Carvana (CVNA) has announced a deal to reduce its debt by $1.2 billion, leading to a surge in their stock price. The online used-car seller has reached an agreement with its bondholders to eliminate 83% of the notes due to mature in 2025 and 2027. This move will significantly lower Carvana’s costs to service debt by over $430 million per year for the next two years. Previously, most of Carvana’s $8.5 billion in total debt consisted of unsecured notes.
Carvana’s Chief Financial Officer, Mark Jenkins, expressed his satisfaction with the deal, stating that it will increase the company’s financial flexibility by reducing their total debt, extending maturities, and lowering near-term cash interest expenses. Carvana will also be conducting a stock sale as part of their restructuring efforts, aiming to raise up to $1 billion.
In terms of earnings, Carvana reported a loss of 55 cents per share for Q2, with revenue amounting to $2.968 billion. This marks an improvement compared to the year-ago quarter, where they posted a loss of $2.35 per share on revenue of $3.884 billion. Analysts’ expectations were exceeded, as they predicted a loss of $1.15 per share and revenue of $2.589 billion.
A key metric, gross profit per unit (GPU), also experienced significant growth. Carvana reported that GPU reached $6,520, a 94% increase compared to the previous year. It also surpassed the previous best quarter, Q2 2021, by 27%. However, the company’s retail and wholesale unit sales for the quarter were lower than the year-ago quarter and Q1, respectively.
Looking ahead, Carvana anticipates achieving positive adjusted EBITDA for Q3, marking the second consecutive quarter of positive results in this area.
The positive news has led to a surge in Carvana’s stock price. Shares soared nearly 38% to $54.91, following a 9% jump in trading on Tuesday. According to a Reuters report, this surge may be attributed to a potential short squeeze. The report stated that over half of Carvana’s publicly available shares were being shorted as of July 18. Brick-and-mortar competitor CarMax saw a marginal increase of 0.4% in their stock price, reaching $86.19.
Although Carvana’s stock has experienced tremendous growth this year, skyrocketing 960% year to date, it is still far below its all-time high of nearly $376.83, which was reached in August 2021. The company faced challenges during the Covid-19 pandemic and struggled with mismanagement and a heavy debt burden.
Carvana claims to be the largest online used auto retailer in the United States, and their recent announcements signify a strong push towards improving their financial position and driving profitability.