Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33264
CARPARTS.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
68-0623433
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
2050 W. 190th Street, Suite 400, Torrance, CA 90504
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (424) 702-1455
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
PRTS
The NASDAQ Stock Market LLC
(NASDAQ Global Market)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-Accelerated filer
⌧
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2024 was approximately $54.2 million (based on the closing sales
price of the registrant’s common stock on that date). For the purposes of this calculation, shares owned by officers, directors and 10% stockholders known to the registrant have
been deemed to be owned by affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 18, 2025, there were 58,295,060 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our proxy statement for the 2024 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference in Part III hereof. Except with respect to
information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof.
Table of Contents
CARPARTS.COM, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2024
TABLE OF CONTENTS
Page
PART I
1
Item 1.
Business
1
Item 1A.
Risk Factors
6
Item 1B.
Unresolved Staff Comments
30
Item 1C.
Cybersecurity
30
Item 2.
Properties
31
Item 3.
Legal Proceedings
31
Item 4.
Mine Safety Disclosures
31
PART II
32
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
32
Item 6.
[Reserved]
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
41
Item 8.
Financial Statements and Supplementary Data
41
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
41
Item 9A.
Controls and Procedures
41
Item 9B.
Other Information
42
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
42
PART III
43
Item 10.
Directors, Executive Officers and Corporate Governance
43
Item 11.
Executive Compensation
43
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
43
Item 13.
Certain Relationships and Related Transactions, and Director Independence
43
Item 14.
Principal Accounting Fees and Services
44
PART IV
45
Item 15.
Exhibits and Financial Statement Schedules
45
Item 16.
Form 10-K Summary
45
Unless the context requires otherwise, as used in this report, the terms “CarParts.com,” the “Company,” “we,” “us” and “our” refer to
CarParts.com, Inc. and its subsidiaries. Unless otherwise stated, all amounts are presented in thousands.
Carparts.com®, Kool-Vue®, JC Whitney®, Evan Fischer®, SureStop®, TrueDrive®, DriveWire™, and DriveMotive™, amongst others,
are our current and pending trademarks in the United States. All other trademarks and trade names appearing in this report are the property
of their respective owners.
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this report, other than statements or characterizations of historical or current fact, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend that such forward-looking statements be subject to the
safe harbors created thereby. Any forward-looking statements included herein are based on management’s beliefs and assumptions and on
information currently available to management. We have attempted to identify forward-looking statements by terms such as “anticipates,”
“believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,”
“would,” “will likely continue,” “will likely result” and variations of these words or similar expressions. These forward-looking
statements include, but are not limited to, statements regarding future events, our future operating and financial results, financial
expectations, expected growth and strategies, current business indicators, capital needs, financing plans, capital deployment, liquidity,
contracts, litigation, product offerings, customers, acquisitions, competition and the status of our facilities. Forward-looking statements, no
matter where they occur in this document or in other statements attributable to the Company involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater
detail under the heading “Risk Factors” in Part I, Item 1A of this report. Given these uncertainties, you should not place undue reliance on
these forward-looking statements. You should read this report and the documents that we reference in this report and have filed as exhibits
to the report completely and with the understanding that our actual future results may be materially different from what we expect. Also,
forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. Except as required by
law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Table of Contents
1
PART I
ITEM 1. BUSINESS
Overview
CarParts.com, Inc. is a technology-driven eCommerce company dedicated to revolutionizing the way drivers shop for aftermarket
automotive parts. With over 25 years of operation, CarParts.com serves as a one-stop shop for repair and maintenance resources, offering a
seamless online shopping experience that empowers drivers along every part of their journey.
We principally sell our products, identified as stock keeping units (“SKUs”), to individual consumers through our flagship website,
www.carparts.com, our app, and online marketplaces. Our easy-to-use, mobile-friendly website and mobile app provide customers with a
comprehensive selection of over 1 million SKUs, complete with detailed product descriptions, attributes, and photographs. Utilizing our
proprietary product database, we ensure a seamless match between our SKUs and vehicle specifications, guaranteeing the right part
fitment. We leverage our online sales channel and global supplier relationships to eliminate intermediaries in the traditional auto parts
supply chain, enabling us to offer an unparalleled selection of SKUs compared to offline retail competitors.
Incorporated in California in 1995 as an aftermarket auto parts distributor, the Company – then known as U.S. Auto Parts Network,
Inc. – embarked on a digital transformation journey in 2000, with the launch of our first retail website. Following our reincorporation in
Delaware in 2006, we expanded our online operations, bolstering our eCommerce network, launching additional websites, refining our
internet marketing strategies, and commencing sales on various online marketplaces.
In July 2020, we officially rebranded to CarParts.com and consolidated our web presence into one single eCommerce destination,
www.carparts.com. In the third quarter of 2023, we added a mobile app, available on both iOS and Android, enabling our customers to
conveniently shop from their phones. Since launching in the summer of 2023, the app has been downloaded over 750,000 times, reflecting
strong engagement and adoption among our customers.
Driven by our commitment to providing unparalleled customer experience, we use world-class design principles and the latest
technology to power our user-friendly website and app. Our vision of “Empowering Drivers Along Their Journey” underscores our mission
to create a trusted platform that simplifies the historically stressful experience of vehicle maintenance & repair with “Quality Parts. Priced
Right.”
We have a significant opportunity to become the go-to destination for all automotive repair and maintenance requirements by focusing
on our evolved strategy. This includes optimizing supply chain management and upgrading logistics, investing in technology, expanding
into new business lines. Throughout this process, we remain committed to maintaining our financial discipline, evaluating investments
based on their potential to drive profitability.
To this end, we are continually working to enhance our fulfillment center footprint, capacity and productivity. In June 2024, we opened
our new state-of-the-art fulfillment center in Las Vegas, Nevada, expanding from 125,000 sq. ft. to over 200,000 sq. ft., which we expect to
reduce last-mile transportation expenses to the West Coast and enhance customer service through expedited delivery. The semi-automated
center is integrated with cutting-edge AI capabilities designed to optimize operations, improve safety, and expand product availability.
Furthermore, we continuously expand our technological capabilities, product offerings, and service portfolio to stay ahead of competitive
pressures. By investing in new categories, brands, customer types, and revenue streams across both premium and value segments, we seek
to maximize gross profit and capture a larger market share.
In tandem, we have refined our eCommerce experience and marketing strategy, prioritizing direct customer relationships and
strengthening our community through innovative owned content channels. These efforts aim to position CarParts.com as the ultimate
destination for vehicle maintenance knowledge and product purchases, fostering
Table of Contents
2
long-term brand loyalty while reducing reliance on “pay-to-play” performance marketing channels and improving customer acquisition
efficiency.
Our corporate website is located at www.carparts.com/investor. The information found on the website is not part of, or incorporated by
reference into, this or any other report we file with, or furnish to, the Securities and Exchange Commission (the “SEC”).
We report on a 52/53-week fiscal year, ending on the Saturday nearest the end of December. References to 2024 and 2023 relate to the
52-week fiscal year ended December 28, 2024 and the 52-week fiscal year ended December 30, 2023, respectively.
Our Products
We offer a broad selection of aftermarket auto parts. We continually refine our product offering by introducing new brands and parts
categories, while selectively discontinuing low-selling brands and SKUs. We broadly classify our products into three subcategories by
function: replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair market, and
other parts and accessories (formerly referred to as performance parts and accessories).
Replacement Parts. The replacement parts category is primarily comprised of parts for the exterior of an automobile. Our parts in this
category are typically replacement parts for original body parts that have been damaged as a result of a collision or through general wear
and tear. In addition, we sell an extensive line of mirror products, including one of our own house brands called Kool-Vue®, which are
marketed and sold as aftermarket replacement parts and as upgrades to existing parts.
Hard Parts. The hard parts category is comprised of engine and chassis components as well as other mechanical and electrical parts,
including one of our own house brands of aftermarket catalytic converters called Evan Fischer®. These parts serve as replacement parts for
existing engine parts and are generally used by professionals and do-it-yourselfers for engine and mechanical maintenance and repair.
Other Parts and Accessories. Other parts and accessories generally consist of parts that enhance the performance of the automobile,
upgrade existing functionality of a specific part or improve the physical appearance or comfort of the automobile, including parts from one
of our own house brands, JC Whitney®.
Our Sales Channels
Our sales channels include the online channel and the offline channel.
Online Sales Channel. Our online sales channel primarily consists of our flagship, mobile-friendly eCommerce website
www.carparts.com, and app. We also sell our products through online marketplaces, including third-party auction sites and shopping
portals, which provide us with access to additional consumer segments. The majority of our online sales are to individual consumers.
Offline Sales Channel. We market our products nationwide to auto parts wholesale distributors.
Our Fulfillment Operations
We fulfill customer orders using two primary methods: (1) stock-and-ship, where we take physical delivery of merchandise and store it
in one of our distribution centers until it is shipped to a customer, and (2) drop-ship, where merchandise is shipped directly to customers
from our suppliers. We believe that the flexibility of fulfilling orders using two different fulfillment methods allows us to offer a broader
product selection, helps optimize product inventory and enhances our overall business profitability.
Table of Contents
3
Stock-and-Ship Fulfillment. Our stock-and-ship products are sourced primarily from manufacturers and other suppliers located in Asia,
Europe, Mexico, the United States, as well as various other countries, and are stored in one of our distribution centers located in Virginia,
Illinois, Nevada, Texas or Florida. We also use temporary outside storage and third-party logistics partners from time to time. All products
received into our distribution centers are entered into our inventory management systems, allowing us to closely monitor inventory
availability. We consider a number of factors in determining which items to stock in our distribution centers, including which products can
be purchased at a meaningful discount to domestic prices for similar items, which products have historically sold in high volumes, and
which products may be out of stock when we attempt to fulfill via drop-ship.
Drop-Ship Fulfillment. We have developed relationships with several United States-based auto parts distributors that operate their own
distribution centers and can deliver products directly to our customers. We internally developed a proprietary distributor selection system,
Auto-Vend™, which allows us to electronically select multiple vendors for a given order. Auto-Vend™ will attempt to first direct an order
to one of our warehouses. If the product is not in stock, Auto-Vend™ will process the order to the next appropriate vendor based on
customer location, cost, contractual agreements, and service level history.
Suppliers
We source our products from two primary regions: (1) our house brands product sourced primarily through manufacturers and
distributors in the Asia-Pacific region, and (2) our branded product sourced primarily through drop-ship manufacturers and distributors
located in the United States.
House Brands Product. Our house brands suppliers offer products which are generally of the same quality as a branded product while
being less expensive and we believe provide better value for our consumers. We stock-and-ship our house brands products in our
distribution centers. We currently have over 78,000 house brands SKUs in our product selection.
Branded Product. Serving as a stocking distributor for many branded products, we have developed and implemented application
programming interfaces with the majority of our branded, drop ship suppliers that allow us to electronically transmit orders, check
inventory availability, and receive the shipment tracking information which is easily passed on to our customers. In addition, we are a
significant customer for many of our drop-ship vendors and have long standing relationships and contracts with many of these suppliers.
For the fiscal year ended December 28, 2024, three of our drop-ship vendors accounted for approximately 13% of our total product
purchases. We currently have over 1,466,000 branded SKUs in our product selection.
Marketing
Our online marketing efforts are primarily designed to attract visitors to www.carparts.com, convert visitors into purchasing customers
and encourage downloading our app as well as repeat purchases among our existing customer base. We use a variety of marketing methods,
including online marketing methods to attract visitors, which include paid search advertising, search engine optimization, affiliate
programs, e-mail marketing and inclusion in online shopping engines. To convert visitors into paying customers, we periodically run
promotions for discounted products. We seek to create cross-selling opportunities by displaying complementary and related products
available for sale throughout the purchasing process, including bundled kits and sets. We utilize several marketing techniques, including
targeted e-mails about specific vehicle promotions, to increase customer awareness of our products.
International Operations
In April 2007, we established offshore operations in the Philippines. Our offshore operations allow us to access a workforce with the
necessary technical skills at a significantly lower cost, and a higher availability rate, than comparably experienced U.S.-based
professionals. Our offshore operations are responsible for a majority of our website development, catalog management, and back office
support. Our offshore operations also house our main call center. We also primarily source our house brands product from suppliers in the
Asia-Pacific region.
Table of Contents
4
Competition
The auto repair information and parts industry is competitive and highly fragmented, with products distributed through multi-tiered
and overlapping channels. We compete with both online and offline retailers who offer original equipment manufacturer (“OEM”),
aftermarket and private label parts to either the Do-It-Yourself (“DIY”) or Do-It-For-Me (“DIFM”) customer segments. Current or potential
competitors include the following:
●
national auto parts retailers such as Advance Auto Parts, AutoZone, Napa Auto Parts, CarQuest, O’Reilly Automotive and
Pep Boys;
●
large online marketplaces such as Amazon.com (“Amazon”) and sellers on eBay;
●
other online retailers of automotive products and auto repair information websites;
●
local independent retailers or niche auto parts retailers;
●
wholesale aftermarket auto parts distributors such as LKQ Corporation; and
●
manufacturers, brand suppliers and other distributors selling online directly to consumers.
We believe the principal competitive factors in our market are helping customers easily find the correct parts for their vehicles,
educating consumers on the service and maintenance of their vehicles, maintaining a proprietary product catalog that maps individual parts
to relevant vehicle applications, broad product selection and availability, price, knowledgeable customer service, rapid order fulfillment and
delivery, and easy product returns. We believe we compete favorably on the basis of these factors. However, some of our competitors may
be larger, may have stronger brand recognition or may have access to greater financial, technical and marketing resources or may have been
operating longer than we have.
Human Capital
Our ability to recruit, retain, and develop our employees is key to our long-term growth and success. As of December 28, 2024, we had
948 employees in the United States and 518 employees in the Philippines for a total of 1,466 employees. Additionally, we rely on
independent contractors and temporary personnel to supplement our workforce. None of our employees are represented by a labor union
and we consider employee relations to be good.
Diversity and Inclusion
We strive to build and create a culture where each person feels valued, respected and understood. As of December 28, 2024, the makeup
of our employees consisted of 39% women and approximately 84% non-white.
Employee Engagement
We value employee feedback and are committed to collecting regular feedback primarily through employee surveys. In addition, we
believe that offering training and career growth opportunities is valuable for employee engagement and we often have promoted current
employees to higher level positions. We also provide competitive compensation and benefits programs that we believe meet the needs of
our employees.
