CarMax (KMX) Targeted: Activist Starboard’s $350M Stake, Board Nominees

Used-car retailer CarMax KMX -0.85% ▼ faces pressure after activist investor Starboard Value disclosed a $350 million stake and nominated two directors to its board. Starboard is urging CarMax to enhance its digital customer experience, accelerate cost-cutting, and alter its pricing mechanism, according to a Bloomberg report.

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Starboard nominated its own founder and CEO Jeffrey Smith as well as Bill Cobb, the CEO ​of home warranties provider Frontdoor FTDR -2.53% ▼ to join CarMax’s nine-member board. This marks Starboard’s second activist push in days. On March 9, it revealed a stake in frozen-potato maker Lamb Weston LW -2.78% ▼ to aid its turnaround.

Why KMX Stock Fell 42% Over the Past Year

CarMax stands as the largest used-car retailer in the U.S., moving over one million vehicles annually through retail and wholesale channels via its highly scalable omnichannel platform. The company generates more than $26 billion in yearly revenue, but its stock has tumbled 42% over the past 12 months amid a tough market for used cars. KMX shares closed at $42.14 on Tuesday, giving the company a market cap of nearly $6 billion.

CarMax faces intensifying rivalry from online disruptor Carvana CVNA -2.89% ▼ and traditional giant AutoNation AN -0.88% ▼ . The U.S. used-car market remains sluggish, with high interest rates curbing buyer demand and wholesale prices down 15% year-over-year from 2024 peaks. Additionally, inventory levels have risen to millions of units amid softening new-car competition, squeezing margins for retailers like CarMax.

These Are the Changes Starboard Seeks

On Tuesday, Starboard sent a letter to CarMax CEO Keith Barr, outlining its vision for unlocking the company’s potential. Barr, who drove a successful digital transformation and boosted customer experience as CEO of InterContinental Hotels Group IHG -0.52% ▼ from 2017 to 2023, now faces pressure to replicate that success at CarMax.

Starboard urged Barr and the board to leverage the company’s strong omnichannel model, blending online sales with 250 physical lots for lasting market share gains. According to a source familiar with the letter, this requires boosting the digital user experience, cutting costs, and introducing dynamic pricing to adapt to market swings.

Starboard pinpointed $300 million in potential savings from administrative and operations costs, arguing these tweaks could make the hybrid model more profitable and customer-friendly.

Is KMX a Good Stock to Buy?

Analysts remain sidelined on CarMax stock due to the ongoing challenges. On TipRanks, KMX has a Hold consensus rating based on one Buy, 10 Holds, and three Sell ratings. The average CarMax price target of $36.56 implies 13.2% downside potential from current levels.

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