10-Q: CarParts.com Q3 Loss Widens Amid Sales Decline

CarParts.com reported an 11.7% decrease in net sales and a wider net loss for the third quarter of 2025, driven by rationalized marketing spend and product mix shifts.

Summary

• Net sales decreased by 11.7% to $127,769 thousand for the thirteen weeks ended September 27, 2025, compared to $144,751 thousand for the same period in 2024.
• Net sales decreased by 6.2% to $427,096 thousand for the thirty-nine weeks ended September 27, 2025, compared to $455,310 thousand for the same period in 2024.
• Net loss widened to $10,885 thousand for the thirteen weeks ended September 27, 2025, from $10,018 thousand in the prior year period.
• Net loss widened to $38,879 thousand for the thirty-nine weeks ended September 27, 2025, from $25,183 thousand in the prior year period.
• Gross profit decreased by 17.1% to $42,275 thousand for the thirteen weeks ended September 27, 2025, and gross margin decreased 210 basis points to 33.1%.
• Adjusted EBITDA was $(2,168) thousand for the thirteen weeks ended September 27, 2025, compared to $(1,162) thousand for the same period in 2024.
• The company issued convertible notes with an aggregate principal amount of $25,000 thousand and sold $10,733 thousand in common stock on September 8, 2025.
• The revolving commitment under the Amended Credit Facility was reduced from $75,000 thousand to $25,000 thousand, and the maturity date was shortened to September 8, 2026.
• The company closed its Virginia distribution center during the third quarter of 2025, incurring a $393 thousand loss on early lease termination and a $485 thousand termination fee.

Sentiment

Score: 3

Explanation: The company experienced significant financial deterioration with declining sales, widening losses, negative Adjusted EBITDA, and negative operating cash flow. The Nasdaq delisting warning is a serious concern. While new financing was secured and strategic initiatives are underway, the immediate financial outlook and operational risks are challenging.

Positives

• Working capital increased to $59,679 thousand as of September 27, 2025, from $48,445 thousand as of December 28, 2024.
• Successfully raised $25,000 thousand through convertible notes and $10,733 thousand through common stock issuance, improving liquidity.
• Opened a new state-of-the-art fulfillment center in Las Vegas, Nevada, in June 2024, expanding to over 200,000 sq. ft., expected to reduce last-mile transportation expenses and enhance customer service.
• Committed to financial discipline and evaluating investments based on their potential to drive profitability.
• Benefiting from industry trends including an expanding and aging U.S. vehicle fleet (average age 12.8 years in 2025) and projected growth of online auto parts sales to over $27 billion by 2028.
• Operating expense decreased by $8,587 thousand, or 14.1%, for the third quarter of 2025, primarily due to favorable marketing spend and payroll costs from headcount reductions.

Negatives

• Net sales decreased by 11.7% for the third quarter of 2025 and 6.2% for the thirty-nine weeks ended September 27, 2025.
• Net loss widened to $10,885 thousand for the third quarter of 2025 and $38,879 thousand for the thirty-nine weeks ended September 27, 2025.
• Gross profit decreased by 17.1% for the third quarter of 2025 and 9.1% for the thirty-nine weeks ended September 27, 2025.
• Gross margin decreased 210 basis points to 33.1% for the third quarter of 2025 and 110 basis points to 32.6% for the thirty-nine weeks ended September 27, 2025, primarily due to product mix and the impact of tariffs.
• Adjusted EBITDA worsened to $(2,168) thousand for the third quarter of 2025 and $(11,513) thousand for the thirty-nine weeks ended September 27, 2025.
• Total other (expense) income, net, decreased significantly due to an increase in interest expense and a decrease in interest income.
• Net cash used in operating activities was $(26,477) thousand for the thirty-nine weeks ended September 27, 2025, a significant decrease from $8,542 thousand provided in the prior year, mainly due to higher net loss and increased inventory.
• The revolving commitment under the Amended Credit Facility was reduced from $75,000 thousand to $25,000 thousand, and the maturity date was shortened to September 8, 2026.
• Received a Nasdaq deficiency letter on June 13, 2025, for failing to meet the minimum $1.00 bid price requirement for 30 consecutive business days.

