What bankruptcy? Carvana defies downbeat car market with earnings jump

Carvana just reported a big increase in second-quarter profit driven by an unexpectedly solid sales performance. Those results, well above Wall Street expectations, put the brand in place for a record-breaking year.

Flashback: Hopping on the scene with its used car vending machines and nationwide delivery, the company prioritized growth over profits during the pandemic. This aggressive expansion strategy backfired as market conditions worsened, leaving Carvana strapped with debt.

Why it matters: Carvana’s speedy recovery has caught many an industry analyst off guard. Just over a year ago, the brand was facing down bankruptcy. Now it’s back to posting enviable earnings, completely sidestepping the used car market’s challenges.

By the numbers: The online retailer saw broad improvements across most metrics, including sales, revenue and net income. Here’s a breakdown of how they performed.

• Carvana sold 101,440 retail units in Q2, a jump of 33% year-over-year and 10% quarter-over-quarter.

• Revenue soared 15% over 2023, hitting $3.41 billion.

• The company earned $48 million in net income during the quarter: this time last year, it posted a loss of $105 million.

The intrigue: The company hit several milestones this quarter that deserve special recognition.

• Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin was also 10.4% in Q2, an all-time high.

• Retail gross profit per unit was $7,049, an increase of $529.

Of note: Carvana does not calculate gross profit the way most dealerships do. Since the company is also a bank, logistics company, and vehicle auction, they take all gross (retail and wholesale) and then divide it by the number of retail units they sell.

What to watch: Carvana believes it can do even better in the coming months. It’s predicting sales will go up again, both sequentially and annually, in Q3 and expects to wrap up the year with a total EBITDA of at least $1 billion, almost three times what it made in 2023.

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