Tickers

1. Composite Trajectory Verdict

The income statement carries the most weight for assessing KMX's performance as a retailer with a captive finance arm, because profitability per unit and credit loss trends directly drive both segments' economics.

Composite Trajectory: Mixed

Annual FY2026 results deteriorated significantly versus FY2025, with net earnings falling 50.6% to $247.3M (10-K -- period 2026-02-28, Consolidated Statements of Operations) and gross profit declining 3.2% to $2.81B (10-K -- period 2026-02-28, MD&A). However, the first quarter of FY2027 showed revenue growth of 6.2% to $8.01B (10-Q -- period 2026-05-31, MD&A) and SG&A per total unit improved 6.8% to $1,619 (10-Q -- period 2026-05-31, MD&A), while CAF penetration rose 150 basis points to 43.3% (10-Q -- period 2026-05-31, MD&A). Cash flow and balance sheet trends are also mixed: annual operating cash flow surged to $1.78B but was inflated by a $909M loan sale (10-K -- period 2026-02-28, Consolidated Statements of Cash Flows), while quarterly operating cash flow fell to $17.6M (10-Q -- period 2026-05-31, Consolidated Statements of Cash Flows). Leverage remains slightly above target with share repurchases paused (10-K -- period 2026-02-28, MD&A; 10-Q -- period 2026-05-31, MD&A).

2. Red Flags

• Goodwill impairment of $141.3M in FY2026 Q4 (10-K -- period 2026-02-28, Consolidated Statements of Operations)
• Restructuring charges of $49.8M in FY2026 (10-K -- period 2026-02-28, MD&A)
• SG&A as % of gross profit rose to 87.4% in FY2026 from 84.0% in FY2025 (10-K -- period 2026-02-28, MD&A)
• Net earnings fell 50.6% YoY in FY2026 (10-K -- period 2026-02-28, Consolidated Statements of Operations)
• Annual operating cash flow increase driven by $908.9M proceeds from auto loan sale, not core operations (10-K -- period 2026-02-28, Consolidated Statements of Cash Flows)
• Quarterly operating cash flow dropped to $17.6M in Q1 FY2027 from $299.5M in Q1 FY2026 (10-Q -- period 2026-05-31, Consolidated Statements of Cash Flows)
• Allowance for loan losses rose to 2.95% of held-for-investment loans at May 31, 2026 from 2.78% at Feb 28, 2026 (10-Q -- period 2026-05-31, MD&A)
• Past due loans at 5.11% of portfolio at FY2026 end vs 4.85% at FY2025 end (10-K -- period 2026-02-28, MD&A)
• Share repurchases paused in Q4 FY2026 due to leverage above target range (10-K -- period 2026-02-28, MD&A; 10-Q -- period 2026-05-31, MD&A)
• Effective tax rate spiked to 35.5% in FY2026 from 25.2% in FY2025 due to non-deductible goodwill impairment (10-K -- period 2026-02-28, Consolidated Statements of Operations)

3. Earnings Assessment (Income Statement)

Earnings Trajectory: Mixed

Overall Assessment: Annual FY2026 GAAP net earnings declined 50.6% to $247.3M (10-K -- period 2026-02-28, Consolidated Statements of Operations), driven by a 3.2% gross profit decline to $2.81B (10-K -- period 2026-02-28, MD&A), a 3.3% CAF income decline to $562.7M (10-K -- period 2026-02-28, MD&A), and a $141.3M goodwill impairment (10-K -- period 2026-02-28, Consolidated Statements of Operations). Adjusted net earnings per share fell 11.0% to $2.91 (10-K -- period 2026-02-28, MD&A). Used unit sales fell 1.1% and used gross profit per unit fell 2.5% to $2,253 (10-K -- period 2026-02-28, MD&A). In contrast, Q1 FY2027 showed net sales up 6.2% to $8.01B (10-Q -- period 2026-05-31, MD&A), SG&A down 3.7% to $635.2M (10-Q -- period 2026-05-31, MD&A), and SG&A per total unit down 6.8% to $1,619 (10-Q -- period 2026-05-31, MD&A), though used gross profit per unit fell 9.6% to $2,177 (10-Q -- period 2026-05-31, MD&A) and net earnings declined 11.8% to $185.6M (10-Q -- period 2026-05-31, MD&A). CAF penetration improved to 43.3% in Q1 FY2027 from 41.8% in Q1 FY2026 (10-Q -- period 2026-05-31, MD&A).

