Will CarMax's New CEO Accelerate Share Buybacks Given the Stock Is Down 41% in 12 Months?
Event: CEO Transition at CarMax — First Earnings Call and Capital Allocation Signal
CarMax (KMX) shares have cratered 41% over the past twelve months, pushing the stock to $42.50 and compressing the market cap to just $6.2 billion. With a leadership transition underway — David McCreight serving as interim president and CEO while the board searches for a permanent replacement — investors are watching closely for signals on whether the new leadership will lean into the depressed valuation with accelerated share repurchases.
The Buyback Track Record
CarMax has been a consistent and increasingly aggressive repurchaser of its own stock. The trajectory tells a clear story:
| Period | Buybacks ($M) | Diluted Shares (M) | Avg Price Implied |
|---|---|---|---|
| FY2024 (Feb 2024) | $94 | 158.7 | — |
| FY2025 (Feb 2025) | $428 | 156.1 | — |
| FY2026 Q1 (May 2025) | $204 | 152.6 | — |
| FY2026 Q2 (Aug 2025) | $181 | 151.1 | — |
| FY2026 Q3 (Nov 2025) | $204 | 149.4 | — |
The company quadrupled buyback spending from FY2024 ($94 million) to FY2025 ($428 million), then doubled the pace again in Q1 FY2026. Management explicitly flagged this acceleration during the June 2025 earnings call, noting "approximately $1.74 billion in repurchase authorization remaining." Through three quarters of FY2026, CarMax has already spent $589 million on repurchases — well ahead of the full-year FY2025 pace.
Diluted shares outstanding have declined from 158.7 million at the end of FY2024 to 149.4 million in Q3 FY2026, a reduction of nearly 6% in less than two years.
The Valuation Argument for More Buybacks
At $42.50 per share, CarMax trades at just 1.03x book value and 14x trailing earnings. For context, peers AutoNation (AN) trades at 2.8x book value and Lithia Motors (LAD) at 0.97x book. CarMax's forward P/E of 17.2x compares to AN's 8.8x and LAD's 7.3x, though CarMax carries a different business model mix with its captive finance arm.
The price-to-sales ratio of 0.22x is near historically depressed levels for the company. If the incoming permanent CEO views the stock as fundamentally undervalued, the math for buybacks is compelling: every $100 million deployed at $42.50 retires roughly 2.35 million shares, or 1.6% of the float.
Free Cash Flow Supports the Case
CarMax's free cash flow generation has surged in FY2026:
| Quarter | Operating CF ($M) | FCF ($M) |
|---|---|---|
| Q1 FY2026 | $300 | $163 |
| Q2 FY2026 | $785 | $654 |
| Q3 FY2026 | $1,253 | $1,113 |
The $1.93 billion in cumulative FCF through three quarters dwarfs the $589 million spent on buybacks, suggesting substantial capacity for further acceleration. However, the company also carries significant debt — $16.7 billion at Q3 FY2026, reflecting the auto finance receivables on its balance sheet, with a debt-to-equity ratio of 2.75x.
What the Interim Leadership Has Signaled
During the Q3 FY2026 earnings call in December 2025, interim CEO David McCreight emphasized several priorities that could shape the buyback decision:
- SG&A reduction target of $150 million by end of FY2027, including a 30% reduction in CEC workforce
- "Reigniting entrepreneurial spirit" and operating leaner
- Pricing adjustments to make vehicles more attractive, with margin reductions supported by marketing spend
Notably, the Q3 call focused more on operational turnaround than capital return. The board's search for a permanent CEO adds uncertainty — an incoming leader may want to preserve financial flexibility rather than commit to aggressive buybacks before assessing the business firsthand.
Peer Comparison: Capital Allocation Context
| Metric | KMX | AN | LAD |
|---|---|---|---|
| 1-Year Return | -41% | +15% | -12% |
| P/E (TTM) | 14.0x | 11.1x | 8.2x |
| P/B | 1.03x | 2.82x | 0.97x |
| Net Margin | 1.6% | 2.3% | 2.2% |
| Rev Growth | 1.2% | 3.2% | 4.0% |
CarMax's underperformance relative to AutoNation and even Lithia reinforces the contrarian buyback thesis, but also reflects genuine fundamental challenges — net margins trail both peers, and revenue growth has lagged.
Investment Implications
Bull Case for Accelerated Buybacks
- Stock trading at book value provides maximum EPS accretion per dollar deployed
- $1.74 billion authorization and strong FCF generation provide ample capacity
- $150 million SG&A savings program frees additional cash for returns
- A new permanent CEO may use buybacks as a confidence signal to the market
Bear Case — Why Caution May Prevail
- Debt-to-equity of 2.75x may limit appetite for leveraged repurchases
- Operational turnaround (pricing, marketing, digital) may require investment
- New CEO may prioritize deleveraging or strategic pivots over buybacks
- Declining revenue per unit and margin pressure could consume cash
What to Watch
- Permanent CEO appointment: The board's choice will signal strategic direction — a finance-oriented leader may favor returns, while an operations-focused hire may prioritize reinvestment
- Q4 FY2026 buyback disclosure (expected March/April 2026): Will the pace hold at ~$200M/quarter or accelerate?
- Authorization refresh: With $1.74B remaining as of Q1, any new authorization would signal long-term commitment to buybacks
- Debt trajectory: Watch whether management prioritizes deleveraging alongside returns
Sources: CarMax Q1-Q3 FY2026 earnings calls, CarMax financial statements (FY2024-FY2026), company snapshot data for KMX, AN, LAD