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U.S. Auto Parts Reports Q4 Net Loss As Sales Fell 5.6%

“Over the last 18 months, the company has certainly not performed to its full potential, and its financial results have been disappointing to everyone,” U.S. Auto Parts Network CEO Lev Peker told analysts on the company’s March 7 quarterly report conference call.

This came as U.S. Auto Parts reported a $4.69-million net loss for the fourth quarter of 2018 — compared to $59,000 in net income a year ago. The company’s gross profit fell 20.1 percent to $16.57 million, while gross margin decreased from 30.3 percent to 25.6 percent on a year-over-year basis, attributable to costs associated with port and excess carrier fees tied to customs issues, as well as an increased freight cost.

Net sales declined 5.6 percent to $64.65 million, which management pegged to a decrease in marketplace sales with one of U.S. Auto Parts’ channel partners and a 5-percent decline in e-commerce sales, attributable to a reduction in traffic and lower in-stock rates resulting from customs issues. Private-label sales decreased 1 percent and accounted for 76 percent of the company’s net sales compared to 73 percent in the year-ago period.

A few key metrics for U.S. Auto Parts’ performance in the fourth quarter of 2018 …
The number of unique visitors fell 18 percent to 16.50 million due, in part, to reduced traffic from a platform conversion of JC Whitney and reduced marketing spend in December.
Conversion rate (which excludes online marketplaces) increased 40 basis points to 2.5 percent, which management attributed to the positive impact of better-quality traffic through paid sources, as well as website improvements such as faster site speed.
Revenue capture increased 60 basis points to 86.7 percent tied to improvements in credit card approval processes.
• Average online order value – total orders increased 3.7 percent to $85.
• Average online order value – e-commerce decreased 5 percent to $95.
• Average online order value – marketplaces grew 9 percent to $73.
• The total number of internet orders decreased 6.5 percent to 761,000.
• The number of orders (e-commerce only) declined 1 percent to 415,000.
• The number of orders (marketplaces) fell 12.4 percent to 346,000.

INVENTORY & TARIFFS … U.S. Auto Parts ended the quarter with $49.63 million in inventory, which was down 8.5 percent from the end of 2017, as the company continues to focus on optimizing its inventory productivity. “While inventory levels were not at the level we anticipated, resulting in some out of stocks, we felt the composition and quality of our inventory improved,” CFO Neil Watanabe told analysts on the call. “In fact, as of Dec. 29, 2018, approximately 90 percent of our assortment was less than one year old, which is a direct result of our effective sourcing strategy and inventory productivity.”

Regarding tariffs and their impact on U.S. Auto Parts, Watanabe said the first two groups of tariffs initiated by the U.S. government represent less than 1 percent of the company’s annual net sales. The third group of tariffs, which have been postponed, impacts 13 percent of U.S. Auto Parts’ annual net sales.

“Overall, we have not seen a material impact to our business as we pass through costs to consumers, given that the tariffs similarly affect all of our competitors as well as the OEMs,” Watanabe stated. “If a consumer needs a part to get their car working again, they are likely going to purchase the part regardless of a price increase. Our goal with any additional tariffs would be to continue to pass the costs through to consumers and maintain our gross profits, which seems to be the approach our competitors are taking as well.”

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