4. Cash Generation Assessment (Statement of Cash Flows)

Cash Trajectory: Mixed

Overall Assessment: Annual FY2026 net cash from operations jumped to $1.78B from $624M in FY2025 (10-K -- period 2026-02-28, Consolidated Statements of Cash Flows), but the increase was primarily due to $908.9M proceeds from the non-prime securitization and changes in auto loan balances (10-K -- period 2026-02-28, MD&A). Capital expenditures rose to $541.0M from $467.9M (10-K -- period 2026-02-28, Consolidated Statements of Cash Flows). Free cash flow (operating minus capex) was approximately $1.24B in FY2026 vs $156M in FY2025, but the FY2026 figure is heavily influenced by the loan sale. In Q1 FY2027, operating cash flow fell sharply to $17.6M from $299.5M in Q1 FY2026 (10-Q -- period 2026-05-31, Consolidated Statements of Cash Flows), reflecting inventory and loan balance changes (10-Q -- period 2026-05-31, MD&A). Investing outflows moderated to $99.6M from $141.2M (10-Q -- period 2026-05-31, Consolidated Statements of Cash Flows), and financing activities provided $90.5M versus using $129.4M a year earlier (10-Q -- period 2026-05-31, Consolidated Statements of Cash Flows), aided by $254.8M net non-recourse note issuances and no share repurchases (10-Q -- period 2026-05-31, MD&A).

5. Balance Sheet Assessment

Balance Sheet Trajectory: Mixed

Overall Assessment: Total assets declined to $26.37B at FY2026 end from $27.40B at FY2025 end (10-K -- period 2026-02-28, Consolidated Balance Sheets), driven by a $1.29B reduction in auto loans held for investment to $15.95B (10-K -- period 2026-02-28, Consolidated Balance Sheets) and a $141.3M goodwill write-off (10-K -- period 2026-02-28, Consolidated Balance Sheets). Inventory rose 5.1% to $4.14B (10-K -- period 2026-02-28, Consolidated Balance Sheets). Total debt fell to $18.05B from $18.71B (10-K -- period 2026-02-28, MD&A), with non-recourse notes payable down $1.29B to $15.83B (10-K -- period 2026-02-28, MD&A), but the revolving credit facility was drawn to $841M from zero (10-K -- period 2026-02-28, MD&A). Shareholders' equity fell to $5.89B from $6.24B (10-K -- period 2026-02-28, Consolidated Balance Sheets) after $642.8M of share repurchases (10-K -- period 2026-02-28, Consolidated Statements of Cash Flows). In Q1 FY2027, total debt edged up to $18.16B (10-Q -- period 2026-05-31, MD&A) with non-recourse notes rising to $16.08B (10-Q -- period 2026-05-31, MD&A), while cash increased slightly to $132.2M from $122.8M (10-Q -- period 2026-05-31, MD&A). Leverage remained slightly above the targeted range in both periods (10-K -- period 2026-02-28, MD&A; 10-Q -- period 2026-05-31, MD&A).

6. Data Gaps

• Quarterly income statement, cash flow, and balance sheet data for Q2, Q3, and Q4 FY2026 (only annual FY2026 and Q1 FY2027 are provided)
• Quarterly data for FY2025 (Q1-Q4) to enable full quarterly YoY comparisons beyond Q1
• Free cash flow explicitly stated by management for any period
• Comparable store sales trends for quarters other than Q1 FY2027
• Detailed breakdown of SG&A savings realized versus targeted $200M exit rate
• Projected FY2027 capital expenditure composition beyond aggregate $400M estimate
• Resolution of Volkswagen Takata airbag litigation (10-K -- period 2026-02-28, Note 18)
• Outcome of putative securities class action filed November 2025 (10-K -- period 2026-02-28, Note 18)