Carvana Co. is growing again. After scaling back sales in 2023 to focus on profitability initiatives, it is expected to return to sales of more than 400,000 used cars and trucks in 2024, several analysts said.
Tempe, Arizona-based Carvana said July 31 that it sold a little more than 101,000 used vehicles in the period ended June 30. That’s up 33 percent year over year and 10 percent quarter over quarter. Revenue grew 15 percent to $3.41 billion.
The results — in which Carvana also reported higher profits per vehicle sold — prompted some analysts to raise their price targets on the company’s shares.
Despite the sales surge, Carvana remains technically in a transition period back to growth, CEO Ernie Garcia said during the company’s earnings call with investors and analysts on July 31.
“We’re now in a position where we’re starting to turn the engines back on and we’re 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 surpass 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 second-quarter earnings release.
Carvana sold 312,847 used vehicles in 2023, 412,296 in 2022, and 425,237 in 2021.
Carvana reported $5.4 billion in long-term debt 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 eventually refinance its debt at lower interest rates. Carvana may not refinance anytime soon because of the high-interest-rate environment, Fong said. What it could do, he said, is pay down debt opportunistically — without taking on new debt — and in two to three years issue debt at “substantially” lower interest rates.
Analysts at J.P. Morgan wrote in an Aug. 1 research note that they see potential for Carvana to further restructure its balance sheet, including refinancing expensive notes due in 2030 and 2031. Still, Carvana has indicated it has no plans to issue new debt or convertible notes in the near future, according to the research note.
“We will 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 starts to make debt look a lot different than it did a year or two ago, and I think if we continue to have the earnings that we expect to have, we’ll continue to accumulate cash and we’ll continue to look a lot better from a leverage perspective as well.”
Company leaders unveiled Carvana’s upcoming plans to integrate its own vehicle reconditioning processes at its ADESA Corp. auto auction site in Belton, Missouri, a suburb of Kansas City.
This will be Carvana’s first ADESA “megasite” — offering both on-site and online vehicle auctions, as well as serving as a hub for some of Carvana’s vehicle reconditioning work, Carvana CFO Mark Jenkins said during the company’s earnings call.
It’s the third ADESA site to be converted. Carvana announced similar conversions of ADESA Portland in Wood Village, Ore., and ADESA Buffalo in Akron, N.Y., this year. Those locations offer digital-only auctions.