CVNA vs KMX ROIC: Auto Retail Turnaround Analysis
Wall Street loves CVNA's +30% ROIC turnaround story. But our 8-quarter trajectory analysis reveals CarMax is in crisis mode: CEO fired December 2025, forced margin cuts, -8% volume decline. The data shows this isn't online vs traditional—it's about execution quality.
Auto Retail ROIC Analysis: CVNA vs KMX Turnaround Comparison
Last Updated: December 31, 2025 Data Currency: Q3 2025 10-Q filings for all companies. CVNA, KMX, AN
TL;DR: Carvana completed a historic turnaround—ROIC swung from -17% to +30% in 8 quarters. CarMax is just beginning its own turnaround: CEO fired December 2025, forced margin cuts to compete, and -8% volume declines. This isn't about online vs traditional business models. It's about execution quality. The most actionable finding: KMX's segment health score is 4/10 vs CVNA's 8/10, with KMX's risk profile actively deteriorating.
Quick Comparison Table
Before diving deep, here's the executive summary of capital efficiency across auto retail:
| Metric | CVNA | KMX | AN | Best |
|---|---|---|---|---|
| ROIC (TTM) | 30.0% | 5.0% | 18.0% | CVNA |
| ROIC Change (2Y) | +47 pts | +0 pts | -4 pts | CVNA |
| Segment Health Score | 8/10 | 4/10 | 6/10 | CVNA |
| Volume Trend | +43.5% | -8.0% | Stable | CVNA |
| Gross Margin | 21.0% | 10.5% | 18.0% | CVNA |
| Operating Margin | 9.8% | ~4% (cutting) | 4.2% | CVNA |
| Risk Direction | Stable | Deteriorating | Stable | CVNA/AN |
| CEO Status | Stable | Fired Dec 2025 | Stable | CVNA/AN |
| Debt Load | $5.06B | $17.4B | N/A | CVNA |
| Business Model | Online-only | Traditional retail | Franchise dealer | - |
Source: SEC 10-Q/10-K filings via MetricDuck. Segment health scores from 5-pass filing intelligence analysis.
ROIC Quality Ratings for Auto Retail
| ROIC Range | Rating | Example | Interpretation |
|---|---|---|---|
| >25% | Excellent | CVNA (30%) | Industry-leading capital efficiency, strong moat |
| 15-25% | Good | AN (18%) | Solid returns above cost of capital |
| 5-15% | Warning | - | Marginal returns, execution risk, limited margin of safety |
| <5% | Red Flag | KMX (5%) | Below cost of capital, potential value destruction |
Segment Health Score: Proprietary MetricDuck rating (1-10) based on revenue trajectory, operating margin trends, management commentary tone, risk escalation patterns, and competitive positioning.
Why Should Investors Compare CVNA and KMX?
The used car market features three distinct business models competing for the same customers:
- Online-only (CVNA): Vertically integrated digital platform—customers buy, sell, and finance entirely online
- Traditional used (KMX): Physical superstores with omni-channel capabilities added later
- Franchise dealers (AN): OEM relationships for new cars plus used car operations
Despite these different models, CVNA and KMX target the same customer: someone buying a 0-10 year old used vehicle. The question isn't which business model is superior—it's which company executes better.
The Headline Metric: ROIC Trajectories
Return on Invested Capital (ROIC) measures how efficiently a company generates profit from capital invested in operations. In auto retail, this primarily means:
- Inventory investment (vehicles on lot or in logistics network)
- Reconditioning facilities (CVNA's inspection centers, KMX's stores)
- Technology platforms (online buying systems, logistics software)
Here's the 8-quarter ROIC trajectory that tells the story:
| Quarter | CVNA | KMX | AN |
|---|---|---|---|
| Q3 2023 | -17.0% | 4.8% | 22.0% |
| Q4 2023 | -9.0% | 5.1% | 20.5% |
| Q1 2024 | +7.0% | 4.9% | 20.0% |
| Q2 2024 | +12.0% | 4.6% | 19.5% |
| Q3 2024 | +17.0% | 4.5% | 19.0% |
| Q4 2024 | +23.0% | 4.7% | 18.5% |
| Q1 2025 | +26.0% | 4.8% | 18.0% |
| Q2 2025 | +28.0% | 5.0% | 18.0% |
| Q3 2025 | +30.0% | 5.0% | 18.0% |
Values represent trailing twelve-month (TTM) ROIC as of each quarter-end. Raw data may include quarterly and annual calculation variants.
The 47-Point Swing: CVNA's ROIC improved by 47 percentage points in 8 quarters—from worst in auto retail to best. KMX remained flat at ~5% despite post-COVID tailwinds that lifted competitors. AN declined from 22% toward normalized 18% levels.
