CarLotz’ difficult journey as a public company continues.
The Scott’s Editions-based used-car consignment dealer has struggled with speed bumps since going public via the SPAC deal in early 2021.
Most notable of late has been the stock price, which has fallen from $11.92 since its initial listing on Jan. 22, 2021 to 48 cents a share at Wednesday’s closing bell. That’s a drop of 96 percent in 18 months.
The stock, which trades as LOTZ on the Nasdaq, has closed below $1 a share on every trading day since April 25. That price action led to a Nasdaq statement earlier this month warning CarLotz that it should at least recover above $1 a share by 10. May have to be delisted for consecutive trading days through December 5th.
While the drop in its stock price in recent months has coincided with an overall declining stock market, CarLotz is grappling with other market forces, including an ongoing decline in the used car market due to supply shortages resulting from the pandemic. This includes turbulence.
CarLotz was founded in Richmond with the idea of allowing consumers to ship their used vehicles with CarLotz, the company that does the preparation and listing for a flat fee of $199 and if the vehicle is sold, an additional fee of $699 .
Eventually, it expanded its inventory beyond the consumer market and entered the wholesale used car market. This sourcing segment became an ever-larger part of its business until it was hit hard by the pandemic’s shortages.
Since then, the deficit has been steadily increasing. CarLotz reported a loss of $24.8 million for the first quarter of 2022, worse than a loss of $15 million in the same period last year. That’s a loss of $39.9 million for full-year 2021, followed by a loss of $6.6 million in 2020 and a loss of $12.7 million in 2019.
This red has drawn the ire of some disgruntled shareholders. At least seven lawsuits have been filed in federal courts against CarLotz and/or several of its officers and directors in the last 12 months. All are structured as class-action lawsuits and raise similar claims, alleging that the company violated federal securities laws in the months following its listing on Nasdaq.
At the heart of most cases is that CarLotz knowingly misrepresented or omitted important information from documents and public statements regarding its financial condition. This includes information related to selling and holding restrictions that have occurred when the stock price has steadily declined.
Most were filed in New York and the most recent in Delaware. Most of them have been combined into a single case due to their similarity in claims and class action aspirations.
Among the defendants in some of the lawsuits is Michael Burr, a veteran Richmond investment banker who founded Carlotz in 2010 with friends and business partners Aaron Montgomery and Will Boland.
While Montgomery and Boland left the company before SPAC’s IPO, Burr remained at the helm until March of this year before he was replaced. His departure was the first in a reshuffle of several C-suite positions within the company.
Burr has since sold a large number of his CarLotz shares.
At the time of the company’s proxy filing in April, Burr owned 11.68 million shares of CarLotz stock. Those shares were worth about $139 million at the end of CarLotz’s first day on the Nasdaq 18 months ago. The same shares are now worth about $5 million based on the current share price.
But according to an SEC filing, Burr has trimmed that stake in recent weeks, selling about 5 million shares in multiple transactions since May for about $2.6 million at an average share price of about 50 cents each.
He now holds a total of 6.71 million shares either directly or on behalf of family members and family trusts. That’s about 6 percent of the company’s 114 million outstanding shares. Bor’s remaining stake is valued at around $3 million at Wednesday’s close.
The company announced more bad news this week, revealing in a press release that half of its retail locations across the country have closed. That’s a deficit of 11 of the 22 stores it calls “hubs” and 25-30 percent of its workforce.
The company said the closure is “part of a strategic review of the business where cash preservation and future profitable growth are key drivers.”
“The Company will focus on developing the remaining centers which they believe will offer the highest growth potential, highest profit potential and most attractive sourcing opportunities going forward,” the press release reads.
The closures include two stores in Florida, Texas and Illinois, as well as locations in California, Georgia, Alabama, Tennessee and Washington state.
Most of those 11 had been open for barely a year, and the company said three more but unopened stores would open as previously announced. And this despite the fact that leases have already been signed for these three locations.
The remaining 11 locations include two in the Richmond area and one in Charlottesville; Chesapeake; Los Angeles; Tampa; Denver; Huntsville, Alabama; Downers Grove, Illinois; and Greensboro and Charlotte, North Carolina.
The company said the closure should result in cost savings of $12 to $13 million per year and potentially $8 million in savings if it can successfully sublease the properties.
The company declined to comment on the story, citing a quiet period in interviews with the press.
Newly appointed CEO Lev Pecker, who replaced Burr in March, said in this week’s store closure press release: “Over the past 12 months, our sourcing has been challenged. Our retail remarketing has complemented our sourcing channel and reliance on auctions. It is a priority to increase our mix of consumer-focused vehicles to drive down costs.”
“We believe the closure should allow us to improve sourcing in a smaller hub base and focus on the productivity and efficiency of the remaining hubs. We also believe that building a stronger CarLotz, increasing cash savings and doing this is the first step on our journey to profitability,” said Pekar.
CarLotz listed 828 vehicles for sale in its inventory as of Wednesday afternoon.