CarParts.com, Inc. — Form 10-Q Summary
Period note: The request identifies 2020 Q3, but the supplied filing is for the 13 and 39 weeks ended October 2, 2021, with comparable results for 2020. Amounts below are in millions of dollars unless noted.
Business context and reporting period
CarParts.com sells aftermarket replacement, hard, performance parts and accessories, primarily online through its website and third-party marketplaces. The filing reports third-quarter and year-to-date fiscal 2021 results.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Net sales | $141.8 | $117.4 | $444.2 | $324.2 |
| Gross profit | $47.3 | $43.1 | $149.9 | $113.7 |
| Gross margin | 33.4% | 36.7% | 33.7% | 35.1% |
| Operating income (loss) | $(4.3) | $1.7 | $(4.5) | $3.6 |
| Net income (loss) | $(4.7) | $1.4 | $(5.3) | $2.0 |
| Adjusted EBITDA (non-GAAP) | $2.3 | $5.1 | $14.2 | $15.0 |
Q3 basic and diluted loss per share was $0.09, versus income per share of $0.03 in Q3 2020. Operating expenses were $51.7 million in Q3, up 24.8% year over year.
- Cash flow, 39 weeks: Operating cash use was $8.3 million, compared with $1.6 million provided in 2020; investing cash use was $8.4 million; financing provided $1.7 million. Cash declined $15.1 million to $20.7 million.
- Liquidity: Working capital was $73.4 million at October 2, 2021, versus $67.4 million at January 2, 2021. Current assets were $166.9 million and current liabilities were $93.5 million.
- Debt and leases: The company reported total debt of $15.3 million, primarily finance-lease obligations, and no revolving loan balance. Its asset-based revolver provides up to $30 million, subject to a borrowing base, and matures December 16, 2022. Standby letters of credit totaled $1.4 million.
- Balance sheet: Inventory rose to $131.8 million from $89.3 million at year-end; total assets were $221.8 million and stockholders’ equity was $94.5 million.
Material changes versus the prior comparable period
- Q3 sales increased 20.8%; year-to-date sales increased 37.0%. Management attributed growth primarily to continued demand and expanded capacity at the Grand Prairie distribution center.
- Q3 gross margin fell 330 basis points. Management cited higher inbound and outbound freight costs and the absence of favorable one-time items recorded in the prior-year period. Year-to-date gross margin declined 140 basis points.
- Higher fulfillment costs and payroll-related expenses contributed to operating expense growth. Costs also reflected the Grand Prairie expansion, which management expected to open in Q1 2022.
- Year-to-date operating cash flow turned negative, primarily due to increased inventory purchases for anticipated demand and the distribution center expansion. Capital expenditures were $8.4 million, mainly for website and software development.
- Q3 and year-to-date results shifted from net income to net losses. Share-based compensation expense also increased year over year.
Outlook, commentary, risks and contingencies
- No specific revenue or earnings guidance is provided. Management stated that cash, cash flows and available debt financing should fund operations for at least the next 12 months, while cautioning that requirements may vary.
- Management cited ongoing supply-chain disruption and port congestion, with potential for higher freight, container, labor, overtime and detention costs. COVID-19-related effects remain uncertain.
- Key risks include reliance on suppliers in Taiwan and China, third-party shipping and online marketplaces, competition, margin pressure, inventory management, fulfillment interruptions, labor costs, cybersecurity and regulatory or product-liability claims. Amazon and eBay together represented 35.4% of year-to-date sales.
- The company’s credit facility includes borrowing-base restrictions and financial covenant triggers; failure to comply could restrict borrowing or require repayment. The company reported no off-balance-sheet arrangements.
- Several asbestos-related lawsuits involving a subsidiary remain outstanding; the company says insurance coverage applies and significant material out-of-pocket costs are not expected. Management also stated that ordinary-course legal matters are not expected to materially affect results.
- The company had a full valuation allowance against deferred tax assets. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q3 2021, not Q3 2020.
- Track whether freight and supply-chain pressures continue to weigh on gross margin and whether the Grand Prairie expansion delivers expected capacity and cost benefits.
- Assess whether inventory growth converts into sales and operating cash flow; verify the company’s cash needs against its stated 12-month liquidity outlook.
- Review revolver availability under the borrowing base, covenant headroom, and the facility’s December 2022 maturity.
- Monitor marketplace concentration, supplier dependence and the potential effects of further shipping, labor or import-cost increases.