The key insight: This isn't about online vs traditional. KMX and CVNA have the same business model (selling used cars), yet produce wildly different capital returns. The difference is execution quality.
What Drove Carvana's ROIC Turnaround?
Understanding why CVNA improved from -17% to +30% ROIC provides a framework for evaluating whether KMX can replicate it.
2.1 Volume Growth Enabled Operating Leverage
CVNA's turnaround started with volume recovery:
"During the three months ended September 30, 2025, the number of vehicles we sold to retail customers increased by 43.5% to 155,941, compared to 108,651 in the three months ended September 30, 2024." — CVNA 10-Q, Q3 2025
A 43.5% volume increase on a fixed-cost base (logistics network, technology platform, reconditioning centers) generated massive operating leverage:
- Revenue increased 54.5% to $5.647B
- Operating income jumped to $552M
- Operating margin improved to 9.8%
This is classic operating leverage—revenue grows faster than costs because the platform was built for scale that wasn't being utilized.
2.2 Ancillary Revenue Diversification
CVNA doesn't just sell cars. It originates auto loans and sells vehicle service contracts (VSCs) and GAP coverage:
"Other sales and revenues, which primarily includes gains on the sales of finance receivables we originate and sales commissions on complementary products such as VSCs, GAP waiver coverage, and auto insurance totaled $474 million and $326 million during the three months ended September 30, 2025 and 2024, respectively." — CVNA 10-Q, Q3 2025
Ancillary revenue grew 45.4% year-over-year, even faster than vehicle sales. This high-margin revenue stream (finance receivable gains, insurance commissions) boosted profitability without proportional capital investment.
2.3 Gross Margin Advantage
CVNA's 21% gross margin is nearly 2x CarMax's 10.5%. This structural advantage comes from:
- No floor plan financing costs: CVNA's inventory financing is integrated into its capital structure, while KMX pays floor plan interest
- Reconditioning efficiency: Centralized inspection and reconditioning centers vs distributed store-level operations
- Pricing power: Digital-first customers accept transparent pricing; KMX customers comparison shop
2.4 The Capital Efficiency Flywheel
CVNA's turnaround created a virtuous cycle:
- Volume growth → operating leverage → margin expansion
- Higher margins → stronger FCF → debt reduction
- Lower debt → reduced interest expense → further margin improvement
- Improved profitability → better capital access → growth capacity
This flywheel converted a near-bankruptcy (2022) into the highest ROIC in auto retail (2025).
Why Is CarMax in Crisis Mode?
CarMax's situation is the opposite of CVNA's flywheel—a deteriorating cycle that prompted CEO removal and strategic reset.
3.1 The CEO Departure
In December 2025, CarMax announced a leadership change that signals deep concern:
"In November 2025, we announced a change in leadership. Effective December 1, 2025, Bill Nash stepped down from his position as CEO. David McCreight, a member of the board, was named Interim President and CEO. The board is urgently searching for a permanent CEO who can drive sales, maximize the benefits of our omni-channel experience, strengthen our brand, improve operations and champion our culture." — KMX 10-Q, Q3 FY2026
The word "urgently" in a 10-Q disclosure is unusual. Boards don't casually insert urgent language into SEC filings.
3.2 Volume Decline While CVNA Grows
While CVNA grew units 43.5%, KMX contracted 8%:
"The 7.0% decrease in used vehicle revenues in the third quarter of fiscal 2026 was driven by an 8.0% decrease in used unit sales. The decrease in used units included a 9.0% decrease in comparable store used unit sales." — KMX 10-Q, Q3 FY2026
Same market, same customer segment, opposite trajectories. KMX is losing market share:
"While we gained market share in the first half of calendar 2025, sales and market share have been pressured in the second half of the year and we expect market share to decrease for the full calendar year." — KMX 10-Q, Q3 FY2026
3.3 Forced Margin Cuts
KMX acknowledged its pricing is uncompetitive and announced defensive margin cuts:
"Our average selling prices have drifted upward and appear to be less attractive to customers. To ensure that CarMax is a preferred choice, we are meaningfully lowering margins to reduce the gap between our offerings and the marketplace. We plan to support this action by increasing marketing spend." — KMX 10-Q, Q3 FY2026
The Critical Difference: CVNA expanded margins during its turnaround. KMX is cutting margins defensively. Expanding margins from a position of strength creates operating leverage. Cutting margins from a position of weakness compresses profitability without volume recovery guarantees.
3.4 Cost Structure Problems
KMX admitted to bloated costs and announced restructuring:
"We plan to comprehensively review all costs associated with bringing a car to market to find ways to eliminate the unproductive costs while maintaining our reputation of having a high-quality fleet. We are committed to eliminating unproductive costs, with the goal of reducing SG&A expense by at least $150 million by the end of fiscal 2027." — KMX 10-Q, Q3 FY2026
Combined with the CEO change, this suggests entrenched inefficiencies that prior leadership failed to address.
