CarMax Faces Class Action Lawsuit for Concealing Risks, Stock Plummets 44%
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Dec 03 2025
0mins
Should l Buy KMX?
Source: PRnewswire
- Lawsuit Alert: Hagens Berman reminds investors that CarMax (KMX) is facing a class action lawsuit for failing to disclose risks in its loan portfolio, with a lead plaintiff deadline set for January 2, 2026, potentially leading to further investor losses.
- Stock Crash: Following the Q2 2026 earnings report, CarMax's stock fell 20% with comparable unit sales down 6.3%, indicating misleading statements regarding demand sustainability.
- High Loan Loss Provisions: The company reported a $142 million increase in loan loss provisions, highlighting significant risks in its CarMax Auto Finance (CAF) portfolio, which exacerbates investor concerns.
- Executive Departure Impact: After the CEO's departure on November 6, 2025, the stock plummeted 24% alongside weak Q3 guidance, revealing ongoing underlying business weaknesses.
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Analyst Views on KMX
Wall Street analysts forecast KMX stock price to fall
13 Analyst Rating
0 Buy
10 Hold
3 Sell
Hold
Current: 40.310
Low
24.00
Averages
33.60
High
37.00
Current: 40.310
Low
24.00
Averages
33.60
High
37.00
About KMX
CarMax, Inc. is a retailer of used autos. The Company operates through two segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The CarMax Sales Operations segment consists of all aspects of its auto merchandising and service operations. The CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options for customers. The CAF segment consists solely of its own finance operation that provides financing for customers buying retail vehicles from the Company. The CAF segment also services all auto loans, it originates and is responsible for providing billing statements, collecting payments, maintaining contact with delinquent customers, and arranging for the repossession of vehicles securing defaulted loans. It provides customers with a range of other related products and services, including extended protection plan (EPP) products and vehicle repair services.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Trust and Performance: Analysis by Great Place to Work reveals that trust among employees, based on anonymous survey responses from over 1.3 million U.S. workers, is a leading indicator of business performance, with high-trust companies motivating employees to exert extra effort.
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- Record High Debt Levels: As of Q4 2025, the average amount owed on underwater trade-ins reached $7,214, a record high, with 27% of these trade-ins carrying over $10,000 in negative equity, reflecting a deterioration in consumer financial health.
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- Executive Participation: The call will feature Interim Executive Chair Tom Folliard, President and CEO Keith Barr, CFO Enrique Mayor-Mora, and EVP of CarMax Auto Finance Jon Daniels, highlighting the company's commitment to engaging with its investors.
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- Brand and Market Advantages: Barr praised CarMax's trusted brand and its national footprint reaching 85% of the U.S. population, arguing that these strengths create a powerful platform for growth in the large, fragmented used car market.
- Technology-Driven Transformation: Barr plans to leverage technology to reduce digital friction and provide a simple, seamless, personalized omnichannel experience, thereby enhancing customer satisfaction and improving associate effectiveness to drive the company towards a more efficient operational model.
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- Net Income Plummets: The company's net income for Q2 was approximately $95.4 million, down 28.2% from $132.8 million a year ago, reflecting a sharp decline in profitability that may erode investor confidence.
- Executive Turnover Impact: The unexpected departure of CarMax's CEO on November 6, 2025, along with a weak preliminary Q3 outlook, could exacerbate market concerns regarding the company's future performance.
- Legal Action Risks: CarMax and its executives are facing a securities class action lawsuit for failing to disclose material information during the class period, and KSF's investigation will assess whether executives breached fiduciary duties to shareholders, potentially leading to greater legal and financial risks for the company.
See More
Middle East Crisis Fuels Electric Vehicle Demand Surge
- Surge in EV Interest: Since the onset of the Iran war, inquiries for new electric vehicles in the U.S. have surged by 28%, while used EV inquiries rose by 15%, indicating a significant consumer shift towards EVs, even as traditional automakers pivot back to internal combustion engines.
- Fuel Prices Impact Buying Behavior: Elevated gas prices have made electric vehicles more appealing for long-distance drivers; however, Cox Automotive anticipates that consumer buying habits will require over six months of sustained high gas prices to change significantly, highlighting the slow pace of market transition.
- Decline in EV Sales: Despite increased inquiries, Cox forecasts a 28% drop in U.S. EV sales for the first quarter, down to 212,600 units, reflecting limited market acceptance of electric vehicles amidst shifting consumer preferences.
- Global Market Transformation: The energy shock from the Iran war is expected to accelerate EV adoption in Europe and Asia, particularly in countries like Vietnam, Thailand, and Indonesia, where consumers are increasingly inclined to choose affordable models from Chinese manufacturers.
