Used-car retailer Carvana expects smaller losses, sees stock jump

Carvana said on Wednesday it expects a smaller core loss in the current quarter as its cost-cutting measures helped mitigate some impact of a decline in used-car sales, sending its shares up as much as 29% in morning trading.

The debt-laden company has taken a series of steps, including job cuts, over the past year to cut costs as it struggles to sell cars it acquired at elevated prices, with buyers hit by inflation and worried about a recession cutting spending.

The company’s business model became popular during the COVID-19 pandemic, as people opted for readily available used cars instead of newer vehicles whose supply was constrained due to semiconductor shortages.

But a fall in used-car sales, which one analyst has dubbed as a “used-car recession,” has pummeled the industry’s results over the last few quarters, raising concerns over Carvana’s financial health.

To relieve some of its debt concerns, Carvana also said on Wednesday it was offering creditors an option to exchange unsecured notes for those backed by collateral, in a move that will see repayment on some obligations pushed to 2028 from as early as 2025.

The offer would be for a principal amount of up to $1 billion in notes, with a condition that at least $500 million existing notes be validly tendered.

As of 2022 end, the company had total liabilities of $9.75 billion and assets of about $8.9 billion.

Carvana expects first-quarter core loss between $50 million and $100 million, down from a core loss of $348 million a year earlier, the company said in a regulatory filing.

It expects total revenue for the quarter between $2.4 billion and $2.6 billion, compared with analysts’ average estimate of $2.7 billion, as per Refinitiv data.