CarParts.com, Inc. — Form 10-Q Summary
Reporting period: The filing covers the thirteen weeks ended April 3, 2021, compared with the thirteen weeks ended March 28, 2020. The request metadata says 2020 Q1, but the filing itself is for 2021 Q1. Unless noted, financial amounts below are in thousands of dollars.
Business context
CarParts.com sells aftermarket auto parts and accessories primarily to consumers through its website and third-party marketplaces. The company attributed growth to sales across channels and increased capacity from its Texas distribution center, which opened in the fourth quarter of 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $144,802 | $87,818 |
| Gross profit / gross margin | $49,174 / 34.0% | $29,779 / 33.9% |
| Operating expenses | $51,672 | $30,132 |
| Operating loss | $(2,498) | $(353) |
| Net loss / diluted loss per share | $(2,722) / $(0.06) | $(978) / $(0.03) |
| Adjusted EBITDA (non-GAAP) | $3,562 | $4,303 |
| Cash provided by operating activities | $13,051 | $14,299 |
Sales rose 64.9% year over year. Gross margin increased 10 basis points; management cited favorable product mix, partly offset by higher inbound and outbound freight costs. Operating expenses rose 71.5%, primarily due to higher marketing and fulfillment costs, including costs associated with the Texas distribution center. The company remained GAAP-loss-making; Adjusted EBITDA is a non-GAAP measure and excludes share-based compensation, among other adjustments.
Cash and cash equivalents were $45,896 at April 3, 2021, versus $35,802 at January 2, 2021. Working capital was $67,473, compared with $67,396. Operating cash flow was lower year over year, reflecting higher net loss and working-capital use, particularly inventory investment, partly offset by higher accounts payable and accrued expenses. Capital expenditures were $2,630, mainly for website and software development; financing cash outflow was $316.
Total debt, primarily finance-lease obligations, was $14,471, versus $13,011 at January 2, 2021. The revolving credit balance was zero; reported excess availability was $26,302. The $30,000 asset-based facility matures December 16, 2022, subject to borrowing-base limits and covenants. Total liabilities were $127,307 and stockholders’ equity was $85,061 at quarter-end.
Material changes and operating developments
- Sales increased across all channels, supported by the Texas distribution center’s added capacity.
- Operating expenses grew faster than sales, and operating loss widened despite higher gross profit.
- Operating cash flow declined by $1,248 year over year, while inventory increased to $97,942 from $89,316 at fiscal year-end.
- Share-based compensation expense was $4,080 in the quarter, compared with $2,819 a year earlier. The company reported 50.603 million common shares issued and outstanding at April 3, 2021, including treasury shares as presented in the filing.
Outlook, risks, and contingencies
Management said existing cash, cash flows from operations and available debt financing should fund operating needs for at least the next twelve months. The filing gives no specific revenue, earnings or margin guidance and cautions that interim results may not indicate full-year performance. Management identified uncertainty from COVID-19, supply-chain disruption and port congestion, with potential for added freight, labor, overtime and detention costs.
Key exposures include dependence on third-party marketplaces (Amazon and eBay together generated 33.5% of quarterly sales), supplier concentration (the top ten suppliers represented approximately 61% of product purchases), freight-cost increases, and reliance on suppliers in Taiwan and China. Other disclosed risks include competition, demand and seasonality, inventory availability, fulfillment and technology disruptions, cyber and privacy risks, tariffs, and credit-facility borrowing-base and covenant restrictions. The company reported a full valuation allowance against deferred tax assets.
Asbestos-related lawsuits involving subsidiaries concern brakes marketed in the late 1960s and early 1970s; the company said insurance is expected to cover the matter and significant out-of-pocket costs are not expected. Ordinary-course legal matters were not expected to have a material adverse effect. The company 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 period: this filing reports Q1 2021, notwithstanding the request metadata identifying 2020 Q1.
- Track whether sales growth translates into improved operating profitability, given higher operating expenses and a GAAP net loss.
- Assess inventory growth, freight and fulfillment costs, and cash conversion in subsequent quarters.
- Monitor marketplace and supplier concentration, supply-chain conditions, and the Texas distribution center’s contribution to capacity and costs.
- Review liquidity against credit-facility borrowing-base availability, covenants, and lease obligations.