wrapped in a major leadership shake-up, a grim earnings preview, and an 8% stock plunge that wiped out another $500 million in shareholder value. For a company already down 50% this year, it was another painful hit.
CEO Bill Nash, who’s led CarMax for nearly a decade, will step down on December 1. Taking over as interim CEO is board member David McCreight, a retail veteran known for brand strategy but with no hands-on automotive experience. Former CEO Tom Folliard, who expanded CarMax nationwide between 2006 and 2016, returns as interim executive chair. His comeback isn’t just nostalgic—it’s necessary. McCreight’s background lacks the inventory, auction, and finance expertise needed to steady the ship.
The stock is traded at $34.89. With a market cap of $5.23 billion, CarMax is now worth less than half its early-2024 valuation. Investors aren’t blaming temporary market softness anymore; they see deeper operational cracks spreading across the business.
The Credibility Collapse
This wasn’t one bad quarter—it was a pattern of decline. Back on September 25, CarMax reported a 6% revenue drop to $6.6 billion and earnings of just $0.64 per share, missing Wall Street estimates by about 40%. Management pointed fingers at weak market demand and tight pricing competition, promising to cut $150 million from SG&A expenses to shore up margins.
That story didn’t survive Wednesday’s announcement. The company now expects third-quarter same-store sales to tumble 8% to 12%, even worse than the prior quarter’s 6.3% slide. Projected earnings of $0.18 to $0.36 per share come in about 50% below already-reduced analyst expectations.
“The board has decided that more direct involvement from David and me will help strengthen the business in this transitional period,” Folliard said in the statement. Translation: the board no longer trusts the previous team’s diagnosis—or its plan to fix things.
The breakdown runs across nearly every corner of the operation. Pricing fell behind competitors, inventory piled up at higher cost, and softening demand turned those vehicles into losses. CarMax Auto Finance saw a $142 million spike in loan loss provisions, erasing what’s long been a safety net for earnings. Meanwhile, marketing spend jumped to support a brand refresh—at exactly the wrong moment, when sales volumes are shrinking.
When multiple departments start misfiring at once—pricing, merchandising, finance, marketing—it usually signals a problem at the top. The coordination layer has failed, and that means the CEO.
The Valuation Crossroads
For investors, CarMax now sits at the classic fork in the road: rebound story or value trap?
The bearish take is easy to see. At $35 per share, the stock trades at roughly 14–16 times projected fiscal 2026 earnings. That’s steep for a company whose performance is still trending down and whose next permanent leader hasn’t been named.
But optimists see another side. With about $7 billion in enterprise value on $26 billion in annualized sales, CarMax trades at only 0.27 times revenue—a strikingly low multiple for the nation’s category leader. The company boasts an integrated financing arm, strong national brand recognition, and digital tools that touch roughly 80% of all transactions.
The real question is whether the new leadership can stop the bleeding before margins suffer permanent damage. In stronger years, CarMax earned $6 to $7 per share. Even trimming that to $5—acknowledging fiercer competition from Carvana and nimble independent dealers—the stock looks cheap at just seven times normalized earnings.
It’s also important to separate CarMax’s operating business from its finance arm. While the company reports $18 billion in total debt, most of it is non-recourse, tied to asset-backed securities from CarMax Auto Finance’s loan portfolio. The core operating company’s net debt sits closer to $1 billion, modest by comparison and manageable even with earnings under pressure.
So the investment case boils down to this: can interim management prove it knows how to fix the fundamentals? Investors will be watching for four key moves—faster clearance of costly inventory, smarter pricing powered by upgraded algorithms, deeper cost-cutting beyond the initial $150 million, and clearer reporting on CarMax Auto Finance’s loan quality to ease credit concerns.
McCreight’s résumé offers some hope. He helped turn Anthropologie into a digital retail powerhouse and has held senior roles at Urban Outfitters, Under Armour, and Lands’ End. His expertise in customer experience and brand strategy could help CarMax modernize its digital presence. Still, his lack of automotive know-how means Folliard’s steady hand in merchandising and auctions will be vital. The pairing looks temporary—more like a stabilizing act than a long-term solution.
What Comes Next
CarMax will report its full third-quarter results on December 18. That’s when McCreight and Folliard will face investors and lay out a credible recovery plan. The market will expect sharp details: specific pricing adjustments, measurable inventory turnover goals, and clear progress on cutting SG&A costs.
The board has tapped Russell Reynolds Associates to lead the search for a permanent CEO. Insiders suggest the top candidates will likely come from automotive or complex inventory backgrounds—people who can complement McCreight’s consumer insight with deep operational discipline.
Right now, CarMax sits in a tough middle ground. It’s too beaten down to attract momentum traders, too established to dismiss outright, and too tangled operationally to fix overnight. The company’s next chapter depends on whether these two interim leaders can prove the core business model still works, even if recent execution clearly didn’t.
One thing’s certain: the road ahead won’t be smooth, but if CarMax can rediscover its old rhythm, this detour might someday look like a turning point instead of a dead end.
NOT INVESTMENT ADVICE