Motorcar Parts of America (MPA) has reported results for its fiscal 2019 first quarter ended June 30, 2018.

Net sales for the fiscal 2019 first quarter were $92.6 million compared with $95.5 million for the same period a year earlier – reflecting various industry factors, according to MPA.

Adjusted net sales for the fiscal 2019 first quarter were $93.8 million compared with $95.5 million a year earlier.

“Notwithstanding weak results for the quarter, particularly in the month of April, we are encouraged by the industry regaining momentum and we expect a solid sales recovery in the quarters ahead,” said Selwyn Joffe, chairman, president and CEO.

“The company has reached a positive inflection point for future growth, with the sales and profitability outlook for the short- and long-term very encouraging,” added Joffe.  He emphasized that sales for the quarter were impacted by customer allowances related to new business, customer stock adjustment accruals in connection with future update orders and the transition to the company’s new distribution center.

He indicated the company expects replenishment, update orders and new business to gain momentum throughout the fiscal year, with the company on track to report annual adjusted net sales at the upper end of its previously issued guidance of 6.5 percent to 8.5 percent revenue growth.

Net loss for the fiscal 2019 first quarter was $5 million, or 27 cents per share, compared with net income of $8.2 million, or 42 cents per diluted share, a year ago.

Adjusted net income for the fiscal 2019 first quarter was $2.8 million, or 15 cents per diluted share, compared with $8.3 million, or 43 cents per diluted share, a year earlier. The current quarter net loss was impacted by a variety of factors, including non-cash expenses of $6.5 million and expenses related to future growth of $3.5 million, adjusted in the aggregate to $7.8 million after-tax, or 42 cents per diluted share.

In addition, MPA said the following items negatively impacted adjusted net income that have not been adjusted for: (1) customer stock adjustment accruals in connection with future update orders, (2) the impact to sales related to the transition to the company’s new distribution center, (3) lower overhead cost absorption, which is expected to reverse as sales increase, and (4) increased freight expenses related to external market rates. The impact of the first three items is expected to diminish and have a positive impact in future quarters. The above four items resulted in a combined negative impact of 15 cents per diluted share.

Gross profit for the fiscal 2019 first quarter was $17.3 million compared with $26.7 million a year earlier. Gross profit as a percentage of net sales for the fiscal 2019 first quarter was 18.6 percent compared with 27.9 percent a year earlier.

Adjusted gross profit for the fiscal 2019 first quarter was $22.8 million compared with $28 million a year ago. Adjusted gross profit as a percentage of adjusted net sales for the three months was 24.4 percent compared with 29.3 percent a year earlier. Adjusted gross profit as a percentage of adjusted net sales for the quarter was further negatively impacted by the unadjusted items noted above. These items resulted in a combined negative impact of 2.7 percent to the adjusted gross profit margin.

The company expects adjusted gross margins to sequentially improve through the fiscal year and the company reiterates its previously issued annual guidance of between 27 percent to 30 percent.

Increased Stock Repurchase Authorization

Under the authorized share repurchase program, as of June 30, 2018, $11.6 million of the $20 million common stock authorization has been purchased and $8.4 million is available to repurchase shares. Subsequently, its board of directors increased the company’s share repurchase program authorization to $37 million from $20 million. Thus, $25.4 million is available to repurchase shares in the open market and private transactions. Motorcar Parts of America currently has 18.9 million shares outstanding.

Revenue Recognition

Effective April 1, 2018, the company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the full retrospective transition method. As a result, the prior year three months ended June 30, 2017, were revised to reflect the adoption of the new revenue recognition accounting standards. The effects of the adoption were an increase to previously reported revenues for the three months ended June 30, 2017 of $456,000. The revenue changes were accompanied by related changes to cost of goods sold – a decrease to previously reported cost of goods sold for the three months ended June 30, 2017 of $381,000.

Also, as a result of the adoption of ASC 606 and the resultant changes in company policy, the effect of the adoption on the consolidated balance sheets was to create contract asset and contract liability accounts to document those balance sheet items being impacted by the new revenue recognition requirements.