Carvana Co stock (NYSE: CVNA) opened nearly 20% up on Monday after the online used cars retailer said it’s committed to growing its sales and profits while cutting expenses rapidly.
What Carvana underscored in its new operating plan
The new operating plan forecasts selling, general and administrative expenses per retail unit sold to descent throughout the year. Carvana wants to hit $4,000 per retail unit in SG&A costs in Q4 versus just over $4,700 in fiscal 2021.
The Tempe-headquartered company sees a decline in SG&A expenses as the most effective means to turn free cash flow positive and is aiming to further slash these costs to $3,000 per retail unit sold in the midterm.
We currently view SG&A expense per retail unit sold as our highest priority and intend to lower it in both the near and midterm while continuing to grow on the path toward our long-term goals.
Carvana reduced its workforce to cut costs
Carvana also laid off 12% of its workforce or 2,500 employees in May that will result in a $20 million one-time expense in the second quarter, but generate $125 million in annual savings thereafter.
Other than that, the new operating plan also confirmed that the executive team will forgo salaries for the rest of 2022 to “contribute to the severance pay for departing team members”.
Last month, Carvana said its revenue grew 54% YoY in the fiscal first quarter. The stock is still down more than 80% for the year.
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