CarMax Confronts Class Action, CEO Ouster, and Sharp Sales Decline

What happened

CarMax's shares fell 24% on November 6, 2025, after the company fired CEO Bill Nash and issued a preliminary Q3 2026 outlook forecasting an 8%-12% drop in comparable store used unit sales. This follows dismal Q2 2026 results that drove a 20% share price decline in September, highlighting ongoing operational struggles. The DeepValue report underscores CarMax's reliance on non-recourse funding and high leverage, with Net Debt/EBITDA at 17.9x and interest coverage at 0.3x, amplifying fragility risks. Management turmoil and worsening sales trends exacerbate concerns over CAF funding access and balance sheet resilience, key watch items previously identified. The securities class action filed adds legal pressure, signaling deepening investor doubts about the company's stability.

Implication

The CEO firing and sales decline indicate potential strategic instability and execution failures at CarMax. High leverage and dependence on warehouse funding heighten vulnerability to covenant breaches or cost increases. Persistent sales drops could erode CAF income, impairing debt service and liquidity. The class action introduces legal and reputational risks that may depress stock valuations. Investors must watch for triggers like funding disruptions or credit metric declines to reassess the HOLD rating promptly.

Thesis delta

The DeepValue report's HOLD thesis, based on balanced risk/reward, is now under greater pressure due to the CEO ouster and sales decline. These events heighten operational and financial risks, particularly around funding access and execution stability. If current trends persist, a shift toward SELL may be necessary, especially if watch items like CAF funding or interest coverage worsen.