Carvana Co. CVNA delivered another strong quarter of SG&A expense leverage in the first quarter of 2026. The company’s 40% increase in retail units sold reduced non-GAAP SG&A expense by $170 per retail unit sold, including a $36 decline in operations expenses and a $226 decline in overhead expenses per unit. Carvana expects significant SG&A leverage opportunities as the business continues to scale, driven by both operational efficiencies and leverage from the fixed components of its cost structure.
Operations expenses include costs associated with executing transactions, providing customer service, fulfilling orders through the logistics network and completing last-mile deliveries. These expenses are relatively variable in nature. During the quarter, operations expenses declined slightly year over year, reflecting continued efficiency improvements. The company expects further reductions in operations expense per retail unit over the long term, although quarterly results can be affected by factors such as fuel prices because logistics costs are included in this category.
Overhead expenses represent the more fixed portion of the cost structure. While these costs can increase when the company makes strategic investments, such as its current investments in additional technology and AI-related initiatives, Carvana expects substantial leverage in this category as retail volumes continue to grow. The first quarter demonstrated strong progress in spreading these fixed costs across a larger sales base.
Advertising remains the third major SG&A category. Carvana has been increasing advertising spending to further build consumer awareness, understanding and trust in its platform. As a result, the company expects advertising investment to remain an important component of its growth strategy even as it continues to pursue efficiency gains in operations and overhead expenses. CVNA currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Are the SG&A Prospects for Other Auto Retailers?
AutoNation, Inc.’s AN operating efficiency remains a concern as SG&A has moved above the company’s long-term target range. In the first quarter of 2026, AutoNation’s adjusted SG&A was 69.8% of gross profit versus the 66% to 67% target range, reflecting higher marketing spend, strategic customer experience investments and unfavorable self-insurance experience related to weather events. AutoNation expects SG&A to moderate in subsequent quarters but remain above the targeted range, which can restrain operating income growth if revenues remain under pressure.
Penske Automotive Group, Inc.’s PAG expense base is proving sticky even as gross profit softens, which reduces operating leverage in a slower volume environment. In the first quarter of 2026, Penske’s SG&A rose modestly year over year while gross profit declined, and the company attributed the gap to higher employee benefit costs, higher U.K. payroll taxes and social programs, and higher rent and real estate taxes. Penske highlighted that rent increases tend to recur, and benefit costs have not been moving lower, which can keep earnings improvement uneven if unit volumes remain pressured.
Carvana’s Price Performance, Valuation and Estimates
Carvana has underperformed the Zacks Internet – Commerce industry in the last six months. CVNA shares have plunged 28.6% compared with the industry’s decline of 7.3%.
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From a valuation perspective, Carvana appears overvalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 2.28, higher than its industry’s 1.91.
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The Zacks Consensus Estimate for Carvana’s 2026 and 2027 EPS has moved up 5 cents and 4 cents, respectively, in the past 60 days.
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Carvana Co. (CVNA): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).