Yahoo Finance CarParts.com Inc (PRTS) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges and ...
Revenue: $166 million, down 5% year-over-year.
Gross Margin: 32.4%, decreased from 35.6% the previous year.
Net Income: Reported a GAAP net loss of $6.5 million, compared to net income of $1.1 million in the prior year.
Adjusted EBITDA: $1.1 million, down from $9.4 million in the prior year.
Cost Reduction Initiatives: Expected to provide up to $8 million in 2024 and $10 million annually.
Free Cash Flow: Long-term focus, with specific figures not disclosed.
Inventory Balance: Ended the quarter at $120 million, down from $136 million year-over-year.
2024 Revenue Guidance: Revised down to $600 million to $625 million.
2024 Gross Profit Margin Guidance: Revised up to 33% +/- 100 basis points.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
CarParts.com Inc (NASDAQ:PRTS) has launched a mobile app with over 350,000 downloads, contributing to 8% of e-commerce revenue and expected to drive increased profitability by reducing reliance on search engine and performance marketing.
The company is implementing aggressive cost savings initiatives projected to save up to $8 million in 2024 and $10 million annually, enhancing financial efficiency.
CarParts.com Inc (NASDAQ:PRTS) is focusing on attracting a more profitable customer base that seeks quality parts at competitive prices, which is expected to improve gross margin profiles.
The company has introduced new parts and shipping protection offerings, expected to generate incremental gross profit dollars at an annualized rate of approximately $2 million.
CarParts.com Inc (NASDAQ:PRTS) is optimizing its product and price assortment to capture market share by catering to more premium shoppers, which is expected to enhance competitiveness and position the company for sustained growth.
Negative Points
CarParts.com Inc (NASDAQ:PRTS) reported a disappointing performance with a 5% decline in sales to $166 million and significant weather impacts affecting the quarter.
The company experienced a decline in gross profit by approximately 14% and a decrease in gross margin from 35.6% to 32.4% due to higher freight costs and pricing compression.
CarParts.com Inc (NASDAQ:PRTS) faces challenges from a flood of non-Department of Transportation compliant, low-cost, and low-quality parts from overseas, particularly impacting the lighting and mirrors categories.
The economic environment has put significant pressure on low-price and discount-seeking customers, making them more scarce and expensive to acquire and service.
GAAP net loss for the quarter was $6.5 million compared to net income of $1.1 million in the prior year period, indicating a significant downturn in profitability.
Q & A Highlights
Q: Curious within the guidance, previously you were assuming $100 million of branded drop-ship revenue. Curious what that assumption is now. A: (Ryan Lockwood, CFO, SVP - Finance) Mix probably won't change much from the branded to private label side in the short term. Over the long term, there are many moving parts due to investments in JC Whitney, which will benefit private label. However, we will continue to introduce new branded SKUs to target segments we've never approached before.
Q: On the private label topic, curious how many new SKUs you've added there year to date and what categories those are focused on. A: (Ryan Lockwood, CFO, SVP - Finance) Year to date, we've added about 7,000 SKUs. The product mix is about 65-35, PL-1 to PL-2; PL-1 is our collision business and PL-2 our mechanical business.
Q: Given everything you guys are focused on, from cost optimization to improving margins and less revenue but higher margin, I'm surprised to see the medium-term EBITDA margin target lowered. Can you talk through the puts and takes on that 200 bps? A: (David Meniane, CEO, Director) The 6% to 8% is a medium-term target emphasizing our short-term focus on margin expansion and profitability. We see opportunities in gross margin, marketing, and labor efficiencies. Long term, we aim for the business to be highly profitable and generate significant free cash flow. The 6% to 8% target is achievable and reasonable for the medium term.
Q: Do you expect to stay EBITDA positive in '24 and free cash flow positive? A: (Ryan Lockwood, CFO, SVP - Finance) For EBITDA, it depends on where we end up on both sides of the guidance. Regarding free cash flow, we will be negative due to large investments in Las Vegas. We expect an ending cash balance of $25 million to $35 million, depending on year-end inventory levels.
Q: What's your level of confidence that you can still take price increases and see demand for those products? A: (Ryan Lockwood, CFO, SVP - Finance) We have been taking price increases and seeing margin levels above the prior range, though with slightly less demand. This aligns with our strategy to handle fewer units but achieve better margins, improving overall efficiency.
Q: The $8 million in cost savings expected in 2024, will it be spread across cost of goods and operating expenses, or just operating expenses? A: (Ryan Lockwood, CFO, SVP - Finance) The $8 million in cost savings will be purely in operating expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
