Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Thursday, March 5, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — David Meniane
  • Chief Financial Officer — Mark DiCiena

TAKEAWAYS

  • Strategic investment -- Closed a $35.7 million investment in September from aPremium, Sangatang Group, and CDH Investments, resulting in 10.3 million shares issued at $1.04 per share.
  • aPremium partnership -- Partnership reached a $35 million annual revenue run rate, with management seeing a “clear path to $50 million in the short term,” and stating it may “eventually exceed $100 million at attractive contribution margin.”
  • Net sales -- Fourth quarter net sales were $120.4 million, a decrease of 10% from $133.5 million prior year; full-year net sales were $547.5 million, down 7% from $588.8 million.
  • Gross margin -- Gross margin for the quarter was 33.2%, up 70 basis points, reflecting price discipline and improved mix; full-year gross margin was 32.8%, down 60 basis points, due to product mix and tariffs offset by pricing increases.
  • Adjusted EBITDA -- Adjusted EBITDA loss narrowed to $2.2 million compared to $6.8 million prior year, including a $200,000 noncash benefit from severance reversal.
  • GAAP net loss -- Reported GAAP net loss of $11.6 million for the quarter versus $15.4 million prior year; full-year GAAP net loss was $50.4 million compared to $40.6 million, with the increase mainly from lower net sales and asset impairment, partially offset by lower operating costs.
  • Operating expenses -- Fourth quarter operating expenses were $51.2 million, down from $58.9 million; full-year operating expenses were $228.2 million, a reduction from $237.4 million.
  • Impairment charge -- Incurred a $3.7 million noncash impairment charge to long-lived assets due to market cap decline relative to book value, with “no impact on business operations or cash flow.”
  • Liquidity -- Ended year with $25.8 million in cash, $25.2 million in convertible notes payable, and no revolver debt.
  • Cost actions -- Completed consolidation of Virginia warehouse, centralized logistics, and transitioned Manila-based operations to third-party BPO, each contributing to operating expense reductions.
  • Marketing efficiency -- Overall marketing efficiency improved by approximately 300 basis points between Q1 and Q4; retention channels increased to over 10% of e-commerce revenue from 6.7%, and mobile app accounted for over 13% of e-commerce revenue versus 7.8% prior year.
  • Product mix -- Private label products represented approximately 83% of quarterly revenue, with collision and replacement business comprising 68%; owned channels, including mobile and e-commerce, represented 68% of revenue, up from 63% prior year.
  • Tariffs -- Paid $3.6 million in IEEPA-classified tariffs last year; sourcing is approximately 20% China, remainder Taiwan and other countries, with recovery of paid duties uncertain.
  • Fee income -- Ads services and paid membership offerings generated nearly $4 million in annual high-margin fee income, requiring minimal capital.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

  • Fourth quarter and full-year net sales declined by 10% and 7%, respectively, primarily due to reduced advertising spend for unprofitable volume.
  • Full-year GAAP net loss increased to $50.4 million from $40.6 million, attributed to lower net sales and asset impairment.
  • Management stated, margin is primarily driven by the product mix and the impact of tariffs, partially offset by pricing increases.
  • Ongoing tariff exposure, with $3.6 million in IEEPA-classified tariffs paid and further risk under Section 122, while potential tariff recovery remains uncertain.

SUMMARY

CarParts.com (PRTS +3.53%) announced completion of a full cost structure reset and workforce optimization, consolidating warehouse operations and outsourcing certain functions to drive sustainable expense reductions. Management emphasized a shift away from unprofitable top-line growth strategies, focusing instead on profitability and cash generation, as demonstrated by improved adjusted EBITDA and expanded gross margins. The company expects its aPremium partnership, built on an asset-light and capital-efficient model, to meaningfully expand assortment and revenue opportunities without additional working capital burden. Management projected the company’s path to free cash flow positive results in 2026 is based on higher contribution margins and the full-year impact of cost actions, rather than a rebound in demand.

  • Management reported, “We now have clear evidence that our new operating model is working, and we are progressing toward our profitability goals.”
  • Shift to owned channels and high-margin fee income are expected to enhance long-term margin profile without increasing capital requirements.
  • Strategic investment in September increased total shares outstanding, while year-end liquidity and untapped revolver are cited as sufficient to support ongoing operations.
  • Management is monitoring evolving U.S. tariff policy, noting potential legal action regarding $3.6 million in tariffs already paid.

INDUSTRY GLOSSARY

  • Contribution margin: Revenue minus variable costs, reflecting the incremental profit earned on each product sold after accounting for variable expenses.
  • aPremium: Strategic supply partner providing a large mechanical parts catalog on an asset-light, capital-efficient basis for CarParts.com.
  • IEEPA: International Emergency Economic Powers Act, a U.S. law granting presidential authority to regulate commerce after declaring a national emergency, relevant here for imposed import tariffs.
  • Lean Solutions Group: Third-party business process outsourcing (BPO) provider used by CarParts.com for Manila-based operations.
  • Zhonteng: Logistics partner referenced in context of warehouse and distribution consolidation for CarParts.com.