3.5 Segment Health Score: 4/10
Our 5-pass filing intelligence analysis assigns KMX a segment health score of 4/10 vs CVNA's 8/10. Key concerns:
| Concern | Status | Quarters Active |
|---|---|---|
| Leadership change | New (High severity) | 1 |
| Sales price attractiveness | Escalated | 2 |
| Cost management issues | Persistent (High) | 2 |
| Declining unit sales | Persistent (High) | 3 |
| Market share pressure | Escalated | 2 |
KMX has five simultaneous high-severity concerns—the most of any auto retailer we analyze.
How Does AutoNation Compare?
AutoNation provides useful context as a traditional franchise dealer with exposure to both new and used vehicles.
4.1 Normalizing Returns
AN's ROIC declined from 22% to 18% over 8 quarters—a normalization from post-COVID highs rather than a crisis:
- New vehicle gross profit: -15% YoY (margin compression)
- Parts and service gross profit: +7% YoY (stable high-margin segment)
- Finance and insurance: +12% YoY (offsetting vehicle margin pressure)
4.2 Impairment Signals
AN took material impairment charges signaling franchise value erosion:
- Goodwill impairment: $65.3M (Mobile Service segment)
- Franchise rights impairment: $71.7M
These impairments suggest declining value of OEM relationships—potentially a structural shift as manufacturers pursue direct-to-consumer models.
4.3 Segment Health Score: 6/10
AN's 6/10 segment health score reflects stable operations with concerning impairments. Unlike KMX, AN isn't in crisis—but it's not improving either.
Is KMX a Value Trap or Turnaround Opportunity?
The obvious question: Is KMX 2025 like CVNA 2022—a beaten-down stock poised for recovery?
5.1 Parallels to CVNA 2022
| Factor | CVNA 2022 | KMX 2025 |
|---|---|---|
| Stock down | ~90% from peak | ~50% from peak |
| Debt concerns | High ($5B+) | High ($17.4B) |
| Volume trends | Declining | Declining (-8%) |
| Restructuring | Yes (layoffs, cost cuts) | Yes (CEO out, $150M target) |
| Market sentiment | Bankruptcy feared | Turnaround skepticism |
5.2 Critical Differences
| Factor | CVNA 2022 | KMX 2025 |
|---|---|---|
| Margin direction | Held/expanded during cuts | Cutting margins defensively |
| Model advantage | Unit economics superior | Unit economics lagging |
| Debt type | Refinanceable | CAF securitization complexity |
| Operating leverage | Underutilized platform | Mature footprint (limited leverage) |
| Competitive position | Innovative disruptor | Losing to disruptor |
The Structural Problem: CVNA had an underutilized platform that could generate operating leverage on volume recovery. KMX has a mature store footprint with limited operating leverage potential. Cost cuts at KMX mean store closures and workforce reductions—not activating latent platform capacity.
5.3 What KMX Must Execute
For KMX to replicate CVNA's turnaround, it needs:
- New CEO with credible turnaround experience (currently vacant)
- Volume stabilization (currently -8%)
- Margin cuts that drive volume (not proven)
- $150M SG&A reduction without breaking operations (announced but not executed)
- CAF credit quality stability (tied to consumer health)
5.4 Metrics to Monitor
Investors considering KMX should track:
- Unit sales trajectory: Must stabilize before improvement
- Gross profit per unit: After margin cuts, does GPU hold?
- CEO appointment: Credibility and turnaround track record
- SG&A progress: Quarterly updates toward $150M target
- CAF allowance for loan losses: Credit quality indicator
Who Has More Risk: CVNA, KMX, or AN?
6.1 CVNA Risks
| Risk | Severity | Detail |
|---|---|---|
| Debt load | High | $5.06B, but generating $500M+ quarterly FCF |
| SEC subpoena | Medium | Related to short-seller report, ongoing investigation |
| Competitive | High | KMX and traditional dealers fighting back |
| DriveTime relationship | Medium | Related party transactions with affiliate |
| Regulatory | High | Title/registration process compliance in 50 states |
Overall CVNA Risk Score: 3/5 (Moderate, stable)
6.2 KMX Risks
| Risk | Severity | Detail |
|---|---|---|
| Competitive pricing | High | "Less attractive to customers," forced margin cuts |
| Leadership vacuum | High | CEO out, searching "urgently" for replacement |
| Volume decline | High | -8% unit sales, -9% comparable store |
| CAF credit exposure | Medium | $16B non-recourse notes tied to loan performance |
| Cost structure | High | $150M SG&A reduction required |
Overall KMX Risk Score: 4/5 (Elevated, deteriorating)
6.3 AN Risks
| Risk | Severity | Detail |
|---|---|---|
| Franchise value erosion | Medium | $137M in impairment charges |
| New vehicle margin | Medium | -15% gross profit decline |
| OEM relationships | Medium | Manufacturer direct-to-consumer pressure |
Overall AN Risk Score: 2.5/5 (Low-moderate, stable)
What Hidden Liabilities Should Investors Know About?
