Carvana, the popular used car retailer, made waves in the stock market today with a big announcement. Despite lower sales and revenue, the company predicts a significant improvement in their profits for the first quarter. As a result, shares skyrocketed by nearly 30% this morning and have doubled in value this year. With a $9 billion debt load, the company also shared a plan to restructure their finances.
The company is trying to reduce its debt and cut interest costs. They are offering a deal to noteholders – to exchange their unsecured notes for new secured notes at a premium to current trading prices. According to the Financial Times, this move will reduce Carvana’s outstanding unsecured bond debt and save the company roughly $100 million in annual cash interest.
Carvana has faced some tough times in 2022. Despite being a sought-after stock during the pandemic due to the lack of inventory in new vehicles, the company did not capitalize on the trend at the right time. Taking a different approach, the company chose to restructure its business with a focus on cost reduction instead of growth. As a result, Carvana CEO Ernie Garcia admits that the year has been a challenging one with unforeseen experiences that have provided invaluable lessons. The company’s 2022 annual report outlines the challenges they faced and the actions they took to navigate through them.
Their first quarter projections for retail units sold to be between 76,000 and 79,000, a significant decrease from the previous year’s 105,185. This drop in sales is reflected in their net sales and operating revenues, which are expected to be between $2.4 billion and $2.6 billion, a striking decline from last year’s $3.5 billion. Despite this setback, Carvana remains optimistic and committed to providing customers with innovative and hassle-free car-buying experiences.
