Carvana (CVNA) Q2 FY26 earnings call: guidance and Q&A

What is the progress on reconditioning operations, and how much of the recent retail GPU dynamics are from reconditioning gains versus used car pricing environment?

Reconditioning costs are back in a good place, and inventory growth is aligning with sales. The retail GPU strength was largely due to FTC guidance requiring dealers to include dock fees and mandatory product costs in advertised prices, which Carvana already does not have, leading to outsized gains as competitors adjusted.

“The retail strength, I think, had the most -- the simplest and probably most dramatic part of that is during the quarter, the FTC put out guidance to all dealers that they were required to update their pricing to include dock fees and also any products that were required to be purchased with the car.”

asked by Daniela Haigian · answered by Ernest Garcia

What is the outlook on financing margins with benchmark rate changes, how much risk is hedged, and how does Carvana balance holding margin versus holding rates steady for consumers?

Carvana aims to make its 'machine' efficient and flexible. When retail GPU increased due to pricing changes and benchmark rates rose, the company paused its response to benchmark rates to understand the combined impact. Total GPU aligned with expectations, demonstrating the model's flexibility to manage these dynamics.

“When we saw these price changes that were flowing through to higher retail GPUs, and then we also saw the increase in benchmark rates, we basically paused our response to the benchmark rates to make sure that we are understanding the sum of those 2 changes to have fewer moving pieces.”

asked by Daniela Haigian · answered by Ernest Garcia

Why keep consumer-facing interest rates stable despite higher benchmark rates, rather than maintaining retail prices? Is there a higher ROI on investments into rates versus pricing?

Carvana focuses on overall machine efficiency and fundamental gains. Other GPU was down $200 YoY, but the company passed back over 100 basis points in rates to customers, which would typically equate to a $400-$500 reduction. The difference of $300 represents fundamental gains, which Carvana chose to pass back to customers for long-term business building.

“If you do the math on passing back rate to customers, it's probably a good estimate is maybe $4 to $5 per basis point that we pass back to our customers in rate. And so given all the rates that we pass back, all else constant, you probably would have expected something closer to a $500 reduction in other GPU, but we actually saw was $200. That's because there's, give or take, $300 of fundamental gains in there.”

asked by John Colantuoni · answered by Ernest Garcia

EBITDA per unit has been lower for three consecutive quarters. When should investors expect it to return to growth?

EBITDA per unit was down $300 YoY but up $300 QoQ. Year-over-year impacts included a $100 tariff benefit last year, $75 from gas prices, and benchmark rates. The primary internal headwind is inventory being less than desired, impacting conversion. The focus is on execution to grow the machine and scale fundamental gains.

“When you look year-over-year, I think this quarter, we were down about $300 in EBITDA dollars per unit. Quarter-over-quarter, I think we are up about $300.”

asked by Rajat Gupta · answered by Ernest Garcia

Why invest in financing costs (giving back to customers) when inventory is constrained, versus investing in labor or other areas to drive production?

Financial returns on growing the 'machine' are extreme, but execution (building facilities, hiring, training) is harder. While inventory is constrained, Carvana makes longer-term choices to build the business, expecting to relieve constraints. Giving back to customers in rates may not be fully paid back in growth immediately due to inventory tightness, but it puts pressure on the system to build and execute.

“It is likely the case that giving back to customers in the form of rates over the last year is not something that we've been fully paid back for in growth. The fact that our inventory is tight sort of makes it clear that we didn't get fully paid back for in growth because if inventory gets tight, your conversion rates go down.”

asked by Andrew Boone · answered by Ernest Garcia

Carvana's average list price is increasing, and APRs are stable. Is the company catering to a higher-income customer, and what are the learnings?

ASP is up due to passing back rates disproportionately to prime customers (who demand more expensive cars) and a strategic shift to newer cars for faster reconditioning. Growth in customers with over $100,000 income was over 60% YoY. This shows that if the cars are available for specific customer segments, demand and economics follow. The shift is not structural; the goal is to offer the broadest selection.

“If we look at customers with over $100,000 of income, our year-over-year growth in that segment was a little more than 60% year-over-year. So that's showing you that when the cars are there for that customer segment, the growth is there.”

asked by Jeffrey Lick · answered by Ernest Garcia

How will Carvana ensure that growing inventory doesn't lead to the same reconditioning problems experienced last year?

Operational problems are constant in a complicated machine. While reconditioning costs in Q4 last year became publicly apparent, most issues are resolved internally. The company's resilience and ability to quickly recover from 'bumps in the road' are key. The focus is on continuous improvement in hiring, training, building, and permitting to ensure consistent execution.

“I think in the case of reconditioning costs in Q4, I think that rose to a level where it was apparent and so we discussed it. But I think that's the reality of execution in a complicated machine. I think there will always be areas where we're working on different problems.”

asked by Christopher Pierce · answered by Ernest Garcia