Health and Safety
We have implemented, and continue to implement, policies that provide for the health, safety and wellness of our employees. We are
committed to operating in a safe workplace, and have established safety procedures and safety programs at our distribution centers.
Table of Contents
5
Intellectual Property
Our intellectual property, including trademarks, service marks, domain names, patents, copyrights and trade secrets, is an important
part of our business. To protect our intellectual property, we rely on a combination of laws and regulations, in addition to intellectual
property rights in the United States and other jurisdictions, including trademarks, copyrights, and trade secret laws, together with
contractual provisions and technical measures that we have implemented. To protect our trade secrets, we maintain strict control access to
our proprietary systems and technology, including our platforms and infrastructure environments. We also enter into confidentiality and
invention assignment agreements with our employees and consultants, as well as confidentiality and non-disclosure agreements with third
parties that provide products and services to us.
We have current and pending trademarks registered in the United States, including Carparts.com®, Kool-Vue®, JC Whitney®, Evan
Fischer®, SureStop®, TrueDrive®, DriveWire™, and DriveMotive™, amongst others, and we have additional trademark applications
pending in the United States and other jurisdictions.
Government Regulation
We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information
and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for
online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on
online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails
and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products
and services, taxation, electronic contracts and other communications and information security. In addition, most states have passed laws
that prohibit or limit the use of aftermarket auto parts in collision repair work and/or require enhanced disclosure or vehicle owner consent
before using aftermarket auto parts in such repair work and additional legislation of this kind may be introduced in the future.
There is also great uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel and
personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. For example, tax authorities
in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies
engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or
regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of
existing laws and regulations to the Internet and commercial online services could result in significant additional taxes or regulatory
restrictions on our business. These taxes or restrictions, including potential tariffs, could have an adverse effect on our cash flows, results of
operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments
for any past failures to comply with these requirements.
Seasonality
We believe our business is somewhat seasonal in nature. It includes many categories, geographies, and channels which may
experience seasonality from time to time based on various external factors. Additionally, seasonality may affect our product mix. These
historical seasonality trends could continue, and such trends may have a material impact on our financial condition and results of operations
in subsequent periods.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports
are available free of charge on the Investor Relations section of our corporate website located at www.carparts.com/investor as soon as
reasonably practicable after such reports are electronically filed with, or
Table of Contents
6
furnished to, the SEC. The inclusion of our website address in this report does not include or incorporate by reference into this report any
information on our website.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks which are summarized and then discussed in more detail below. Other risks are presented
elsewhere in this report and in our other filings with the SEC. You should consider carefully the following risks in addition to the other
information contained in this report and our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K, and any
amendments thereto, before deciding to buy, sell or hold our common stock. If any of the following known or unknown risks or
uncertainties actually occurs with material adverse effects on us, our business, financial condition, results of operations and/or liquidity
could be seriously harmed. In that event, the market price for our common stock will likely decline and you may lose all or part of your
investment. You should not interpret the disclosure of a risk to imply that such risk has not already materialized.
Risk Factors Summary
Our business and industry are subject to a number of risks that could adversely affect our business, financial condition and operating
results. These risks are discussed in more detail below and include, but are not limited to, risks related to the following:
Risks Related To Our Operations
●
We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products.
●
Our preliminary exploration of potential strategic alternatives, announced on March 5, 2025, may not be successful.
●
We depend on third-party delivery services, both inbound and outbound, to deliver our products to our distribution centers and
customers, and any increases in the fees could adversely affect our financial condition.
●
Higher wage costs due to changes in federal and state minimum wage laws could adversely affect our business.
●
If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted.
●
Purchasers of aftermarket auto parts may not choose to shop online.
●
Shifting online consumer behavior of purchasers of aftermarket auto parts.
●
If hosts of third-party marketplaces limit our access, we could lose a substantial portion of our revenues.
●
During fiscal year 2024, we recorded a net loss, and it is possible that net losses could continue in the future.
●
Our operations are restricted by our Credit Agreement, and our ability to borrow funds under our Credit Facility is subject to a
borrowing base.
●
If our assets become impaired, we may be required to record a significant charge to earnings.
●
We are highly dependent upon key suppliers.
●
Inability to manage the challenges associated with our international operations.
●
If our fulfillment operations are interrupted for any significant period of time, our sales could decline.
●
We face intense competition and operate in an industry with limited barriers to entry.
●
Failure to offer a broad selection of products at competitive prices or to maintain sufficient inventory.
●
We rely on key personnel and may need additional personnel for the success and growth of our business.
●
In the future, our business could be adversely affected by the effects from a prolonged COVID-19 outbreak or another pandemic.
Table of Contents
7
●
As a result of our international operations, we have foreign exchange risk.
●
Our product catalog database could be stolen, misappropriated or damaged, or a competitor might create a substantially similar
catalog without infringing our rights.
●
Economic conditions have had, and may continue to have, an adverse effect on the demand for aftermarket auto parts and could
adversely affect our sales and operating results.
●
The seasonality of our business places increased strain on our operations.
●
Vehicle miles driven have fluctuated and may decrease.
●
We may be required to collect and pay more sales taxes, and possibly for other fees and penalties.
●
Our ability to use net operating loss carryforwards to offset future income may be limited.
●
Our estimate of the size of our addressable market may prove to be inaccurate.
Regulatory And Litigation Risks
●
Tariffs and other restrictions imposed by the United States government.
●
We face exposure to product liability lawsuits.
●
Failure to comply with privacy laws and regulations and failure to adequately protect customer data.
●
The regulatory framework is constantly evolving, and privacy concerns could adversely affect our business.
●
Challenges by OEMs to the validity of the auto parts industry and claims of intellectual property infringement.
●
Inability to protect our intellectual property rights.
●
We could incur substantial judgments, fines, legal fees and other costs relating to litigation matters or certain laws and
governmental regulations.
●
Changes in tax laws or regulations that are applied adversely to us or our customers.
●
Existing or future government regulation could expose us to liabilities and costly changes in our business.
●
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
●
Potential impact from future regulation related to environmental, social and governance (“ESG”) matters.
Risks Related To Our Use Of Technology
●
We depend on search engines and other online sources to attract visitors to our websites and marketplace channels, and the
ability to attract and convert them into customers in a cost-effective manner.
●
We rely on bandwidth and data center providers, and any failure or interruption in the services provided could disrupt our
business and cause us to lose customers.
●
Security threats, such as ransomware attacks, to our IT infrastructure could expose us to liability, business interruption and
significant damages, and may damage our reputation and business.
●
Dependence on open-source software could expose us to uncertainty and potential liability.
●
System failures could prevent access to our websites which could reduce our net sales and harm our reputation.
●
Problems with the design, updating, integration or implementation of our IT systems could interfere with our business and
operations.
●
Inability to respond to technological change causing our websites to become obsolete.
●
Use of social media may adversely impact our reputation or subject us to fines or other penalties.
Table of Contents
8
Risks Related To Our Capital Stock
●
Our common stock price may continue to be volatile, which may result in losses to our stockholders.
●
Our future operating results may fluctuate and may fail to meet market expectations.
●
Failure to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-
Oxley Act of 2002 could cause our stock price to decline.
●
Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your
shares.
●
We do not intend to pay dividends on our common stock.
●
We cannot guarantee that our share repurchase program will enhance shareholder value and share repurchases could affect the
price of our common stock.
●
Future capital raises may dilute our existing stockholders’ ownership.
●
We are required to meet the Nasdaq Global Market’s continued listing requirements.
Risks Related To Our Operations
We are dependent upon relationships with suppliers in Taiwan and China for the majority of our products, which exposes us to complex
regulatory regimes and logistical challenges.
We acquire a majority of our products from manufacturers and distributors located in Taiwan and China. We do not have any long-term
contracts or exclusive agreements with our foreign suppliers that would ensure our ability to acquire the types and quantities of products we
desire at acceptable prices and in a timely manner or that would allow us to rely on customary indemnification protection with respect to
any third-party claims similar to some of our U.S. suppliers.
In addition, because many of our suppliers are outside of the United States, additional factors could interrupt our relationships or affect
our ability to acquire the necessary products on acceptable terms, including:
●
political, social and economic instability, social unrest, and the risk of war or other international incidents in Asia, Europe, or
abroad, including, but not limited to, the effects of disputes between China and Taiwan and Russia’s invasion of Ukraine;
●
global political changes, including as a result of the change in the U.S. presidential administration;
●
deterioration in U.S.-China trade relations, including increased tensions, policy shifts, or regulatory changes, increased tariffs,
trade restrictions, or sanctions affecting our supply chain and product imports;
●
changes in bilateral agreements between the U.S. and China that could disrupt established supply chains, increase compliance
costs, or limit our ability to source products efficiently;
●
fluctuations in foreign currency exchange rates that may increase our cost of products;
●
imposition of duties, taxes, tariffs or other charges on imports;
●
difficulties in complying with import and export laws, regulatory requirements and restrictions;
●
natural disasters and public health emergencies, such as the COVID-19 pandemic or other future pandemics, impacting
countries from which we purchase product;
Table of Contents
9
●
import shipping delays resulting from foreign or domestic labor shortages, slow-downs, or stoppage; and
●
the failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property;
●
imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may
be imported into the U.S. from countries or regions where we do business;
●
financial or political instability in any of the countries in which our product is manufactured;
●
potential recalls or cancellations of orders for any product that does not meet our quality standards;
●
disruption of imports by labor disputes or strikes and local business practices;
●
political or military conflict involving the U.S. or any country in which our suppliers or transportation routes for our products
are located, which could cause a delay in the transportation of our products, an increase in transportation costs and additional
risk to product being damaged and delivered on time;
●
heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough
inspections, leading to delays in deliveries or impoundment of goods for extended periods;
●
inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and
●
our ability to enforce any agreements with our foreign suppliers.
For example, during the first quarter of 2018, the United States Customs and Border Protection (“CBP”) imposed an enhanced bonding
requirement on the Company at a level equivalent to three times the commercial invoice value of each shipment. While the Company had
been granted relief removing the bonding requirement, CBP may impose other requirements on the Company which would make it more
difficult or more expensive for the Company to import products. If we were unable to import products from China and Taiwan or were
unable to import products from China and Taiwan in a cost-effective manner, we could suffer irreparable harm to our business and be
required to significantly curtail our operations, file for bankruptcy or cease operations.
From time to time, we may also have to resort to administrative and court proceedings to enforce our legal rights with foreign
suppliers. However, it may be more difficult to evaluate the level of legal protection we enjoy in Taiwan and China and the corresponding
outcome of any administrative or court proceedings than in comparison to our suppliers in the United States.
Our preliminary exploration of potential strategic alternatives may not be successful, resulting in our needing to explore potential
alternatives that may materially adversely affect the value of our business and our stock price.
We regularly engage in dialogue with market participants regarding potential business combinations, partnerships and other strategic
alternatives. Based on certain recent preliminary inquiries, we engaged a financial advisor to support our Board in evaluating any
indications of interest and exploring other potential strategic alternatives. There can be no assurance that any of such preliminary
exploratory activities will result in our engaging in a strategic alternative transaction, or even if we do so, that any such strategic alternative
transaction will result in favorable terms and conditions for us or our shareholders. If we are unsuccessful in engaging in a favorable
strategic alternative, then we may need to pursue potential alternatives. Such alternatives may materially adversely affect the value of our
business and the trading price of our common stock.
Table of Contents
10
We depend on third-party delivery services, for both inbound and outbound shipping, to deliver our products to our distribution centers
and subsequently to our customers on a timely and consistent basis, and any deterioration in our relationship with any one of these
third parties or increases in the fees that they charge could harm our reputation and adversely affect our business and financial
condition.
We rely on third parties for the shipment of our products, both inbound and outbound shipping logistics, and we cannot be sure that
these relationships will continue on terms favorable to us, or at all. Shipping costs have increased from time to time, and may continue to
increase due to inflation or other reasons, and we may not be able to pass these costs directly to our customers. Any increased shipping
costs could harm our business, prospects, financial condition and results of operations by increasing our costs of doing business and
reducing gross margins which could negatively affect our operating results. In addition, we utilize a variety of shipping methods for both
inbound and outbound logistics. For inbound logistics, we rely on trucking and ocean carriers and any increases in fees that they charge
could adversely affect our business and financial condition. For outbound logistics, we rely on ‘‘Less-than-Truckload’’ (‘‘LTL’’) and parcel
freight based upon the product and quantities being shipped and customer delivery requirements. These outbound freight costs have
increased on a year-over-year basis and may continue to increase in the future. We also ship a number of oversized auto parts which may
trigger additional shipping costs by third-party delivery services. Any increases in fees or any increased use of LTL would increase our
shipping costs which could negatively affect our operating results.
In addition, if our relationships with these third parties are terminated or impaired, or if these third parties are unable to deliver
products for us, whether due to labor shortage, slow down or stoppage, deteriorating financial or business condition, responses to terrorist
attacks or for any other reason, we would be required to use alternative carriers for the shipment of products to our customers. Changing
carriers could have a negative effect on our business and operating results due to reduced visibility of order status and package tracking and
delays in order processing and product delivery, and we may be unable to engage alternative carriers on a timely basis, upon terms
favorable to us, or at all.
Higher wage costs due to changes in federal and state minimum wage laws, or due to unstable market conditions, could adversely affect
our business.
Changes in federal and state minimum wage laws and other laws relating to employee benefits could cause us to incur additional wage
and benefit costs. Increased labor costs brought about by changes in minimum wage laws, inflation, other regulations or prevailing market
conditions could increase our expenses and have an adverse impact on our profitability.
If commodity prices such as fuel, plastic and steel increase, our margins may be negatively impacted.
Our third-party delivery services have increased fuel surcharges from time to time, and such increases negatively impact our margins,
as we are generally unable to pass all of these costs directly to consumers. Increasing prices in the component materials for the parts we sell
may impact the availability, the quality and the price of our products, as suppliers search for alternatives to existing materials and increase
the prices they charge. We cannot ensure that we can recover all the increased costs through price increases, and our suppliers may not
continue to provide the consistent quality of product as they may substitute lower cost materials to maintain pricing levels, all of which
may have a negative impact on our business and results of operations.
