●  CARMAX INC · FY 2026 

Market Risk

A significant portion of non-recourse funding vehicles used by CARMAX INC is vulnerable to shifting market interest rates. Stress testing indicates that a 100-basis point rise in these specific rates could materially impact profitability, projected to decrease fiscal 2026 net earnings per share by approximately $0.17. While the company employs derivative instruments for mitigation across its debt structures, this analysis highlights where interest rate volatility poses the most pronounced financial risk.

KMX L1 Synthesis
●  SYMBOLOGY.ONLINE l1 SYNTHESIS 

Carmax Inc Market Risk Synthesis

Quantitative Market Risk Assessment: CARMAX INC

This report synthesizes an assessment of CARMAX INC's exposure to market-driven financial risks based on the provided Item 7A disclosure from the 10-K filing for the period ending February 28, 2026.

Interest Rate Sensitivity

CARMAX faces interest rate risk across two primary areas: non-recourse funding vehicles and other corporate debt.

Non-Recourse Notes Payable Exposure

  • Magnitude of Exposure: The company utilizes variable-rate debt primarily through warehouse facilities, which constituted $4,444.7 million in 2026, down from $6,186.7 million in 2025. Total non-recourse notes payable decreased to $15,827.6 million (from $17,119.8 million).
  • Mitigation Strategies: The company employs derivative instruments to manage the difference between expected cash receipts and payments related to funding auto loans.
  • Quantitative Measures/Stress Test: A 100-basis point increase in market interest rates associated with non-recourse funding vehicles is projected to decrease fiscal 2026 net earnings per share by approximately $0.17.
  • Assessment: The company demonstrates a proactive approach by using derivatives for mitigation, but the stress test indicates that significant rate increases could materially impact earnings.

Other Debt Exposure

  • Magnitude of Exposure: Borrowings under the revolving credit facility and term loan are substantially variable-rate (based on SOFR).
  • Mitigation Strategies: Derivative instruments are used to mitigate a portion of this variable-rate risk.
  • Quantitative Measures/Stress Test: A 100-basis point increase in market interest rates is projected to decrease fiscal 2026 net earnings per share by approximately $0.04.
  • Assessment: While the exposure exists, the impact of a 100-basis point rise on earnings ($0.04 EPS) is significantly less severe than the risk associated with non-recourse notes payable ($0.17 EPS), suggesting effective partial mitigation.

Foreign Currency Exposure

  • Exposure and Mitigation: No specific disclosures regarding foreign currency exposure, involved currencies, or related hedging strategies were provided in the filing excerpt.
  • Assessment: The company's risk profile appears domestically focused based on this disclosure.

Commodity Price Risk

  • Exposure and Mitigation: No information was disclosed regarding key commodities, contract structures, or the impact of commodity price fluctuations on CARMAX’s margins.
  • Assessment: This risk category is not addressed in the provided text.

Equity Price Risk

CARMAX's exposure to equity price changes is primarily related to compensation expense rather than investment portfolio valuation.

Compensation Expense Sensitivity

  • Magnitude of Exposure: The company has sensitivity due to cash-settled restricted stock units (liability awards).
  • Mitigation Strategies: No specific mitigation strategies were disclosed for this liability risk.
  • Quantitative Measures/Stress Test: A 10% increase in the company's stock price was projected to have no impact on fiscal 2026 net earnings per share, suggesting a current lack of material sensitivity under that scenario.
  • Assessment: The disclosure highlights an inherent sensitivity risk related to compensation liabilities, though the immediate quantitative stress test shows limited financial impact from a moderate stock increase.

Quantitative Measures and Other Exposures

Pension Plan Interest Rate Risk (PBO)

  • Exposure: The pension plan carries interest rate risk related to its Projected Benefit Obligation (PBO).
  • Quantitative Measures/Stress Test: A 100-basis point change in the discount rate has approximately a 13% effect on the PBO balance. Conversely, a 100-basis point decrease would reduce net earnings per share by less than $0.01.
  • Assessment: The company quantifies this risk, showing that while changes affect the PBO significantly (13%), the impact on current year net earnings is minimal under a rate decrease scenario.

Value-at-Risk (VaR) and Sensitivity Tables

  • Disclosure Status: Specific quantitative measures such as Value-at-Risk (VaR) or detailed sensitivity tables beyond the EPS stress tests provided were not disclosed in this excerpt.
  • Assessment: The company relies on specific, scenario-based stress testing (e.g., 100-basis point rate increases) rather than disclosing standardized VaR metrics.