See More
CarMax Recognized as One of the 100 Best Companies to Work For for 22nd Consecutive Year
- Best Employer Recognition: CarMax has been named one of the 100 Best Companies to Work For by Fortune for the 22nd consecutive year, ranking #56 in 2026, highlighting the company's ongoing excellence in employee satisfaction and corporate culture.
- Trust and Performance: Analysis by Great Place to Work reveals that trust among employees, based on anonymous survey responses from over 1.3 million U.S. workers, is a leading indicator of business performance, with high-trust companies motivating employees to exert extra effort.
- Multiple Honors: In addition to being a top employer, CarMax has received accolades such as Fortune's Best Workplaces in Retail, Best Workplaces for Parents, PEOPLE's Companies that Care, and recognition as a Military Friendly Employer, enhancing its employer brand image.
- Recruitment and Benefits: CarMax is currently hiring across various business areas, offering competitive pay and benefits, including immediate 401(k) eligibility, gym discounts, and comprehensive medical plans, which attract talent and improve employee satisfaction.
See More
Rising Negative Equity Among New Car Buyers
- Rising Negative Equity: According to J.D. Power, 30.5% of new car buyers are facing negative equity on trade-ins, up 4.2 percentage points from last year, indicating increasing market pressures that affect consumer purchasing decisions.
- Record High Debt Levels: As of Q4 2025, the average amount owed on underwater trade-ins reached $7,214, a record high, with 27% of these trade-ins carrying over $10,000 in negative equity, reflecting a deterioration in consumer financial health.
- Increased Payment Burden: The average monthly payment for buyers rolling negative equity into new loans hit $916, which is $144 higher than the average payment for all new car purchases, indicating greater financial strain on consumers when buying vehicles.
- Extended Loan Terms Trend: Among new car purchases involving negative equity, 40.7% are financed with 84-month loans, suggesting that consumers are extending loan terms to cope with high vehicle prices, thereby increasing future negative equity risks.
See More
CarMax to Report Q4 Financial Results on April 14
- Earnings Release Schedule: CarMax will report its financial results for the fourth quarter ended February 28, 2026, before the market opens on April 14, 2026, and will host a conference call at 9:00 a.m. ET, ensuring transparent communication of its performance to investors.
- Executive Participation: The call will feature Interim Executive Chair Tom Folliard, President and CEO Keith Barr, CFO Enrique Mayor-Mora, and EVP of CarMax Auto Finance Jon Daniels, highlighting the company's commitment to engaging with its investors.
- Financial Performance Overview: In the fiscal year ending February 2025, CarMax sold approximately 790,000 used vehicles and 540,000 wholesale vehicles, indicating strong market performance, while CarMax Auto Finance originated over $8 billion in auto loans, enhancing its nearly $18 billion loan portfolio.
- Company Background Information: As the largest retailer of used cars in the U.S., CarMax operates over 250 locations with more than 28,000 associates and has been recognized for 21 consecutive years as one of the Fortune 100 Best Companies to Work For, reflecting its leadership in the industry and commitment to employee satisfaction.
See More
CarMax's New CEO Emphasizes Customer-Centric Leadership
- Leadership Style Introduction: CarMax's new CEO Keith Barr emphasized a customer- and associate-centric leadership approach in his letter to shareholders, drawing on his successful experience in major hotel brands to enhance the company's competitiveness in the used car market.
- Brand and Market Advantages: Barr praised CarMax's trusted brand and its national footprint reaching 85% of the U.S. population, arguing that these strengths create a powerful platform for growth in the large, fragmented used car market.
- Technology-Driven Transformation: Barr plans to leverage technology to reduce digital friction and provide a simple, seamless, personalized omnichannel experience, thereby enhancing customer satisfaction and improving associate effectiveness to drive the company towards a more efficient operational model.
- Governance and Strategic Adjustments: In response to activist investor Starboard Value, Barr committed to implementing disciplined measures to refocus the organization, improve governance, and enhance CarMax's long-term potential to address recent performance challenges.
See More
KSF Launches Investigation into CarMax Amid Financial Declines
- Financial Performance Decline: CarMax reported a 5.4% decrease in retail unit sales and a 6.3% drop in comparable store sales for Q2 2025, indicating significant market pressure that could adversely affect future profitability.
- Net Income Plummets: The company's net income for Q2 was approximately $95.4 million, down 28.2% from $132.8 million a year ago, reflecting a sharp decline in profitability that may erode investor confidence.
- Executive Turnover Impact: The unexpected departure of CarMax's CEO on November 6, 2025, along with a weak preliminary Q3 outlook, could exacerbate market concerns regarding the company's future performance.
- Legal Action Risks: CarMax and its executives are facing a securities class action lawsuit for failing to disclose material information during the class period, and KSF's investigation will assess whether executives breached fiduciary duties to shareholders, potentially leading to greater legal and financial risks for the company.
See More
