Carvana Falls as Higher Costs Trim Used Car Seller’s Profit

David Welch

Thu, February 19, 2026 at 9:17 AM GMT+9 3 min read

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(Bloomberg) – Carvana Co. suffered from some growing pains in its push for rapid growth as the company’s higher costs hit margins in the latest quarter and sent shares tumbling.

The online used-car retailer said its adjusted earnings before interest, taxes, depreciation and amortization was $511 million, lower than the average analyst estimate of $536 million. Higher non-vehicle costs and depreciation were contributors, the company said in a statement Wednesday.

Carvana has been growing quickly by buying cars, adding capacity to its vehicle reconditioning network and acquiring new-car dealerships. Those moves helped its used-car sales rise at rapid levels consistent with recent quarters, but its margin fell a percentage point from a year ago.

Even as the company said it will work to improve its expanded network this year and expects costs to come in line, Co-founder and Chief Executive Officer Ernest Garcia III said in a call with analysts that Carvana will keep investing.

“We’ve grown quickly. We were hiring new managers and kind of moving around some management layers to put us in a position to continue to grow quickly,” Garcia said. “And sometimes that leads to to a little backsliding.”

The company’s earnings results indicated one culprit was high depreciation costs on vehicles in inventory that led to a bigger drop in retail profits than analysts expected. Keeping those costs in control is key for a used-car retailer that needs to acquire more cars to maintain the pace of its expansion. The company also spent 64% more on advertising as it worked to raise brand awareness.

Carvana’s shares fell more than 15% at 6:49 p.m. during after-hours trading in New York, paring an earlier decline of more than 20%.

The company’s stock has been trading at all-time highs this year as investors expect Carvana to continue strong sales growth and improve margins as it builds scale in its operations. Shares hit a record of $478 in January, but have fallen since short seller Gotham City Research questioned related-party transactions and accused the company without proof of inflating earnings.

“We don’t sell loans to related parties,” Garcia said on a call with analysts when asked about the allegations. “We disclose our related party transactions, and there’s no ambiguity about that.”

Growth Push

Carvana continues to grow its business rapidly, posting a 43% jump in car sales in the period, about the same rate as the third quarter. Its gross profit per unit at retail was $3,076 per car, which fell by $255. The company had signaled the drop late last year and attributed the decline in part to higher-than-expected reconditioning costs, which it expects to remain elevated in the current quarter.

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Net income was $951 million, but that was helped by a valuation allowance on deferred tax assets. Without that impact and a loss from warrants in online insurer Root Inc., net income was $333 million. Loan sales accounted for 95% of that profit.

In a letter to shareholders, Garcia said the company expects it will continue growing sales and Ebitda this year, without giving specific guidance.

Carvana’s retail sales hit a record for the quarter and the year as the company continues to build out its reconditioning network and invest more in advertising featuring actor Jon Hamm and a web sales tool that uses an AI version of NBA Hall of Famer Shaquille O’Neal.

Despite margin pressure, Garcia is undeterred and plans further expansion with the assumption of continued growth. This year, the company plans to add excess reconditioning capacity at as many as eight of its ADESA vehicle auction sites and build new vehicle repair facilities at even more of them. Carvana plans to start construction in the second quarter and launch production in early 2027.

“Looking forward we will continue investing in our infrastructure ahead of future growth,” Garcia said in the letter.

–With assistance from Peter Vercoe.

(Adds details from the conference call throughout.)

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