Table of Contents
11
Purchasers of aftermarket auto parts may not choose to shop online, which would prevent us from acquiring new customers who are
necessary to the growth of our business.
The online market for aftermarket auto parts is less developed than the online market for many other business and consumer products,
and currently represents only a small part of the overall aftermarket auto parts market. Our success will depend in part on our ability to
attract new customers and to convert customers who have historically purchased auto parts through traditional retail and wholesale
operations. Specific factors that could discourage or prevent prospective customers from purchasing from us include:
●
concerns about buying auto parts without face-to-face interaction with sales personnel;
●
increased desire to purchase American-made products;
●
the inability to physically handle, examine and compare products;
●
delivery time associated with Internet orders;
●
concerns about the security of online transactions and the privacy of personal information;
●
delayed shipments or shipments of incorrect or damaged products;
●
increased shipping costs; and
●
the inconvenience associated with returning or exchanging items purchased online.
If the online market for auto parts does not gain widespread acceptance, our sales may decline and our business and financial results
may suffer.
Shifting online consumer behavior of purchasers of aftermarket auto parts could adversely impact our financial results and the growth
of our business.
Shifting consumer behavior indicates that our customers are becoming more inclined to shop for aftermarket auto parts through their
mobile devices. Mobile customers exhibit different behaviors than our more traditional desktop based eCommerce customers. User
sophistication and technological advances have increased consumer expectations around the user experience on mobile devices, including
speed of response, functionality, product availability, security, and ease of use. If we are unable to continue to adapt our mobile device
shopping experience from desktop based online shopping in ways that improve our customer’s mobile experience and increase the
engagement of our mobile customers our sales may decline and our business and financial results may suffer.
In addition, recent trends indicate that customers may be more inclined to shop for aftermarket auto parts through marketplace
websites such as Amazon and eBay as opposed to purchasing parts through eCommerce channels. Any mix shift in sales to marketplace
channels or increase in associated commissions and costs, could result in lower gross margins, and as a result, our business and financial
results may suffer.
If the hosts of third-party marketplaces limit our access to such marketplaces, our operations and financial results will be adversely
affected.
Third-party marketplaces account for a significant portion of our revenues. Our sales on third-party marketplaces (including eBay and
Amazon) represented a combined 36.5% of total sales in the fiscal year ended December 28, 2024. We anticipate that sales of our products
on third-party marketplaces will continue to account for a significant portion of our revenues. In the future, the loss of access to these third-
party marketplaces, or any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the
success of our business depends partly on continued access to these third-party marketplaces. Our relationships with our third-party
marketplace providers
Table of Contents
12
could deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products on a
timely basis or to protect a third-party’s intellectual property. In addition, third-party marketplace providers could prohibit our access to
these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel could result in
lower sales, and as a result, our business and financial results may suffer.
During fiscal year 2024, we recorded a net loss, and our net losses may continue in the future.
If our net losses continue in the future, they could severely impact our liquidity, as we may not be able to provide positive cash flows
from operations in order to meet our working capital requirements. We may need to borrow additional funds from our asset-based revolving
credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A. (“JPMorgan”), which under certain circumstances may not be
available, sell additional assets or seek additional equity or additional debt financing in the future. In such case, there can be no assurance
that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all. If our net losses were to
continue, and if we are not able to raise adequate additional financing or proceeds from asset sales to continue to fund our ongoing
operations, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations,
file for bankruptcy or cease operations.
Our operations are restricted by our credit agreement, and our ability to borrow funds under our Credit Facility is subject to a
borrowing base.
We maintain a Credit Facility that provides for, among other things, a revolving commitment in an aggregate principal amount of up to
$75,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment. Our Credit Facility
also provides for an option to increase the aggregate principal amount from $75,000 to $150,000, subject to certain terms and conditions.
Our credit agreement with JPMorgan originally entered into on April 26, 2012 (as amended, the “Credit Agreement”) includes a number of
restrictive covenants. These covenants could impair our financing and operational flexibility and make it difficult for us to react to market
conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants restrict our ability and,
if applicable, the ability of our subsidiaries to, among other things:
●
incur additional debt;
●
make certain investments and acquisitions;
●
enter into certain types of transactions with affiliates;
●
use assets as security in other transactions;
●
pay dividends on our capital stock or repurchase our equity interests;
●
sell certain assets or merge with or into other companies;
●
guarantee the debts of others;
●
enter into new lines of business;
●
pay or amend our subordinated debt; and
●
form any subsidiary investments.
In addition, our Credit Facility is subject to a borrowing base derived from certain of our receivables, inventory, property and
equipment. In the event that components of the borrowing base are adversely affected for any reason, including adverse market conditions
or downturns in general economic conditions, we could be restricted in the amount
Table of Contents
13
of funds we can borrow under the Credit Facility. Furthermore, in the event that components of the borrowing base decrease to a level
below the amount of loans then-outstanding under the Credit Facility, we could be required to immediately repay loans to the extent of such
shortfall. If any of these events were to occur, it could severely impact our liquidity and capital resources, limit our ability to operate our
business and could have a material adverse effect on our financial condition and results of operations.
Under certain circumstances, our Credit Agreement may also require us to satisfy a financial covenant, which could limit our ability to
react to market conditions or satisfy extraordinary capital needs and could otherwise impact our liquidity and capital resources, restrict our
financing and have a material adverse effect on our results of operations.
Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If
we are unable to satisfy the financial covenants and tests at any time and unable to obtain waivers from our lenders with respect to such
requirements, we may not be able to borrow under the Credit Facility or may be required to immediately repay loans under the Credit
Facility, and our liquidity and capital resources and ability to operate our business could be severely impacted, which would have a material
adverse effect on our financial condition and results of operations. In those events, we may need to sell assets or seek additional equity or
additional debt financing or attempt to modify our existing Credit Agreement. There can be no assurance that we would be able to raise
such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Credit
Agreement.
While we did not have any outstanding revolver loan debt under our Credit Agreement as of December 28, 2024, we may have
outstanding revolver loan debt in the future. Any outstanding indebtedness would have important consequences, including the following:
●
we would have to dedicate a portion of our cash flow to making payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures, acquisitions or other general corporate purposes;
●
certain levels of indebtedness may make us less attractive to potential acquirers or acquisition targets;
●
certain levels of indebtedness may limit our flexibility to adjust to changing business and market conditions, and make us
more vulnerable to downturns in general economic conditions as compared to competitors that may be less leveraged; and
●
as described in more detail above, the documents providing for our indebtedness contain restrictive covenants that may limit
our financing and operational flexibility.
Furthermore, our ability to satisfy our debt service obligations depends, among other things, upon fluctuations in interest rates, our
future operating performance and ability to refinance indebtedness when and if necessary. These factors depend partly on economic,
financial, competitive and other factors beyond our control. In addition, borrowings under our revolver use a Secured Overnight Financing
Rate (“SOFR”) as one benchmark for establishing the interest rate.
We may not be able to generate sufficient cash from operations to meet our debt service obligations as well as fund necessary capital
expenditures and general operating expenses. In addition, if we need to refinance our debt, or obtain additional debt financing or sell assets
or equity to satisfy our debt service obligations, we may not be able to do so on commercially reasonable terms, if at all. If this were to
occur, we may need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations, file for
bankruptcy or cease operations. The Company’s outstanding letters of credit balance as of December 28, 2024 was $680, and we had $0 of
our trade letters of credit outstanding in accounts payable in our consolidated balance sheet.
Table of Contents
14
If our long-lived assets become impaired, we may be required to record a significant charge to earnings.
We review our long-lived assets for impairment annually, or when events or changes in circumstances indicate the carrying value may
not be recoverable. Factors that may be considered are changes in circumstances indicating that the carrying value of our assets may not be
fully recoverable, including a decrease in future cash flows. Events and circumstances that may affect the fair value of long-lived assets
may include, among other things, external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall
financial performance, other relevant entity-specific events or decrease in share price. Should the review indicate that the carrying value is
not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We may
be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of
our long-lived assets is determined, which would negatively affect our results of operations.
The long-lived assets impairment assessment requires significant judgment by management and the fair value of our long-lived assets
are sensitive to changes in key assumptions, which include forecasted revenues and perpetual growth rates, among others, as well as current
market conditions in both the United States and globally. To the extent that business conditions may deteriorate, or if changes in key
assumptions and estimates differ significantly from management’s expectations, it may be necessary to record impairment charges, which
could be material.
We completed our most recent impairment assessment of the recoverability of long-lived assets as of December 28, 2024. While we
determined at that time that no impairment charge was required, assumptions used in the assessment are made at a point in time and require
significant judgment; therefore, they are subject to change based on the facts and circumstances present at each impairment test date.
Additionally, these assumptions are generally interdependent and do not change in isolation.
We will need to reevaluate our impairment assessment and underlying assumptions based on future events and changes in our
circumstances, including, but not limited to, developments in the market price of our common stock or investor perceptions of our business,
changes in our financial performance, developments in our strategic plans, and changes in our industry or the general economy. The results
of our impairment analysis may change based on such events, including changes in underlying assumptions, and may require us to record
impairment charges, which could adversely affect our financial performance.
We are highly dependent upon key suppliers and an interruption in such relationships or our ability to obtain parts from such suppliers
could adversely affect our business and results of operations.
Our top ten suppliers represented approximately 51% of our total product purchases during the fiscal year ended December 28, 2024.
Our ability to acquire products from our suppliers in amounts and on terms acceptable to us is dependent upon a number of factors that
could affect our suppliers and which are beyond our control. For example, financial or operational difficulties that some of our suppliers
may face could result in an increase in the cost of the products we purchase from them. If we do not maintain our relationships with our
existing suppliers or develop relationships with new suppliers on acceptable commercial terms, we may not be able to continue to offer a
broad selection of merchandise at competitive prices and, as a result, we could lose customers and our sales could decline.
For a number of the products that we sell, we outsource the distribution and fulfillment operation and are dependent on certain drop-
ship suppliers to manage inventory, process orders and distribute those products to our customers in a timely manner. For the fiscal year
ended December 28, 2024, our product purchases from three drop-ship suppliers represented approximately 13% of our total product
purchases. Because we outsource to suppliers a number of these traditional retail functions relating to those products, we have limited
control over how and when orders are fulfilled. We also have limited control over the products that our suppliers purchase or keep in stock.
Our suppliers may not accurately forecast the products that will be in high demand or they may allocate popular products to other resellers,
resulting in the unavailability of certain products for delivery to our customers. Any inability to offer a broad array of products at
competitive prices and any failure to deliver those products to our customers in a timely and accurate manner may damage our reputation
and brand and could cause us to lose customers and our sales could decline.
Table of Contents
15
In addition, the increasing consolidation among auto parts suppliers may disrupt or end our relationship with some suppliers, result in
product shortages and/or lead to less competition and, consequently, higher prices. Furthermore, as part of our routine business, suppliers
extend credit to us in connection with our purchase of their products. In the future, our suppliers may limit the amount of credit they are
willing to extend to us in connection with our purchase of their products. If this were to occur, it could impair our ability to acquire the
types and quantities of products that we desire from the applicable suppliers on acceptable terms, severely impact our liquidity and capital
resources, limit our ability to operate our business and could have a material adverse effect on our financial condition and results of
operations.
If we are unable to manage the challenges associated with our international operations, the growth of our business could be limited and
our business could suffer.
We maintain international business operations in the Philippines. This international operation includes development and maintenance
of our websites, our main call center, and sales and back office support services. We are subject to a number of risks and challenges that
specifically relate to our international operations. Our international operations may not be successful if we are unable to meet and
overcome these challenges, which could limit the growth of our business and may have an adverse effect on our business and operating
results. These risks and challenges include:
●
difficulties and costs of staffing and managing foreign operations, including any impairment to our relationship with
employees caused by a reduction in force;
●
restrictions imposed by local labor practices and laws on our business and operations;
●
exposure to different business practices and legal standards;
●
unexpected changes in regulatory requirements;
●
the imposition of government controls and restrictions;
●
political, social and economic instability and the risk of war, terrorist activities or other international incidents;
●
the failure of telecommunications and connectivity infrastructure;
●
natural disasters and public health emergencies;
●
potentially adverse tax consequences; and
●
fluctuations in foreign currency exchange rates and relative weakness in the U.S. dollar.
If our fulfillment operations are interrupted for any significant period of time or are not sufficient to accommodate increased demand,
our sales could decline and our reputation could be harmed.
Our success depends on our ability to successfully receive and fulfill orders and to promptly deliver our products to our customers. The
majority of orders for our auto parts products are filled from our inventory in our distribution centers, where all our inventory management,
packaging, labeling and product return processes are performed. Increased demand and other considerations may require us to expand our
distribution centers or transfer our fulfillment operations to larger or other facilities in the future. If we do not successfully expand our
fulfillment capabilities in response to increases in demand, our sales could decline.
In addition, our distribution centers are susceptible to damage or interruption from human error, sickness related to a pandemic, fire,
flood, power loss, telecommunications failures, terrorist attacks, acts of war, break-ins, earthquakes and similar events. We do not currently
maintain back-up power systems at our fulfillment centers. We do not presently have a formal disaster recovery plan and our business
interruption insurance may be insufficient to compensate us for losses
Table of Contents
16
that may occur in the event operations at our fulfillment center are interrupted. In addition, alternative arrangements may not be available,
or if they are available, may increase the cost of fulfillment. Any interruptions in our fulfillment operations for any significant period of
time, including interruptions resulting from the expansion of our existing facilities or the transfer of operations to a new facility, could
damage our reputation and brand and substantially harm our business and results of operations.
We face intense competition and operate in an industry with limited barriers to entry, and some of our competitors may have greater
resources than us and may be better positioned to capitalize on the growing eCommerce auto parts market.
The auto parts industry is competitive and highly fragmented, with products distributed through multi-tiered and overlapping channels.
We compete with both online and offline retailers who offer OEM and aftermarket auto parts to either the DIY or DIFM customer
segments. Current or potential competitors include the following:
●
national auto parts retailers such as Advance Auto Parts, AutoZone, Napa Auto Parts, CarQuest, O’Reilly Automotive and
Pep Boys;
●
large online marketplaces such as Amazon and eBay;
●
other online retailers of automotive products websites;
●
local independent retailers or niche auto parts online retailers;
●
wholesale aftermarket auto parts distributors such as LKQ Corporation; and
●
manufacturers, brand suppliers and other distributors selling online directly to customers.
