Carvana stock rockets to $1.2 billion deal to reduce debt A key profit metric increases

Caravan (CVNA) announced a deal to reduce its debt by $1.2 billion and hit a big sell-off in the second quarter, while a key profit measure rose. Carvana shares soared.

The troubled online used car dealer said it will write off 83% of notes maturing between 2025 and 2027. This will reduce the cost of servicing debt by more than $430 million per year for the next two years. Before the deal, $8.5 billion of Carvana’s total debt was unsecured notes.

“This transaction significantly increases our financial flexibility by reducing our total debt, extending maturities and shortening maturities, and we continue to execute on our plan to return to significant profitability and growth,” Carvana CFO Mark Jenkins said in a statement.

Carvana said on Wednesday it will seek to raise up to $1 billion through a stock sale as it restructures.

Carvana revenue

In Q2, Carvana lost 55 cents a share on revenue of $2.968 billion. In the year-ago quarter, Carvana posted a loss of $2.35 per share on revenue of $3.884 billion.

Analysts, on average, were expecting a loss of $1.15 per share and revenue of $2.589 billion, according to FactSet.

Gross profit per unit, or GPU, a closely watched metric, hit $6,520, up 94% from a year ago. That surpassed the previous best quarter — Q2 2021 — by 27%, Carvana said.

The company sold 76,530 retail units and 46,453 wholesale units during the quarter. Retail units fell from Q1 while wholesale units rose. Both declined from the year-ago quarter.

For Q3, Carvana expects to achieve its second consecutive quarter of positive Adjusted EBITDA.

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Carvana share

Shares of Carvana rose nearly 38% to 54.91 on the stock market today. CVNA shares rose 9% to 39.80 on Tuesday in heavy trade.

A Reuters report linked Wednesday’s surge to possible short pressure. More than half of Carvana’s publicly available shares have been shorted as of July 18, the report said.

A brick and mortar competitor Carmax (KMX), which boosted online sales, which rose 0.4% to 86.19.

Carvana shares fell in trading on Tuesday after the company suddenly moved up its earnings report date by two weeks.

Year to date, the stock is now up 960%, including a 482% gain over the past three months.

But it remains well short of its all-time high of $376.83 set for August 2021. Carvana stock plummeted due to mismanagement during the Covid-19 pandemic and heavy debt load.

Carvana claims to be the largest online used car retailer in the country.

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