Full Conference Call Transcript

David Meniane: In 2025, we closed the $35,700,000 strategic investment, completed a full cost structure reset, and built an operating model that is now delivering results every quarter. Our aPremium partnership is already at a $35,000,000 annual revenue run rate, with a clear path to $50,000,000 in the short term. We believe it will eventually exceed $100,000,000 at attractive contribution margin, all without requiring us to carry the inventory or the working capital. That is the headline. Now I would like to talk to you about our current trajectory. Q4, which is historically our weakest quarter seasonally, was stronger than Q3 and showed significant year-over-year improvement. Q3 improved over Q2, Q2 improved over Q1.

That marks four consecutive quarters of improvement in the metrics that matter most: contribution margin, fixed operating expenses, and adjusted EBITDA. We now have clear evidence that our new operating model is working, and we are progressing toward our profitability goals. Let me give you more context on why the aPremium partnership is so important. Historically, CarParts.com, Inc. has been a collision-focused business, roughly two-thirds of revenue, where we turn inventory up to three times annually. This is where we have real scale and operational expertise: efficiently managing large, bulky, nonconveyable inventory, at speed and at volume. It is where we have a clear right to win.

Mechanical parts are fundamentally different: slower turns, typically 1.0 to 1.5 times annually; higher minimum order quantities; significant working capital when owned directly. Now the aPremium partnership addresses all of these issues. Rather than sourcing and carrying that inventory ourselves, we have access to a world-class mechanical catalog through a capital-efficient model with lower minimum order quantities. We expand assortment, improve coverage, and preserve contribution margin without assuming the working capital burden. The aPremium catalog is five times larger than our prior mechanical offering and growing. In the world of fitment-specific parts, coverage is a durable competitive advantage. In addition to the aPremium partnership, we took decisive operational action in 2025 to materially change our cost structure and margin profile.

2025 was a demanding year that required deliberate choices across the organization. Our product cost structure and advertising spend were designed for revenue levels that no longer existed, and we chose to rebuild the business around profitability and cash generation rather than pursue unprofitable volume. We adjusted advertising spend, right-sized the organization, and reduced our fixed cost base. Those actions are complete, and the company where we are today is leaner, more focused, and built to operate at our current revenue scale. On the cost side, we consolidated operations and reduced our fixed overhead. In the fourth quarter, we completed the consolidation of our Virginia warehouse operations, centralized logistics into our four other warehouses, and leveraged our partnership with Zhonteng.

This eliminates redundant overhead and allows for improved variable economics while maintaining service levels. We also completed the transition of our Manila-based captive operation to Lean Solutions Group, a third-party BPO company, in January. This now simplifies and reduces our cost structure, and it shifts to a more flexible, variable operating model while allowing us to focus internal resources on our core U.S. distribution, supply chain, technology, and customer experience. Both of these consolidations are a meaningful driver of our operating expense reduction and our path toward free cash flow. On advertising, we significantly improved efficiency. Between Q1 and Q4, overall marketing efficiency improved by close to 300 basis points.

We stopped chasing unprofitable one-and-done transactions, and we refocused on high-intent customers. As a result, revenue from retention channels, such as email and SMS, increased from 6.7% of e-commerce revenue in 2024 to over 10% in 2025. We are retaining more of the customers we acquire, which lowers our long-term cost of revenue and improves lifetime value. We also doubled down on mobile app adoption, which in 2025 represented over 13% of e-commerce revenue, up from 7.8% in 2024 and 0% at launch in 2023. App customers convert at higher rates, purchase more frequently, carry larger basket sizes, and come with lower customer acquisition costs.

In addition, our ads services and paid membership offerings now generate nearly $4,000,000 in annual high-margin fee income with virtually no capital required, raising our margin profile over time. Turning to overall business performance, the fourth quarter results reinforce this progress. Despite being our seasonally weakest quarter, we delivered year-over-year improvement in adjusted EBITDA, with the loss narrowing to $2,200,000 compared to $6,800,000 in the prior-year period. Gross margin expanded 70 basis points year over year to 33.2%, reflecting improved pricing discipline and mix, including higher-margin fee income. Operating expenses also declined as the organization became more efficient. Our strategy is built on operational resilience, diversified sourcing, pricing discipline, and asset-light partnerships.

As we look ahead, our path to free cash flow is not dependent on a sharp rebound in demand. It is driven by higher contribution margins, a materially lower fixed OpEx base, and improved capital efficiency as we scale through our partnerships. Our focus is execution, turning operational progress into consistent cash generation quarter by quarter. I will now turn the call over to Mark to walk through the financial results in detail.

