U.S. Auto Parts Network, Inc., one of the largest online providers of aftermarket automotive parts and accessories, is reporting results for the third quarter ended Sept. 28, 2019. 

Third Quarter 2019 Summary vs. Year-Ago Quarter

• Gross profit increased 15% to $21.1 million compared to $18.4 million. As a percentage of net sales, gross profit increased 400 basis points to 30.5% compared to 26.5%. 
• Net sales were $69.3 million compared to $69.5 million. 
• Online sales increased 2% while offline sales declined 17%. 
• Net loss was $1.4 million or $(0.04) per share, compared to net loss of $0.2 million or $(0.01) per share. 
• Adjusted EBITDA (a non-GAAP measure defined below) was $1.3 million compared to $2.6 million. 
• Ended the quarter with no revolver debt. 
• Conversion rate increased 50 basis points to 3.2%.

Management Commentary

“Last quarter, we introduced a new operating plan that is centered on three key pillars: the right part, the right time and the right place. Each of these pillars represents an important aspect of the customer experience as we need to ensure that our customers order the right part for their vehicle, deliver it quickly, and be agnostic to how the customer wants to install their auto parts.

“We have also renewed our focus on improving gross margins and profitability, which will be accomplished in-part by increasing the revenue mix of our highest margin products — private label — and better utilizing our resources to grow and optimize our three core websites.

“During the third quarter, we began to realize the early benefits of executing this new operating plan, highlighted by our second consecutive quarter of gross margin expansion, as well as our second consecutive quarter of positive adjusted EBITDA. This was also our strongest quarter of private label sales growth in nearly two years, which tells us that our strategy is working. Further, our new 125,000 square foot distribution center went live in Las Vegas in early August, and we have already shipped more than 80,000 auto parts in less than 3 months.

“The momentum in our business is evident. Key metrics are trending in the right direction, our cash flow cycle is healthy and we remain debt-free. There is still plenty of work ahead to further improve our inventory optimization, cost structure and core websites. But everywhere we look, we see opportunity, and our team remains committed to delivering positive adjusted EBITDA this year and carrying this strong momentum into 2020,” said Lev Peker, CEO of U.S. Auto Parts.

Third Quarter 2019 Financial Results

Net sales in the third quarter of 2019 were $69.3 million compared to $69.5 million in the year-ago quarter. The decline was largely driven by a reduction in branded sales and offline sales mostly offset by a 15% increase in higher margin private label sales. Our online sales were up 2% and our offline sales declined 17% due to a change in pricing strategy and exiting unprofitable businesses.

Gross profit in the third quarter of 2019 increased 15% to $21.1 million compared to $18.4 million in the year-ago quarter. As a percentage of net sales, gross profit increased 400 basis points to 30.5% compared to 26.5%. Excluding detention and demurrage related costs from both quarters, gross margin for the quarter would be 31.3% compared to 28.9% last year. The increase was primarily driven by a greater proportion of higher margin private label sales and improved pricing strategies.

Total operating expenses in the third quarter were $22.6 million compared to $19.6 million in the third quarter of last year. As a percentage of net sales, operating expenses increased to 32.6% compared to 28.3% in the year ago quarter with the increase primarily driven by increased marketing spend and investments in marketing platforms and new employees.

Net loss in the third quarter was $1.4 million, or $(0.04) per share, compared to a net loss of $0.2 million or $(0.01) per share in the year-ago period.

Adjusted EBITDA in the third quarter of 2019 was $1.3 million compared to $2.6 million in the year-ago quarter.

At Sept. 28, 2019, cash and cash equivalents totaled $1.1 million compared to $2.0 million at Dec. 29, 2018. The decrease in cash is primarily a result of employee transition costs, technology capital expenditures, marketing and setup costs for the company’s new distribution center in Las Vegas. U.S. Auto Parts also had no revolver debt at each of Sept. 28, 2019 and Dec. 29, 2018.