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CI

CarParts.com, Inc. (PRTS)·Q3 2020 Earnings Summary

Executive Summary

  • Q3 2020 delivered record gross profit and margin on strong e-commerce demand: net sales $117.4M (+69% YoY), gross profit $43.1M (+104% YoY), gross margin 36.7% (+620 bps YoY) .
  • Bottom line turned positive: net income $1.4M ($0.03 diluted EPS) vs. $(1.4)M prior year; Adjusted EBITDA $5.1M (nearly 4x YoY), with margin uplift driven by product/channel mix and logistics optimization .
  • Liquidity significantly strengthened: cash $59.0M at quarter-end after a $60.5M equity offering (3x oversubscribed); ABL capacity to flex up to $40.0M; $12.0M of liabilities tied to the credit facility were paid down .
  • Strategic catalysts: 105% YoY growth in CarParts.com channel, Texas DC ramp (10,000+ packages; one-day delivery in Texas), improving branded margin economics (gap vs private label narrowing to ~500–700 bps) .
  • No formal guidance; management emphasized disciplined investment cadence and long-term operating leverage as tech debt and DC network expansions are addressed .

What Went Well and What Went Wrong

What Went Well

  • Record unit economics: “Gross profit and gross margin reached record highs,” reflecting favorable mix and logistics efficiency; CarParts.com primary channel grew 105% YoY .
  • Balance sheet fortification: $59.0M cash post offering; paid down $12.0M of liabilities; ABL facility flexibility up to $40.0M to fund inventory and DC expansion .
  • Fulfillment velocity and brand strategy: Texas DC enabled one-day delivery in Texas and >10,000 packages shipped; direct premium brand relationships improved margins and warehouse utilization .

What Went Wrong

  • Hard-parts inventory lagged due to longer lead times, limiting mix optimization; management expects improvement over next two quarters .
  • Q3 gross margin included non-recurring benefit from opportunistic branded inventory buys; slight decline in return rate also helped—both may not persist .
  • Continued technology debt (legacy ERP and back-end systems) and near-term fixed OpEx investments required before full operating leverage materializes .

Financial Results

Quarterly Trends (Q1 → Q2 → Q3 2020)

MetricQ1 2020Q2 2020Q3 2020
Revenue ($USD Millions)$87.82 $118.93 $117.41
Gross Profit ($USD Millions)$29.78 $40.83 $43.12
Gross Margin (%)33.9% 34.3% 36.7%
Net Income ($USD Millions)$(0.98) $1.57 $1.38
Diluted EPS ($USD)$(0.03) $0.03 $0.03
Adjusted EBITDA ($USD Millions)$4.30 $5.56 $5.13

YoY Comparison (Q3 2019 → Q3 2020)

MetricQ3 2019Q3 2020
Revenue ($USD Millions)$69.27 $117.41
Gross Profit ($USD Millions)$21.14 $43.12
Gross Margin (%)30.5% 36.7%
Net Income ($USD Millions)$(1.42) $1.38
Diluted EPS ($USD)$(0.04) $0.03
Adjusted EBITDA ($USD Millions)$1.32 $5.13

Liquidity and Operating KPIs (Q1 → Q2 → Q3 2020)

MetricQ1 2020Q2 2020Q3 2020
Cash and Equivalents ($USD Millions)$14.15 $24.86 $58.97
Inventory ($USD Millions)$57.36 $65.38 $76.73
Operating Expenses ($USD Millions)$30.13 $38.65 $41.39
Adjusted EBITDA Margin (%)4.9% 4.7% 4.4%