Risks

• Dependence on suppliers in Taiwan and China for the majority of products, exposing the company to complex regulatory regimes, logistical challenges, and geopolitical risks, including U.S.-China trade relations and tariffs.
• Reliance on third-party delivery services for inbound and outbound shipping, with potential for increased fees (e.g., fuel surcharges, LTL use) and service interruptions due to labor shortages or financial difficulties of carriers.
• Higher wage costs resulting from changes in federal and state minimum wage laws or unstable market conditions could adversely affect the business.
• Increases in commodity prices such as fuel, plastic, and steel may negatively impact gross margins.
• Purchasers of aftermarket auto parts may not choose to shop online, or shifting online consumer behavior (e.g., increased preference for marketplace websites like Amazon and eBay) could adversely impact financial results.
• Loss of access to third-party marketplaces, which accounted for 33.9% of total sales in the thirty-nine weeks ended September 27, 2025, could significantly reduce revenues.
• Continued net losses could severely impact liquidity, potentially requiring additional financing, asset sales, or curtailment of operations.
• Operations are restricted by the Amended Credit Agreement, and the ability to borrow funds is subject to a borrowing base and restrictive covenants.
• Potential for significant charges to earnings if long-lived assets become impaired.
• High dependence on key suppliers (top ten suppliers represented approximately 49% of total product purchases; three drop-ship suppliers approximately 13%), with risks of interruption, increased costs, or credit limitations.
• Challenges associated with international operations in the Philippines, including staffing, regulatory changes, political instability, and foreign currency risk.
• Interruption of fulfillment operations (e.g., distribution centers) due to human error, natural disasters, or other events could lead to sales decline and reputational harm.
• Intense competition and low barriers to entry in the auto parts industry, with larger competitors having greater resources.
• Suppliers selling products directly to customers, negatively impacting gross margins and sales.
• Failure to offer a broad selection of products at competitive prices or maintain sufficient inventory to meet customer demands.
• Reliance on key personnel and potential difficulty in attracting or retaining qualified employees.
• Adverse effects from a prolonged public health pandemic, such as increased freight costs, workforce shortages, or transportation delays.
• Foreign exchange risk due to operating expenses in the Philippines being paid in Philippine Pesos.
• Risk of the proprietary product catalog database being stolen, misappropriated, or damaged, or a competitor creating a substantially similar catalog.
• Economic conditions (consumer sentiment, unemployment, inflation, rising interest rates) could adversely affect demand for aftermarket auto parts.
• Seasonality of the business places increased strain on operations and inventory management.
• Decreased vehicle miles driven, vehicle accident rates, or insurance companies' willingness to accept a variety of replacement parts could result in declining revenues.
• Potential requirement to collect and pay more sales taxes, and liability for other fees and penalties, due to evolving tax laws.
• Limitations on the ability to utilize net operating loss (NOL) carryforwards (federal $135,524 thousand, state $97,451 thousand) due to Section 382 of the Internal Revenue Code or insufficient taxable income.
• The estimate of the size of the addressable market may prove to be inaccurate.
• Exposure to product liability lawsuits due to the nature of the automotive industry.
• Failure to comply with privacy laws and regulations (e.g., CCPA) and adequately protect customer data could harm the business and reputation.
• Challenges by Original Equipment Manufacturers (OEMs) to the validity of the aftermarket auto parts industry and claims of intellectual property infringement.
• Inability to protect intellectual property rights (trademarks, trade secrets, domain names) could impair reputation and brand.
• Substantial judgments, fines, legal fees, and reputational harm from litigation or regulatory matters.
• Changes in tax laws or regulations (e.g., the One Big Beautiful Bill Act) that are applied adversely to the company or its customers.
• Existing or future government regulation (e.g., consumer protection, environmental laws, ESG matters) could expose the company to liabilities and costly changes in business operations.
• Dependence on search engines and other online sources (e.g., Google) to attract visitors, with risks from algorithm changes or increased advertising costs.
• Reliance on bandwidth and data center providers and other third parties, with risks of service failure or interruption.
• Security threats, such as ransomware attacks, to IT infrastructure could expose the company to liability, business interruption, and reputational damage.
• Dependence on open-source software exposes the company to uncertainty and potential liability.
• System failures, including those due to natural disasters or catastrophic events, could prevent access to websites, reduce sales, and harm reputation.
• Problems with the design, updating, integration, or implementation of IT systems (e.g., ERP) could interfere with business and operations.
• Inability to respond to technological change could cause websites to become obsolete.
• Dependence on third-party technology infrastructure providers, with any disruption materially harming the business.
• Use of social media may adversely impact reputation or subject the company to fines or other penalties.
• The common stock price has been and may continue to be volatile, potentially resulting in losses to stockholders.
• Future operating results may fluctuate and may fail to meet market expectations.
• Conversion of the Convertible Notes would dilute the ownership interest of existing stockholders and may adversely affect the price of common stock.
• Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could cause the stock price to decline.
• Charter documents contain provisions that could deter a takeover effort, inhibiting stockholders' ability to receive an acquisition premium.
• The company does not intend to pay dividends on its common stock.
• The share repurchase program may not enhance shareholder value and could affect the price of common stock.
• Future capital raises may dilute existing stockholders' ownership.
• Failure to meet Nasdaq Global Market's continued listing requirements, including the minimum $1.00 bid price, risks delisting, which could negatively affect the stock price and future financing capabilities.

