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.
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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.
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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.
