10-K: CarParts.com Reports Wider Loss, Strategic Shifts Amidst Market Headwinds

CarParts.com reported a wider net loss and decreased sales for fiscal year 2025, while implementing strategic initiatives and securing new financing.

Summary

• Net sales decreased by 7.0% to $547.5 million in fiscal year 2025, down from $588.8 million in fiscal year 2024.
• The company incurred a net loss of $50.4 million in fiscal year 2025, an increase from a net loss of $40.6 million in fiscal year 2024.
• Adjusted EBITDA was a negative $14.0 million in fiscal year 2025, compared to a negative $7.1 million in fiscal year 2024.
• Gross profit decreased by 8.8% to $179.3 million, with gross margin declining 60 basis points to 32.8% in fiscal year 2025.
• An impairment loss of $3.7 million on long-lived assets was recognized in fiscal year 2025.
• The company completed a private placement in September 2025, issuing $25.0 million in Convertible Notes and 10.3 million shares of common stock for $10.7 million in gross proceeds.
• The revolving credit facility was amended, reducing the commitment from $75.0 million to $25.0 million and accelerating its maturity to September 8, 2026.
• CarParts.com launched an AI-powered shopping assistant, Spark, in Fall 2025 and expanded product offerings with JC Whitney Performance Hub and CarParts Euro hub.
• The company sold its Philippines offshore operations subsidiary on January 27, 2026, but plans to continue utilizing the teams for various functions.
• CarParts.com transferred its common stock listing from the Nasdaq Global Select Market to the Nasdaq Capital Market in December 2025 due to its bid price falling below $1.00, with a deadline of June 8, 2026, to regain compliance.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a negative sentiment due to significant financial underperformance, including widening net losses, declining sales, and a reduced credit facility. While strategic initiatives are underway, the immediate financial results and Nasdaq compliance issues present considerable challenges.

Positives

• Launched Spark, an AI-powered shopping assistant, in Fall 2025, aimed at improving customer experience and product discovery.
• Opened a new state-of-the-art fulfillment center in Las Vegas, Nevada, in June 2024, enhancing service levels and delivery speed to the West Coast.
• Expanded product offerings with the launch of the JC Whitney Performance Hub and CarParts Euro hub in early 2025, targeting enthusiast and specialty vehicle segments.
• Secured a strategic investment from ZongTeng Group, A-Premium, and CDH Investments in September 2025 to support expanded mechanical and performance parts assortment and fulfillment capabilities.
• Working capital increased to $53.8 million as of January 3, 2026, from $48.4 million as of December 28, 2024.
• Management believes existing cash, cash equivalents, investments, cash flows from operations, and available debt/equity financing will be sufficient for operational cash needs through at least the next twelve months.

Negatives

• Net sales decreased by 7.0% to $547.5 million in fiscal year 2025, compared to $588.8 million in fiscal year 2024, primarily due to rationalizing marketing spend.
• Net loss widened to $50.4 million in fiscal year 2025 from $40.6 million in fiscal year 2024.
• Adjusted EBITDA worsened to a negative $14.0 million in fiscal year 2025 from a negative $7.1 million in fiscal year 2024.
• Gross margin decreased by 60 basis points to 32.8% in fiscal year 2025, driven by product mix and tariff impacts.
• Recognized an impairment loss on long-lived assets of $3.7 million in fiscal year 2025.
• Cash and cash equivalents decreased by $10.6 million to $25.8 million as of January 3, 2026.
• Total debt significantly increased to $34.0 million as of January 3, 2026, from $12.3 million as of December 28, 2024, primarily due to the issuance of Convertible Notes.
• The revolving credit facility commitment was reduced from $75.0 million to $25.0 million, and its maturity date was shortened to September 8, 2026.
• The company's common stock was transferred to the Nasdaq Capital Market due to failing to meet the minimum $1.00 bid price requirement, with a risk of delisting if compliance is not regained by June 8, 2026.

