Earnings call transcript: CarParts.com Q4 2024 misses forecasts, stock drops

CarParts.com reported its Q4 2024 earnings, revealing a greater-than-expected loss, with earnings per share (EPS) at -$0.27 against a forecast of -$0.12. Revenue for the quarter was $133.5 million, falling short of the $140.83 million forecast. Following the announcement, the stock price dropped by 6.42% to $1.01 in after-hours trading. According to InvestingPro data, the company’s market capitalization now stands at $59.41 million, with analysis indicating the stock is currently undervalued based on InvestingPro’s Fair Value model.

Key Takeaways

• CarParts.com reported a larger-than-expected EPS loss and missed revenue forecasts.
• The stock declined by 6.42% in after-hours trading.
• Full-year revenue declined by 13% year-over-year.
• The company launched a mobile app, now contributing 10% of e-commerce revenue.
• Strategic alternatives review underway with no specific 2025 guidance provided.

Company Performance

CarParts.com’s performance in Q4 2024 reflected a challenging period, with revenues declining by 15% year-over-year to $133.5 million. The company faced significant market pressures, notably from low-cost imported parts and price compression in the first half of the year. InvestingPro analysis reveals the company is quickly burning through cash, with a negative free cash flow yield. Despite these challenges, the company expanded its product catalog and launched a mobile app, which has gained 800,000 users and now accounts for 10% of e-commerce revenue. The company maintains a healthy current ratio of 1.62, indicating sufficient liquidity to meet short-term obligations.

Financial Highlights

• Revenue: $133.5 million in Q4 2024, down 15% from the previous year.
• Full Year Revenue: $589 million, a 13% decline from 2023.
• Gross Profit: $196.7 million, a 14% decrease year-over-year.
• GAAP Net Loss: $40.6 million, compared to an $8.2 million loss in 2023.
• Adjusted EBITDA Loss: $7.1 million, an improvement from a $19.7 million loss in 2023.
• Cash Position: $36.4 million with no revolver debt.

Earnings vs. Forecast

CarParts.com reported an EPS of -$0.27, missing the forecast of -$0.12. This represents a significant deviation from expectations and marks a challenging quarter for the company. Revenue also fell short of the $140.83 million forecast, coming in at $133.5 million. This shortfall highlights ongoing difficulties in the market, compounded by economic pressures on lower-income consumers.

Market Reaction

Following the earnings announcement, CarParts.com’s stock decreased by 6.42% in after-hours trading, closing at $1.01. This movement reflects investor concerns over the earnings miss and the company’s declining revenue. The stock has fluctuated within a 52-week range of $0.68 to $1.68, with the current price nearing its lower limit. InvestingPro data shows the stock’s beta at 2.1, indicating higher volatility than the broader market. Get access to 13 additional exclusive ProTips and comprehensive analysis with an InvestingPro subscription, including detailed insights into the company’s valuation and growth prospects.

Outlook & Guidance

CarParts.com did not provide specific guidance for 2025 due to a strategic alternatives review. The company emphasized its focus on expanding product offerings, monetizing website visits, scaling B2B services, and growing its mobile app business. The absence of detailed guidance may contribute to investor uncertainty in the short term.

Executive Commentary

David Mignon, CEO, described 2024 as a "transformation and investment year," highlighting the company’s efforts to build a strong foundation for sustainable growth. He expressed confidence in achieving long-term positive adjusted EBITDA, while reaffirming the commitment to maximizing shareholder value.

Risks and Challenges

• Economic pressures on lower-income consumers could impact demand.
• Continued price compression and competition from low-cost imports pose risks.
• The strategic alternatives review creates uncertainty regarding future direction.
• Supply chain optimization and market expansion efforts may face hurdles.

CarParts.com’s Q4 2024 results underscore the challenges it faces in a competitive and economically pressured market. The company’s efforts to innovate and expand its offerings are crucial as it navigates these headwinds. With an Altman Z-Score of 1.49, the company faces some financial stability concerns, though it operates with a moderate debt level. Discover more detailed insights and access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, covering what really matters for smarter investment decisions.

Full transcript - CarParts.Com Inc (PRTS) Q4 2024:

Conference Operator: Good afternoon. At this time, all participants will be in a listen only mode. Please note this call is being recorded. I would now like to pass the conference over to our host, Tina Mierfarsee, Senior Vice President of Global Communications and Brand.

