Carvana Falls on Concerns Inventory Constraints May Limit Sales

(Bloomberg) -- Carvana Co. shares fell in late trading after the company reported a rebound in sales and smaller-than-expected quarterly loss but warned that inventory constrants could put a damper on growth.

The used-car retailer sold 55,098 vehicles in the second quarter, up 25% from a year earlier. Total gross profit per unit came in slightly higher than expectations at $2,726, and revenue rose to $1.12 billion.

But the Phoenix-based company’s shares plunged as much as 12% after the close of regular trading after flagging that it has less than 6,000 vehicles available for purchase, the lowest since the third quarter of 2018.

“We believe our current inventory is meaningfully limiting sales, making growing inventory our top company priority,” Chief Executive Officer Ernie Garcia and Chief Financial Officer Mark Jenkins wrote in a letter to shareholders.

While revenue growth slowed and trailed estimates, Carvana painted a robust demand picture in its earnings release, saying that the second quarter “started at the peak of Covid-19 related economic disruption and ended with structural shifts in customer preferences leading to the strongest demand we have ever seen.”

Carvana’s whole business model is based on selling vehicles online and delivering those cars to customers’ doorsteps. While the company felt some early pain as the impacts of the pandemic took hold, the retailer’s offering is attracting consumers who are stuck at home, avoiding public transportation and shopping online.

The company expanded into 100 new markets in the second quarter and says it now serves 73.2% of the population, up from 68.7% three months earlier.

For more on Carvana’s earnings, click here for our TOPLive blog.

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