Starboard Takes $350 Million Stake in CarMax, Seeks Cost Cuts and Digital Revamp

Activist hedge fund Starboard Value has built a roughly $350 million stake in CarMax Inc. and is pressing the country’s largest used-car retailer to cut costs, overhaul its digital platform and sharpen pricing, setting up one of the highest-profile boardroom battles in the auto retail sector in years.

In a filing with the Securities and Exchange Commission on March 11, Starboard disclosed that it owns close to 6% of CarMax’s stock, including shares and derivative exposure, and said it has nominated two directors for election at the company’s 2026 annual meeting. The move was accompanied by a public letter to Keith Barr, who is scheduled to take over as CarMax president and chief executive on March 16.

Unlike some past activist campaigns that began with calls to oust management, Starboard praised the board’s choice of Barr, the former chief executive of InterContinental Hotels Group, even as it criticized CarMax’s recent performance.

“We believe CarMax’s omnichannel model and national store footprint are structurally superior, but that execution has fallen short of the company’s potential,” Starboard wrote in the letter, filed as soliciting material on Schedule DFAN14A. The hedge fund said the stock is “meaningfully undervalued” and argued that better cost discipline and a stronger digital offering could unlock substantial shareholder value.

CarMax, based near Richmond, Virginia, confirmed it had received Starboard’s letter and notice of director nominations. In a statement published the same day, the company said it has had “productive” discussions with the hedge fund and reiterated its support for Barr.

“The Board regularly reviews the Company’s strategy, performance, capital allocation priorities and governance, and is committed to acting in the best interests of CarMax and all of its shareholders,” the company said. “We agree that Keith is the right leader to drive CarMax forward.”

CarMax said its board will present its formal recommendation on Starboard’s nominees in its proxy materials and advised shareholders that they “do not need to take any action at this time.”

A fallen market leader

CarMax built its brand on no-haggle pricing and a network that now spans more than 250 stores across the United States. The company sold about 790,000 used vehicles at retail and 540,000 units through wholesale channels in its fiscal year ended Feb. 28, 2025, and operates a sizable in-house lending arm, CarMax Auto Finance.

The stock, however, has tumbled from pandemic-era highs. After trading near $155 a share in late 2021, CarMax’s shares slid into the low $30s in late 2025 as higher interest rates, weakening demand and a sharp reversal in used-vehicle prices squeezed margins and volumes. The company has cited instances where wholesale prices fell roughly $1,000 per car in a single month.

CarMax shares fell about 53% in 2025 alone. The stock has recovered some ground this year but remains down sharply from its peak. Following Starboard’s disclosure, the shares rose in early trading on March 11 and recently changed hands around the mid-$40s, still well below their 52-week high.

Amid the slump, CarMax replaced longtime chief executive Bill Nash in November 2025. Director David McCreight stepped in as interim CEO, while executive chair and former CEO Tom Folliard took a more hands-on role. In February, the board named Barr as the next chief executive, citing his experience in digital transformation and customer experience at the hotel group.

“Keith is a proven leader with deep expertise in building customer-centric, digitally enabled businesses,” Folliard said when Barr’s appointment was announced on Feb. 12.

Starboard seeks a foothold, not control

Starboard, led by chief executive and chief investment officer Jeffrey C. Smith, is one of the most prominent activist investors in the United States. The New York firm is known for detailed operational agendas and combative campaigns, including a 2014 proxy fight at Darden Restaurants in which shareholders backed Starboard’s entire 12-person slate and removed the incumbent board.

At CarMax, Starboard has put forward a far narrower set of demands. It is seeking two board seats rather than a majority and has signaled that it wants to work with, not against, the incoming CEO.

The fund nominated Smith and William C. “Bill” Cobb, a veteran executive who serves as chief executive of home-services company Frontdoor Inc. and previously led H&R Block Inc. Cobb also held senior roles at eBay Inc. and PepsiCo Inc.

Starboard said its nominees would bring “fresh perspectives and relevant experience” in consumer brands, digital services and operational turnarounds.

Digital, cost and pricing overhaul

Starboard’s letter lays out a multi-pronged critique focused on CarMax’s digital execution, selling, general and administrative expenses, and pricing strategy.

The hedge fund argued that while CarMax has invested heavily in an omnichannel model—letting customers research, finance and complete transactions online or in store—the company’s online experience has too many steps and friction points. It suggested that the current trade-in and purchase flow discourages customers from completing transactions digitally.

“There are significant opportunities to simplify and streamline the online experience to increase conversion,” Starboard wrote, adding that CarMax should use data and customer testing to redesign its website and mobile interfaces.

The fund also called for a “substantially expanded SG&A reduction program,” saying CarMax’s costs have outgrown its revenue. Public commentary on the letter by Starboard and analysts familiar with the campaign suggest the investor believes the company could trim as much as $300 million from administrative and operational expenses and hold SG&A to roughly 70% to 75% of gross profit.

CarMax has already carried out two waves of layoffs in less than two years, including the elimination of about 415 logistics and corporate roles in 2024 and roughly 350 customer service positions in late 2025. The company has said those cuts were part of efforts to align its cost base with demand.

Starboard acknowledged that some restructuring has taken place but argued that more can be done, including using artificial intelligence and automation to streamline internal processes, reduce manual work and modernize technology systems.

On pricing, Starboard said CarMax’s vehicles have been too expensive relative to competitors at a time when used-car values have been falling and consumers are more sensitive to monthly payments. It urged the company to adopt more dynamic, market-based pricing tools that respond quickly to local supply, demand and wholesale trends.

The fund suggested cutting average vehicle prices by about $100 to $300 per unit, funded by cost savings, to win back customers without eroding profitability.

New CEO in the spotlight

Barr will take the helm just as Starboard’s campaign gathers momentum, placing him at the center of negotiations between the company’s board and one of Wall Street’s most influential activists.

CarMax has said Barr will focus on sharpening the company’s strategy, investing in its technology platform and improving execution across its retail and finance businesses. In its statement on March 11, the company emphasized that it has already begun taking “necessary steps” to improve performance.

Analysts say Starboard’s involvement could accelerate those plans, but they also caution that broader economic conditions may limit how much a management shake-up and cost program can achieve.

In a note to clients after the stake was disclosed, JPMorgan maintained an “underweight” rating on CarMax, pointing to continued pressure from higher interest rates, competitive dynamics and volatility in used-vehicle prices. Other firms have echoed that view while acknowledging that governance changes and a clearer strategy could improve investor sentiment.

What comes next

Procedurally, CarMax is expected to file its proxy statement for the 2026 annual meeting, typically held in June, in the coming weeks. Starboard has said it plans to submit a preliminary proxy statement and to use a universal proxy card, a newer system that lists both the company’s and the activist’s nominees on a single voting card.

That framework makes it easier for shareholders to elect some, but not all, of an activist’s picks, increasing the odds that Starboard could secure at least one seat even if investors back most of the incumbent board.

The two sides could also reach a settlement before the meeting, a common outcome in recent activist campaigns. Such agreements often give the investor one or more board seats and a say in strategic reviews in exchange for standstill commitments.

For CarMax’s roughly 30,000 employees and millions of customers, the outcome could be significant. Deeper cost cuts might mean more restructuring at call centers, logistics operations and stores. A stronger digital platform and lower prices, if achieved, could change how Americans buy and finance used cars at a time when affordability is a growing concern.

For now, both the board and its new shareholder say they share the same goal: restoring CarMax to growth and rebuilding value after a bruising downturn. Whether that cooperation endures through proxy season will determine how much influence Starboard ultimately gains over the used-car giant’s future.