Carnival and CarMax Pop on Strong Earnings, but Challenges Remain

Key Points

• Carnival posted record quarterly revenue and net income as 2027 bookings reached record occupancy and pricing levels.
• CarMax beat fiscal second-quarter expectations as vehicle sales rose and profitability improved sharply from a year earlier.
• Carnival and CarMax still face company-specific and macroeconomic headwinds, but their results show pockets of resilience in the consumer discretionary sector.

It’s been a challenging year for consumer discretionary stocks. Through nine months of 2026, they have performed the worst among the S&P 500’s 11 sectors, posting a year-to-date (YTD) loss of nearly 9%.

But on Tuesday, Sept. 29, strong earnings from two companies at opposite ends of the consumer cyclical spectrum provided investors with a glimmer of hope that a late-year turnaround could be in the cards.

Headwinds Facing Consumer Discretionary Stocks Remain in Place

When purchasing power is eroded, the consumer discretionary sector is among the most likely to feel that fallout. Such is the case this year, as the Trump administration’s tariff policies have resulted in some clear winners and losers.

With inflation remaining elevated, the Consumer Price Index (CPI) reading remains above the Federal Reserve's 2% target. Much of that has been driven by surging energy prices amid the war in Iran.

But when you drill down into the numbers, it’s evident that consumers’ budgets are also under pressure when it comes to non-essential purchases, which don’t command spending like sectors with inelastic demand, including consumer staples, healthcare, and utilities.

According to the U.S. Bureau of Labor Statistics, August’s headline inflation was 3.4% year over year. But the CPI report also showed that food away from home increased 3.4%, apparel increased 3.6%, and airfare increased 23.4% from a year earlier.

However, for the following two companies, many of those challenges—which weighed heavily on their respective stock performances earlier in the year—could be in the rearview mirror.

Carnival Cruises to a Q3 Double Beat

Cruise prices have been trending downward amid pockets of softer near-term demand. But while some major cruise lines are offering deals to get passengers on board, such as select $80-per-night fares, those companies are maintaining margins through increased add-ons like shore excursions, beverage and dining packages, WiFi connectivity, and spa and wellness services.

That materialized when Carnival NYSE: CCL reported strong Q3 earnings on Sept. 29, resulting in shares climbing about 13% on the day. The company—which owns and operates a portfolio including Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, Cunard, P&O Cruises, P&O Cruises Australia, AIDA Cruises, and Costa Cruises—beat on the top and bottom lines.

Earnings per share (EPS) of $1.43 topped the consensus estimate of $1.35, while revenue of $8.44 billion surpassed analysts’ expectations of $8.39 billion. The earnings beat extended Carnival’s streak of quarterly EPS beats dating back to Q4 2022, while the revenue beat was its second in three quarters. Quarterly revenue and net income both hit record levels.

In his comments on the earnings call, CEO Josh Weinstein highlighted that improved booking trends that began in Q2 continued throughout Q3. Carnival also noted growth opportunities from its destination portfolio—particularly Celebration Key, which is expected to welcome approximately 3.5 million guests next year as more ships and brands begin calling there. The company is also increasing its exposure to Europe, particularly Northern Europe; Europe as a whole will tie the Caribbean as its largest deployment region in 2027.

Management expects residual booking disruption to weigh on the first quarter of 2027, while the new Carnival Rewards program will create accounting-related yield headwinds through 2027 before turning positive in 2028. Higher fuel prices also remain a headwind, although Carnival plans to continue relying on reductions in fuel consumption.

Weinstein added that Carnival is already turning its attention to next year, with 2027 “already half booked with both occupancy and pricing at record levels.”

Of the 28 analysts currently covering CCL, 22 assign it a Buy rating. Overall, it receives a consensus Moderate Buy rating alongside an average 12-month price target of $34.14—welcome news after shareholders endured a nearly 36% loss from the stock’s YTD high on Feb. 6 through its YTD low on Sept. 24

CarMax’s Comeback Story Continues

Shares of used vehicle retailer CarMax NYSE: KMX had already been undergoing a resurgence in the lead-up to its Q2 fiscal year 2027 earnings report on Sept. 29. A double beat added fuel to that fire, pushing the stock about 5% higher on the day and bringing its gain to more than 63% after hitting a YTD low on May 19.

Used car prices remain historically elevated. But according to data from the Federal Reserve Bank of St. Louis, they have come down 16.56% since their all-time high in February 2022. August’s CPI report showed that trend continuing, with used car prices undergoing deflation and having fallen 2.3% year over year (YOY).

That, among other factors, has helped CarMax bounce back after losing more than 76% from its five-year high before this year’s rally gained traction. The company’s vehicle sales accelerated in the quarter, and earnings improved sharply from a year earlier. That resulted in EPS of $1.16, easily topping the consensus estimate of 73 cents, and revenue of $7.88 billion exceeding analysts’ expectations of $7.09 billion.

The earnings beat was CarMax’s sixth in seven quarters. In his comments on the earnings call, CEO Keith Barr highlighted the company’s 81% YOY EPS growth and YOY total vehicle sales growth of 15%.

But headwinds remain. CarMax still faces pressure from vehicle affordability, interest rates and lower per-unit margins, making continued execution important. Management expects fiscal 2027 retail gross profit per unit to decline by less than previously projected, but still anticipates YOY declines in both Q3 and Q4. That has contributed to a consensus Reduce rating and an average 12-month price target of $56.71, which is roughly in line with the stock’s current price.