Barriers to entry are low, and current and new competitors can launch websites at a relatively low cost. Many of our current and
potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial,
marketing, technical, management and other resources than we do. For example, in the event that online marketplace companies such as
Amazon or eBay, who have larger customer bases, greater brand recognition and significantly greater resources than we do, focus more of
their resources on competing in the aftermarket auto parts market, it could have a material adverse effect on our business and results of
operations. In addition, some of our competitors have used and may continue to use aggressive pricing tactics and devote substantially
more financial resources to website and system development than we do. We expect that competition will further intensify in the future as
Internet use and online commerce continue to grow worldwide. Increased competition may result in reduced sales, lower operating
margins, reduced profitability, loss of market share and diminished brand recognition.
Additionally, we have experienced significant competitive pressure from certain of our suppliers who are now selling their products
directly to customers. Since our suppliers have access to merchandise at very low costs, they can sell products at lower prices and maintain
higher gross margins on their product sales than we can. Our financial results have been negatively impacted by direct sales from our
suppliers to our current and potential customers, and our total number of orders and average order value may decline due to increased
competition. Continued competition from our suppliers may also continue to negatively impact our business and results of operations,
including through reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. We
have implemented and will continue to implement several strategies to attempt to overcome the challenges created by our suppliers selling
directly to our customers and potential customers, including optimizing our pricing, selling the complete job, continuing to increase our
mix of house brands products and improving our websites, which may not be successful. If these strategies are not successful, our operating
results and financial conditions could be materially and adversely affected.
Table of Contents
17
If we fail to offer a broad selection of products at competitive prices or fail to maintain sufficient inventory to meet customer demands,
our revenue could decline.
In order to expand our business, we must successfully offer, on a continuous basis, a broad selection of auto parts that meet the needs
of our customers, including by being the first to market with new SKUs. Our auto parts are used by consumers for a variety of purposes,
including repair, performance, improved aesthetics and functionality. In addition, to be successful, our product offerings must be broad and
deep in scope, competitively priced, well-made, innovative and attractive to a wide range of consumers. We cannot predict with certainty
that we will be successful in offering products that meet all of these requirements. Moreover, even if we offer a broad selection of products
at competitive prices, we must maintain sufficient in-stock inventory to meet consumer demand. If our product offerings fail to satisfy our
customers’ requirements or respond to changes in customer preferences or we otherwise fail to maintain sufficient in-stock inventory, our
revenue could decline.
We rely on key personnel and may need additional personnel for the success and growth of our business.
Our business is largely dependent on the personal efforts and abilities of highly skilled executive, technical, managerial,
merchandising, marketing, and call center personnel. Competition for such personnel is intense, and we cannot assure that we will be
successful in attracting and retaining such personnel. The loss of any key employee or our inability to attract or retain other qualified
employees could harm our business and results of operations.
A public health pandemic, such as the COVID-19 pandemic, or another pandemic and its effects, potentially could adversely affect
future years.
A public health pandemic, such as the COVID-19 pandemic, may negatively impact our business, distribution centers, customers,
suppliers, employees and third-party shipping providers. We have incurred in the past, and may in the future incur, additional freight and
container costs and may also continue to incur increased costs relating to workforce shortages, overtime charges, and detention costs at one
or more of our distribution center. Prolonged effects of COVID-19, or a future pandemic, could also potentially disrupt our operations
through, but not limited to, shipping container shortages, transportation delays, and changes in our operating procedures, including the need
for additional cleaning and safety protocols.
As a result of our international operations, we have foreign exchange risk.
Our purchases of auto parts from our Asian suppliers are denominated in U.S. dollars; however, a change in the foreign currency
exchange rates could impact our product costs over time. Our financial reporting currency is the U.S. dollar and changes in exchange rates
significantly affect our reported results and consolidated trends. For example, if the U.S. dollar weakens year-over-year relative to
currencies in our international locations, our consolidated gross profit and operating expenses would be higher than if currencies had
remained constant. Similarly, our operating expenses in the Philippines are generally paid in Philippine Pesos, and as the exchange rate
fluctuates, it could adversely impact our operating results.
If our product catalog database is stolen, misappropriated or damaged, or if a competitor is able to create a substantially similar catalog
without infringing our rights, then we may lose an important competitive advantage.
We have invested significant resources and time to build and maintain our product catalog, which is maintained in the form of an
electronic database, which maps SKUs to relevant product applications based on vehicle makes, models and years. We believe that our
product catalog provides us with an important competitive advantage in both driving traffic to our websites and converting that traffic to
revenue by enabling customers to quickly locate the products they require. We cannot assure you that we will be able to protect our product
catalog from unauthorized copying or theft or that our product catalog will continue to operate adequately, without any technological
challenges. In addition, it is possible that a competitor could develop a catalog or database that is similar to or more comprehensive than
ours, without infringing our rights. In the event our product catalog is damaged or is stolen, copied or otherwise replicated to
Table of Contents
18
compete with us, whether lawfully or not, we may lose an important competitive advantage and our business could be harmed.
Economic conditions have had, and may continue to have, an adverse effect on the demand for aftermarket auto parts and could
adversely affect our sales and operating results.
We sell aftermarket auto parts consisting of replacement parts, hard parts, and other parts and accessories. Demand for our products
has been and may continue to be adversely affected by general economic conditions, consumer sentiment, unemployment levels, inflation,
rising interest rates from the U.S. Federal Reserve as a response to inflation, or other heightened cost pressures on consumers. In declining
economies, consumers often defer regular vehicle maintenance and may forego purchases of nonessential performance and accessories
products, which can result in a decrease in demand for auto parts in general. Consumers also defer purchases of new vehicles, which
immediately impacts other parts and accessories, which are generally purchased in the first six months of a vehicle’s lifespan. In addition,
during economic downturns some competitors may become more aggressive in their pricing practices, which would adversely impact our
gross margin and could cause large fluctuations in our stock price. Certain suppliers may exit the industry which may impact our ability to
procure parts and may adversely impact gross margin as the remaining suppliers increase prices to take advantage of limited competition.
The seasonality of our business places increased strain on our operations.
Our business is somewhat seasonal in nature. It includes many categories, geographies, and channels which may experience
seasonality from time to time based on various external factors. Additionally, seasonality may affect our product mix. We also have
experienced increased demand following the issuance of tax rebates by the government. These historical seasonality trends could continue,
and such trends may have a material impact on our financial condition and results of operations in subsequent periods. If we do not stock
or restock popular products in sufficient amounts such that we fail to meet increased customer demand, it could significantly affect our
revenue and our future growth. Likewise, if we overstock products in anticipation of increased demand, we may be required to take
significant inventory markdowns or write-offs and incur commitment costs, which could reduce profitability.
Vehicle miles driven, vehicle accident rates and insurance companies’ willingness to accept a variety of types of replacement parts in the
repair process have fluctuated and may decrease, which could result in a decline of our revenues and negatively affect our results of
operations.
We and our industry depend on the number of vehicle miles driven, vehicle accident rates and insurance companies’ willingness to
accept a variety of types of replacement parts in the repair process. Decreased miles driven reduce the number of accidents and
corresponding demand for crash parts, and reduce the wear and tear on vehicles with a corresponding reduction in demand for vehicle
repairs and replacement or hard parts. If consumers were to drive less in the future and/or accident rates were to decline, as a result of
higher gas prices, increased use of ride-shares, the advancement of driver assistance technologies, or otherwise, our sales may decline and
our business and financial results may suffer.
We may be required to collect and pay more sales taxes, and could become liable for other fees and penalties, which could have an
adverse effect on our business.
Following the Supreme Court decision in South Dakota v. Wayfair (“Wayfair”), online sellers can be required to collect sales tax in any
state which passes legislation requiring out of state retailers to collect sales tax even where they have no physical nexus. In response to
Wayfair, or otherwise, state or local governments and taxing authorities may adopt, or begin to enforce, laws requiring us to calculate,
collect and remit taxes on sales in their jurisdictions, which could harm our business and results of operations.
Moreover, if we fail to collect and remit or pay required sales or other taxes in a jurisdiction, or qualify or register to do business in a
jurisdiction that requires us to do so or if we have failed to do so in the past, we could face material liabilities for taxes, fees, interest and
penalties.
Table of Contents
19
If we are unable to substantially utilize our net operating loss (“NOLs”) carry-forwards, our financial results may be adversely affected,
and protections implemented by us to preserve our NOLs may have unintended anti-takeover effects.
As of December 28, 2024, our NOL carryforwards for federal and state were $127,019 and $93,822, respectively. In order to preserve
our substantial tax assets associated with the NOLs and built-in-losses under Section 382 of the Internal Revenue Code, we adopted a Tax
Benefits Preservation Agreement (“Rights Agreement”). Under Section 382 of the Internal Revenue Code, a corporation that undergoes an
“ownership change” may be subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. In general,
an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-
through and aggregation rules) increases by more than 50% over such stockholders’ lowest percentage ownership during the testing period
(generally three years). Purchases of our common stock in amounts greater than specified levels, which will be beyond our control, could
create a limitation on our ability to utilize our NOLs for tax purposes in the future. The Rights Agreement is intended to impose certain
ownership limitations to prevent the purchase of our common stock in amounts that could jeopardize our ability to utilize our NOLs. While
we entered into the Rights Agreement in order to preserve our NOLs, the Rights Agreement could inhibit acquisitions of significant stake in
us and may prevent a change in our control. As a result, the Rights Agreement may have an “anti-takeover” effect. Similarly, the limits on
the amount of common stock that a stockholder may own may make it more difficult for stockholders to replace current management or
members of the board of directors. Although we have taken steps intended to preserve our ability to utilize our NOLs, including the
adoption of the Rights Agreement, such efforts may not be successful.
This and other limitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier
than they would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or
eliminating the benefit of such NOLs. For example, if and when we seek to apply our NOL carry-forwards to reduce our tax liability, we
will have the burden of proof with respect to the losses we incurred —in some cases up to 20 years ago. We may not meet our burden of
proof if these records are difficult to locate or otherwise are unavailable, which could diminish the value of the available NOL carry-
forwards. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these
events occur, we may not derive some or all of the expected benefits from our NOLs. In addition, at the state level there may be periods
during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed.
Our estimate of the size of our addressable market may prove to be inaccurate.
Data for retail sales of auto products is collected for most, but not all channels, and as a result, it is difficult to estimate the size of the
market and predict the rate at which the market for our products will grow, if at all. While our market size estimate was made in good faith
and is based on assumptions and estimates we believe to be reasonable, this estimate may not be accurate. If our estimates of the size of our
addressable market are not accurate, our potential for future growth may be less than we currently anticipate, which could have a material
adverse effect on our business, financial condition, and results of operations.
Regulatory and Litigation Risks
Possible new tariffs that might be imposed by the United States government could have a material adverse effect on our results of
operations.
Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and
exports from the U.S., among other restrictions. Throughout 2018 and 2019, and just recently in 2025, the U.S. imposed tariffs on imports
from several countries, including China. In February 2025, the U.S. administration announced increased tariff on imports from China,
where a significant portion of our products are sourced. Following the U.S. administration’s announcements, China has also announced
corresponding retaliatory tariff measures. We are closely monitoring this evolving situation and evaluating our responses, which may
include price adjustments or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the
impact of such tariffs or trade restrictions. If further tariffs are imposed on imports of our products, or retaliatory trade measures
Table of Contents
20
are taken by China or other countries in response to existing or future tariffs, we could be forced to raise prices on all of our imported
products or make changes to our operations, any of which could materially harm our revenue or operating results. Any additional future
tariffs or quotas imposed on our products or related materials may impact our sales, gross margin and profitability if we are unable to pass
increased prices onto our customers. Currently, we cannot fully determine how these tariffs will affect our business operations. The overall
impact on our business will be influenced by several variables, including the duration and potential expansion of current tariffs, future
changes to tariff rates, scope, or enforcement, retaliatory measures by impacted trade partners, inflationary effects and broader
macroeconomic responses, changes to consumer purchasing behavior, and the effectiveness of our responses in managing these challenges.
We face exposure to product liability lawsuits.
The automotive industry in general has been subject to a large number of product liability claims due to the nature of personal injuries
that result from car accidents or malfunctions. As a distributor of auto parts, including parts obtained overseas, we could be held liable for
the injury or damage caused if the products we sell are defective or malfunction regardless of whether the product manufacturer is the party
at fault. While we carry insurance against product liability claims, if the damages in any given action were high or we were subject to
multiple lawsuits, the damages and costs could exceed the limits of our insurance coverage or prevent us from obtaining coverage in the
future. If we were required to pay substantial damages as a result of these lawsuits, it may seriously harm our business and financial
condition. Even defending against unsuccessful claims could cause us to incur significant expenses and result in a diversion of
management’s attention. In addition, even if the money damages themselves did not cause substantial harm to our business, the damage to
our reputation and the brands offered on our websites could adversely affect our future reputation and our brand, and could result in a
decline in our net sales and profitability.
Failure to comply with privacy laws and regulations and failure to adequately protect customer data could harm our business, damage
our reputation and result in a loss of customers.
Federal and state and regulations may govern the collection, use, sharing and security of data that we receive from our customers. In
addition, we have and post on our websites our own privacy policies and practices concerning the collection, use and disclosure of
customer data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders,
U.S. Federal Trade Commission requirements or other federal, state or international privacy-related laws and regulations could result in
proceedings or actions against us by governmental entities or others, which could potentially harm our business. Further, failure or
perceived failure to comply with our policies or applicable requirements related to the collection, use or security of personal information or
other privacy-related matters could damage our reputation and result in a loss of customers.
The regulatory framework for data privacy is constantly evolving, and privacy concerns could adversely affect our operating results.
The regulatory framework for privacy issues is currently evolving and is likely to remain uncertain for the foreseeable future. The
occurrence of unanticipated events often rapidly drives the adoption of legislation or regulation affecting the use of data and the way we
conduct our business; in fact, there are active discussions among U.S. legislators around adoption of a new U.S. federal privacy law.
