Shares in used-car retailer Carvana Inc. soared in Thursday trading after the struggling company said its operations are improving in the second quarter. The company’s stock was up 55% at 2:38 p.m. in New York.
Carvana didn’t give guidance for net income but said adjusted earnings before interest, taxes, depreciation and amortization would be $50 million in the current quarter — way above the consensus analyst estimate of a $3.6 million loss — and gross profit per unit would be a record of more than $6,000.
The forecast could be an indicator that Carvana’s cost-cutting plan is starting to trim losses. When the company reported earnings last month, it showed improved results in the first quarter after heavy losses in 2022 and announced a plan to throttle back growth.
“We’ve been making a ton of progress,” Carvana Chief Executive Officer Ernest Garcia III said during an investor presentation. “We’ve made a lot of aggressive moves in the past year. I think it’s starting to show up in results.”
Carvana’s $8.7 billion debt load as of March 31 has been a big problem for the company, which recently scrapped a debt exchange offer that would have reduced its burden because creditors held out for a better deal.
“Without a doubt, today’s update is positive,” Wells Fargo & Co.’s Zachary Fadem wrote in a note on Thursday. But, the analyst said, loan sales are driving the improved guidance, rather than more substantive improvements to Carvana’s business.
The interest on Carvana’s debt cost the company more than $2,000 per car in the first quarter, which is one reason it reported a loss of $286 million despite gross profit per vehicle sold of more than $4,000. The retailer was helped by a $46 million swing in “other assets” and stretched out payments terms. Results were also padded by $123 million by a change in the company lease assets, which may not be something the company can easily repeat.
Still, the updated guidance is a sign that cost cuts are taking hold. The company had said its earnings before interest, taxes, depreciation and amortization would move positive and now expects it to be even better.
“We are impressed with Carvana’s ability to improve its non-GAAP operating metrics as the shift to profitability, while sacrificing growth, has realized benefits faster than we anticipated,” Stephens Inc. analyst Daniel Imbro said in a note Thursday. “The near-term setup is positive, and we expect strength to be bought today as investors extrapolate these results” toward 2024.
--With assistance from Esha Dey.
(Updates with share prices move in the first paragraph and analyst comments from sixth paragraph)