7.1 CVNA Hidden Liabilities
| Item | Amount | Concern Level |
|---|---|---|
| Total debt | $5.06B | Moderate (declining, refinanced) |
| SEC subpoena | Unknown | Watch |
| DriveTime related party | Ongoing | Minor |
CVNA's debt is manageable given FCF generation. The SEC investigation is a monitoring item but hasn't resulted in charges.
7.2 KMX Hidden Liabilities
| Item | Amount | Concern Level |
|---|---|---|
| Total debt | $17.4B | Elevated |
| Non-recourse CAF notes | $16B | Tied to loan performance |
| Restructuring charges | $0.08/share | One-time (Q3) |
KMX's debt is dominated by CarMax Auto Finance securitizations. These are non-recourse to KMX (lenders can't pursue other KMX assets), but CAF profitability is material to consolidated results.
7.3 AN Hidden Liabilities
| Item | Amount | Concern Level |
|---|---|---|
| Goodwill impairment | $65.3M | Signals value decline |
| Franchise rights impairment | $71.7M | OEM relationship concerns |
| Insurance recoveries | +$30.2M | One-time benefit (CDK outage) |
AN's impairments signal declining franchise value—a structural concern for the dealer model if OEMs pursue direct sales.
What Should Investors Do Now?
For CVNA Holders
Verdict: Strong position, monitor for sustainability
Key metrics to watch:
- Volume growth continuation (target: 20%+ YoY)
- Operating margin stability (current: 9.8%)
- Debt reduction trajectory
- Ancillary revenue mix expansion
Risk: Competitive response from KMX's margin cuts could pressure CVNA's pricing power.
For KMX Watchers
Verdict: Wait for execution evidence before entry
Required signals:
- Credible new CEO appointment
- Unit sales stabilization (currently -8%)
- Gross profit per unit holding after margin cuts
- Progress toward $150M SG&A reduction
Risk: This could be a value trap. KMX lacks the operating leverage that enabled CVNA's recovery.
For Sector Watchers
Verdict: Auto retail is bifurcating
Traditional dealers (AN, LAD, ABG) are normalizing from post-COVID peaks. The 2021-2022 used car boom created unsustainable margins that are reverting to historical levels.
The structural question: Does CVNA's online model represent the future, or is it a cyclical winner that benefited from unique circumstances?
Methodology
Data Sources
All financial data sourced from SEC 10-Q and 10-K filings via MetricDuck. Filing intelligence generated using our proprietary 5-pass analysis framework:
- MD&A Narrative Analysis — Management commentary extraction
- Accounting Quality Assessment — Earnings quality scoring (1-10)
- Hidden Liabilities Scan — Off-balance sheet exposure identification
- Risk Landscape Mapping — Risk evolution tracking
- Segment Performance Analysis — Driver decomposition
ROIC Calculation
ROIC = NOPAT / Invested Capital
Where:
- NOPAT = Operating Income × (1 - Tax Rate)
- Invested Capital = Total Assets - Non-Interest-Bearing Liabilities
Trailing twelve-month (TTM) figures used for all calculations.
Segment Health Score
Proprietary 1-10 score based on:
- Revenue trajectory
- Operating margin trends
- Management commentary tone
- Risk escalation patterns
- Competitive positioning
Company Quick Links
Track these companies on MetricDuck:
- Carvana (CVNA) — ROIC, margins, cash flow
- CarMax (KMX) — Segment performance, CAF metrics
- AutoNation (AN) — Franchise dealer benchmark
- Lithia Motors (LAD) — Omni-channel dealer comparison
- Asbury Automotive (ABG) — Regional dealer benchmark
Explore More ROIC Analysis
This article is part of our comprehensive ROIC Analysis Hub, which covers sector benchmarks, peer comparisons, and capital efficiency screening frameworks.
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- ROIC Stock Screening Framework — 938-company benchmarks across 11 sectors
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- E&P ROIC Rankings — Why Devon beats Exxon by 4x
Disclaimer
This analysis is for informational purposes only and does not constitute investment advice, a recommendation to buy or sell securities, or an offer to buy or sell securities. The data presented is sourced from SEC filings and may contain errors or omissions. Past performance does not guarantee future results.
Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions. MetricDuck and its authors may hold positions in the securities discussed. The opinions expressed are subject to change without notice.
ROIC calculations and segment health scores are based on MetricDuck's proprietary methodology and may differ from other sources.
MetricDuck Research
CFA charterholders and former institutional equity analysts