CarParts.com Stalls With Q1 Earnings Drop as Consumers Pull Back Spending

After a few weeks of an earnings season marked by cautionary optimism about the state of the U.S. consumer, CarParts.com said the quiet part out loud Tuesday (May 7) as it showed a significant drop in revenue and profit for the first quarter.

“Our performance so far this year has been disappointing and does not meet our standards,” CEO David Meniane told the company’s earnings call. “We are facing headwinds in key categories and certain customer segments are being impacted by a deteriorating economic outlook.”

By the numbers, the company reported net sales of $166.3 million, a 5% decrease from Q1 2023 primarily due to weaker consumer demand and price discounts in key product categories like mirrors and automotive glass. Gross profit declined to $53.9 million, with gross margin falling 320 basis points to 32.4%, mainly attributed to higher outbound transportation costs and fulfillment.

The company recorded a net loss of $6.5 million, a significant drop from the $1.1 million net income in the same quarter last year. Adjusted EBITDA also experienced a substantial decline, falling to $1.1 million from $9.4 million in the year-ago quarter.

Meniane laid some of the blame for the performance at the feet of two issues that have received occasional attention so far in the Q1 earnings season: softening spending among lower-income consumers and a flood of overseas product, which he said has often been imported illegally. He said these two factors accounted for about 25% of the company’s revenue and represented “the vast majority of our year-over-year decline” masking strength in other categories particularly in large replacement parts, where he said the company has a competitive advantage.

“The current environment also has put significant pressure on low-price and discount-seeking customers, which are becoming more scarce and more expensive to acquire and service,” he said.

“To maintain financial discipline, we made the decision to both adjust pricing and reduce our customer acquisition spend on this subset of customers. We’re focusing our efforts on targeting consumers that want quality parts at competitive prices. This is a more profitable customer base, which gives us a higher gross margin profile.”

That repositioning gave Meniane cause for optimism for the company’s Q2 revenue, for which he said he was already seeing positive results in April.

Also on the optimistic side of the ledger was the company’s digital transformation. The company’s mobile app, which was launched in summer 2023, accounted for 8% of the company’s total revenue and topped 350,000 downloads so far. Meniane said he estimates that 80% of the automotive replacement parts market is now shopping via digital channels.

The app launch was part of a revamped content marketing strategy to drive sales and reduce customer acquisition costs. As reported in PYMNTS, the refreshed content marketing strategy, introduced in November 2023, includes a podcast, blog, and educational videos that link to products on the website and app.

Despite these efforts, CarParts.com faced challenges in 2023, with a slight decrease in gross profit due to higher transportation costs, product mix shifts, and industrywide price deflation.

The difficult macro environment was a topic of discussion on the CarParts.com Q4 earnings call and prompted the company to eliminate 150 global roles across corporate and frontline positions to reduce costs and remain agile earlier this year.