Restrictions could be placed upon the collection, management, aggregation and use of information, which could result in a material
increase in the cost of collecting and maintaining certain kinds of data. In June of 2018, California enacted the California Consumer
Privacy Act (the “CCPA”), which took effect on January 1, 2020. The CCPA gives consumers the right to request disclosure of information
collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information
(subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated
against for exercising these rights. We are required to comply with the CCPA. The CCPA provides for civil penalties for violations, as well
as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance
costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy
legislation in the U.S., which could increase our potential liability and adversely affect our business.
Table of Contents
21
Challenges by OEMs to the validity of the aftermarket auto parts industry and claims of intellectual property infringement could
adversely affect our business and the viability of the aftermarket auto parts industry.
OEMs have attempted to use claims of intellectual property infringement against manufacturers and distributors of aftermarket
products to restrict or eliminate the sale of aftermarket products that are the subject of the claims. The OEMs have brought such claims in
federal court and with the United States International Trade Commission. We have received in the past, and we anticipate we may in the
future receive, communications alleging that certain products we sell infringe the patents, copyrights, trademarks and trade names or other
intellectual property rights of OEMs or other third parties. For instance, after approximately three and a half years of litigation and related
costs and expenses, on April 16, 2009, we entered into a settlement agreement with Ford Motor Company and Ford Global Technologies,
LLC that ended the two legal actions that were initiated by Ford against us related to claims of patent infringement.
The United States Patent and Trademark Office records indicate that OEMs are seeking and obtaining more design patents and
trademarks than they have in the past. In some cases, we have entered into license agreements that allow us to sell aftermarket parts that
replicate OEM patented parts in exchange for a royalty. In the event that our license agreements, or other similar license arrangements are
terminated or we are unable to agree upon renewal terms, we may be subject to restrictions on our ability to sell aftermarket parts that
replicate parts covered by design patents or trademarks, which could have an adverse effect on our business.
In 2018, for example, the CBP alleged that certain repair grilles imported by the Company were counterfeit and infringed on
trademarks registered by OEMs. The Company subsequently settled with CBP, however, to the extent that the OEMs are successful in
obtaining and enforcing other intellectual property rights, we could be restricted or prohibited from selling certain aftermarket products
which could have an adverse effect on our business. Infringement claims could also result in increased costs of doing business arising from
new importing requirements, increased port and carrier fees and legal expenses, adverse judgments or settlements or changes to our
business practices required to settle such claims or satisfy any judgments. Litigation or regulatory enforcement could also result in
interpretations of the law that require us to change our business practices or otherwise increase our costs and harm our business. We may
not maintain sufficient, or any, insurance coverage to cover the types of claims that could be asserted. If a successful claim were brought
against us, it could expose us to significant liability.
If we are unable to protect our intellectual property rights, our reputation and brand could be impaired and we could lose customers.
We regard our trademarks, trade secrets and similar intellectual property such as our proprietary back-end order processing and
fulfillment code and process as important to our success. We rely on trademark and copyright law, and trade secret protection, and
confidentiality and/or license agreements with employees, customers, partners and others to protect our proprietary rights. We cannot be
certain that we have taken adequate steps to protect our proprietary rights, especially in countries where the laws may not protect our rights
as fully as in the United States. In addition, our proprietary rights may be infringed or misappropriated, and we could be required to incur
significant expenses to preserve them. In the past we have filed litigation to protect our intellectual property rights. The outcome of such
litigation can be uncertain, and the cost of prosecuting such litigation may have an adverse impact on our earnings. We have common law
trademarks, as well as pending federal trademark registrations for several marks and several registered marks. However, any registrations
may not adequately cover our intellectual property or protect us against infringement by others. Effective trademark, service mark,
copyright, patent and trade secret protection may not be available in every country in which our products and services may be made
available online. We also currently own or control a number of Internet domain names, including www.carparts.com, www.jcwhitney.com,
www.autopartswarehouse.com and www.usautoparts.com, and have invested time and money in the purchase of domain names and other
intellectual property, including the development of our app, which may be impaired if we cannot protect such intellectual property. We may
be unable to protect these domain names or acquire or maintain relevant domain names in the United States and in other countries. If we
are not able to protect our trademarks, domain names or other intellectual property, we may experience difficulties in achieving and
maintaining brand recognition and customer loyalty.
Table of Contents
22
Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur
substantial judgments, fines, legal fees and other costs as well as reputational harm.
We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons. The
damages sought against us in some of these litigation proceedings could be substantial. Although we maintain liability insurance for some
litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover
a claim, this could have a material adverse effect on our business, financial condition, results of operations and cash flows. For more
information on our ongoing litigation, see the information set forth under the caption “Legal Matters” in “Note 8 Commitments and
Contingencies” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report.
Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our
business, cash flow, financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely
affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be
interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017, informally titled the Tax Act enacted
many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to
the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, it is uncertain
if and to what extent various states will conform to the Tax Act or any newly enacted federal tax legislation. Changes in corporate tax rates,
the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under
the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-
time charges, and could increase our future U.S. tax expense.
Existing or future government regulation could expose us to liabilities and costly changes in our business operations and could reduce
customer demand for our products and services.
We are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer non-
public information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in
general and the Internet and eCommerce and certain environmental laws. Additional laws and regulations may be adopted with respect to
the Internet, the effect of which on eCommerce is uncertain. These laws may cover issues such as user privacy, spyware and the tracking of
consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, content
and quality of products and services, taxation, electronic contracts and other communications, intellectual property rights, and information
security. Furthermore, it is not clear how existing laws such as those governing issues such as property ownership, sales and other taxes,
trespass, data mining and collection, and personal privacy apply to the Internet and eCommerce. To the extent we expand into international
markets, we will be faced with complying with local laws and regulations, some of which may be materially different than U.S. laws and
regulations. Any such foreign law or regulation, any new U.S. law or regulation, or the interpretation or application of existing laws and
regulations to the Internet or other online services or our business in general, may have a material adverse effect on our business, prospects,
financial condition and results of operations by, among other things, impeding the growth of the Internet, subjecting us to fines, penalties,
damages or other liabilities, requiring costly changes in our business operations and practices, and reducing customer demand for our
products and services. We may not maintain sufficient, or any, insurance coverage to cover the types of claims or liabilities that could arise
as a result of such regulation.
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
The growing political and scientific sentiment is that global weather patterns are being influenced by increased levels of greenhouse
gases in the earth’s atmosphere. This growing sentiment and the concern over climate change have led to legislative and regulatory
initiatives aimed at reducing greenhouse gas emissions which warm the earth’s atmosphere. These warmer weather conditions could result
in a decrease in demand for auto parts in general. Moreover, proposals that would impose mandatory requirements on greenhouse gas
emissions continue to be considered by policy
Table of Contents
23
makers in the United States. Laws enacted that directly or indirectly affect our suppliers (through an increase in the cost of production or
their ability to produce satisfactory products) or our business (through an impact on our inventory availability, cost of sales, operations or
demand for the products we sell) could adversely affect our business, financial condition, results of operations and cash flows. Significant
increases in fuel economy requirements or new federal or state restrictions on emissions of carbon dioxide that may be imposed on vehicles
and automobile fuels could adversely affect demand for vehicles, annual miles driven or the products we sell or lead to changes in
automotive technology. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could
require additional expenditures by us or our suppliers. Our inability to respond to such changes could adversely impact the demand for our
products and our business, financial condition, results of operations or cash flows.
Increased public attention related to ESG matters may expose us to negative public perception and could result in additional costs on
our business.
Recently, more attention is being directed towards publicly traded companies regarding ESG matters. A failure, or perceived failure, to
respond to investor, employee or customer expectations related to ESG concerns could impact the value of our brand, the cost of our
operations or relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new
regulatory initiatives related to ESG matters could adversely affect our business.
Risks Related To Our Use Of Technology
We depend on search engines and other online sources to attract visitors to our websites and marketplace channels, and if we are
unable to attract these visitors and convert them into customers in a cost-effective manner, our business and results of operations will be
harmed.
Our success depends on our ability to attract customers in a cost-effective manner. Our investments in marketing may not effectively
reach potential consumers or those consumers may not decide to buy from us or the volume of consumers that purchase from us may not
yield the intended return on investment. With respect to our marketing channels, we rely on relationships with providers of online services,
search engines, shopping comparison sites and eCommerce businesses to provide content, advertising banners and other links that direct
customers to our websites. We rely on these relationships as significant sources of traffic to our websites. In particular, we rely on Google
as an important marketing channel, and if Google changes its algorithms or if competition increases for advertisements on Google or on our
marketplace channels, we may be unable to cost-effectively attract customers to our products.
Our agreements with our marketing providers generally have terms of one year or less. If we are unable to develop or maintain these
relationships on acceptable terms, our ability to attract new customers would be harmed. In addition, many of the parties with whom we
have online-advertising arrangements could provide advertising services to other companies, including retailers with whom we compete. As
competition for online advertising has increased, the cost for these services has also increased. A significant increase in the cost of the
marketing vehicles upon which we rely could adversely impact our ability to attract customers in a cost-effective manner and harm our
business and results of operations. Further, we use promotions as a way to drive sales, these promotional activities may not drive sales and
may adversely affect our gross margins.
Similarly, if any free search engine, shopping comparison site, or marketplace site on which we rely begins charging fees for listing or
placement, or if one or more of the search engines, shopping comparison sites, marketplace sites and other online sources on which we rely
for purchased listings, increases their fees, or modifies or terminates its relationship with us, our expenses could rise, we could lose
customers and traffic to our websites could decrease.
Table of Contents
24
We rely on bandwidth and data center providers and other third parties to provide products to our customers, and any failure or
interruption in the services provided by these third parties could disrupt our business and cause us to lose customers.
We rely on third-party vendors, including data center and bandwidth providers. Any disruption in the network access or co-location
services, which are the services that house and provide Internet access to our servers, provided by these third-party providers or any failure
of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other
difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise
little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We also license
technology and related databases from third parties to facilitate elements of our eCommerce platform. We have experienced and expect to
continue to experience interruptions and delays in service and availability for these elements. Any errors, failures, interruptions or delays
experienced in connection with these third-party technologies could negatively impact our relationship with our customers and adversely
affect our business. Our systems also heavily depend on the availability of electricity, which also comes from third-party providers. If we
were to experience a major power outage, we would have to rely on back-up generators. These back-up generators may not operate
properly through a major power outage, and their fuel supply could also be inadequate during a major power outage. Information systems
such as ours may be disrupted by even brief power outages, or by the fluctuations in power resulting from switches to and from backup
generators. This could disrupt our business and cause us to lose customers.
Security threats, such as ransomware attacks, to our IT infrastructure could expose us to liability, and damage our reputation and
business.
It is essential to our business strategy that our technology and network infrastructure remain secure and is perceived by our customers
to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks. Information security risks
have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and
activities of organized crime, hackers, terrorists and other external parties, including foreign private parties and state actors. As a leading
online source for automotive aftermarket parts, we have in the past experienced and we could continue to face cyber-attacks that attempt to
penetrate our network security, including our data centers, to sabotage or otherwise disable our network of websites and online
marketplaces, misappropriate our or our customers’ proprietary information, which may include personally identifiable information, or
cause interruptions of our internal systems and services. For example, in June 2020, we were the subject of a ransomware attack on our
network that briefly disrupted access to some of our systems. Although we did not pay the ransomware and did not incur any fines or
settlements, we did incur out of pocket expenses costs related to this incident of $100,000. If successful, any of these attacks could
negatively affect our reputation, damage our network infrastructure and our ability to sell our products, harm our relationship with
customers that are affected and expose us to financial liability.
Given the rapidly evolving nature and proliferation of cyber threats, our internal controls relating to cybersecurity may not prevent or
identify all such attacks in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and
operations, and we cannot eliminate the risk of human error or employee or vendor malfeasance.
In addition, any failure by us to comply with applicable privacy and information security laws and regulations could cause us to incur
significant costs to protect any customers whose personal data was compromised and to restore customer confidence in us and to make
changes to our information systems and administrative processes to address security issues and compliance with applicable laws and
regulations. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to
stop shopping on our sites altogether. Such events could lead to lost sales and adversely affect our results of operations. We also could be
exposed to government enforcement actions and private litigation.
Moreover, we are subject to the Payment Card Industry Data Security Standard ("PCI DSS"), issued by the PCI Council. PCI DSS
contains compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and
transmission of individual cardholder data. We cannot be certain that all of our
Table of Contents
25
information technology systems are able to prevent, contain or detect any cyber-attacks, cyber terrorism, or security breaches from known
malware or malware that may be developed in the future. To the extent that any disruption results in the loss, damage or misappropriation
of information, we may be materially adversely affected by claims from customers, financial institutions, regulatory authorities, payment
card associations and others. In addition, the cost of complying with stricter privacy and information security laws and standards could be
significant to us. We currently are deemed to be PCI compliant by PCI DSS 4.0.1, the new security standards as issued by the PCI Council.
In the future, there could be additional new standards and there is no guarantee that we will be able to conform to these new standards, and
if we fail to meet these standards, we could become subject to fines and other penalties and experience a significant increase in payment
card transaction costs. In addition, such failure could damage our reputation, inhibit sales, and adversely affect our business.
Our eCommerce system is dependent on open-source software, which exposes us to uncertainty and potential liability.
We utilize open-source software such as Linux, Apache, MySQL, PHP, Fedora and Perl throughout our web properties and supporting
infrastructure although we have created proprietary programs. Open-source software is maintained and upgraded by a general community
of software developers under various open-source licenses, including the GNU General Public License (“GPL”). These developers are
under no obligation to maintain, enhance or provide any fixes or updates to this software in the future. Additionally, under the terms of the
GPL and other open-source licenses, we may be forced to release to the public source-code internally developed by us pursuant to such
licenses. Furthermore, if any of these developers contribute any code of others to any of the software that we use, we may be exposed to
claims and liability for intellectual property infringement and may also be forced to implement changes to the code-base for this software
or replace this software with internally developed or commercially licensed software.
System failures, including failures due to natural disasters or other catastrophic events, could prevent access to our websites, which
could reduce our net sales and harm our reputation.
Our sales would decline and we could lose existing or potential customers if they are not able to access our websites or if our websites,
transactions processing systems or network infrastructure do not perform to our customers’ satisfaction. Any Internet network interruptions
or problems with our websites could:
●
prevent customers from accessing our websites;
●
reduce our ability to fulfill orders or bill customers;
●
reduce the number of products that we sell;
●
cause customer dissatisfaction; or
●
damage our brand and reputation.
