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Shares of Carvana Co. were surging nearly 30% in morning trading Wednesday after the used-car retailer easily topped sales expectations for its latest quarter and announced a deal with bondholders to restructure its debt.
The company disclosed that it has reached an agreement with bondholders that will eliminate more than 83% of Carvana’s
CVNA,
2025 and 2027 unsecured-note maturities and reduce its required cash interest expense by more than $430 million annually over the next two years.
“The strong performance of our business in 2023 presented an opportunity for an impactful and win-win transaction for Carvana and its senior unsecured noteholders,” Chief Financial Officer Mark Jenkins said in a release. “This transaction significantly increases our financial flexibility by reducing our total debt, extending maturities, and lowering near-term cash interest expense as we continue to execute our plan of driving significant profitability and returning to growth.”
The deal “should meaningfully improve” Carvana’s liquidity position, Baird analyst Colin Sebastian wrote in a note to clients.
Carvana logged $2.97 billion in sales for its second quarter, below the $3.88 billion it reported a year before but ahead of the $2.6 billion FactSet consensus.
The company recorded a $58 million net loss, amounting to 55 cents a share, whereas it posted a loss of $238 million, or $2.35 a share, in the year-ago quarter. Analysts were modeling a $1.20 loss per share.
“We applaud [Carvana’s] ability to improve their profitability and restructure their balance sheet at time when unit demand remains soft,” DA Davidson analyst Michael Baker wrote following the report.
Carvana called out $6,520 in gross profit per unit for the latest quarter, along with $7,030 in gross profit per unit on an adjusted basis. The company estimates a $900 benefit on both metrics related to nonrecurring items such as its holding of a higher-than-usual volume of loans.
The company said in its shareholder letter that “inventory is now in an appropriately sized range to support current sales volume.”
For the third quarter, Carvana said it expects to report a similar number of retail units sold to what it did in the second quarter. Carvana sold 76,530 retail units in the June period, down 35% from a year before.
In addition, Carvana said it expects adjusted total gross profit per unit to exceed $5,000 in the third quarter.
The company expects to generate positive adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) for the second quarter in a row.
“We see upside to the above total [gross profit per unit] and adjusted Ebitda numbers, but given the early date of this earnings call within the quarter, we are electing to provide a conservative outlook,” the company noted in its shareholder letter. The company had pushed up the date of its release, a move that initially spooked investors.
Shares are up about 1,000% so far this year, while the S&P 500
SPX,
has advanced 19%.
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