Carvana shares jumped in early trade Wednesday after the troubled used car retailer pre-announced first-quarter projections and disclosed efforts to restructure part of its $9 billion debt load.
On Wednesday morning, the company’s stock jumped about 30% before leveling off at around $9.50 per share, up roughly 20%. Following a sharp decrease last year as the company’s operations and earnings disappointed Wall Street, the stock has more than doubled this year.
Despite much fewer sales and income, Carvana predicts a first-quarter loss of $50 million to $100 million, a major improvement from the $348 million loss posted a year ago.
Concerning Carvana’s debt, the firm is giving noteholders the option to convert their unsecured notes for new secured notes at a premium to current trading levels. The steps will provide noteholders with “collateral while reducing Carvana’s cash interest expense and maintaining significant flexibility,” according to a filing with the Securities and Exchange Commission on Wednesday.
According to the Financial Times, if fully subscribed, the exchange offer would cut the face value of Carvana’s existing $5.7 billion in unsecured bond debt by $1.3 billion and its annual cash interest expense by approximately $100 million.
During the Covid epidemic, Carvana was a sought-after stock as consumers shifted to online car purchases and the used vehicle market exploded due to a scarcity of new vehicle inventory. However, the company failed to capitalize at the appropriate time and initiated a business restructure centered on cost reductions rather than growth.
“By any standard, 2022 was a very difficult year for us.” It was a year full of adventures we never expected to have. It was an unexpected year. While unexpected and hoped-for events are tough, they are frequently where you learn the most,” Carvana CEO Ernie Garcia said Tuesday in the company’s 2022 annual report.
Carvana forecasts retail units sold in the first quarter to be between 76,000 and 79,000, down from 105,185 a year ago, on net sales and operating revenues of between $2.4 billion and $2.6 billion, down from $3.5 billion a year ago.