Despite a booming used car market, Carvana hasn’t been doing so well lately. The company posted a larger-than-expected loss on first-quarter earnings today, MarketWatch reports, and it’s all attributed to the fact that economic recovery after Covid-19 has left the company flailing in its expectations of higher sales.
This is Carvana’s first-ever sales decline, and stock shares reflected that by dropping as much as 24 percent during off-hours trading on Wednesday, April 20. The stock has since recovered somewhat, but it’s still down compared to what it was before the sales report.
So what happened here? From MarketWatch:
Carvana noted in its letter to shareholders that the omicron variant and used-car prices were among factors impacting the broader industry in the quarter, while the company also dealt with some issues of its own around “reconditioning and logistics network disruptions.”
“We generally prepare for sales volume 6-12 months in advance, meaning we built capacity in most of our business functions for significantly more volume than we fulfilled in Q1,” the company said in its letter. “With our costs relatively fixed in the short term, the lower retail unit volume led to higher cost of goods sold per unit.”
To put it simply: Carvana hedged its bets and assumed people would continue to demand high quantities of used cars. It bought up more cars than usual in anticipation of being able to sell them quickly, and it didn’t manage to do that because the demand slowed down due to “rising interest rates, rising fuel prices and macroeconomic uncertainty,” per the Wall Street Journal.
It's not the only booming pandemic business to see a recent downward trend. Netflix has also reported massive losses as the world recovers from Covid-19. Carvana has also stated that it will not be providing financial guidance.