CarMax (NYSE: KMX) delivered a statement. Revenue of $7.9 billion landed 11% above the $7.1 billion consensus, while diluted EPS of $1.16 crushed the $0.73 estimate by nearly 60%. The 81% year-over-year EPS jump grabbed the headlines, but the composition of that beat matters more than the magnitude.
Total net revenues climbed 19.5% to $7.9 billion, powered by a 14.7% increase in combined retail and wholesale unit sales to 387,735. Retail used unit sales jumped 13.8% (comparable store +13.0%), a sharp reversal from the 5.4% decline a year ago. The driver was explicit: pricing actions implemented to support an improved sales trend. Those actions carried a cost. Retail gross profit per used unit fell $111 to $2,105. The trade-off worked. Volume more than compensated, lifting retail used vehicle gross profit 8.1% to $478.6 million.
Wholesale told a similar story. Units rose 15.9%, but gross profit per unit dropped $135 to $858. Total wholesale gross profit was essentially flat at $137.6 million. The margin compression in both channels is structural, a deliberate feature of the pricing strategy, not a one-off event. CarMax is choosing market share and unit growth over per-unit margin. The market is rewarding that choice with volume.
CarMax Auto Finance (CAF) income surged 32.1% to $135.6 million, a critical contributor to the earnings beat. The improvement flowed from three sources: a $28.8 million reduction in the loan loss provision to $113.4 million, a $16.6 million gain on sale of auto loans, and $6.1 million in higher servicing fees. The provision decline stands out. Last year, CarMax booked an additional provision for worsening performance of older vintages. This year, performance has been in line with expectations. The company is also executing its full-spectrum growth strategy, with CAF financing 22% of Tier 2 volume versus 10% a year ago, making it the largest lender in that space. That expansion brings risk; Tier 2 originations require higher provisioning. The net effect this quarter was positive.
SG&A provided the other major earnings lift. Expenses rose only 4.6% to $628.6 million despite the strong unit growth, yielding an 8.8% improvement in SG&A per total unit to $1,621. CarMax remains on track to achieve $200 million in exit rate savings by fiscal year-end. The leverage is real and structural, driven by field and corporate payroll reductions and ongoing cost initiatives. This is not a one-time benefit.
The buyback pause is ending. CarMax announced plans to resume share repurchases at a modest level in Q3, with $1.31 billion remaining under authorization. The timing is telling. The company did not repurchase any shares in Q2, conserving capital while leverage improved. Restarting buybacks signals management's confidence that the operating momentum is sustainable.
What this quarter signals for the rest of the year is straightforward. The pricing strategy is working. CAF is benefiting from a stabilizing credit environment and strategic expansion. SG&A leverage is on a structural improvement path. The company will host a strategic update on November 3rd, with more detail on the Shift into GEAR strategy. For now, the numbers speak clearly. CarMax is executing, and the market is responding.