Carvana (NASDAQ:CVNA), the online used car dealer, announced a plan to cut its debt costs, helping the stock to a 39% gain overnight, following a 9% gain on July 18.
Management took advantage of the debt deal, filing to sell up to 35 million new shares and raise $350 million.
The company also announced a narrower loss for the June quarter, just $105 million, and wider gross profits on the 76,530 cars it sold. Sales were slightly below the estimates of analysts, however.
Carvana stock was due to open this morning at $55, with a market capitalization of over $8.5 billion on 2022 sales of $13.6 billion.
A Debt Solution
Carvana was a pandemic star. But it fell to earth as the country began re-opening. Shares traded at nearly $340 each two years ago. They sold for around $5 at the start of 2023. The company’s problems brought in a lot of short sellers. Since May 4, shares are up 584%.
Under the agreement with lenders, Carvana will exchange 83% of its unsecured debt for new notes that will cost about $430 million less per year to service. The agreement cuts total debt by $1.2 billion.
Carvana was created by the son of DriveTime CEO Ernie Garcia II to be the “Amazon of used cars.” It sells exclusively online and delivers vehicles from what look like giant vending machines along highways.
But rising interest rates, combined with rising prices on used cars, squeezed buyers. When Carvana stock was at its lows, failure was an option. While the squeeze hurt all dealers, it hurt Carvana more because it was more leveraged.
CVNA Stock: What Happens Next?
With a collapse now off the table, Carvana faces the task of rebuilding sales and its reputation. Carvana sold one-third fewer cars in the June quarter than it did a year ago. The company launched a new ad campaign in May, featuring interviews with satisfied customers.
As of this writing, Dana Blankenhorn held LONG positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
