Carvana Co. is growing again. After cutting sales volume in 2023 to focus on profitability initiatives, it is expected to return to selling more than 400,000 used cars and trucks in 2024, several analysts said.
Tempe, Arizona-based Carvana said July 31 that it had sold just over 101,000 used vehicles in the period ended June 30. That's up 33 percent from a year ago and 10 percent from a quarter ago. Revenue rose 15 percent to $3.41 billion.
The results, in which Carvana also reported higher profit per vehicle sold, prompted a handful of analysts to raise their price targets for the company's stock.
Despite rising sales, Carvana technically remains in a transition period toward growth, Chief Executive Ernie Garcia said during the company's earnings call with investors and analysts on July 31.
“We are now in a position where we are starting to turn the engines back on and we are moving in that direction,” Garcia said.
Carvana said it expects to see another quarterly increase in its used-vehicle sales in the third quarter. It is likely to reach or exceed 400,000 used vehicles sold by the end of the year, analysts Marvin Fong of BTIG, Sharon Zackfia of William Blair and Chris Pierce of Needham and Co. wrote in research notes published after the release of second-quarter earnings.
Carvana sold 312,847 used vehicles in 2023, 412,296 in 2022 and 425,237 in 2021.
Carvana reported long-term debt of $5.4 billion in the period ended June 30. Analysts sometimes cite Carvana's debt load as a risk factor for its business. At the same time, debt markets appear to be more receptive to Carvana than they were two years ago, Fong told Automotive News.
That puts the retailer in a position to refinance its debt at lower interest rates. Carvana might not refinance anytime soon because of the high interest rate environment, Fong said. What it could do, he said, is pay down the debt in a timely manner, without taking on more debt, and in two to three years issue debt at “substantially” lower interest rates.
J.P. Morgan analysts wrote in an Aug. 1 research note that they see potential for Carvana to further restructure its balance sheet, including refinancing costly notes due in 2030 and 2031. Still, Carvana indicated it does not intend to issue new debt or convertible bonds in the near future, according to the research note.
“We are going to reduce [debt] “Over time,” Garcia said during an Aug. 1 appearance on Bloomberg TV. “This quarter, we had $355 million [in adjusted earnings before interest, taxes, depreciation and amortization]”That's starting to make debt look a lot different than it did a year or two ago, and I think if we continue to make the earnings we expect, we'll continue to accumulate cash and we'll be much better off from a leverage perspective as well.”
Company leaders revealed Carvana's upcoming plans to integrate its own vehicle reconditioning processes into its ADESA Corp. auto auction location in Belton, Mo., a suburb of Kansas City.
It will be Carvana's first ADESA “megasite,” offering both online and in-store vehicle auctions while also serving as a hub for some of Carvana's vehicle reconditioning work, Carvana Chief Financial Officer Mark Jenkins said during the company's earnings call.
This is the third ADESA site to convert. Carvana announced similar conversions of ADESA Portland in Wood Village, Oregon, and ADESA Buffalo in Akron, New York, this year. Those locations offer digital-only auctions.