10-Q: CarParts.com Reports Wider Losses, Nasdaq Delisting Risk

CarParts.com, Inc. reported significantly wider net losses and negative Adjusted EBITDA for the second quarter and year-to-date periods, alongside a Nasdaq deficiency notice for its stock price.

Summary

• Net sales for the second quarter of 2025 increased by 5.3% to $151,949 thousand compared to $144,270 thousand in the same period of 2024, primarily driven by growth in the carparts.com channel.
• Year-to-date net sales for the twenty-six weeks ended June 28, 2025, decreased by 3.6% to $299,327 thousand from $310,559 thousand in the prior year, attributed to inclement weather in Q1 2025 and softness in marketplace sales.
• Gross profit increased by 2.9% to $49,779 thousand in Q2 2025, but gross margin decreased by 70 basis points to 32.8% due to product mix and tariffs.
• Net loss for Q2 2025 widened to $(12,711) thousand from $(8,687) thousand in Q2 2024.
• Year-to-date net loss for the twenty-six weeks ended June 28, 2025, was $(27,994) thousand, a significant increase from $(15,165) thousand in the same period of 2024.
• Adjusted EBITDA turned negative, reporting $(3,116) thousand for Q2 2025 compared to $(118) thousand in Q2 2024, and $(9,345) thousand for YTD Q2 2025 compared to $934 thousand in YTD Q2 2024.
• Operating expenses increased by 8.9% in Q2 2025 and 6.1% year-to-date, primarily due to unfavorable marketing spend and one-time fees related to strategic alternatives exploration.
• Cash and cash equivalents decreased by $16,623 thousand to $19,774 thousand as of June 28, 2025, from $36,397 thousand at December 28, 2024.
• Net cash used in operating activities was $(20,060) thousand for the twenty-six weeks ended June 28, 2025, a substantial shift from $18 thousand provided in the prior year period, mainly due to higher net loss and increased inventory.
• The company borrowed $10,000 thousand from its revolving loan facility as of June 28, 2025, and an additional $10,000 thousand subsequent to quarter end.
• Received a Nasdaq deficiency letter on June 13, 2025, for failing to meet the minimum $1.00 bid price requirement, with a compliance deadline of December 10, 2025.

Sentiment

Score: 3

Explanation: The sentiment is negative due to significant financial deterioration, including widening net losses, negative Adjusted EBITDA, and a substantial decrease in cash. The company's increased reliance on debt and the Nasdaq delisting notice highlight immediate and severe challenges, overshadowing positive industry trends and strategic initiatives.

Positives

• Net sales for the second quarter of 2025 increased by 5.3% year-over-year to $151,949 thousand.
• Consumer demand through the primary e-commerce sales channel, carparts.com, increased.
• The company opened a new state-of-the-art fulfillment center in Las Vegas, Nevada, in June 2024, which is expected to reduce last-mile transportation expenses and enhance customer service through expedited delivery.
• The average age of U.S. light vehicles reached a new record-high of 12.8 years in 2025, a positive indicator for aftermarket parts demand.
• The U.S. Auto Care Association estimates overall revenue from online sales of auto parts and accessories will reach over $27 billion by 2028, indicating a growing market.
• Management believes 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.

Negatives

• Net loss significantly widened to $(12,711) thousand for Q2 2025 from $(8,687) thousand for Q2 2024.
• Year-to-date net loss for the twenty-six weeks ended June 28, 2025, was $(27,994) thousand, compared to $(15,165) thousand for the same period in 2024.
• Adjusted EBITDA declined significantly, turning negative to $(3,116) thousand for Q2 2025 and $(9,345) thousand for YTD Q2 2025.
• Gross margin decreased by 70 basis points to 32.8% in Q2 2025 and by 50 basis points to 32.4% in YTD Q2 2025, primarily due to product mix and the impact of tariffs.
• Operating expenses increased by 8.9% in Q2 2025 and 6.1% year-to-date, driven by unfavorable marketing spend and one-time fees related to strategic alternatives exploration.
• Cash and cash equivalents decreased by $16,623 thousand to $19,774 thousand as of June 28, 2025.
• Net cash used in operating activities was $(20,060) thousand for YTD Q2 2025, a significant deterioration from cash provided in the prior year.
• The company increased its outstanding revolving loan balance to $10,000 thousand as of June 28, 2025, and borrowed an additional $10,000 thousand subsequent to quarter end.
• Received a Nasdaq deficiency letter on June 13, 2025, for its common stock bid price falling below the $1.00 minimum requirement, posing a risk of delisting.