Future Outlook

The company believes its existing cash, cash equivalents, investments, cash flows from operations, and available debt financing will be sufficient to finance operational cash needs through at least the next twelve months. However, future capital requirements may vary materially, and adverse conditions could necessitate additional financing or asset sales. The company expects competition to intensify and will continue to incur expenses related to non-GAAP adjustments. It plans to continuously expand technological capabilities, product offerings, and service portfolio to stay ahead of competitive pressures.

Management Comments

• Our vision of Empowering Drivers Along Their Journey underscores our mission to create a trusted platform that simplifies the historically stressful experience of vehicle maintenance and repair with Quality Parts. Priced Right.
• We have a significant opportunity to become the go-to destination for all automotive repair and maintenance requirements by focusing on our evolved strategy. This includes optimizing supply chain management and upgrading logistics, investing in technology and expanding into new business lines.
• Throughout this process, we remain committed to maintaining our financial discipline, evaluating investments based on their potential to drive profitability.
• We continuously expand our technological capabilities, product offerings, and service portfolio to stay ahead of competitive pressures. By investing in new categories, brands, customer types, and revenue streams across both premium and value segments, we seek to maximize gross profit and capture a larger market share.
• We have refined our eCommerce experience and marketing strategy, prioritizing direct customer relationships and strengthening our community through innovative owned content channels. These efforts aim to position CarParts.com as the ultimate destination for vehicle maintenance knowledge and product purchases, fostering long-term brand loyalty while reducing reliance on pay-to-play performance marketing channels and improving customer acquisition efficiency.
• The net sales decrease for the third quarter of 2025 was primarily driven by the Company's efforts to increase profitability by rationalizing marketing spend.

Industry Context

The aftermarket auto parts industry is characterized by a dramatic increase in the number of SKUs, making comprehensive selection difficult for brick-and-mortar stores. The U.S. vehicle fleet is expanding and aging, with the average age reaching a record 12.8 years in 2025, which is expected to positively impact demand for aftermarket parts, particularly for DIY owners. Online sales of auto parts and accessories are projected to grow significantly, reaching over $27 billion by 2028, driven by improved product availability, lower prices, and increasing consumer comfort with digital platforms. The industry remains highly competitive and fragmented with low barriers to entry, facing pressure from national retailers, large online marketplaces, and even direct sales from suppliers. OEMs are also increasingly asserting intellectual property rights, potentially impacting aftermarket product availability.