Risks

• Dependence on suppliers in Taiwan and China for the majority of products, exposing the company to political, social, economic instability, trade relations deterioration, and foreign currency fluctuations.
• Reliance on third-party delivery services for inbound and outbound shipping, with potential for increased fees, service interruptions, and higher costs for oversized parts.
• Higher wage costs due to changes in federal and state minimum wage laws or unstable market conditions.
• Increases in commodity prices (fuel, plastic, steel) may negatively impact margins.
• Purchasers of aftermarket auto parts may not choose to shop online, hindering customer acquisition and business growth.
• Shifting online consumer behavior towards mobile devices and marketplace websites (e.g., Amazon, eBay) could lead to lower gross margins and impact financial results.
• Loss of access to third-party marketplaces, which accounted for 33.5% of total sales in fiscal year 2025, could significantly reduce revenues.
• Continued net losses could severely impact liquidity, potentially requiring additional financing or asset sales on unfavorable terms, or leading to curtailment of operations or bankruptcy.
• Operations are restricted by covenants in the Amended Credit Agreement, limiting financial and operational flexibility and potentially requiring immediate loan repayment if borrowing base components decrease.
• Potential for significant additional impairment charges on long-lived assets in the future.
• High dependence on key suppliers, with the top ten suppliers representing 46% of total product purchases and three drop-ship suppliers accounting for 12%, posing risks of supply interruptions or unfavorable terms.
• Interruptions in fulfillment operations could lead to sales declines and reputational harm.
• Intense competition in a highly fragmented industry with low barriers to entry, including direct sales from suppliers, could result in reduced sales, lower operating margins, and loss of market share.
• Failure to offer a broad selection of products at competitive prices or maintain sufficient inventory could lead to revenue decline.
• Reliance on key personnel and the inability to attract or retain qualified employees could harm the business.
• Adverse effects from a prolonged COVID-19 outbreak or another pandemic, including increased freight costs, workforce shortages, and operational disruptions.
• Foreign exchange risk due to purchases from Asian suppliers denominated in U.S. dollars.
• Risk of product catalog database theft, misappropriation, or damage, or a competitor creating a similar catalog, leading to loss of competitive advantage.
• Economic conditions (consumer sentiment, unemployment, inflation, interest rates) could adversely affect demand for aftermarket auto parts.
• Seasonality of the business places increased strain on operations and could impact financial results.
• Decreased vehicle miles driven, accident rates, or insurance companies' willingness to accept aftermarket parts could reduce revenues.
• Potential for increased sales taxes and penalties due to evolving state and local tax regulations (e.g., Wayfair decision).
• Limitations on the ability to utilize net operating loss (NOL) carryforwards due to Section 382 of the Internal Revenue Code, and the anti-takeover effects of the Tax Benefits Preservation Plan.
• Inaccurate estimates of the size of the addressable market could lead to lower-than-anticipated future growth.
• Imposition of tariffs and other trade restrictions by the U.S. government (e.g., on imports from China) could materially harm revenue or operating results.
• Exposure to product liability lawsuits, potentially exceeding insurance coverage or damaging reputation.
• Failure to comply with privacy laws and regulations (e.g., CCPA) and adequately protect customer data could harm business and reputation.
• Challenges by OEMs to the validity of the aftermarket auto parts industry and claims of intellectual property infringement could restrict sales.
• 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 could adversely affect business and financial performance.
• Existing or future government regulation could expose the company to liabilities and costly changes in business operations.
• Potential impact from global climate change or related legal, regulatory, or market responses.
• Increased public attention related to ESG matters may expose the company to negative public perception and additional costs.
• Artificial intelligence presents risks including inaccurate outputs, security vulnerabilities, evolving regulatory environment, intellectual property concerns, and reliance on third-party models.
• Dependence on search engines and other online sources to attract visitors, with changes in algorithms or increased advertising costs potentially harming customer acquisition.
• Reliance on bandwidth and data center providers, with any failure or interruption disrupting business.
• 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, could prevent access to websites and harm reputation.
• Problems with the design, updating, integration, or implementation of IT systems (e.g., ERP) could interfere with business.
• Inability to respond to technological change could render websites obsolete.
• Use of social media may adversely impact reputation or subject the company to fines.
• Common stock price volatility, potentially resulting in losses for stockholders.
• Future operating results may fluctuate and fail to meet market expectations.
• Conversion of Convertible Notes would dilute the ownership interest of existing stockholders and may adversely affect the stock price.
• Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial results or fraud.
• Charter documents contain anti-takeover provisions that could deter acquisition efforts.
• No intention to pay dividends on common stock for the foreseeable future.
• Share repurchase program may not enhance shareholder value and could affect stock price.
• Future capital raises may dilute existing stockholders' ownership.
• Risk of delisting from Nasdaq if continued listing requirements are not met.