We have experienced brief computer system interruptions in the past, and we believe they may continue to occur from time to time in
the future. Our systems and operations are also vulnerable to damage or interruption from a number of sources, including a natural disaster
or other catastrophic event such as an earthquake, typhoon, volcanic eruption, fire, flood, terrorist attack, computer viruses, power loss,
telecommunications failure, physical and electronic break-ins and other similar events. For example, our headquarters and the majority of
our infrastructure, including some of our servers, are located in Southern California, a seismically active region. We also maintain offshore
and outsourced operations in the Philippines, an area that has been subjected to a typhoon and a volcanic eruption in the recent past. In
addition, California has in the past experienced power outages as a result of limited electrical power supplies and due to recent fires in the
southern part of the state. Such outages, natural disasters and similar events may recur in the future and could disrupt the operation of our
business. Our technology infrastructure is also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.
Although the critical portions of our systems are redundant and backup copies are maintained offsite, not all of our systems and data are
fully redundant. We do not presently have a formal disaster recovery plan in effect and may not have sufficient insurance for losses that
may occur from natural
Table of Contents
26
disasters or catastrophic events. Any substantial disruption of our technology infrastructure could cause interruptions or delays in our
business and loss of data or render us unable to accept and fulfill customer orders or operate our websites in a timely manner, or at all.
We maintain an enterprise resource planning system that was implemented in fiscal year 2022, and we may occasionally update or
integrate other IT systems. Problems with the design, integration or implementation of these systems could interfere with our business
and operations.
We recently completed a multi-year implementation of a new global enterprise resource planning system (ERP) in that was
implemented in fiscal year 2022. The ERP is designed to accurately maintain the company's books and records and provide important
information to the company's management team for use in the operation of the business. The Company's ERP required the investment of
significant human and financial resources. If the ERP system does not continue to operate as intended, or requires significant updates, it
could adversely affect our financial reporting systems and our ability to produce financial reports and process transactions. Additionally, if
we are unable to successfully maintain or implement any new IT system, remediate, update or integrate our existing systems at times when
necessary, our financial position, results of operations and cash flows could be negatively impacted.
If we do not respond to technological change, our websites could become obsolete and our financial results and conditions could be
adversely affected.
We maintain a network of websites which requires substantial development and maintenance efforts, and entails significant technical
and business risks. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our
websites. The Internet and the eCommerce industry are characterized by rapid technological change, the emergence of new industry
standards and practices and changes in customer requirements and preferences. Therefore, we may be required to license emerging
technologies, enhance our existing websites, develop new services and technology that address the increasingly sophisticated and varied
needs of our current and prospective customers, and adapt to technological advances and emerging industry and regulatory standards and
practices in a cost-effective and timely manner. Our ability to remain technologically competitive may require substantial expenditures and
lead time and our failure to take necessary action in a timely manner to improve our websites and other technology applications may harm
our business and results of operations.
Use of social media may adversely impact our reputation or subject us to fines or other penalties.
The use of social media platforms, including blogs, social media websites and other forms of internet-based communication, which
allow individuals access to a broad audience of consumers and other interested persons, has become commonplace. Negative commentary
regarding us or the brands that we sell may be posted on social media platforms or similar devices at any time and may harm our reputation
or business. Consumers value readily available information concerning retailers and their goods and services and often act on such
information without further investigation and without regard to its accuracy. The harm may be immediate without affording us an
opportunity for redress or correction. In addition, social media platforms provide users with access to such a broad audience that collective
action against our website and marketplace stores, such as boycotts, can be more easily organized. If such actions were organized, we could
suffer reputational damage as well as physical damage to our stores and merchandise.
We also use social media platforms as marketing tools or as channels to disseminate information. For example, the Company and its
executive officers maintain Facebook, Instagram, Twitter, LinkedIn, and other social media accounts, where marketing and other
information relevant to customers and investors is disseminated. As laws and regulations rapidly evolve to govern the use of these
platforms and devices, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations in
the use of these platforms and devices could adversely impact our business, financial condition and results of operations or subject us to
fines or other penalties.
Table of Contents
27
Risks Related To Our Capital Stock
Our common stock price has been and may continue to be volatile, which may result in losses to our stockholders.
The market prices of technology and eCommerce companies generally have been extremely volatile and have recently experienced
sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in
response to, among other things, the risk factors described in this report and other factors beyond our control such as fluctuations in the
operations or valuations of companies perceived by investors to be comparable to us, our ability to meet analysts’ expectations, our trading
volume, activities of activist investors, the impact of any stock repurchase program or conditions or trends in the Internet or auto parts
industries.
Since the completion of our initial public offering in February 2007 through December 28, 2024, the trading price of our common
stock has been volatile. We have also experienced significant fluctuations in the trading volume of our common stock. General economic
and political conditions unrelated to our performance may also adversely affect the price of our common stock. In the past, following
periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated. Due to
the inherent uncertainties of litigation, we cannot predict the ultimate outcome of any such litigation if it were initiated. The initiation of
any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations.
Our future operating results may fluctuate and may fail to meet market expectations.
We expect that our revenue and operating results will continue to fluctuate from quarter to quarter due to various factors, many of
which are beyond our control. The factors that could cause our operating results to continue to fluctuate include, but are not limited to:
●
fluctuations in the demand for aftermarket auto parts;
●
fluctuations in the availability of products for resale;
●
price competition on the Internet or among offline retailers for auto parts;
●
our ability to attract visitors to our websites and convert those visitors into customers, including to the extent based on our
ability to successfully work with different search engines to drive visitors to our websites;
●
our ability to successfully sell our products through third-party online marketplaces or the effects of any price increases in
those marketplaces;
●
competition from companies that have longer operating histories, larger customer bases, greater brand recognition, access to
merchandise at lower costs and significantly greater resources than we do, like third-party online market places and our
suppliers;
●
our ability to maintain and expand our supplier and distribution relationships without significant price increases or reduced
service levels;
●
our ability to borrow funds under our Credit Facility;
●
the effects of seasonality on the demand for our products;
●
our ability to accurately forecast demand for our products, price our products at market rates and maintain appropriate
inventory levels;
Table of Contents
28
●
our ability to build and maintain customer loyalty;
●
our ability to successfully integrate our acquisitions;
●
infringement actions that could impact the viability of the auto parts aftermarket or portions thereof;
●
the success of our brand-building and marketing campaigns;
●
our ability to accurately project our future revenues, earnings, and results of operations;
●
government regulations related to use of the Internet for commerce, including the application of existing tax regulations to
Internet commerce and changes in tax regulations;
●
technical difficulties, system downtime or Internet brownouts;
●
the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and
infrastructure; and
●
macroeconomic conditions that adversely impact the general and automotive retail sales environment.
If we fail to maintain an effective system of internal control over financial reporting or comply with Section 404 of the Sarbanes-Oxley
Act of 2002, we may not be able to accurately report our financial results or prevent fraud, and our stock price could decline.
While management has concluded that our internal controls over financial reporting were effective as of December 28, 2024, we
have in the past identified, and could in the future identify, a significant deficiency or material weakness in internal control over financial
reporting or fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to properly maintain an effective system of
internal control over financial reporting, it could impact our ability to prevent fraud or to issue our financial statements in a timely manner
that presents fairly our financial condition and results of operations. The existence of any such deficiencies or weaknesses, even if
remediated, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and
negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits,
regulatory investigations and other penalties.
Our charter documents could deter a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares.
Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Such provisions include the following:
●
our Board of Directors are authorized, without prior stockholder approval, to create and issue preferred stock which could be
used to implement anti-takeover devices;
●
advance notice is required for director nominations or for proposals that can be acted upon at stockholder meetings;
●
stockholder and stockholder nominees for director are required to provide detailed information, regarding both the relevant
stockholder and nominee, in connection with stockholder nominations for director;
●
our Board of Directors is classified such that not all members of our board are elected at one time, which may make it more
difficult for a person who acquires control of a majority of our outstanding voting stock to replace all or a majority of our
directors;
Table of Contents
29
●
stockholder action by written consent is prohibited except with regards to an action that has been approved by the Board of
Directors;
●
special meetings of the stockholders are permitted to be called only by the chairman of our Board of Directors or by a
majority of our Board of Directors;
●
stockholders are not permitted to cumulate their votes for the election of directors; and
●
stockholders are permitted to amend certain provisions of our bylaws only upon receiving at least 66 2/3% of the votes
entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting
together as a single class.
We do not intend to pay dividends on our common stock.
We currently do not expect to pay any cash dividends on our common stock for the foreseeable future.
We cannot guarantee that our share repurchase program will enhance shareholder value, and share repurchases could affect the price
of our common stock.
Our Board of Directors has periodically authorized share repurchases, funded from available working capital, including up to $30
million authorized in July 2021. The share repurchase program has an expiration date of July 26, 2026. Although our Board of Directors
has authorized our share repurchase program, this program does not obligate us to repurchase any specific dollar amount or to acquire any
specific number of shares. The share repurchase program could affect the price of our common stock, increase volatility and diminish our
cash reserves. In addition, there can be no guarantee that repurchases made under our share repurchase program, if any, will enhance
shareholder value. As of December 28, 2024, the Company remained authorized to repurchase up to approximately $25,234 in shares of its
common stock.
Future capital raises may dilute our existing stockholders’ ownership.
If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these
stockholders may experience substantial dilution.
We are required to meet the Nasdaq Global Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting.
Delisting could negatively affect the price of our common stock which, could make it more difficult for us to sell securities in a future
financing or for you to sell our common stock.
Our common stock is currently listed on the Nasdaq Global Select Market of The Nasdaq Stock Market, LLC (“Nasdaq”), which has
qualitative and quantitative continued listing criteria. However, we cannot assure you that our common stock will continue to be listed on
Nasdaq in the future. In order to continue listing our common stock on Nasdaq, we are required to meet the continued listing requirements
of the Nasdaq Global Market and other Nasdaq rules, including those regarding director independence and independent committee
requirements, minimum stockholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we
are required to maintain a minimum bid price for our listed common stock of $1.00 per share. If we do not meet these continued listing
requirements, our common stock could be delisted.
On September 18, 2024, we received a deficiency letter (the “Deficiency Letter”) from the Listing Qualifications Department (the
“Staff”) of Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the
minimum $1.00 per share requirement for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1) (the “Bid
Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until
March 17, 2025, to regain compliance. While we regained compliance with the Bid Price Rule in January 2025, there can be no assurance
that we will not face similar challenges relating to Nasdaq compliance in the future, including compliance with the Bid Price Rule.
Table of Contents
30
If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national
securities exchange, we expect our securities could be quoted on an over-the-counter market. In such case, our stockholders’ ability to
trade, or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and
transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. In addition,
delisting could also result in a determination that our common stock is a “penny stock” which will require brokers trading in our common
stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our
securities.
There can be no assurance that our securities, if delisted from Nasdaq in the future, would be listed on a national securities exchange, a
national quotation service, the over-the-counter markets or the pink sheets. Delisting from Nasdaq, or even the issuance of a notice of
potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the
market liquidity of our securities, decrease securities analysts’ coverage of us or diminish investor, supplier and employee confidence, any
or all of which could material adversely affect our business and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
Because it is essential to our operations and business strategy that our website, app, technology and network infrastructure remain
secure, we have processes in place for assessing, identifying, and managing material risks from cybersecurity threats. We have integrated
these processes into our cybersecurity risk management program.
The key processes, or components, of our cybersecurity risk management include:
●
conducting periodic risk assessments to assist in identifying cybersecurity threats or risks;
●
cybersecurity strategic roadmap;
●
security and IT infrastructure management team, responsible for managing our cybersecurity processes, implementing
security applications and protocols, monitoring and executing security or network controls, and responding to incidents or
threats;
●
cybersecurity training programs and cybersecurity awareness event for employees;
●
incident response plan, including assessing and monitoring potential cyber threats;
●
similar processes or applications to mitigate or manage cybersecurity risk from third-party service providers;
We sometimes engage external cybersecurity experts, or applications, to enhance our cybersecurity program. These serve to assist our
internal cybersecurity team in mitigating cyber threats, in addition to monitoring and responding to potential cyber incidents.
As previously disclosed, in June 2020, we were the subject of a ransomware attack on our network that briefly disrupted access to
some of our systems. Although we did not pay the ransomware and did not incur any fines or
Table of Contents
31
settlements, we did incur out of pocket expenses costs related to this incident of $100,000. We have not encountered any other
cybersecurity challenges that have materially impaired our operations or business.
Additional information regarding risks from cybersecurity threats is discussed in Part I, Item IA, “Risk Factors,” under the heading
“Security threats, such as ransomware attacks, to our IT infrastructure could expose us to liability, and damage our reputation and
business,” which should be read in conjunction with the information herein.
Governance
Cybersecurity risk management is an important priority integrated into our overall governance structure. Our Board of Directors
oversees risks from cybersecurity threats and includes the involvement of the Audit Committee in the governance strategy.
Our IT security management team, led by our Chief Technology Officer, reports quarterly in meetings to our Audit Committee and
periodically to our Board of Directors regarding updates to our cybersecurity program and related risks. We have a cybersecurity expert on
the Board of Directors and its Audit Committee to provide expanded expertise and oversight on our cybersecurity processes and systems.
Topics in the meetings include discussion of the company-wide cybersecurity strategic roadmap and risks, protocols to mitigate such rusks,
and the progress of initiatives in the cybersecurity program. Specific cybersecurity briefing areas may include topics such as security,
infrastructure, cybersecurity tooling/applications, and compliance.
ITEM 2. PROPERTIES
As of December 28, 2024, the total square footage of our leased office and distribution centers was 1,281,000 square feet. This
includes approximately 1,265,000 square feet for our corporate headquarters located in Torrance, California and distribution centers in
Illinois, Virginia, Nevada, Texas and Florida; and approximately 16,000 square feet of office space in the Philippines.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption “Legal Matters” in “Note 8-Commitments and Contingencies” of the Notes to
Consolidated Financial Statements, included in Part IV, Item 15 of this report, and is incorporated herein by reference. For an additional
discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Item 1A of this report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Table of Contents
32
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on NASDAQ under the symbol “PRTS.”
Holders
As of March 18, 2025, there were approximately 7 registered stockholders of record of our common stock.