Please go ahead.

Tina Mierfarsee, Senior Vice President of Global Communications and Brand, CarParts.com: Hello, everyone, and thank you for joining us for the CarParts.com fourth quarter and fiscal year end 20 20 4 conference call. Joining me today are David Mignon, Chief Executive Officer and Ryan Lockwood, Chief Financial Officer. Before I turn it over to David to start the call, I have some important disclosures. The prepared remarks could contain certain forward looking statements related to the business under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward looking statements due to risks and uncertainties associated with the business.

For a discussion of a material risk and other important factors that could affect results, please refer to the CarParts.com annual report on Form 10 ks and quarterly report on Form 10 Q, each as filed with the SEC, both of which can be found on our Investor Relations website. On the call, both GAAP and non GAAP financial measures will be discussed. A reconciliation of GAAP to non GAAP financial measures is provided in the CarParts.com press release issued today. With that, I would now like to turn the call over to David.

Conference Operator: Thank you, Tina, and thanks everyone for joining us today. At the outset, let me say that today we are not going to comment or take questions related to our strategic alternatives process beyond what we announced on March 5. That process is being overseen by our Board of Directors with the assistance of financial and legal advisors. Twenty twenty four was an important year in the ongoing transformation of carparts.com. We began the year by refocusing our strategy on three key elements.

Number one, driving growth and net margin to strengthen financial performance. Number two, accelerating efficiency and effectiveness to quickly deliver improved profitability. And number three, achieving sustainable growth with strong long term free cash flow. The economic environment was challenging for lower income consumers for all of 2024, leading to a significant pullback in spending and deferral of costs like auto repairs. We faced meaningful price compression in the first part of twenty twenty four and saw selling prices stabilize in the second half.

Additionally, our lighting and mirror business was under substantial pressure due to low cost non compliant illegal parts imported from China flooding the market. As a result, we worked diligently to realign our business by expanding our product offering to attract a broader consumer base, repricing our products to target higher margin sales, adding high margin fee income, growing customer lifetime value with our mobile app and increasing our focus on B2B and other commercial opportunities. These actions led to a full year 2024 revenues of $589,000,000 slightly below expectations. However, gross profit of $197,000,000 and gross profit margin of 33.4% for the year was near the upper end of guidance. 2024 was a transformation and investment year as we look to upgrade our customer base and change the long term margin profile and unit economics of the business.

We currently rely on selling parts directly to cost conscious consumers via expensive paid search and have experienced additional margin pressures from rising outbound transportation costs. By focusing on refining our customer mix, optimizing acquisition strategies and mitigating cost increases, we aim to deliver greater value to our customers and secure sustainable growth for the business. To address these pressures, we are prioritizing several nonpaid marketing initiatives such as enhancing our site conversion and strengthening our search engine optimization, alongside driving mobile app adoption, generating high margin fee income, expanding our product assortment and growing our wholesale channel. We believe these efforts will position us to increase our net profit margin and drive long term growth. Before covering our financial results, I want to take a moment and recap what we have built over the last two years.

Number one, we have scaled and optimized our vertically integrated supply chain with tightly controlled in house capabilities, including sourcing, inventory forecasting, inbound logistics, trade compliance, fulfillment and reverse logistics, leading to an attractive product margin in the mid-50s percent. Number two, we continue to expand our nationwide direct to consumer fulfillment network and can cover 98% of the population with two day shipping. We have a unique ability to handle both conveyable and non conveyable products with capacity for scale. This includes our recently opened semi automated facility in Las Vegas with 200,000 square feet of space that is now fully operational and processing 25% of our company’s volume. Number three, we continued investing in our fitment based proprietary catalog that took twenty years to build and serves a full assortment across collision, mechanical, private label and branded products with the ability to build custom sets and kits.

Today, our catalog contains 83,000 private label SKUs, 1,500,000 premium branded SKUs and continues to grow each year. Number four, we continue to be the second largest importer of aftermarket collision parts in The United States and the world’s number one seller on eBay Motors. As a reminder, our collision parts are primarily sourced from Taiwan and account for approximately two thirds of our purchases that are not currently subject to the high tariffs imposed on products made in China. Number five, we continue to optimize our inventory across our fulfillment network, which was at $90,000,000 at year end. As discussed in prior calls, our blended pre freight product margin exceeds 50%, which makes this inventory significantly more valuable at retail prices, especially in an inflationary environment.

