Carvana Co. (CVNA) shares tumbled roughly 6% on Wednesday, dragged down by a sharp sell-off in peer CarMax (KMX) after the used-car retailer’s first-quarter earnings revealed troubling margin compression. CarMax beat consensus estimates with EPS of $1.31 ($0.96 expected) and revenue of $8 billion ($7.39 billion consensus), but the market focused on a $230 year-over-year decline in retail gross profit per unit to $2,177. CFO Enrique Mayor acknowledged the company’s near-term strategy “requires some margin concession to support sales growth,” while CEO Keith Barr flagged “too many unproductive transfers” across its network.
The credit environment added to the gloom. CarMax Auto Finance SVP Jon Daniels noted that consumers are “continuing to be pressured by overall inflation,” with industry-wide delinquency rates rising. The company expanded Tier 2 credit penetration from 10% to 25% of volume and set aside a $96 million loan loss provision—a figure that spooked investors. The combination of rising acquisition costs, tighter margins, and credit risk sent CarMax stock down 7%, and Carvana, despite its different business model, was swept up in the sympathy move.
However, several analysts and institutional voices argue the sell-off in Carvana may be overblown. Carvana is on a sharply different growth trajectory, with a 40% year-over-year surge in retail units in its last quarter, compared to CarMax’s 0.8% decline in comparable-store used units. Unlike CarMax’s brick-and-mortar model, Carvana’s digital-first, vertically integrated platform generates multiple revenue streams—proprietary financing, gap insurance, warranties, and reconditioning—that buffer it against wholesale acquisition cost swings. The company posted an industry-leading 10.4% adjusted EBITDA margin last quarter. Needham reiterated a Buy with a $120 target, while JPMorgan raised its target to $93, and the average analyst price target stands at $93.14. Despite the day’s drop, Carvana’s structural advantages could make the dip an attractive entry point for long-term investors.