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 increased tariffs and trade restrictions.
• The preliminary exploration of potential strategic alternatives may not be successful, which could adversely affect the value of the business and stock price.
• Reliance on third-party delivery services for inbound and outbound shipping, with risks of increased fees, service interruptions, and labor shortages.
• Higher wage costs due to changes in federal and state minimum wage laws or unstable market conditions could adversely affect profitability.
• Increases in commodity prices such as fuel, plastic, and steel may negatively impact margins.
• The online market for aftermarket auto parts is less developed, and purchasers may not choose to shop online, hindering customer acquisition and growth.
• Shifting online consumer behavior towards mobile devices and marketplace websites (e.g., Amazon, eBay) could result in lower gross margins due to increased commissions and costs.
• Loss of access to third-party marketplaces, which account for a significant portion of revenues, could severely reduce sales.
• Continued net losses could severely impact liquidity, potentially requiring additional financing, asset sales, or curtailment of operations, including bankruptcy.
• Operations are restricted by the Credit Agreement, and the ability to borrow funds is subject to a borrowing base and financial covenants, which if not met, could lead to immediate loan repayment or limit financing flexibility.
• Potential impairment of long-lived assets could require significant charges to earnings, negatively affecting financial results.
• High dependence on key suppliers, with risks of interruptions in relationships, inability to obtain parts, and potential limitations on credit extensions.
• Challenges associated with international operations in the Philippines, including staffing, local laws, political instability, and foreign currency fluctuations.
• Interruption of fulfillment operations due to human error, natural disasters, or other events could decline sales and harm reputation.
• Intense competition in a fragmented industry with low barriers to entry, including from national retailers, online marketplaces, and direct-selling suppliers, could lead to reduced sales and profitability.
• 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 public health pandemic, such as COVID-19, or another future pandemic, could disrupt operations and increase costs.
• Foreign exchange risk due to international operations, particularly in the Philippines, could adversely impact operating results.
• The product catalog database could be stolen, misappropriated, or damaged, or a competitor could create a similar catalog without infringing rights, leading to loss of competitive advantage.
• Economic conditions, including inflation and rising interest rates, could adversely affect demand for aftermarket auto parts.
• The seasonality of the business places increased strain on operations and could impact financial results.
• Decreased vehicle miles driven, accident rates, or changes in insurance companies' willingness to accept aftermarket parts could result in revenue decline.
• Potential requirement to collect and pay more sales taxes or incur other fees and penalties.
• Limitations on the ability to utilize net operating loss (NOL) carryforwards due to Section 382 of the Internal Revenue Code or state-level suspensions.
• The estimate of the size of the addressable market may prove inaccurate, limiting future growth potential.
• Exposure to product liability lawsuits, which could result in substantial damages and costs exceeding insurance coverage.
• Failure to comply with privacy laws and regulations (e.g., CCPA) and adequately protect customer data could harm the business and lead to litigation or regulatory actions.
• Challenges by Original Equipment Manufacturers (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 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 operations and financial performance.
• Existing or future government regulation could expose the company to liabilities and costly changes in business operations.
• Impacts from global climate change or legal/regulatory responses to it could affect demand for products.
• Increased public attention related to Environmental, Social, and Governance (ESG) matters may expose the company to negative public perception and additional costs.
• Dependence on search engines and other online sources to attract visitors, with risks of algorithm changes, increased advertising costs, or termination of relationships.
• Reliance on bandwidth and data center providers, with risks of service failures or interruptions.
• 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, reducing sales and harming reputation.
• Problems with the design, updating, integration, or implementation of IT systems could interfere with business operations.
• Inability to respond to technological change could render websites obsolete.
• Use of social media may adversely impact reputation or subject the company to fines or penalties.
• The common stock price has been and may continue to be volatile, resulting in losses for stockholders.
• Future operating results may fluctuate and fail to meet market expectations.
• Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-Oxley Act could cause the stock price to decline.
• Charter documents could deter a takeover effort, inhibiting stockholders' ability to receive an acquisition premium.
• The share repurchase program may not enhance shareholder value and could affect the stock price.
• Future capital raises may dilute existing stockholders' ownership.
• Failure to meet Nasdaq Global Market's continued listing requirements could result in delisting, negatively affecting the stock price and ability to raise capital.

Future Outlook

Management believes that 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 the company may need to sell assets or seek additional debt or equity financing if operating plans change, sales or gross margins are lower than anticipated, expenses increase, or economic conditions worsen. The company expects the recently signed 'One Big Beautiful Bill Act' (tax reform) will likely not have a material impact on its consolidated financial statements. Competition is expected to intensify, and the company anticipates continued interruptions and delays with third-party technologies. The common stock price is expected to remain volatile, and revenue and operating results are projected to continue fluctuating. The company does not intend to pay cash dividends on its common stock for the foreseeable future and cannot assure continued listing on Nasdaq.

