What happened
Shares of Carvana (CVNA 8.79%) soared by 77% in July, according to data from S&P Global Market Intelligence.
The used-car retailer has seen its shares leap nearly tenfold year to date as it cuts expenses and restructures its debt.
Image source: Getty images.
So what
Carvana reported a better set of financial numbers for its recent second quarter. Although total revenue fell by 23.6% year over year to around $3 billion, the used-car retailer saw its gross profit climb 26% year over year to $499 million. Net loss also shrank significantly from $238 million in the prior year's quarter to just $58 million.
Investors were also happy with the fact that Carvana achieved more than $1.1 billion in annualized cost savings in the past 12 months. The company also reported its first positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in the last five quarters, and management is confident of achieving positive adjusted EBITDA again in the third quarter. Moreover, Carvana also generated an operating cash flow of $443 million for the first six months of the year, compared with an outflow of $487 million in the prior year.
Aside from the better numbers, investors were also pleased to learn that Carvana reached a deal with its noteholders to reduce its debt load by more than $1.2 billion by selling up to $1 billion in shares as part of its objective to raise capital and restructure its operations. This agreement will also eliminate more than $430 million of interest expense per year over the next two years, lifting a heavy burden off the company's shoulders as it trudges toward profitability. As reference, Carvana had $541 million in cash along with $7.9 billion of debt on its balance sheet as of June 30. The company incurred interest expenses of $314 million in the first half of 2023.
Now what
Carvana seems well on its way to achieving its three-step turnaround plans that top management communicated to shareholders in the previous quarter. The eventual goal of generating positive free cash flow is broken down into three distinct parts. The first and second parts involve improving the business so that it generates positive adjusted EBITDA and enjoys favourable unit economics. Once these two steps are completed, the business can then return to growth.
The company recently launched same-day vehicle delivery to select customers in Arizona, offering a compelling service that no other car retailer has offered yet. Carvana will leverage its extensive infrastructure and efficient logistics fleet to successfully deliver this service and plans to roll it out to other states in the coming months.