Dividend Policy
No dividends on common stock were paid during the fiscal year ended December 28, 2024. We do not anticipate that we will declare
or pay any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends on our common
stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations,
capital requirements, any Credit Agreement restrictions, and other factors the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
None.
Recent Purchases of Equity Securities
None.
Stock Performance Graph
As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 201(e) of
Regulation S-K.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Dollar Amounts in Thousands, Except Per Share Data, or as Otherwise Noted)
Cautionary Statement
You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes
thereto contained in Part IV, Item 15 of this report. Certain statements in this report, including statements regarding our business
strategies, operations, financial condition, and prospects are forward-looking statements. Use of the words “anticipates,” “believes,”
“could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” “will likely
continue,” “will likely result” and similar expressions that contemplate future events may identify forward-looking statements.
Table of Contents
33
The information contained in this section is not a complete description of our business or the risks associated with an investment in
our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports
filed with the SEC, which are available on the SEC’s website at http://www.sec.gov. The section entitled “Risk Factors” set forth in Part I,
Item 1A of this report, and similar discussions in our other SEC filings, describe some of the important factors, risks and uncertainties that
may affect our business, results of operations and financial condition and could cause actual results to differ materially from those
expressed or implied by these or any other forward-looking statements made by us or on our behalf. You are cautioned not to place undue
reliance on these forward-looking statements, which are based on current expectations and reflect management’s opinions only as of the
date thereof. We do not assume any obligation to revise or update forward-looking statements. Finally, our historic results should not be
viewed as indicative of future performance.
Overview
We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and other parts and accessories. Our
proprietary product database maps our SKUs to product applications based on vehicle makes, models and years. We principally sell our
products to individual consumers through our flagship website at www.carparts.com, our app, and online marketplaces. Our corporate
website is located at www.carparts.com/investor. The inclusion of our website addresses in this report does not include or incorporate by
reference into this report any information on our websites.
We believe disintermediating the traditional auto parts supply chain and selling products directly to customers online allows us to
efficiently deliver products to our customers. Industry-wide trends that support our strategy and future growth include:
1.
Number of SKUs required to serve the market. The number of automotive SKUs has grown dramatically over the last
several years. In today’s market, unless the consumer is driving a high volume produced vehicle and needs a simple maintenance
item, the part they need is not typically on the shelf at a brick-and-mortar store. We believe our user-friendly flagship website, and
app, provides customers with a favorable alternative to the brick-and-mortar shopping experience by offering a comprehensive
selection of approximately 1,544,000 SKUs with detailed product descriptions, attributes and photographs combined with the
flexibility of fulfilling orders using both drop-ship and stock-and-ship methods.
2.
U.S. vehicle fleet expanding and aging. The average age of U.S. light vehicles, an indicator of auto parts demand,
reached a new record-high of 12.6 years in 2024, according to the U.S. Auto Care Association. We believe an increasing vehicle
base and rising average age of vehicles will have a positive impact on overall aftermarket parts demand because older vehicles
generally require more repairs. In many cases we believe these older vehicles are driven by DIY car owners who are more likely to
handle any necessary repairs themselves rather than taking their car to the professional repair shop.
3.
Growth of online sales. The U.S. Auto Care Association estimated that overall revenue from online sales of auto parts and
accessories would reach over $23 billion by 2026. Improved product availability, lower prices and consumers’ growing comfort
with digital platforms are driving the shift to online sales. We believe that we are well positioned for the shift to online sales due to
being a leading source for aftermarket automotive parts through our flagship website, app, and online marketplaces.
Executive Summary
For fiscal year 2024, the Company’s operations generated net sales of $588,846, compared to $675,729 for fiscal year 2023,
representing a decrease of 12.9%. The Company incurred a net loss of $40,601 for fiscal year 2024 compared to a net loss of $8,223 for
fiscal year 2023. The Company’s net loss before interest (income) expense, net, income tax provision, depreciation and amortization
expense, amortization of intangible assets, share-based compensation expense, workforce transition costs, and distribution center costs
("Adjusted EBITDA"), was $(7,055) in
Table of Contents
34
fiscal year 2024 compared to $19,687 in fiscal year 2023. Refer to the section below titled “Non-GAAP measures” for information
regarding our use of Adjusted EBITDA and a reconciliation from net loss.
Net sales decreased in fiscal year 2024 compared to fiscal year 2023 primarily driven by the continued challenging consumer
environment and our re-pricing strategy to focus on higher value customers. Gross profit decreased by 14.2% to $196,739. Gross margin
decreased 50 basis points to 33.4% in fiscal year 2024 compared to 33.9% in fiscal year 2023. The decrease in gross margin was primarily
driven by unfavorable freight costs, partially offset by our re-pricing strategy.
Total expenses, which primarily consisted of cost of sales and operating expense, increased in fiscal year 2024 compared to the same
period in 2023. The components of cost of sales and operating costs are described in further detail under “Components of Results of
Operations” below.
Non-GAAP measures
Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Exchange Act, as amended,
define and prescribe the conditions for use of certain non-GAAP financial information. We provide EBITDA and Adjusted EBITDA, which
are non-GAAP financial measures. EBITDA consists of net loss before (a) interest (income) expense, net; (b) income tax provision;
(c) depreciation and amortization expense; and (d) amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before
share-based compensation expense, workforce transition costs, and distribution center costs.
The Company believes that these non-GAAP financial measures provide important supplemental information to management and
investors. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when
viewed with the accounting principles generally accepted in the United States (“GAAP”) results and the accompanying reconciliation to
corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting the Company’s business
and results of operations.
Management uses Adjusted EBITDA as one measure of the Company’s operating performance because it assists in comparing the
Company’s operating performance on a consistent basis by removing the impact of stock compensation expense, as well as other items that
we do not believe are representative of our ongoing operating performance. Internally, this non-GAAP measure is also used by
management for planning purposes, including the preparation of internal budgets; for allocating resources to enhance financial
performance; and for evaluating the effectiveness of operational strategies. The Company also believes that analysts and investors use
Adjusted EBITDA as a supplemental measure to evaluate the ongoing operations of companies in our industry.
This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and
should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the
Company’s consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial
measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial
measures having the same or similar names. In addition, the Company expects to continue to incur expenses similar to the non-GAAP
adjustments described above, and exclusion of these items from the Company’s non-GAAP measures should not be construed as an
inference that these costs are unusual, infrequent or non-recurring.
Table of Contents
35
The table below reconciles net loss to Adjusted EBITDA for the periods presented (in thousands):
Fiscal Year Ended
December 28, 2024
December 30, 2023
Net loss
$
(40,601)
$
(8,223)
Depreciation & amortization
18,975
16,690
Amortization of intangible assets
121
36
Interest (income) expense, net
(301)
(636)
Income tax provision
267
145
EBITDA
$
(21,539)
$
8,012
Stock compensation expense
$
11,985
$
11,675
Workforce transition costs(1)
617
—
Distribution center costs(2)
1,882
—
Adjusted EBITDA
$
(7,055)
$
19,687
(1)
We incurred workforce transition costs, primarily related to severance, as part of our recent workforce reductions.
(2)
We incurred certain non-recurring costs, primarily overlapping rent expense, attributable to moving to our new Las Vegas, Nevada distribution center.
Components of Results of Operations
Net Sales. Online and offline sales represent two different sales channels for our products. Online is our primary sales channel as we
generate net sales primarily from eCommerce sales of auto parts to individual consumers through our mobile-friendly website at
www.carparts.com, our app, and online marketplaces. Online marketplaces consist primarily of sales of our products on online marketplace
websites, where we sell through online storefronts that we maintain on third-party owned websites such as eBay and Amazon. Our offline
sales channel represents our distribution of products directly to commercial customers by selling auto parts to collision repair shops. Our
offline sales channel also includes both stock ship distribution as well as drop ship programs for automotive warehouse distributors and
other online resellers. The product mix includes the majority of our house brands stock ship parts, which include the replacement collision
parts and our Kool-Vue® mirror line.
Cost of Sales. Cost of sales consists of the direct costs associated with procuring parts from suppliers and delivering products to
customers. These costs include direct product costs, outbound freight and shipping costs, warehouse supplies and warranty costs, partially
offset by purchase discounts. Depreciation and amortization expenses are excluded from cost of sales and included in operating expense.
Operating Expense. Operating expense consists of marketing, general and administrative, fulfillment, and technology expense. We also
include share-based compensation expense in the applicable operating expense category based on the respective equity award recipient’s
function. Marketing expense consists of online advertising spend, television advertising, internet commerce facilitator fees and other
advertising costs, as well as payroll and related expenses associated with our customer service and marketing personnel. General and
administrative expense consists primarily of administrative payroll and related expenses, merchant processing fees, legal and professional
fees and other administrative costs. Fulfillment expense consists primarily of payroll and related costs associated with our warehouse
employees and our purchasing group, facilities rent, building maintenance, depreciation and other costs associated with inventory
management and our wholesale operations. Technology expense consists primarily of payroll and related expenses of our information
technology personnel, the cost of hosting our servers, communications expenses and internet connectivity costs, computer support and
software development amortization expense. Marketing expense, general and administrative expense, and fulfillment expense also includes
depreciation and amortization expense.
Other Income, Net. Other income, net primarily consists of miscellaneous income or expense and interest income comprised primarily
of interest income on investments.
Table of Contents
36
Interest Expense. Interest expense consists primarily of interest expense on our outstanding revolving loan and letters of credit
balances, deferred financing cost amortization and finance lease interest.
Presentation of Results of Operations and Liquidity and Capital Resources
The following discussion and analysis of our Results of Operations and Liquidity and Capital Resources includes a comparison of
fiscal year 2024 to fiscal year 2023. A similar discussion and analysis which compares fiscal year 2023 to fiscal year 2022 may be found in
the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report filed with
the SEC pursuant to Section 13 or 15(d) under the Exchange Act on March 8, 2024.
Results of Operations
The following table sets forth our results of operations for the fiscal years presented, expressed as a percentage of net sales:
Fiscal Year Ended
December 28, 2024
December 30, 2023
Net sales
100.0 %
100.0 %
Cost of sales
66.6
66.1
Gross profit
33.4
33.9
Operating expense
40.3
35.4
Loss from operations
(6.9)
(1.5)
Other income (expense):
Other income, net
0.2
0.5
Interest expense
(0.2)
(0.2)
Total other income, net
(0.0)
0.3
Loss before income taxes
(6.9)
(1.2)
Income tax provision
0.0
0.0
Net loss
(6.9)%
(1.2)%
Fifty-Two Weeks Ended December 28, 2024 Compared to the Fifty-Two Weeks Ended December 30, 2023
Net Sales and Gross Margin
Fiscal Year Ended
December 28, 2024
December 30, 2023
$ Change
% Change
(in thousands)
Net sales
$
588,846
$
675,729 $ (86,883)
(12.9)%
Cost of sales
392,107
446,323
(54,216)
(12.1)%
Gross profit
$
196,739
$
229,406 $ (32,667)
(14.2)%
Gross margin
33.4 %
33.9 %
(0.5)%
Net sales decreased $86,883, or 12.9%, for fiscal year 2024 compared to fiscal year 2023 primarily driven by the continued
challenging consumer environment and our re-pricing strategy to focus on higher value customers.
Gross profit decreased $32,667, or 14.2%, in fiscal year 2024 compared to fiscal year 2023. Gross margin decreased 50 basis points to
33.4% in fiscal year 2024 compared to 33.9% in fiscal year 2023. The decrease in gross margin was primarily driven by unfavorable freight
costs, partially offset by our re-pricing strategy.
Table of Contents
37
Operating Expense
Fiscal Year Ended
December 28, 2024
December 30, 2023
$ Change % Change
(in thousands)
Operating expense
$
237,374
$
239,287
$ (1,913)
(0.8)%
Percent of net sales
40.3 %
35.4 %
4.9 %
Operating expense decreased $1,913, or 0.8%, for fiscal year 2024 compared to fiscal year 2023. Operating expense as a percent of net
sales increased 4.9% to 40.3% in fiscal year 2024, mainly attributable to investments in our business, such as brand and marketing
investments and one-time costs related to the move to the new Las Vegas distribution center, in addition to an unfavorable marketing spend.
Total Other Income, Net
Fiscal Year Ended
December 28, 2024
December 30, 2023
$ Change % Change
(in thousands)
Total other income, net
$
301
$
1,803
$ (1,502)
(83.3)%
Percent of net sales
(0.0)%
0.3 %
(0.3)%
Total other income, net, decreased $1,502, or 83.3%, for fiscal year 2024 compared to fiscal year 2023 primarily driven by a decrease
in interest income due to a lower cash balance during 2024.
Income Tax Provision
Fiscal Year Ended
December 28, 2024
December 30, 2023
$ Change % Change
(in thousands)
Income tax provision
$
267
$
145
$
122
84.1 %
Percent of net sales
0.0 %
0.0 %
0.0 %
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes (“ASC 740”). Under the provisions of ASC 740,
management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the
consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable
income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal of existing taxable temporary
differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative
evidence such as cumulative losses in recent years or losses expected in early future years. As of December 28, 2024, due to cumulative
losses in recent years, the Company maintained a valuation allowance in the amount of $45,463 against deferred tax assets that were not
more likely than not to be realized.
As of December 28, 2024, the Company had no material unrecognized tax benefits, interest or penalties related to federal and state
income tax matters. As of December 28, 2024, the Company’s federal and state NOL carryforwards were $127,019 and $93,822,
respectively. Federal NOL carryforwards of $891 were acquired in the acquisition of WAG which are subject to Section 382 of the Code
and limited to an annual usage limitation of $135. The Company’s federal NOL carryforwards begin to expire in 2029, while state NOL
carryforwards also begin to expire in 2029.
Liquidity and Capital Resources
Sources of Liquidity
During the fifty-two weeks ended December 28, 2024, we primarily funded our operations with cash and cash equivalents generated
from operations. We had cash and cash equivalents of $36,397 as of December 28, 2024, representing a $14,554 decrease from $50,951 of
cash and cash equivalents as of December 30, 2023. Based on our
Table of Contents
38
current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds
under our Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “Debt and Available
Borrowing Resources” and “Funding Requirements” below).
As of December 28, 2024 and December 30, 2023, our working capital was $48,445 and $80,352, respectively.
