CarParts.com, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2021 Q1, but this filing reports the thirteen weeks ended April 2, 2022, compared with the thirteen weeks ended April 3, 2021. Unless stated otherwise, financial amounts below are in millions of dollars.
Business context and reporting period
CarParts.com sells aftermarket auto parts and accessories primarily to individual consumers through its website and online marketplaces. Its product lines include replacement parts, hard parts, and performance parts. The filing is unaudited and covers the first quarter of fiscal 2022.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $166.1 | $144.8 |
| Gross profit / margin | $61.2 / 36.8% | $49.2 / 34.0% |
| Operating income (loss) / margin | $2.4 / 1.4% | ($2.5) / (1.7%) |
| Net income (loss) | $2.1 | ($2.7) |
| Diluted EPS | $0.04 | ($0.06) |
| Adjusted EBITDA (non-GAAP) | $9.4 | $3.6 |
| Operating cash flow | $5.3 | $13.1 |
| Capital expenditures | $3.8 | $2.6 |
Cash and cash equivalents were $25.0 at April 2, 2022, up from $18.1 at January 1, 2022. Working capital was $76.4, compared with $71.8 at year-end. Inventory was $157.9, up from $138.9. Total debt was reported as $23.2, primarily finance-lease obligations; the revolving loan balance was $5.0. The asset-based credit facility has a $30.0 commitment subject to a borrowing base, with a possible increase to $40.0 subject to lender approval, and matures December 16, 2022. Standby letters of credit totaled $1.32.
Operating cash flow fell year over year, primarily because of increased inventory for expected demand and distribution-center capacity. The company spent $3.8 on property and equipment, mainly capitalized website and software development costs. Management said existing cash, operating cash flows, and available debt financing should fund operations for at least the next twelve months.
Material changes versus the prior comparable period
- Sales increased 14.7%, which management attributed primarily to continued strong demand and expanded capacity at the Grand Prairie distribution center.
- Gross profit rose 24.4%; gross margin improved 280 basis points, primarily from favorable product mix and inbound and outbound freight costs.
- Operating expenses increased 13.7% to $58.8, mainly due to fulfillment activity, inventory receipts, the Grand Prairie expansion, and preparations for the Jacksonville distribution center. Operating expenses declined slightly as a share of sales.
- The company moved from a net loss to net income. Adjusted EBITDA, a non-GAAP measure, increased to $9.4 from $3.6.
- Operating cash flow decreased to $5.3 from $13.1, while inventory increased by $19.1 during the quarter. Financing cash flow included $5.0 of net revolving borrowings.
Outlook, commentary, risks, and unusual items
No numeric revenue or earnings guidance is provided. Management described continued investment in product selection, delivery speed, technology, and distribution capacity. It cited supply-chain disruption, port congestion, freight and container costs, labor shortages, overtime, and distribution-center costs as ongoing or potential pressures. The company also warned that the effects of COVID-19 and broader economic developments remain uncertain.
- Credit facility: Borrowing availability depends on eligible collateral and covenant conditions. Low excess availability or a default could trigger cash dominion or financial-covenant requirements and affect liquidity. The December 2022 maturity makes refinancing or renewal worth monitoring.
- Concentration: Amazon and eBay together represented 33.0% of Q1 2022 sales. The top ten suppliers represented approximately 56% of product purchases; the company relies heavily on suppliers in Taiwan and China.
- Share-based compensation: Q1 expense was $4.3, including $81,000 for consultant awards. Unrecognized compensation expense was $36.1, expected to be expensed through March 2026. Adjusted EBITDA excludes share-based compensation and is not a GAAP measure.
- Taxes: The company reported a full valuation allowance against deferred tax assets. Its effective tax rate was 2.4% in Q1 2022.
- Legal matters: A subsidiary remains involved in asbestos-related brake litigation; the company said insurance coverage is maintained and material out-of-pocket costs are not expected. It said ordinary-course litigation is not expected to have a material adverse effect.
- Controls: Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether sales growth and the margin improvement persist, particularly as freight, supplier, and labor costs change.
- Inventory levels, cash conversion, and operating cash flow as the Jacksonville facility opens and distribution capacity expands.
- The credit facility’s renewal or replacement before its December 16, 2022 maturity, borrowing availability, and compliance with its covenants.
- The degree of exposure to Amazon and eBay, major suppliers, and overseas sourcing, including any effect on margins or product availability.
- The treatment and continuing impact of share-based compensation when assessing GAAP earnings against Adjusted EBITDA.