Channel/Segment KPIs

KPIQ2 2020Q3 2020
CarParts.com YoY Revenue Growth (%)Triple-digit (not quantified) 105%
Wholesale Share of Sales (%)—5.8%
Branded vs Private Label Margin Gap (bps)—~500–700 bps gap (private label higher)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2020None providedNone providedMaintained (no guidance)
Gross MarginQ4 2020None providedNone provided; target “mid-30s” long-term with mix variabilityMaintained qualitative view
OpEx / InvestmentsFY 2020–2021N/ADisciplined cadence; tech/catalog/DC investments near termClarified investment prioritization
LiquidityCurrentN/A$59.0M cash; ABL up to $40.0MEnhanced liquidity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Shift to DIY and onlineQ1: Private label drove record sales; new DIY entrants amid COVID; Q2: e-commerce penetration rising, auto parts underpenetrated online CEO: Three consumer shifts (DIY, offline→online, away from public transit) underpin demand Accelerating
Gross margin driversQ2: +480 bps YoY from mix and supply chain; sixth straight quarter Q3: +620 bps YoY; product/channel mix; logistics optimization; note opportunistic branded buys; slight return rate decline Improving but with non-recurring element
Supply chain & DC footprintQ2: Texas DC adding 210k sf; one-day to 61% of country; inventory rebuilding Q3: Texas DC shipping >10k packages; one-day delivery in Texas; 10–15% capacity, ramping to 65–80% by year-end Ramping
Technology stack & catalogQ2: Site consolidation to single flagship; tech optimization ongoing Q3: Legacy ERP (Great Plains) upgrade planned; purchasing/forecasting systems upgrades Investing for leverage
Marketing & brand buildingQ2: NASCAR/TV upper-funnel initiatives Q3: Positive NASCAR affinity; opportunistic TV buys; resumed post-election; aim to grow direct traffic/free mix to 60–70% over time Building brand; diversifying traffic

Management Commentary

  • “Gross profit and gross margin reached record highs… we have continued to generate significant year-over-year increases to our bottom line thanks to our focus on positive unit economics, even on the first purchase” — Lev Peker, CEO .
  • CFO: “CarParts.com… grew 105% year-over-year… Gross margins expanded 620 basis points to 36.7%, making this our seventh consecutive quarter of gross margin expansion” .
  • “Texas shipped over 10,000 packages already… we’re getting the majority… within Texas in one day… getting closer to the customer would prove out to increase sales, and that theory is proving out” — Lev Peker, CEO .
  • “On the fixed OpEx side, we still have some technology debt… over time, we are going to get leverage… short term… technology and catalog investments” — David Meniane, CFO/COO .
  • “We did make a couple of opportunistic buys of branded inventory… gave us extra margin… wouldn’t consider that recurring” — David Meniane, CFO/COO .

Q&A Highlights

  • Near-term OpEx and margin levers: ~2/3 of OpEx variable (fulfillment, customer acquisition, card fees); fixed OpEx includes tech debt; disciplined investment cadence to balance profitability and growth .
  • Traffic mix: shift from 80% paid/20% free (2019) toward 50/50 by year-end; long-term goal 60–70% free vs paid to improve acquisition efficiency .
  • Texas DC details: launched and shipping; ~10–15% current capacity, focused on receiving; target 65–80% footprint utilization by year-end; one-day Texas delivery boosting sales .
  • Gross margin sustainability: Q3 benefited from opportunistic branded buys and lower return rate; long-term margin managed around mid-30s with mix variability .
  • Branded margin economics: gap versus private label narrowing to ~500–700 bps, aided by direct brand relationships and in-DC distribution .

Estimates Context

  • Wall Street consensus estimates from S&P Global for Q3 2020 were unavailable at the time of analysis; estimate comparisons are therefore not included.

Key Takeaways for Investors

  • Record profitability metrics with 36.7% gross margin and $43.1M gross profit underscore favorable mix and operational execution; watch for normalization as opportunistic buys fade .
  • CarParts.com channel growth (+105% YoY) and improving branded margin gap (~500–700 bps vs private label) point to durable e-commerce share gains and broadening margin drivers beyond house brands .
  • Liquidity runway is robust post offering ($59.0M cash; ABL up to $40.0M; $12.0M liabilities paid down), supporting inventory builds and DC/network investments into 2021 .
  • Fulfillment advantage is compounding: Texas DC delivering one-day within Texas and ramping capacity—expect incremental conversion and revenue lift as inventory lands and network expands .
  • Near term, monitor hard-parts inventory recovery over the next two quarters and fixed OpEx investments (ERP/purchasing/forecasting upgrades) before operating leverage fully emerges .
  • Marketing mix shift (greater TV/NASCAR, push to free traffic) should lower CAC over time; management targeting a higher free share of traffic, improving unit economics .
  • With no formal guidance, the narrative is execution-driven; catalysts include sustained margin expansion, DC ramp progress, and continued channel growth; risk factors include mix normalization and inventory timing .