CarParts.com, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 3, 2021, compared with periods ended June 27, 2020. Although the request metadata says 2020 Q2, the filing is for 2021 Q2.
Business context and results
CarParts.com sells aftermarket auto parts and accessories, primarily online through its website and third-party marketplaces. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $157.5 million | $118.9 million | $302.3 million | $206.7 million |
| Gross profit | $53.3 million | $40.8 million | $102.5 million | $70.6 million |
| Gross margin | 33.9% | 34.3% | 33.9% | 34.2% |
| Operating income (loss) | $2.3 million | $2.2 million | $(0.2) million | $1.8 million |
| Net income (loss) | $2.1 million | $1.6 million | $(0.7) million | $0.6 million |
| Adjusted EBITDA | $8.3 million | $5.6 million | $11.9 million | $9.9 million |
Q2 diluted earnings per share were $0.04, versus $0.03 a year earlier; first-half diluted loss per share was $0.01, versus earnings of $0.01. Adjusted EBITDA is a non-GAAP measure; the company cautions it should be considered alongside, not instead of, GAAP results.
Liquidity, cash flow and debt
- Cash and cash equivalents were $33.1 million at July 3, 2021, down from $35.8 million at January 2, 2021. Working capital was $74.6 million, compared with $67.4 million at year-end.
- First-half operating cash flow was $1.0 million, versus $25.2 million in the prior-year period. The filing attributes the decline mainly to inventory investment, including stocking the Grand Prairie distribution center, partly offset by higher payables.
- Investing cash outflow was $5.4 million, primarily property and equipment additions; financing cash inflow was $1.8 million, including stock-option exercise proceeds and finance-lease payments. Cash decreased $2.7 million during the half.
- Total debt was $15.3 million, primarily finance-lease obligations. The company had no revolver borrowings and reported $25.8 million of excess availability under its $30 million asset-based credit facility, which matures December 16, 2022.
Changes, outlook and risks
- Q2 sales rose 32.5% year over year; first-half sales rose 46.2%. Management cited continued strong demand, added capacity at Grand Prairie, and expanded branded inventory through its partner network.
- Gross margin declined 40 basis points in Q2 and 30 basis points for the first half. Management cited inbound and outbound freight pressure and a greater mix of branded products, which generally have lower gross-margin percentages.
- Operating expenses rose 32.0% in Q2 and 49.3% for the first half, driven mainly by fulfillment costs from higher order volumes and the Grand Prairie center, and increased marketing spending. Share-based compensation also increased.
- No numerical revenue or earnings guidance is provided. Management said existing cash, operating cash flows and available credit were expected to fund operations for at least 12 months. It warned that lower sales or margins, higher expenses, or worsening economic conditions could require additional financing or spending reductions.
- Supply-chain disruption and port congestion could raise freight, container, labor and distribution costs. Other notable exposures include reliance on suppliers in Taiwan and China, third-party delivery providers, and online marketplaces. Amazon and eBay together represented 35% of first-half sales; the top ten suppliers represented about 56% of product purchases.
- The company reported a full valuation allowance against deferred tax assets and a first-half net loss. It identified potential continuation of losses and credit-facility covenant or borrowing-base limits as risks. Asbestos-related litigation is insured, and the company did not expect material out-of-pocket costs; ordinary-course litigation was also not expected to materially affect results.
- Subsequent event: on July 27, 2021, the board authorized a stock repurchase program of up to $30 million. Purchases are discretionary and may be modified or terminated; the filing does not state how much, if any, had been repurchased.
Important facts for investors to verify
- Whether sales growth and demand persist, and whether freight and product-mix pressures continue to weigh on gross margin.
- Whether inventory investment converts into sales and operating cash flow, and whether cash generation improves from the first-half level.
- Marketplace and supplier concentration, supply-chain exposure, and potential changes in shipping and fulfillment costs.
- Credit-facility availability, covenant compliance and any constraints relevant to the newly authorized repurchase program.
- The effect of share-based compensation and potential dilution: first-half share-based compensation was $7.3 million, and the share count increased from 48.1 million at January 2 to 52.2 million at July 3, 2021.