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Vroom Shares Tumble On Weak Q3 Outlook As Online Sales Shift to Cheaper Cars

Vroom CEO Paul Hennessy said the group is seeing a 'profound shift in buying preferences' towards lower-priced cars in the post-pandemic economy.

Vroom Inc.  (VRM) - Get VROOM INC. Report shares plunged in pre-market trading Thursday after the online used car sales platform issued a cautious near-term outlook that offset stronger-than-expected second quarter profits.

Vroom said adjusted earnings for the three months ending in June, the group's first report since listing on the Nasdaq, were pegged at 34 cents per share, well ahead of the Street consensus forecast of a 70 cent per share loss. Group revenues, the company said, came in at $253.1 million, down 3% from last year but again topping analysts' estimates.

Looking into the current quarter, however, Vroom said it plans to accelerate its shift towards the sale of lower-priced cars, echoing post-pandemic demand changes, and as a result sees sales in the region of $268 million to $290 million, well shy of the Refinitiv forecast of $344.6 million.

"We've noticed a fairly profound shift in the buying preferences of our customer. Specifically, we've seen a downward shift in the price points that our customers are looking for. Fortunately for us, our tools were able to discern the shift in real time. And given that our inventory was, and is at such low levels, we have been restocking our inventory at the same lower price points to line up with what our customers are demanding," CEO Paul Hennessy told investors on a conference call late Wednesday. "Thus, we've been able to maintain our GPPU targets, while decreasing the overall dollars committed to our inventory due to the lower cost paid for each car that we hold."

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"Looking forward to the remainder of the third quarter, we will continue to invest in experiments in our end-to-end ecommerce platform, as well as in our driveway delivery experience," he added. "We expect to continue to accelerate sales and gross profit per unit in the quarter on a monthly sequential basis, as we scale inventory and take advantage of what we believe are structural shifts in consumer behavior and demand for the Vroom model."

Vroom shares were marked 20.8% lower in pre-market trading Thursday to indicate an opening bell price of $54.65 each, a move that would nearly halve the stock's gains since its June IPO.

"We had always expected Vroom to make this transition to lower-priced ASPs over time, and while we were somewhat surprised at the speed of the transition, we think the end result should be greater unit sales growth and share of the used car market," said JMP Securities analyst Ronald Josey, who carries an outperform rating, with a $66 price tag, on the stock.

"As Vroom moves down in ASP, the company now has a bigger opportunity with lower-priced vehicles given the economic headwinds created by COVID-19, we note this change simply pulls forward the company’s longer-term strategy and we would be buyers on any weakness in shares," he added.