Carvana stock (CVNA) spiked 40% on Wednesday after the online car retailer announced a debt exchange deal and adjusted profits that beat analyst expectations before the opening bell.
The company will reduce its outstanding debt by over $1.2 billion by exchanging existing unsecured debt with new notes that will carry an interest expense $430 million lower per year over the next two years. The company may also sell up to $350 million in new stock as part of this restructuring.
"This transaction significantly increases our financial flexibility by reducing our total debt, extending maturities, and lowering near-term cash interest expense as we continue to execute our plan of driving significant profitability and returning to growth," Carvana CFO Mark Jenkins said in a statement.
The company also announced quarterly results, posting vehicle unit sales that missed estimates while revenues and profits topped expectations.
Carvana sold 76,530 cars during the quarter, fewer than the 76,937 expected by analysts.
The company reported revenue in the quarter of $2.96 billion, more than the $2.55 billion expected by the Street, while adjusted EBITDA totaled $155 million, almost triple the $57.5 million expected by analysts.
Carvana's loss per share came in at $0.55, narrower than the $1.18 per share expected by Wall Street analysts and 76% less than the $2.35 per share loss posted during the same quarter last year.
"Our strong execution has made the business fundamentally better, and combined with today’s agreement with noteholders that reduces our cash interest expense and total debt outstanding, gives us great confidence that we are on the right path to complete our three-step plan and return to growth," founder and CEO Ernie Garcia said in a release.
Carvana shares closed at $55.80 on Wednesday. The stock has been one of the biggest winners in the market this year, rising more than 1000% after a 98% drop from its peak in the summer of 2021. The stock is still more than 85% below its record closing high of $370.10 reached in August 2021.
The stock's massive rallies have been reminiscent of the pandemic-era "meme craze." When the stock goes up, shares are buoyed by short sellers who bet the price will move to the downside.
The company, once a pandemic darling, laid off workers last year in an effort to cut costs and preserve cash. Shares reached a 52-week low of $3.55 on December 2022 amid speculation of a bankruptcy.
JPMorgan analysts recently downgraded the stock to Underweight, citing a "valuation [that] has once again disconnected materially from fundamentals."
Short interest in Carvana sits at 47% of the outstanding float, an enormously high level, according to recent data analytics firm S3 Partners.
"The CVNA short squeeze is going to tighten even more with [Wednesday's] upward price action," Ihor Dusaniwsky, managing partner at S3 Partners, told Yahoo Finance on Wednesday morning.
"Expect more short covering today and over the next few days as short sellers look for exit points to trim their exposure in a very unprofitable trade."
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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