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 & repair with Quality Parts. Priced Right.
• We are continually working to enhance our fulfillment center footprint, capacity and productivity.
• We expect the new Las Vegas fulfillment center to reduce last-mile transportation expenses to the West Coast and enhance customer service through expedited delivery.
• The semi-automated center is integrated with cutting-edge AI capabilities designed to optimize operations, improve safety, and expand product availability.
• 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.
• Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available debt financing will be sufficient to finance our operational cash needs through at least the next twelve months.
• We are evaluating the full effects of the legislation on our estimated annual effective tax rate and cash tax position, but we expect that the legislation will likely not have a material impact on our consolidated financial statements.

Industry Context

The company operates in the aftermarket auto parts industry, which is competitive and highly fragmented with low barriers to entry. Industry trends supporting the company's strategy include the dramatic growth in the number of automotive SKUs, the expanding and aging U.S. vehicle fleet (average age reached a record 12.8 years in 2025), and the significant growth of online sales for auto parts and accessories, projected to reach over $27 billion by 2028. Competition comes from national auto parts retailers (e.g., Advance Auto Parts, AutoZone), large online marketplaces (e.g., Amazon, eBay), other online retailers, wholesale distributors (e.g., LKQ Corporation), and direct-selling manufacturers/brand suppliers. Shifting consumer behavior towards mobile devices and marketplace websites is also noted as a trend.

Comparison to Industry Standards

• The filing states that many current and potential competitors, such as Advance Auto Parts, AutoZone, Napa Auto Parts, CarQuest, O'Reilly Automotive, Pep Boys, Amazon, eBay, and LKQ Corporation, have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing, technical, and management resources.
• The company notes that some suppliers are increasingly selling products directly to customers, impacting the company's gross margins due to suppliers' lower cost of merchandise.
• No specific comparable company financial results or project benchmarks are provided to assess the company's performance against industry standards beyond general competitive landscape descriptions.

Legal Proceedings

• Asbestos lawsuits: 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 asbestos-containing brakes from the late 1960s and early 1970s. WAG maintains liability insurance coverage, and the company does not expect to incur material out-of-pocket costs.
• Ordinary course litigation: A negligence claim was filed in California by a worker from the Grand Prairie, TX warehouse relating to a March 2021 workplace injury. The company's motion for summary judgment was granted in July 2024, but the plaintiff has filed an appeal. The company intends to defend vigorously and believes the final disposition will not have a material adverse effect on its financial position, results of operations, or cash flow.

Stakeholder Impact

• Shareholders face potential dilution from future equity raises, increased stock price volatility, and the significant risk of delisting from Nasdaq, which could severely limit trading and investor confidence. No dividends are expected in the foreseeable future.
• Employees may be impacted by workforce reductions, as indicated by workforce transition costs incurred.
• Customers may benefit from enhanced customer service and expedited delivery due to investments in fulfillment centers and technology, but could face increased prices due to tariffs or supply chain issues.
• Suppliers may face pressure regarding credit terms and could see increased demand for their products if the company's inventory strategy shifts due to tariffs.
• Creditors are impacted by the company's increased borrowings under its revolving credit facility and the financial covenants associated with it, which could restrict the company's operations if not met.

Next Steps

• Regain compliance with Nasdaq's minimum bid price requirement by December 10, 2025, potentially through a reverse stock split if necessary.
• Continue to evaluate the full effects of the 'One Big Beautiful Bill Act' on estimated annual effective tax rate and cash tax position.
• Continue enhancing fulfillment center footprint, capacity, and productivity, including leveraging the new Las Vegas facility.
• Expand technological capabilities, product offerings, and service portfolio to stay ahead of competitive pressures.
• Refine eCommerce experience and marketing strategy, prioritizing direct customer relationships and owned content channels.
• Potentially seek additional equity or debt financing if future capital requirements vary materially or operating performance necessitates.

Key Dates

Recommendation

The company's financial performance has significantly deteriorated, evidenced by widening net losses, a shift to negative Adjusted EBITDA, and a substantial decline in cash reserves, necessitating increased debt. The immediate risk of delisting from Nasdaq due to the bid price falling below $1.00 poses a severe threat to liquidity and investor confidence. While the company has strategic initiatives and operates in an industry with favorable long-term trends, the current financial distress and critical listing issue present overwhelming negative factors for investors, warranting a strong sell recommendation.

Keywords

Auto parts, Aftermarket, E-commerce, Online retail, Automotive, Vehicle maintenance, Car repair, CarParts.com, PRTS, Financial results, Net loss, Gross margin, Adjusted EBITDA, Supply chain, Distribution center, Nasdaq delisting, Tariffs, Product liability, Data privacy, Intellectual property, Credit facility, Capital raise