Corporate Governance

Legal Proceedings

• A wholly-owned subsidiary, Automotive Specialty Accessories and Parts, Inc. and its subsidiary Whitney Automotive Group, Inc. ('WAG'), are named defendants in several lawsuits involving claims for damages caused by installation of asbestos-containing brakes during the late 1960s and early 1970s. WAG maintains liability insurance coverage and is not expected to incur material out-of-pocket costs.
• A negligence claim was filed in the Superior Court of the State of California by a worker at the Grand Prairie, TX warehouse for a workplace injury from March 2021. The company's motion for summary judgment was granted in July 2024, but the plaintiff has filed an appeal. The company intends to defend itself vigorously and believes the final disposition will not have a material adverse effect.

Stakeholder Impact

• Shareholders face potential dilution from the recent common stock issuance and future conversion of convertible notes. The Nasdaq deficiency letter regarding the minimum bid price poses a significant risk of delisting, which could negatively affect share price and liquidity. Continued net losses and negative cash flow from operations could further erode shareholder value.
• Employees have been impacted by workforce reductions in fiscal year 2024 and the second quarter of 2025, contributing to favorable payroll costs. International operations in the Philippines involve ongoing staffing and management challenges.
• Customers may experience impacts from efforts to increase profitability by rationalizing marketing spend, potentially affecting customer acquisition. The new Las Vegas fulfillment center aims to enhance customer service through expedited delivery. Product mix changes and tariffs could influence product pricing and availability. Security threats to IT infrastructure could compromise customer data and confidence.
• Suppliers, particularly those in Taiwan and China, are critical to the company's operations, and dependence on them exposes the company to supply chain disruptions, increased costs, and geopolitical risks. Consolidation among suppliers and their direct sales to customers present competitive challenges.
• Creditors are affected by the amended credit facility, which reduces the revolving commitment and shortens the maturity date, potentially limiting future borrowing capacity. The issuance of convertible notes adds to debt obligations. The company's ability to comply with financial covenants in the credit agreement is crucial to maintaining access to financing.

Next Steps

• Regain compliance with Nasdaq's $1.00 minimum bid price requirement by December 10, 2025, or seek an additional 180-day compliance period by transferring to the Nasdaq Capital Market.
• Continue to optimize supply chain management and upgrade logistics.
• Continue investing in technology and expanding into new business lines.
• Continue refining eCommerce experience and marketing strategy, prioritizing direct customer relationships and strengthening community through owned content channels.
• Evaluate the effect of ASU 2023-09 (Income Taxes) on consolidated financial statements.
• Evaluate the impact of ASU 2024-03 (Expense Disaggregation) on consolidated financial statements.
• Evaluate the impact of ASU 2025-06 (Intangibles-Goodwill and Other-Internal-Use Software) on consolidated financial statements.

Key Dates

Recommendation

The company's financial performance shows significant deterioration with declining sales, widening losses, negative Adjusted EBITDA, and negative operating cash flow. The Nasdaq delisting warning is a serious red flag indicating financial distress and operational challenges. While the capital raise provides some short-term liquidity, it comes with dilution and increased debt. The strategic initiatives are long-term, but the immediate financial outlook and operational risks, including intense competition and supply chain dependencies, suggest a challenging path ahead. Investors should consider selling given the current trajectory and risks.

Keywords

Auto parts, Aftermarket, eCommerce, Automotive, Online retail, CarParts.com, PRTS, 10-Q, Financial results, Supply chain, Convertible notes, Nasdaq listing, Net loss, Gross margin, Adjusted EBITDA