Mark DiCiena: Thank you, David. Before getting into the numbers, just a quick point of reference. The fourth quarter included 14 weeks, and fiscal 2025 was a 53-week year, which has a modest impact on year-over-year comparisons. In the fourth quarter, we reported net sales of $120,400,000, down 10% from $133,500,000 last year. For the full year, we generated $547,500,000 in net sales, down 7% from $588,800,000 in 2024. The decrease was primarily driven by the company’s efforts to improve returns by optimizing our advertising spend. Gross profit for the quarter was $39,900,000, down 8% compared to the prior year. Gross margin was 33.2%, up 70 basis points from 32.5% in the prior-year period.

For the full year, gross profit was $179,300,000, down 9% compared to the prior year. Gross margin was 32.8%, down 60 basis points from 33.4% in 2024. The decrease in the margin is primarily driven by the product mix and the impact of tariffs, partially offset by pricing increases. GAAP net loss for the quarter was $11,600,000 compared to a loss of $15,400,000 in the prior-year period. For the year, GAAP net loss was $50,400,000 compared to a loss of $40,600,000 in 2024, primarily driven by lower net sales and impairment loss on long-lived assets, partially offset by lower operating costs, including payroll costs and marketing spend.

For the fourth quarter, adjusted EBITDA loss was $2,200,000, including approximately $200,000 of noncash impact from the reversal of previously recorded severance expense, compared to a loss of $6,800,000 in the prior-year period. For the full year, adjusted EBITDA loss was $14,000,000 compared to a loss of $7,100,000 in 2024. Total operating expenses for the fourth quarter were $51,200,000 compared to $58,900,000 in the prior-year period. For the full year, total operating expenses were $228,200,000, down from $237,400,000 in 2024. During the fourth quarter and as required under GAAP, our market capitalization relative to book value triggered an impairment test, resulting in a $3,700,000 noncash charge to long-lived assets.

This accounting adjustment has no impact on business operations or cash flow. Excluding the $3,700,000 impairment charge recorded in 2025, underlying operating expenses decreased by approximately $12,800,000 year over year, primarily driven by lower warehouse spend, lower stock-based compensation, and reduced payroll and consulting costs from headcount actions. Turning to the balance sheet, we ended the year with $25,800,000 of cash and no revolver debt. We had $25,200,000 in convertible notes payable balance at the end of the year. Inventory balance was $95,200,000 at year end, versus $90,400,000 at the end of 2024. Our cash position and untapped revolver continue to provide the necessary liquidity to support our business.

As of 02/28/2026, we had approximately 70,500,000 shares of common stock outstanding, which includes 10,300,000 shares issued in connection with the September 2025 strategic investment at $1.04 per share. Convertible notes carry a conversion price of $1.20 per share. As David noted, in September, we closed a $35,700,000 strategic investment from aPremium, Sangatang Group, and CDH Investments. We are targeting free cash flow positive results in 2026, driven by contribution margin expansion, partnership scale, and the full-year benefit of our cost actions. On tariffs, we continue to operate in an evolving environment.

While the Supreme Court’s recent decision invalidated tariffs imposed under IEEPA, other tariffs, specifically around auto, remain in effect, and the administration has introduced temporary measures under Section 122. We are monitoring those closely and evaluating litigation action while we continue to execute on our plan. For context, approximately 20% of our sourcing is from China, with the remainder from Taiwan and other countries. Tariffs we paid last year classified under IEEPA totaled approximately $3,600,000. While there may be a path to recovering some previously paid duties, we are not building our plan around regulatory relief. Before I wrap up, some context on product and channel mix trends.

Starting with product mix, for the fourth quarter, private label products represented approximately 83% of revenue, while third-party branded products represented 17%. For the full year, private label mix was approximately 82% compared to 83% in the prior year. With that, our collision and replacement business accounted for approximately 68% of revenue in the fourth quarter and approximately 65% for the full year, also flat year over year. The remainder of revenue came from other product categories. Turning to channel mix, our owned channels, which include our e-commerce, mobile app, and commercial channels, represented approximately 68% of revenue in the fourth quarter, with marketplaces accounting for 32%. For the full year, owned channels represented approximately 67%, marketplaces approximately 33%.

By comparison, in 2024, owned channels represented approximately 63% of revenue. Over time, we expect mix to continue shifting toward higher contribution margin revenue streams with lower working capital requirements. I will now turn it back to David for our closing remarks.

David Meniane: Thank you, Mark. In 2025, we took decisive action to reposition the company for profitability. We pulled back on advertising spend that was not delivering returns. We right-sized the organization, and we closed on strategic partnerships that bring real operational capabilities, not just capital. The evidence is in the results. In the fourth quarter, adjusted EBITDA improved by nearly $5,000,000 year over year. Gross margins expanded. Operating expenses remained under control. This is an execution story, not a turnaround narrative. I want to end our call by recognizing our team. The progress we are seeing reflects consistent execution across the organization.

Our people stayed focused on serving customers and delivering against the plan, and the foundation they built positions CarParts.com, Inc. to generate consistent profitability. With that, I will turn it back to the operator.

Operator: Thank you. This concludes our conference. Thank you for participating, and you may now disconnect.