Canyon Edge - $KMX & $DRI Earnings, Crowding

Welcome to the 4th edition of Canyon Edge - in this edition we talk about CarMax and Darden Restaurants’ upcoming earnings reports, take a look at how Darden trades around earnings, and what crowding is.

Earnings Intelligence

$DRI | Friday, Jun 20 - Q4 2025 Earnings

Sell-side Consensus Estimates (YoY):

Revenue: $3.25B (+9.96%)

EBITDA: $577M (+10.48%)

EPS (Adjusted): $2.94 (+10.92%)

Sentiment Check:

4 Strong Buys / 14 Buys / 12 Holds / 1 Sell / 0 Strong Sells

Sentiment around Darden is strong right now. Jefferies, Guggenheim, Oppenheimer, and a bunch of others have all upgraded the stock recently. Investors are getting bullish because brands like Olive Garden and LongHorn are picking up momentum, holiday sales hit records, and the Uber Direct partnership is pushing bigger delivery orders. The stock’s already up 16.5% this year, and analysts keep raising price targets and earnings estimates.

What to watch: 

The main thing analysts are going to be focused on is same-store sales at Olive Garden and LongHorn. Last quarter, they both missed expectations, Olive Garden came in at +0.6% vs. 1.5% expected, and LongHorn was +2.6% vs. 5.0%. A bounce-back in these numbers will be important for sentiment.

The other big focus is FY2026 EPS guidance. Right now, it’s sitting at $10.80 (Guggenheim), and analysts are looking for either confirmation or a possible raise.

Desk Color:

Morgan Stanley: “Maintaining OW view here, with thinking behind that little changed and results speaking to some of DRI's advantages. Demand comments relatively positive, all things considered, though we'll continue to watch how this evolves in the coming months. Numbers, PT up modestly here.”

$KMX | Friday, June 20 – Q1 FY2026 Earnings

Sell-side Consensus Estimates (YoY):

Revenue: $7.56B (+6.30%)

Net Income: $187M (+22.46%)

EPS (Adjusted): $1.20 (+22.52%)

Sentiment Check:

Ratings: 4 Strong Buys / 8 Buys / 4 Holds / 0 Sell / 3 Strong Sell

What to Watch:

1. Sales will indicate a lot

CarMax has experienced stronger retail sales recently, but investors are eager to know if this trend will continue into Q1 earnings. They will be paying close attention to store traffic, pricing on used cars, and same-store sales. Changes in wholesale activity and how much people are willing to pay, especially with focus interest rates, will give a better read on where demand stands currently.

2. Margins, another key indicator

CarMax hit a record in Q4 with $2,322 in gross profit per used car sold, which was a $72 increase per car. Investors are watching to see if that kind of margin can continue or if it was just a one-time peak. Payment plans from CarMax Auto Finance will also be important, especially how much they're earning on loans and whether customers are starting to miss payments. If credit checks slip or profit from loans start to shrink, that could hurt the stock.

3. Cost Control

Investors are paying close attention to how much CarMax is spending, especially on things like tech and staffing, which were higher last quarter. The key question is whether those costs are starting to come back down. If sales keep growing, the company needs to show it can control expenses and operate more efficiently to keep boosting profits.

Desk Color:

Evercore ISI: “CarMax’s retail used unit comps and margins are expected to improve, driven by the widening gap in pricing between new and used vehicles, which is anticipated to bolster demand”

Invest like a PM - What Really Matters Heading Into Earnings for Darden

The Setup:

Darden is set to report earnings on Friday, June 20, after the close. Revenue, EBITDA, and EPS expectations are slightly elevated compared to historical trends, which suggests analysts are pricing in strong performance.

Given Darden’s premium valuation, trading at around 12x estimated 2026 EBITDA versus its historical average of 11.5x, and the fact that the stock is sitting near all-time highs, the bar is high. It’ll be important for the company to deliver results above consensus to justify the current multiple and maintain momentum.

Uber Direct

Watch closely to see how Darden’s partnership with Uber Direct impacts sales, as delivery orders have been growing steadily week over week. Analysts view this partnership as a key catalyst that could significantly boost future sales. If this momentum holds, it could be a major driver of revenue growth moving forward and improve overall sales performance.

Profitability

Despite some revenue shortfalls, Darden was able to offset those with lower general and administrative (G&A) expenses, which helped maintain strong restaurant-level margins. Analysts see this cost control as a positive, so they will be watching to see if Darden can sustain these G&A efficiencies.

Chuy’s Integration

Total sales in the “Other” segment jumped 20.2% last quarter, mostly driven by the Chuy’s acquisition, but since Chuy’s isn’t included in same-store sales yet and won’t be until Q4 FY2026, investors will be watching how the integration is coming along, including supply chain and POS updates, and whether Chuy’s can actually help drive more consistent growth once it’s fully part of the system.

Analyst Mode

What is crowding?

Crowding refers to a scenario in which a large number of hedge funds (or other institutional investors) hold the same or similar positions—often in the same stocks, sectors, or strategies. This phenomenon has become more pronounced in recent years due to the widespread use of similar data sources, investment models, and themes across funds. While crowding can lead to strong performance in the short term when trades are working, it also introduces several risks and structural vulnerabilities.

Why Crowding Happens

There aren’t that many unique opportunities

In highly efficient markets like U.S. equities, truly unique ideas are hard to come by. With so many hedge funds looking for an edge, it’s not surprising that a lot of them end up landing on the same trades, especially when the potential upside is clear and the stock is liquid enough to handle big positions.

Following the leaders

When a well-known manager or top-performing fund takes a position, it tends to attract attention. Whether it’s the Tiger Cubs or other big-name players, smaller or newer funds often follow their lead, hoping to ride the same wave. That copycat behavior adds to the crowding.

Same data, same conclusions

The rise of alternative data—like credit card spending, web traffic, or satellite images—was supposed to give funds an edge. But now that many firms have access to these tools, they often end up interpreting the data the same way. That can drive a herd of funds into the same trades at the same time.

For a while, hedge funds were heavily invested in big tech names like Facebook, Apple, Amazon, Netflix, and Google. These companies had strong business models, steady growth, and were seen as safe bets, especially during long bull markets. As more funds bought in, these stocks became some of the most crowded trades in the market.

That kind of positioning can work great when tech is leading the way. But when things started to shift—whether it was interest rates moving higher, regulatory pressure, or a general rotation out of tech; those same positions quickly turned risky. Since so many funds were in the same names, any weakness in the sector led to fast and painful sell-offs.

It showed how even high-quality companies can become dangerous trades when too many investors are on the same side. The crowding made these positions fragile, and when the exit door got crowded, prices moved a lot faster than fundamentals might suggest.

Thanks for reading the 4th edition of the Canyon Edge, as always - subscribe for more and all inquiries should be directed to;

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