CarMax Inc. (KMX) delivered a mixed bag of third-quarter results that had the stock sliding over 10% in premarket trading Thursday. The used-car retail giant beat earnings expectations but couldn't hide the fact that sales volumes are heading in the wrong direction.

The company reported earnings per share of 43 cents, topping the analyst consensus of 39 cents. Adjusted EPS came in at 51 cents after backing out 8 cents per share in restructuring charges. Quarterly sales hit $5.794 billion, down 6.9% year-over-year but still ahead of Wall Street's $5.678 billion estimate.

Here's the thing though: beating lowered expectations doesn't mean everything's fine. And CarMax's new leadership isn't pretending otherwise.

Leadership Shakeup Signals Trouble

Effective December 1, 2025, CarMax announced major leadership changes. David McCreight, already a board member, stepped into the role of Interim President and CEO. Tom Folliard took on the position of Interim Executive Chair of the Board. The company is actively searching for a permanent CEO.

McCreight didn't sugarcoat the situation in his statement: "Our unmatched physical and digital infrastructure, beloved national brand, and award-winning culture provide us with incredible advantages. Despite these advantages, based on recent results, it is clear CarMax needs change. Tom and I are committed to positioning CarMax for success while the Board identifies the right permanent CEO to lead CarMax."

Translation: We've got great assets, but we're not executing. That's remarkably candid for corporate America.

The Sales Story Gets Worse

Combined retail and wholesale used vehicle unit sales dropped 7.2% year-over-year to 297,160 units in the third quarter. Breaking that down, retail used vehicle unit sales fell 8% to 169,557 units, with comparable store used unit sales down 9% year-over-year. Retail used vehicle revenues declined 7%, directly reflecting fewer units moving off the lot.

Wholesale wasn't much better. Wholesale vehicle unit sales slipped 6.2% year-over-year to 127,603 units, hurt by steep market depreciation. Wholesale revenues edged down 6.3% on lower unit volumes.

Other sales and revenues dropped 9.2%, or $15.2 million, mainly due to declining EPP revenues. The company purchased 238,000 vehicles total in the third quarter, an 11.7% decrease. Of these, 208,000 came from consumers (down 12.1%) and 30,000 from dealers (down 8.6%).

Margin Pressure and Bright Spots

Total gross profit came in at $590.0 million, down 12.9% versus last year's third quarter. That's a bigger drop than the revenue decline, which tells you margins are getting squeezed.

Still, unit margins held up reasonably well, with gross profit of $2,235 per retail used unit and $899 per wholesale unit. Those aren't terrible numbers in isolation.

One area showing strength: CAF income rose 9.3% to $174.7 million, driven by gains on sale. Total interest margin percentage was 6.2% of average auto loans outstanding, matching the prior year's third quarter.

Quarterly SG&A expenses increased 1.0% year-over-year to $581.4 million. During the quarter, the firm opened two new store locations in Tulalip, Washington and Rogers, Arkansas.

Capital Allocation and Cash Position

In the third quarter, CarMax repurchased 4.6 million shares for $201.6 million, leaving $1.36 billion available under the current repurchase authorization as of November 30, 2025. Cash and cash equivalents stood at $204.9 million as of November 30.

The Turnaround Plan

The company is targeting at least $150 million in exit-rate savings in SG&A expenses by fiscal 2027, and it took the first major step this quarter. That's a meaningful chunk of cost to strip out.

On the sales side, CarMax plans to boost volume by lowering retail used unit margins to improve price competitiveness. They're also increasing marketing spend per unit to drive customer acquisition, though not quite as aggressively as in the third quarter.

It's a classic trade-off: sacrifice some margin to move more volume and hopefully make it up on scale. Whether that works depends on execution and whether the broader used car market cooperates.

KMX shares were trading down 10.52% at $36.75 during premarket trading Wednesday.