Carvana shares slide as analysts call Q2 profit forecast ‘one-time’ gain

By Aishwarya Nair and Priyamvada C

(Reuters) – Shares of used-car retailer Carvana Co fell about 2% in premarket trading on Friday, as analysts fear that the debt-laden company’s upbeat second-quarter profit forecast could be just a ‘one-time’ gain.

The shares rose as much as 68% on Thursday to $26.09 with some help from traders covering their bearish bets after the company forecast more than $50 million in current-quarter adjusted core profit, exceeding expectations of most analysts.

While analysts have been encouraged by the outlook, they do not believe the gain is sustainable as the company has been struggling to sell cars acquired at elevated prices, with buyers restricting their spend due to concerns of an impending recession, and taken a slew of cost-cut measures.

They believe the improved outlook was a result of the sale of financing receivables.

“We believe the sale of receivables is likely one time in nature as CVNA pushed off sales of receivables in 4Q22 and the banking crisis in 1Q23 was a drag on receivables sales,” said Michael Baker, an analyst at D A Davidson.

Carvana, known for its car-vending machines, said it sold or securitized loans worth about $2 billion as of June 8, compared with $1.3 billion in loans that were sold or securitized as of May 4.

Analysts also echoed worries about the company’s plans to profitably return to growth given the existing debt load.

“We found management’s commentary on returning to growth profitably while potentially exploring the capital markets as hard to reconcile given the existing debt load and the difficulty of maintaining an unprecedented fixed cost efficiency amidst that rebound,” RBC analyst Brad Erickson said.

Last month, the company said it expects to post a profit in the current-quarter and planned to further bring down excess used-car inventory.

“Volume is still decreasing year-over-year,” Carvana chief Ernest C. Garcia said in a William Blaire Conference on Thursday.

(Reporting by Priyamvada C in Bengaluru; Editing by Shinjini Ganguli)