CarParts.com (PRTS 0.63%) delivered another impressive earnings report Monday night.
For its 14-week fourth-quarter, the only pure-play auto parts e-commerce company posted revenue growth of 90% to $119.7 million, which crushed analysts' consensus estimate of $92 million.
The company is leveraging the investments it has made since a management change early in 2019, which included combining multiple brands under the CarParts.com nameplate, changing the company name from U.S. Auto Parts to CarParts.com, adding new distribution centers to speed up delivery, and shutting down unprofitable business lines.
Those investments, along with tailwinds from the COVID-19 pandemic, not only drove a surge in revenue, but also led to steady increases in profitability. The company finished 2020 with a gross margin of 35%, up from 30% in 2019. For a retailer like CarParts.com, that metric is key because it gives management more money to reinvest in the business, support new distribution centers, enhance its technology, and expand its inventory into new product lines, among other initiatives.
Adjusted EBITDA in the quarter declined from $1.7 million to $1 million due to $1 million in additional expenses related to opening its new distribution center in Texas and increased receiving costs across its network.
The company posted a loss of $0.07 per share, which was modestly better than the $0.10 per share loss analysts had expected.
What to expect for 2021
CarParts.com declined to give guidance for the current year, but the company is bringing a lot of momentum into 2021. With tens of millions of Americans soon to receive stimulus checks from the American Rescue Plan, there's a reasonable expectation some of that aid will be spent at auto parts retailers. After a boom in used car sales during the pandemic, the average vehicle on the road in the U.S. is 12 years old, and the reopening of the economy will mean an increase in vehicle miles driven, which is generally correlated with higher spending on auto parts. On a Clubhouse call with retail investors following the earnings report, CEO Lev Peker said that he anticipated the reopening would be a positive for the company.
CarParts.com also saw its web traffic triple in 2020, according to data from SimilarWeb -- much faster growth than any of its competitors achieved. That's a sign that customer awareness of the company surged last year, as most of its web traffic comes from search engines like Google.
While some business could shift back to brick-and-mortar channels as the pandemic ends, the company seems poised to deliver another year of strong growth. Heading into the first quarter, inventory levels were up 70%, a sign the company is aiming for another increase in revenue similar to the one it just delivered. To date, the company has only reached 50% capacity at its new Texas distribution center, showing it can still ramp up inventory levels to grow sales. On the Clubhouse call, Peker also noted that sales growth was constrained by supply, not by demand. As shipping bottlenecks eventually clear, CarParts.com should be able to accelerate its growth.
Why CarParts.com looks like a buy
As a small-cap stock, the online auto parts retailer has mostly been ignored by Wall Street, even though the stock gained nearly 500% last year. Analysts seem to view the company as just a pandemic story, benefiting from the same tailwinds that lifted other e-commerce stocks, but there's a larger turnaround strategy at work here, which explains why revenue growth accelerated in each quarter of 2020. Wall Street still seems to be underestimating the company, as its massive top-line beat in the fourth-quarter indicates.
For 2021, that gap could be even wider. The average analyst was calling for annual revenue of just $468.3 million before the fourth quarter report came out, which would amount to growth of just 5.5%. That seems to woefully underrate the company's potential, especially after management called out a long-term annual revenue growth target of 20% to 25% on its earnings call.
With such a low bar to clear, CarParts.com looks set to be a winner in 2021 again.
Wall Street is still underestimating this e-commerce disruptor, and that puts investors in a position to profit.