Been watching Carvana's latest earnings, and there's something interesting happening with their margin story that doesn't get talked about enough.

So here's the thing - their adjusted EBITDA margin actually dipped to 9.1% in Q4 2025 from 10.1% a year ago. On the surface that looks like a step back, but dig into the numbers and it tells a different story. The variable EBITDA margin sat around 7%, but when you look at EBITDA per unit, the year-over-year change was basically flat. They only lost about $14 per unit, which is essentially nothing when you think about scale.

What caught my attention is how management is framing this. They're not panicking about the margin compression. Instead, they're pointing to all this fixed-cost leverage they haven't tapped into yet. The company laid out a pretty straightforward path to 13.5% EBITDA margins, and they're saying fixed-cost leverage alone could add roughly two percentage points over time. That's meaningful if they can pull it off.

The operational side is also improving quietly. They're managing expenses better while simultaneously investing in faster delivery and better service - which usually works against margins. But they're still finding efficiency gains, which suggests there's real room to run.

What's interesting is how this compares to what their competitors are doing. CarMax is going after $150 million in SG&A cuts by end of fiscal 2027, and they already cut their workforce by about 30% to start making that happen. Group 1 Automotive is doing similar restructuring - cutting corporate headcount by another 537 positions and closing facilities. So everyone in auto retail is chasing margin expansion, but they're doing it through different levers.

Carvana's betting on fixed-cost leverage and operational scale, while competitors are more focused on cost restructuring. If Carvana can execute on that EBITDA expansion without sacrificing growth or customer experience, that's a different playbook than what we're seeing elsewhere in the industry.

Valuation-wise, they're trading at a 2.59x forward sales multiple versus the industry at 1.92x, so there's definitely a premium baked in. But if they hit those margin targets and the EBITDA story plays out, that premium might make sense. Worth keeping an eye on how Q1 results look.