Carvana Surges as Used-Car Retailer’s Profit Tops Estimates

(Bloomberg) — Carvana Co. topped Wall Street’s profit expectations in the final months of 2023 and said it expects improved earnings this quarter, sending its shares up as the used-car retailer defies the challenges of high interest rates and inflation.

Most Read from Bloomberg

Adjusted earnings before interest, taxes, depreciation and amortization were $60 million in the fourth quarter, the company said Thursday in a statement. Analysts had expected an average of $58.6 million in estimates compiled by Bloomberg. Revenue was $2.42 billion, slightly below expectations.

Carvana’s improvements come after a year of retrenchment and debt reduction, but the retailer will likely burn cash this year. The persistent debt burden still leaves the company with large interest payments and the need to control costs.

The company’s gross profit per unit rose to more than $5,500 from $3,022 in 2022.

“They are giving themselves a chance to get through the pricing disruption in the marketplace,” said Freedom Capital Markets analyst Mike Ward. “But they’re still burning too much cash.”

He expects the company to go through $1.7 billion this year and next.

Carvana’s shares jumped 20% as of 6:15 p.m., after regular trading in New York. Ward said the advance may due in part to short sellers, who hold 33% of the shares, covering positions. The stock slipped 1% this year through Thursday’s close.

The company has net debt of $5 billion, down more than $1 billion. Carvana’s interest payments rose to $632 million, from $486 million a year earlier, costing the retailer $2,000 per vehicle sold last year.

Without a one-time gain of $878 million from extinguishing $1.2 billion in debt, the company would have reported a net loss of $728 million.

Profit Gain

Still, the company expects its profits to improve. While Carvana said “the macroeconomic and industry environment continues to be uncertain,” it forecast first-quarter adjusted Ebitda “significantly above” $100 million.

The online car seller has lowered costs in recent quarters and restructured some debt to lower interest payments. Carvana has sought to regain its financial footing and resume growing after an ill-fated expansion several years ago.

Gross profit per unit was $5,283 last quarter, more than double the total from a year earlier but down slightly from the prior quarter. Carvana had said it expected the figure to remain above $5,000 in the fourth quarter but warned of a sequential decline in retail unit sales due to industry and seasonal patterns.

Retail units sold last quarter fell to 76,090, missing analysts’ estimates. The company expects the figure to be “slightly up” in the first three months of 2024 from a year ago.

(Updates with debt numbers and analyst comments starting in the third paragraph)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.

Source link