U.S. Auto Parts Network has reported results for the third quarter ended Sept. 29, 2018.

Net sales in the third quarter of 2018 were $69.5 million compared to $73.8 million in the year-ago quarter. According to U.S. Auto Parts, the decline was largely driven by a decrease in marketplace sales with one of the company’s channel partners, as well as a 4 percent decrease in e-commerce sales attributable to a reduction of traffic and lower in-stock rates resulting from the company’s previously disclosed customs issue.

Gross profit in the third quarter of 2018 was $19 million compared to $21.9 million in the year-ago quarter. As a percentage of net sales, gross profit was 27.4 percent compared to 29.6 percent. The company says the decrease again was primarily driven by costs associated with port and carrier fees from the customs issue as well as increased freight costs. As a result of the amortization treatment of port and carrier fees, the company continues to expect gross margin to range between 27 to 28 percent over the next two quarters.

Net income in the third quarter was $0.4 million, or 1 cent per diluted share, compared to net income of $0.9 million or 2 cents per diluted share in the year-ago period.

Adjusted EBITDA in the third quarter of 2018 was $2.5 million compared to $3.6 million in the year-ago quarter, with the decrease driven by the aforementioned lower net sales resulting from a decrease in marketplace sales and lower traffic to its e-commerce sites, as well as lower in-stock rates due to the customs issue.

In addition to reporting its third quarter numbers, CEO Aaron Coleman announced plans to step down. Coleman became CEO in April 2017, following the resignation of previous CEO Shane Evangelist.

Management Commentary

“Earlier this month, the board and I mutually agreed upon a succession plan that will have me stepping down as CEO during the next several months,” said Coleman. “It’s been an honor and a privilege to lead such a hard-working group through this dynamic period in our company’s lifecycle. I look forward to what’s in store for the next chapter of my career, as well as the many opportunities ahead for U.S. Auto Parts.

“Turning to the quarterly commentary, during Q3, we continued our work to enhance the customer experience on our e-commerce sites, as reflected by the improvements in conversion and revenue capture. Although we continued to experience lower traffic to our sites, we remain keenly focus on improving our traffic acquisition to return to growth.

“During the quarter, we also experienced lower marketplace sales with one of our channel partners due to a reduction in search presence on their platform. We’ve gone through similar cycles in the past where a marketplace partner makes an update to their platform that adversely affects our business over the short-term, and we expect this situation to be no different. Ultimately, our marketplace partners reward companies that focus on a quality customer experience and broad product assortment, and we remain very well-positioned in both regards.

“As we exit the year, we will continue to focus on our key initiatives of revitalizing traffic growth to our e-commerce sites and expanding our marketplace channel partnerships. Despite the recent challenges with e-commerce traffic and the platform updates from one of our marketplace partners, we believe U.S. Auto Parts remains in a strong market position and we will continue to focus on returning to growth,” Coleman said.

2018 Outlook

U.S. Auto Parts has updated its 2018 outlook and now expects net sales to decrease mid-single digits on a percentage basis compared to 2017 (previously expected low single-digit percentage decrease compare to 2017). The company also expects adjusted EBITDA to be at the low-end of its previously disclosed guidance range of $12 to $14 million. Adjusted EBITDA excludes the costs incurred from the customs issue and costs associated with the CEO transition given their unusual nature. Adjusted EBITDA also excludes proceeds received from the sale of AutoMD due to the non-recurring nature of the transaction. The company says it believes these exclusions provide a more accurate representation of its core business results.