Carvana Q1 earnings preview: Retailer expects smaller adjusted loss than year ago

Carvana Co., under pressure from investors in advance of its earnings report on Thursday, indicated that its first-quarter loss on an adjusted basis will be less than it was a year earlier as used-vehicle sales are also expected to decline.

The online used-vehicle retailer has been working to scale back growth endeavors, trim costs and reduce inventory as it — like its peers in the used-vehicle-only retail space — seeks stability to buoy profits in a more volatile sales environment amid higher interest rates and consumer concerns about vehicle affordability.

Carvana is also facing pressure to restructure its debt load, an action analysts have said is necessary to improve its long-term financial outlook and ease concerns about bankruptcy. Bloomberg reported last week that creditors holding about 90 percent of Carvana's bonds have been pitching the company on ways to pare down debt and improve liquidity, including a proposal for a debt-for-equity swap.

Carvana said it expects to report a smaller adjusted loss of earnings before interest, taxes, depreciation and amortization, between $50 million and $100 million, slimmer than its adjusted EBITDA loss of $348 million a year ago. It recorded a net loss of $506 million in the first quarter of 2022, a year in which it posted a net loss of $2.89 billion.

Carvana expects first-quarter sales to land between 76,000 and 79,000 vehicles, according to an estimate it provided in a March 22 regulatory filing. Comparatively, Carvana sold 105,185 retail vehicles in the year-ago period and 86,977 vehicles in the fourth quarter.

The reduction in retail vehicles sold is driven mainly by higher interest rates, lower inventory size, less advertising and the company's "focus on profitability initiatives," Carvana said in the filing.

It estimated first-quarter revenue will be between $2.4 billion and $2.6 billion, down from $3.49 billion in the year-earlier period.

Carvana also said its total gross profit per vehicle sold may land between $4,100 and $4,400, significantly higher than $2,985 in the year-earlier period. Carvana said its total per-vehicle profit estimate factors in a period of higher wholesale gross profit, which occurred in the first few months of 2023 as vehicle demand strengthened and wholesale prices appreciated.

CarMax Inc., another used-vehicle retail giant, reported last month that it prioritized per-vehicle profit preservation, also at the expense of some sales volume, in its fiscal fourth quarter, which ended Feb. 28.

In a research note published last week, equity analyst Sharon Zackfia at William Blair & Co. said the firm expects the first quarter to mark a trough in Carvana's used-vehicle sales. The firm lowered its second-quarter estimate of used-vehicle sales by 2,300 to 86,200. The retailer sold 117,564 vehicles in the second quarter of 2022.

And in a research note published Wednesday, Rajat Gupta, a senior analyst of automotive retail at J.P. Morgan, modeled an adjusted EBITDA loss of $88 million.

Gupta also wrote that if Carvana does accept a form of the debt-equity swap proposal, it would buy the company time to wait for a used-vehicle industry recovery and a turnaround in its operations. However, it could mean “significant” equity dilution for the company, Gupta wrote.

Carvana shares were up 4.04 percent to $7.21 at the Tuesday market close. A year earlier, the stock traded for more than $60 a share after peaking above $360 in 2021.

Editor's note: This story was updated to show the total net loss of $2.89 billion for 2022.

Bloomberg and Reuters contributed to this report.