Future Outlook

Management believes that existing cash, cash equivalents, investments, cash flows from operations, and available funds under the Amended Credit Facility will be sufficient to finance operational cash needs through at least the next twelve months. The company intends to continue monitoring the Nasdaq minimum bid price requirement and will consider options, including a reverse stock split, to regain compliance. The company is also evaluating the impact of the U.S. Supreme Court ruling on IEEPA tariffs, including the potential for refunds or other recovery, but cannot reasonably estimate the amount or timing at this time.

Management Comments

• We are dedicated to simplifying how drivers and professional customers shop for aftermarket automotive parts and accessories, guided by our mission of 'Empowering Drivers Along Their Journey'.
• We believe that we have a significant opportunity to become a preferred destination for automotive repair and maintenance by executing on our evolving strategy, which includes investing in technology, expanding product offerings and customer segments, and enhancing supply chain and logistics capabilities.
• We remain focused on disciplined growth and believe we are well positioned to execute on our long-term strategy in the automotive aftermarket.
• We believe that our user-friendly flagship website, and app, provides customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive selection of approximately 1,660,000 SKUs with detailed product descriptions, attributes and photographs combined with the flexibility of fulfilling orders using both drop-ship and stock-and-ship methods.
• We believe an increasing vehicle base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles generally require more repairs.
• We believe that we are well positioned for the shift to online sales due to being a leading source for aftermarket automotive parts through our flagship website, app, and online marketplaces.

Industry Context

StockSavvy.ai notes that CarParts.com's strategic focus on technology, expanded product offerings, and enhanced supply chain aligns with broader industry trends of increasing e-commerce penetration in the automotive aftermarket. The company's investment in an AI-powered shopping assistant, Spark, positions it to capitalize on the growing demand for digital convenience and personalized shopping experiences. The aging U.S. vehicle fleet, with an average age of 12.8 years in 2025, continues to drive demand for aftermarket parts, particularly for DIY consumers, which CarParts.com aims to serve. However, the industry remains highly fragmented and competitive, with significant pressure from large online marketplaces like Amazon and eBay, as well as traditional brick-and-mortar retailers and direct-selling manufacturers.

Comparison to Industry Standards

• CarParts.com's gross margin of 32.8% in fiscal year 2025 is lower than some leading automotive aftermarket retailers. For instance, AutoZone typically reports gross margins in the low to mid-50s percent range, while Advance Auto Parts is often in the low 40s percent range. This suggests CarParts.com faces more intense pricing pressure or has a different product mix/cost structure.
• The company's continued net losses and negative Adjusted EBITDA contrast with profitable industry leaders like AutoZone and O'Reilly Auto Parts, which consistently generate strong positive earnings and EBITDA, indicating CarParts.com is currently underperforming relative to established benchmarks in profitability.
• The strategic investment from ZongTeng Group, A-Premium, and CDH Investments, along with the focus on expanding European vehicle segment assortment and performance parts, indicates a strategy to diversify beyond core replacement parts, similar to how some specialty retailers or performance parts distributors operate, but CarParts.com is integrating this into a broader online platform.
• The transfer of listing to the Nasdaq Capital Market due to bid price non-compliance highlights a significant challenge in maintaining investor confidence and market valuation compared to larger, more stable industry players listed on major exchanges.

