Carvana Expects Strong Profits

Carvana (CVNA) saw a significant boost in its stock price after sharing a positive update on its future profits. The used-car retailer now expects gross profit per unit (GPU) to be above $5,500 for the quarter ending in September, surpassing previous forecasts of over $5,000. Analysts are projecting a GPU of $4,948.44 according to FactSet.

Additionally, Carvana anticipates adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to exceed $75 million for the current quarter, surpassing expectations of $46.4 million. The company previously forecasted positive values for adjusted EBITDA.

Carvana's stock surged by 7.7% to $47.40 in premarket trading on Wednesday.

Mark Jenkins, Carvana's Chief Financial Officer, attributed this progress to the company's strong execution.

During the second quarter ending in June, Carvana reported record GPU, benefiting from nonrecurring items such as increased car loans sold compared to the previous quarter.

Carvana has also seen a boost in GPU through an accounting adjustment called "inventory allowance." In the past, the company faced charges due to a larger-than-normal inventory of cars as vehicle prices declined industrywide. However, throughout the first and second quarters, Carvana managed to regain some of those losses as car prices appreciated.

While Carvana expects continued benefits from selling loans in the upcoming quarters, it remains uncertain if there will be further gains from the inventory allowance.