Number six, we fully replatformed our CarParts.com website with a best in class mobile first, fit specific user experience, which generates 100,000,000 annual visits and serves 10,000,000 customers with a new search, product recommendations and fee income capabilities. Our best in class mobile app with over 800,000 users in less than eighteen months now accounts for over 10% of e commerce revenue and growing while allowing for a long term change in our paid versus non paid traffic mix. Number seven, our highly profitable B2B business recently launched same and next day last mile delivery in the North Florida market with a contribution margin up to three times higher than e commerce served by real time integrations with shop management and estimating systems. Number eight, we’ve launched Nascent high margin fee income offerings, which include shipping and product protections, affiliate revenue and a premium paid membership and roadside assistance with over 3,000 paying members and growing. Over time, we expect this part of our business to help raise our net profit margins.

Number nine, we continue to leverage our two exceptional trademarks in CarParts.com and JC Whitney, which allows us to differentiate our private label offerings over time. While 2024 presented its share of challenges, we made significant progress in key areas that position us well for future growth. I’ll now turn it over to Ryan to review our financial results.

Ryan Lockwood, Chief Financial Officer, CarParts.com: Thank you, David. In the fourth quarter, we reported revenues of $133,500,000 down 15% from $156,400,000 last year. For the full year, we generated $588,800,000 in revenues, down 13% from $675,700,000 in 2023, with 2023 representing our highest revenue number ever in customer history. The decline was primarily driven by increased pricing combined with the impact of soft consumer demand as well as significant pressures in lighting and mirrors. Gross profit for the quarter was $43,400,000 down 16% compared to the prior year.

Gross margin was $32,500,000 down slightly from 33% in the prior year period. For the full year, gross profit was within our expected range at $196,700,000 down 14% compared to the prior year. Gross margin was $33,400,000 down from $33,900,000 in 2023. The decline in gross margin was primarily driven by increased outbound transportation costs despite some offset from higher pre freight gross margin. GAAP net loss for the quarter was $15,400,000 compared to a loss of $6,100,000 in the prior year period.

For the year, GAAP net loss for the year was $40,600,000 compared to a loss of $8,200,000 in 2023, primarily driven by lower gross profit. For the fourth quarter, adjusted EBITDA loss was $6,800,000 down from adjusted EBITDA of $1,000,000 in the prior year period, primarily due to soft consumer demand, price compression and increased competitive pressure in performance marketing. For the full year, adjusted EBITDA loss of $7,100,000 was down from $19,700,000 in 2023, primarily impacted by our fourth quarter results. In 2024, we incurred $6,400,000 of elevated expenses outside of our normal operations, which we don’t expect to reoccur in 2025, including overlapping software expenses related to our digital transformation and one time costs related to the move of our Las Vegas facility. As David mentioned, we are focused on harvesting return on these strategic investments over the next few years.

Turning to the balance sheet. We ended the year with $36,400,000 of cash and no revolver debt. We generated $300,000 of interest income in the fourth quarter and $1,500,000 for the full year. Our inventory balance was $90,400,000 at year end versus $128,900,000 at the end of twenty twenty three. Our cash position and untapped revolver continues to provide the necessary liquidity to support our business plan.

As David mentioned above, our company is currently evaluating various strategic alternatives in response to inbound interest. As a result, we are not providing guidance for 2025. I’ll now turn it back over to David for final remarks.

Conference Operator: Thank you, Ryan. Looking ahead, we are confident that the strong foundation and improvements across our business secured throughout 2024 have set us on a path to achieve long term sustainable positive adjusted EBITDA. Our priorities in 2025 include: one, continue to expand our product offering to attract new customers and increase average basket size number two, monetize our 100,000,000 annual website visits and customer lists with high margin fee income number three, scale our B2B offering with last mile transportation and higher touch sales in key markets number four, grow our mobile app business to diversify our marketing mix and deliver greater customer lifetime value and number five, maintain a strong balance sheet with a focus on managing cash flow and inventory levels. We are committed to maximizing long term shareholder value as we focus on capturing the growing opportunity in front of us within the highly fragmented and underserved $400,000,000,000 auto parts market. I would like to thank our global team for their resilience, hard work and commitment as we continue to transform our business.

Thank you everyone for joining today’s call. We’ll now turn it back over to the operator. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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