Used-car marketplace Carlotz, Inc. (NASDAQ: LOTZ) has shuttered 11 of its dealership stores in order to preserve cash and boost profits. Further, it does not plan to open three other outlets, the leases of which have already been executed.
The 11 closed hubs are located in Texas, Georgia, California, Florida, Illinois, Alabama, Tennessee, and Washington. These stores were closed on June 21, and all store-closing-related activities will be completed by July 8. The company will lay off around 25%–30% of its workforce as a result of these closures.
Lev Peker, the CEO of CarLotz, said, “We believe the hub closures are a necessary step to help improve the company’s financial performance.”
Carlotz expects to record a $12 million to $13 million reduction in its operational loss per year following the shutdown of these hubs. If the company is able to sub-lease the 14 locations, then it expects to achieve additional annual occupancy cost savings of $7.5 million to $8.5 million.
Moreover, Carlotz expects the store closures to release $10 million from the liquidation of inventory. It plans to use this amount to meet its working capital requirements.
The Virginia-based company also expects to record one-time severance costs of $500,000 to $600,000; an impairment charge on lease assets of $2 million to $5 million; and an impairment charge on other fixed assets of $5 million to $6 million.
Carlotz provides a retail sales channel to corporations looking to source vehicles and retail sellers of used vehicles.
Price Target
Based on a single Hold, the stock has a Hold consensus rating. LOTZ’s average price target of $2 implies 309.3% upside potential from current levels. Shares have lost 91.4% over the past year.
Blogger Sentiment
TipRanks data shows that financial blogger opinions are 60% Bullish on LOTZ, compared to the sector average of 68%.
Conclusion
Apart from helping Carlotz preserve cash and increase long-term profit, the store closures will enable it to enhance vehicle sourcing and focus on the productivity of its hubs in this difficult economic environment.
