Carvana Co. reported a much wider loss than Wall Street had expected for the fourth quarter, pointing to an increasingly difficult recovery for the used-car retailer.
(Bloomberg) — Carvana Co. reported a much wider loss than Wall Street had expected for the fourth quarter, pointing to an increasingly difficult recovery for the used-car retailer.
The company said Thursday it lost $7.61 a share in the period as used-car prices declined, while analysts’ average estimate called for a loss of $2.19 per share. Revenue also missed analysts’ projections.
The losses cap a tumultuous year for Carvana, which was punctuated by a sagging stock price and growing debt. Some of the company’s largest creditors have already banded together in an effort to secure more favorable terms ahead of a potential restructuring.
Chairman and Chief Executive Officer Ernie Garcia III told analysts on a conference call that Carvana’s cost-cutting plan — which includes buying fewer used-cars and “pulling back pretty dramatically on marketing” — should make it possible to avoid raising capital to fund operations or finance its debt load.
“We’ve got a real shot at not requiring additional capital. If we’re wrong, then we have lots of ways to go out and get additional capital,” Garcia said, noting the company’s real estate portfolio as one potential source of funds.
Carvana finished the year with $434 million in cash and equivalents, up from $316 million at the end of Q3.
The used-car retailer’s biggest problem is its debt, which stands at more than $8 billion with $2.4 billion in cash burn projected over the next two years, said Bloomberg Intelligence analyst Joel Levington. It also has $500 million in debt coming due in 2025, he said.
“They need to restructure their balance sheet,” Levington said in an interview. “They probably need to shave off 85% of their debt, otherwise they will be a vulnerable company for years.”
Shares of Carvana fell 5.9% in extended trading as of 7:01 p.m in New York. The stock has fallen more than 90% over the past 12 months.
In a letter to shareholders, Garcia called 2022 a “unique” and “very difficult year.” Sales fell 23% in the final quarter of the year to 87,000 vehicles. Meanwhile, gross profit per car sold fell more than half.
The CEO said he expects gross profit per unit to rebound back to previous levels exceeding $4,000 per vehicle and that Carvana wants to grow into new markets such as last-mile delivery and repair and reconditioning of cars.
It could be a long road to recovery. Carvana’s losses have now missed analyst estimates in the last six quarters, according to data compiled by Bloomberg.
(Updates from fourth paragraph with CEO comments.)
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