CarMax (CarMax (KMX)) reported first-quarter fiscal 2027 earnings and revenue that topped Wall Street's expectations, but the stock fell in Wednesday's premarket trading as investors zeroed in on persistent margin pressure and a decline in gross profit per retail used vehicle.

Earnings Beat Estimates

The used-car retailer posted adjusted earnings of $1.31 per share, crushing the analyst consensus estimate of 94 cents. Revenue rose 6.2% year over year to $8.01 billion, also beating expectations of $7.41 billion.

But the headline numbers masked some underlying weakness. Gross profit fell 4.4% from a year ago to $854.4 million, with retail used-vehicle gross profit dropping 9.5%. Gross profit per retail used unit declined $230 year over year to $2,177, down from last year's record level. The company said the decrease reflected pricing actions aimed at supporting stronger sales trends.

CarMax didn't buy back any shares during the quarter. As of May 31, about $1.31 billion remained under its share repurchase authorization. The company also opened a stand-alone reconditioning and auction center in Locust Grove, Georgia, during the quarter. Cash and cash equivalents stood at $132.2 million as of May 31.

Sales and Operating Metrics

Combined retail and wholesale used-vehicle unit sales rose 3.3% year over year to 392,357 units. Retail used-unit sales increased modestly, but comparable-store used-unit sales slipped 0.8%.

CarMax Auto Finance income edged down 1% to $140.2 million. The company attributed the decline to lower loan balances following a $900 million non-prime securitization completed last year, which included the sale of most related residual interests and reduced interest margins.

Vehicle purchases from consumers and dealers fell 4.4% year over year to 322,000 units.

Outlook

CarMax introduced a new growth strategy built on four pillars: improving offerings, enhancing customer experience, maximizing transaction value, and running lean operations. The company said it remains on track to deliver $200 million in SG&A savings this fiscal year.

Despite the better-than-expected first-quarter results, CarMax signaled that pressure on vehicle margins is likely to continue as it prioritizes sales growth. Management reiterated that it expects lower gross profit per retail unit this fiscal year, saying it will keep making pricing adjustments to stay competitive while using operational efficiencies to offset part of the margin impact. Executives also maintained their full-year guidance for a roughly $200 decline in gross profit per used vehicle, indicating the strategy of sacrificing some margin to drive volume remains firmly in place.

CarMax Price Action

CarMax shares were down 5.64% at $49.18 during premarket trading on Wednesday, according to market data.