E-commerce platform Carvana Co has projected higher-than-anticipated adjusted earnings for the second quarter as a result of its cost-cutting initiatives. This announcement sent Carvana shares soaring, reaching a more than eight-month high and experiencing a remarkable surge of 68% during the session, reaching $26.09 per share.
According to Carvana’s forecast, the company expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the second quarter to surpass $50 million. This forecast greatly surpasses consensus estimates, which predicted a loss of $6 million for the same period. Carvana’s optimistic projection indicates that the company’s cost-cutting measures have been successful in bolstering its financial performance.
Furthermore, Carvana anticipates that its non-GAAP total gross profit per unit (GPU) for the second quarter will exceed $6,000. This would mark a substantial 63% increase compared to the same quarter last year, underscoring the company’s growth and profitability trajectory. Carvana’s ability to achieve such significant gains in GPU is a testament to its operational efficiency and streamlined business model.
The rally in Carvana’s stock triggered a short squeeze as investors who had previously bet against the company rushed to cover their positions. This resulted in significant losses for short sellers, with Carvana short sellers having already incurred over $1 billion in losses so far this year. To put this into perspective, short sellers suffered a loss of $596 million on Wednesday alone, illustrating the magnitude of the short squeeze.
In an effort to move closer to profitability and positive free cash flow, Carvana has been implementing various measures, including reducing its inventory and advertising expenses. These cost-cutting initiatives have evidently played a vital role in the company’s ability to exceed market expectations and bolster its financial outlook. Carvana’s strategic approach to reducing expenses while maintaining operational efficiency highlights its commitment to achieving sustainable growth.
Despite the remarkable rally, it’s important to note that Carvana’s stock is still significantly below its 2021 high of $376.83. While the recent surge in share price is undoubtedly positive news for investors, it will be crucial for Carvana to maintain its momentum and capitalize on its recent successes to regain and surpass its previous high levels.