Management Changes

Corporate Governance

Legal Proceedings

• Asbestos lawsuits: A wholly-owned subsidiary (WAG) is a defendant in several lawsuits claiming damages from asbestos-containing brakes sold in the late 1960s and early 1970s. The company maintains liability insurance and does not expect material out-of-pocket costs.
• Ordinary course litigation: Includes a negligence claim filed in California Superior Court relating to a workplace injury from March 2021 at the Grand Prairie, Texas warehouse. The company was granted summary judgment in July 2024, but appeals are possible. The company believes the final disposition will not have a material adverse effect on its financial position, results of operations, or cash flow.

Related Party Transactions

• The company has entered into indemnification agreements with its directors and executive officers, requiring indemnification to the fullest extent permitted by law and advancement of expenses for proceedings related to their service.

Stakeholder Impact

• Shareholders: Face potential dilution from Convertible Notes conversion, risk of Nasdaq delisting, and anti-takeover provisions that could limit acquisition premiums. No dividends are expected in the foreseeable future.
• Employees: Experienced workforce reductions, leading to severance costs. The company relies on key personnel and offers an Employee Stock Purchase Plan and 401(k) plan.
• Customers: Benefit from new technology (AI shopping assistant), expanded product offerings (JC Whitney Performance Hub, CarParts Euro hub), and improved fulfillment capabilities (Las Vegas distribution center) for faster delivery and broader selection.
• Suppliers: The company has high dependence on a few key suppliers, particularly from Asia-Pacific, and relies on third-party drop-ship vendors, which could be impacted by supply chain disruptions, tariffs, or changes in relationships.
• Creditors: The Amended Credit Facility has been reduced in commitment and has an accelerated maturity date, and the company has issued Convertible Notes, increasing overall debt levels and potentially impacting creditworthiness.

Next Steps

• Actively monitor the Nasdaq minimum bid price requirement and consider available options, including a reverse stock split, to regain compliance by June 8, 2026.
• Move into the new corporate headquarters in Long Beach, California, in March 2026.
• Continue utilizing teams from the sold Philippines subsidiary for customer service, back office, finance, accounting, marketing, and technology.
• Evaluate the impact of the U.S. Supreme Court ruling on IEEPA tariffs, including potential for refunds or recovery.
• Continue to execute on the evolving strategy, including investing in technology, expanding product offerings and customer segments, and enhancing supply chain and logistics capabilities.

Key Dates

Recommendation

CarParts.com is navigating a challenging period marked by declining sales, widening net losses, and a reduced credit facility, alongside the risk of Nasdaq delisting. While the company has secured new capital through convertible notes and common stock issuance, providing some liquidity, this also introduces dilution. Strategic initiatives like the AI shopping assistant and new fulfillment centers are positive steps, but their impact on financial performance is yet to be fully realized. The sale of the Philippines subsidiary and the headquarters move indicate ongoing operational restructuring. Given the significant headwinds and the early stages of strategic adjustments, a 'hold' recommendation is appropriate, reflecting the high uncertainty and the need for investors to monitor the effectiveness of these strategies and the resolution of financial and listing challenges.

Keywords

Aftermarket Auto Parts, eCommerce, Online Retail, Automotive Accessories, CarParts.com, PRTS, SEC Filing, 10-K, Financial Results, Net Loss, Adjusted EBITDA, Convertible Notes, Nasdaq Listing, Supply Chain, AI Shopping Assistant, Corporate Governance, Risk Factors, Vehicle Maintenance, DIY Auto Repair, JC Whitney, ZongTeng Group