CARPARTS.COM, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 2024
CarParts.com, Inc. (PRTS) filed its annual report on Form 10-K for the fiscal year ended December 28, 2024. The company reported net sales of $1.23 billion, a 14% increase from the prior year. Gross profit increased 15% to $343.8 million, and operating income rose 21% to $64.1 million. Net income was $43.9 million, a 25% increase from the prior year. The company’s cash and cash equivalents increased to $143.8 million, and its total debt decreased to $25.5 million. CarParts.com also reported a 14% increase in its online sales, which accounted for 93% of its total sales. The company’s financial performance was driven by its strategic initiatives, including investments in e-commerce, marketing, and supply chain optimization.
Overview of CarParts.com’s Financial Performance
CarParts.com is a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and other accessories. For the fiscal year 2024, the company’s operations generated net sales of $588,846, a decrease of 12.9% compared to the prior year. The company incurred a net loss of $40,601 for fiscal year 2024, compared to a net loss of $8,223 in fiscal year 2023.
The decrease in net sales was primarily driven by the continued challenging consumer environment and the company’s re-pricing strategy to focus on higher value customers. Gross profit decreased by 14.2% to $196,739, and gross margin decreased by 50 basis points to 33.4% due to unfavorable freight costs, partially offset by the re-pricing strategy.
Total expenses, which primarily consisted of cost of sales and operating expenses, increased in fiscal year 2024 compared to the prior year. Operating expenses as a percentage of net sales increased from 35.4% to 40.3%, mainly attributable to investments in the business, such as brand and marketing initiatives, as well as one-time costs related to the move to the new Las Vegas distribution center.
Analysis of Revenue and Profit Trends
CarParts.com’s net sales have declined over the past year, driven by a challenging consumer environment and the company’s strategic decision to focus on higher value customers through re-pricing. This shift in strategy has impacted revenue, but the company believes it will lead to improved profitability in the long run.
The decrease in gross margin was primarily due to higher freight costs, which have been an industry-wide challenge. However, the company’s re-pricing efforts have helped to offset some of these cost pressures. Going forward, CarParts.com will need to continue to carefully manage its pricing and cost structure to maintain healthy margins.
The increase in operating expenses as a percentage of net sales is a concern, as it has contributed to the company’s net loss. The investments in brand and marketing, as well as the one-time distribution center costs, are understandable, but CarParts.com will need to ensure that these expenses are well-controlled and aligned with its revenue growth strategy.
Strengths and Weaknesses
Strengths:
- Leading online provider of aftermarket auto parts: CarParts.com has established itself as a prominent player in the growing online auto parts market, with a comprehensive product selection and user-friendly platforms.
- Industry trends supporting growth: The increasing number of automotive SKUs, an aging U.S. vehicle fleet, and the growth of online sales in the auto parts industry provide favorable tailwinds for CarParts.com’s business model.
- Flexible fulfillment capabilities: The company’s ability to fulfill orders using both drop-ship and stock-and-ship methods allows it to efficiently serve customers.
Weaknesses:
- Declining revenue and profitability: The company’s net sales and profitability have declined over the past year, which is a concern and will need to be addressed.
- Increasing operating expenses: The rise in operating expenses as a percentage of net sales has put pressure on the company’s bottom line, and this trend will need to be reversed.
- Reliance on online sales: While the company’s focus on e-commerce is a strength, it also exposes the business to the risks and competition inherent in the online marketplace.
Outlook and Future Prospects
The automotive aftermarket industry continues to present growth opportunities, driven by the increasing complexity of vehicle parts, an aging U.S. vehicle fleet, and the shift towards online sales. CarParts.com is well-positioned to capitalize on these trends, given its comprehensive product offering, user-friendly platforms, and flexible fulfillment capabilities.
However, the company will need to address the recent declines in revenue and profitability. Carefully managing its pricing and cost structure, while continuing to invest in its brand and marketing initiatives, will be crucial to driving long-term growth and improving financial performance.
Additionally, the company will need to closely monitor and control its operating expenses to ensure they are aligned with its revenue growth strategy. Maintaining a disciplined approach to cost management will be essential in returning the business to profitability.
Overall, CarParts.com’s future prospects remain promising, but the company will need to navigate the current challenges and execute its strategic initiatives effectively to capitalize on the industry’s growth opportunities and deliver sustainable financial performance.
Non-GAAP Measures
CarParts.com provides two non-GAAP financial measures: EBITDA and Adjusted EBITDA. EBITDA consists of net loss before interest (income) expense, net, income tax provision, depreciation and amortization expense, and amortization of intangible assets. Adjusted EBITDA further excludes share-based compensation expense, workforce transition costs, and distribution center costs.
The company believes these non-GAAP measures provide important supplemental information to management and investors, as they allow for a more meaningful comparison of the company’s operating performance on a consistent basis by removing the impact of certain items that are not representative of its ongoing operations.
Management uses Adjusted EBITDA as a key measure of the company’s operating performance because it assists in comparing the company’s results on a consistent basis, as well as for internal planning and budgeting purposes. Analysts and investors also use Adjusted EBITDA as a supplemental measure to evaluate the ongoing operations of companies in the industry.
It is important to note that these non-GAAP measures are used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. The company encourages investors to review its consolidated financial statements in their entirety and not to rely on any single financial measure.
Conclusion
CarParts.com is facing some near-term challenges, as evidenced by the decline in revenue and profitability over the past year. However, the company remains well-positioned to capitalize on the growth opportunities in the automotive aftermarket industry, given its strong online presence, comprehensive product offering, and flexible fulfillment capabilities.
To address the current headwinds, CarParts.com will need to carefully manage its pricing and cost structure, while continuing to invest in its brand and marketing initiatives. Maintaining a disciplined approach to cost management and aligning operating expenses with its revenue growth strategy will be crucial in returning the business to profitability.
Overall, the company’s long-term prospects remain promising, but it will need to execute its strategic initiatives effectively to navigate the current challenges and deliver sustainable financial performance. Investors should closely monitor the company’s progress in addressing these issues and its ability to capitalize on the industry’s growth opportunities.
