CarMax Q1 Weakness Sends Carvana Shares Lower

Carvana shares opened lower after CarMax reported first-quarter margin compression, softer retail volumes and higher wholesale acquisition costs, prompting selling across several used-car retailers.

CarMax reported a 0.8% decline in comparable-store used units for the quarter. Retail gross profit per unit fell by $230 to $2,177. The company said higher wholesale acquisition costs pushed its average selling price up by roughly $1,168 and that it cut prices to support stagnant showroom traffic.

On the earnings call, CarMax CEO Keith Barr said the company moves about 2 million vehicles annually via transfers and described “too many unproductive transfers.” The company’s network is concentrated in physical dealerships with localized inventory and regional logistics that involve fixed operating costs and vehicle transfers.

Carvana’s most recent quarter showed different operating metrics. The online retailer reported a 40% year-over-year increase in retail units, selling more than 187,000 cars, and reported a 10.4% adjusted EBITDA margin. The company records revenue from vehicle sales and from financing, gap insurance, extended warranties and services tied to reconditioning and logistics.

Carvana operates a centralized hub-and-spoke fulfillment model that routes inventory and reconditioning through regional centers and digital platforms rather than holding the same inventory at many individual dealerships. That structure results in different cost exposure to wholesale price swings and different fixed-cost dynamics.

Market participants treated CarMax’s results as a sector signal at the open, which produced sympathy selling in other used-car stocks. The used-car industry has experienced volatile wholesale prices and shifting consumer demand since the pandemic, affecting dealers with large local inventories differently than online platforms with centralized reconditioning and financing.