Carvana reports its first annual profit following debt reduction, shares soar.

The used car retailer reported its first annual profit on Thursday, thanks to its agreement with bondholders to reduce its debt by $1 billion, resulting in a 20% increase in the stock price after hours.

The company expects to report an adjusted core profit of more than $100 million for the first quarter.

During the Covid-19 pandemic, Carvana experienced a surge in popularity as the demand for used cars increased due to a global chip shortage that hindered the production of new cars. However, after the pandemic, the company faced challenges in clearing its inventory of used cars purchased at high prices, as car buyers reduced their spending due to inflation and new car production normalized.

In July, the company reached a deal with its term bondholders to reduce its outstanding debt, while also reducing inventory, cutting advertising and other expenses to improve its balance sheet.

Carvana predicts that the number of retail units sold in the first quarter of 2024 will be slightly higher than last year, and the retail gross profit per unit (GPU) will be comparable to the fourth quarter, with the possibility of an increase.

Retail GPU surged nearly sevenfold, to $2,812 in the fourth quarter.

In 2023, the company's net income was $450 million, a significant improvement from the $1.59 billion loss in 2022, due to an $878 million gain on debt extinguishment.