Cash Flows
Fiscal Year Ended
December 28, 2024 December 30, 2023
Net cash provided by operating activities
$
10,338
$
50,001
Net cash used in investing activities
(20,557)
(11,901)
Net cash used in financing activities
(4,422)
(5,916)
Effect of exchange rate changes on cash
87
—
Net change in cash and cash equivalents
$
(14,554)
$
32,184
Operating Activities
Net cash provided by operating activities for the fiscal years ended December 28, 2024 and December 30, 2023 was $10,338 and
$50,001, respectively. The decrease in net cash provided by operating activities was primarily driven by a lower net cash inflow from the
change in working capital, in addition to the higher net loss for 2024.
Investing Activities
For the fiscal year ended December 28, 2024, net cash used in investing activities was primarily the result of additions to property and
equipment of $20,573, which are mainly related to capitalized website and software development costs and machinery and equipment
additions, primarily related to the new Las Vegas distribution center. For the fiscal year ended December 30, 2023, net cash used in
investing activities was primarily the result of additions to property and equipment of $11,879, which are mainly related to capitalized
website and software development costs.
Financing Activities
Net cash used in financing activities was $4,422 and $5,916 for the fiscal years ended December 28, 2024 and December 30, 2023,
respectively. The decrease was primarily attributable to the absence of proceeds from the exercise of stock options in 2024.
Debt and Available Borrowing Resources
Total debt was $12,313 as of December 28, 2024 compared to $16,635 as of December 30, 2023 and primarily consists of right-of-use
obligations-finance.
The Company maintains an asset-based revolving Credit Facility that provides for, among other things, a revolving commitment,
which is subject to a borrowing base derived from certain receivables, inventory and property and equipment. On June 17, 2022, the
Company and JPMorgan entered into an Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) amending and
restating in its entirety the original Credit Agreement dated April 26, 2012. As amended, the Credit Agreement provides for the revolving
commitment in an aggregate principal amount of up to $75,000 (formerly $30,000) and allows for an uncommitted ability to increase the
aggregate principal amount by an additional $75,000 to $150,000 (formerly $40,000 maximum), subject to certain terms and conditions.
The Credit Facility matures on June 17, 2027.
As of December 28, 2024 and December 30, 2023, our outstanding revolving loan balance was $0, respectively. The outstanding
standby letters of credit balance as of December 28, 2024 and December 30, 2023 was $680, respectively,
Table of Contents
39
and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheets. We use the trade letters of
credit in the ordinary course of business to satisfy certain vendor obligations.
Loans drawn under the Credit Facility bear interest at a per annum rate equal to either (a) SOFR plus an applicable margin of 1.50% to
2.00% per annum based on the Company’s fixed charge coverage ratio, or (b) an “alternate prime base rate” subject to an increase from
0.00% to 0.50% per annum based on the Company’s fixed charge coverage ratio. As of December 28, 2024, the Company’s SOFR based
interest rate was 6.46% and the Company’s prime based rate was 8.00%. A commitment fee, based upon undrawn availability under the
Credit Facility bearing interest at a rate of either 0.20% or 0.25% per annum based on the amount of undrawn availability, is
payable monthly. Under the terms of the Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s
discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit
Agreement. The cash dominion period is triggered in an event of default or if “excess availability,” as defined under the Credit Agreement,
is less than the $9,000 (12% of the aggregate revolving commitment) for three consecutive business days, and will continue until, during
the preceding 45 consecutive days, no event of default existed and excess availability has been greater than $9,000 at all times (with the
trigger subject to adjustment based on the Company’s revolving commitment). The Company’s required excess availability related to the
“Covenant Testing Trigger Period” (as defined under the Credit Agreement) is less than $7,500 (10% of the aggregate revolving
commitment) for three consecutive business days, the Company shall be required to maintain a minimum fixed charge coverage ratio of 1.0
to 1.0, and continuing until excess availability has been greater than or equal to $7,500 at all times for 45 consecutive days (with the trigger
subject to adjustment based on the Company’s revolving commitment).
Certain of the Company’s domestic subsidiaries are co-borrowers (together with the Company, the “Borrowers”) under the Credit
Agreement, and certain other domestic subsidiaries are guarantors (the “Guarantors” and, together with the Borrowers, the “Loan Parties”)
under the Credit Agreement. The Borrowers and the Guarantors are jointly and severally liable for the Borrowers’ obligations under the
Credit Agreement. The Loan Parties’ obligations under the Credit Agreement are secured, subject to customary permitted liens and certain
exclusions, by a perfected security interest in (a) all tangible and intangible assets and (b) all of the capital stock owned by the Loan Parties
(limited, in the case of foreign subsidiaries, to 65% of the capital stock of such foreign subsidiaries). The Borrowers may voluntarily prepay
the loans at any time. The Borrowers are required to make mandatory prepayments of the loans (without payment of a premium) with net
cash proceeds received upon the occurrence of certain “prepayment events,” which include certain sales or other dispositions of collateral,
certain casualty or condemnation events, certain equity issuances or capital contributions, and the incurrence of certain debt.
The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable
to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, fundamental changes, investments,
dispositions, prepayment of other indebtedness, mergers, and dividends and other distributions.
Events of default under the Credit Agreement include: failure to timely make payments due under the Credit Agreement; material
misrepresentations or misstatements under the Credit Agreement and other related agreements; failure to comply with covenants under the
Credit Agreement and other related agreements; certain defaults in respect of other material indebtedness; insolvency or other related
events; certain defaulted judgments; certain ERISA-related events; certain security interests or liens under the loan documents cease to be,
or are challenged by the Company or any of its subsidiaries as not being, in full force and effect; any loan document or any material
provision of the same ceases to be in full force and effect; and certain criminal indictments or convictions of any Loan Party. As of
December 28, 2024, the Company was in compliance with all covenants under the Credit Agreement.
See additional information in “Note 4 – Borrowings” in the Notes to the Consolidated Financial Statements included in Part II, Item 8,
of this report.
Table of Contents
40
Funding Requirements
Based on our current operating plan, we believe that our existing cash, cash equivalents, investments, cash flows from operations and
available debt or equity financing will be sufficient to finance our operational cash needs through at least the next twelve months. Our
future capital requirements may, however, vary materially from those now planned or anticipated. Changes in our operating plans, lower
than anticipated net sales or gross margin, increased expenses, continued or worsened economic conditions, worsening operating
performance by us, or other events, including those described in “Risk Factors” included in Part I, Item 1A may force us to sell assets or
seek additional debt or equity financings in the future, including the issuance of additional common stock under a registration statement.
There can be no assurance that we would be able to raise such additional financing or engage in asset sales on acceptable terms, or at all. If
we are not able to raise adequate additional financing or proceeds from asset sales, we will need to defer, reduce or eliminate significant
planned expenditures, restructure or significantly curtail our operations.
Seasonality
We believe our business is somewhat seasonal in nature. It includes many categories, geographies, and channels which may
experience seasonality from time to time based on various external factors. Additionally, seasonality may affect our product mix. These
historical seasonality trends could continue, and such trends may have a material impact on our financial condition and results of operations
in subsequent periods.
Recent Accounting Pronouncements
See “Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial
Statements, included in Part IV, Item 15 of this report.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of our consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and
expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ from those
estimates under different assumptions and conditions. We believe that of our significant accounting policies, which are described in
Note 1 – Summary of Significant Accounting Policies and Nature of Operations” of the Notes to Consolidated Financial Statements, the
following accounting policies and estimates set forth below involve a greater degree of judgment or complexity.
Valuation of Inventory – Inventory Reserve. Inventory primarily consists of finished goods. We purchase inventory from suppliers both
domestically and internationally, primarily in Taiwan and China. Inventory is accounted for using the first-in first-out (“FIFO”) method and
valued at the lower of cost or net realizable value. We recognize provisions for obsolete and slow-moving inventory primarily based on
judgments about expected disposition of inventory, generally, through sales, or liquidations of obsolete inventory, and expected recoverable
values based on currently-available or historical information. If actual market conditions are less favorable than those anticipated by
management, additional write-offs to reduce the value of our inventory may be required.
Impairment of Long-Lived Assets. We assess potential impairments whenever events or changes in circumstances indicate that the
carrying value of our long-lived assets, or asset group, may not be recoverable. If an indicator of impairment exists, we review the
recoverability of our long-lived assets by estimating the undiscounted future cash flows compared to the carrying value of such assets. An
impairment loss will result when the carrying value of the asset group exceeds the undiscounted future cash flows of the asset group.
Impairment losses will be recognized in operating results. No impairment charges were recorded for the fiscal years ended December 28,
2024 and December 30, 2023.
Table of Contents
41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign
currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.
Interest Rate Risk
We are subject to interest rate risk in connection with our revolving loan under our Credit Facility, which bears an interest rate based
on a SOFR, plus an applicable margin, and a prime based rate. As of December 28, 2024, we had a balance of $0 outstanding under our
revolving loan. A hypothetical 100 basis point change in interest rates would not materially affect our interest expense and cash flows.
Foreign Currency Risk
Our purchases of auto parts from our Asian suppliers are denominated in U.S. dollars; however, a change in the foreign currency
exchange rates could impact our product costs over time. Our operating expenses from our Philippines subsidiary are generally paid in
Philippine Pesos, and as the exchange rate fluctuates, it could adversely or favorably impact our operating results. The effect of a
hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our
consolidated financial statements. We do not use derivative financial instruments to manage foreign currency risk but could choose to do so
in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item 8 are set forth in Part IV, Item 15 of this report and are hereby incorporated into this
Item 8 by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in
reports filed with the SEC under the Exchange Act, is recorded, processed, summarized and reported within the specified time periods, and
that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 28,
2024 pursuant to Rule 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objectives for which they
were designed and operated at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act. We assessed the effectiveness of our internal control over financial reporting as of December 28,
2024, based on the “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the
Treadway Commission. This assessment was conducted utilizing our documentation of policies and procedures, risk control matrices, gap
analysis, key process walk-throughs and management’s knowledge of and interaction with its controls and testing of our key controls.
Table of Contents
42
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection
of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis. Based on such assessment and criteria, management has concluded that the internal controls over financial reporting were
effective as of December 28, 2024.
Changes in Internal Control Over Financial Reporting
The Company monitors and evaluates on an ongoing basis its internal control over financial reporting in order to improve its overall
effectiveness. In the course of these evaluations, the Company modifies and refines its internal processes as conditions warrant. As required
by Rule 13a-15(d), the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, also conducted an
evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter ended
December 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting. Based on that evaluation, there has been no such change during the period covered by this report.
ITEM 9B. OTHER INFORMATION
During the thirteen weeks ended December 28, 2024, none of our directors or executive officers adopted or terminated any “Rule
10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K.)
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Table of Contents
43
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors. The information under the caption “Election of Directors,” appearing in the Proxy Statement to be
filed in connection with our Annual Meeting of Stockholders (“Proxy Statement”), is hereby incorporated by reference. The Proxy
Statement will be filed with the SEC within 120 days from the end of fiscal year 2024.
(b) Identification of Executive Officers and Certain Significant Employees. The information under the caption “Executive Officers,”
appearing in the Proxy Statement, is hereby incorporated by reference. The Proxy Statement will be filed with the SEC within
120 days from the end of fiscal year 2024.
(c) Compliance with Section 16(a) of the Exchange Act. The information under the caption “Delinquent Section 16(a) Reports,”
appearing in the Proxy Statement, is hereby incorporated by reference. The Proxy Statement will be filed with the SEC within
120 days from the end of fiscal year 2024.
(d) We have adopted a Code of Ethics and Business Conduct which applies to all directors, officers (including our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and
employees. The full text of our Code of Ethics and Business Conduct is available on the Investor Relations section of our website
at www.carparts.com/investor which can be directly accessed at www.carparts.com/investor/corporate-governance. We intend to
disclose future amendments to certain provisions of the Code of Ethics and Business Conduct, and any waivers of provisions of
the Code of Ethics and Business Conduct required to be disclosed under the rules of the SEC, at the same location on our website.
(e) Board Committees. The information under the caption “Corporate Governance — Board Committees and Meetings,” appearing in
the Proxy Statement, is hereby incorporated by reference. The Proxy Statement will be filed with the SEC within 120 days from
the end of fiscal year 2024.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption “Executive Compensation and Other Information”, appearing in the Proxy Statement, is
incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days from the end of fiscal year 2024.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information under the captions “Securities Authorized for Issuance Under Equity Compensation Plans” and “Ownership of
Securities by Certain Beneficial Owners and Management,” appearing in the Proxy Statement, is incorporated herein by reference. The
Proxy Statement will be filed with the SEC within 120 days from the end of fiscal year 2024.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the captions “Corporate Governance — Director Independence” and “Certain Relationships and Related
Transactions,” appearing in the Proxy Statement, is incorporated herein by reference. The Proxy Statement will be filed with the SEC
within 120 days from the end of fiscal year 2024.
Table of Contents
44
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the caption “Fees Paid to Independent Registered Public Accounting Firm,” appearing in the Proxy Statement,
is incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days from the end of fiscal year 2024.
Table of Contents
45
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
(1) Financial Statements. The following financial statements of CarParts.com, Inc. are included in a separate section of this
Annual Report on Form 10-K commencing on the pages referenced below:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
F-1
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations and Comprehensive Operations
F-4
Consolidated Statements of Stockholders’ Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7
(2) Financial Statement Schedules.
All schedules have been omitted because they are not required or the required information is included in our consolidated financial
statements and notes thereto.
(3) Exhibits.
The following exhibits are filed herewith or incorporated by reference to the location indicated below:
ITEM 16. FORM 10-K SUMMARY
Not applicable.
Table of Contents
46
EXHIBIT INDEX
Exhibit No.
Description
2.1
Stock Purchase Agreement executed August 2, 2010 among the Acquisition Sub, WAG, Riverside and the other
stockholders of WAG (incorporated by reference to Exhibit 10.57 to the Company’s Current Report on Form 8 K filed with
the Securities and Exchange Commission on August 4, 2010).
3.1
Second Amended and Restated Certificate of Incorporation of CarParts.com, Inc. as filed with the Delaware Secretary of
State on February 14, 2007 (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10 K filed with the
Securities and Exchange Commission on April 2, 2007).
3.2
Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock of CarParts.com, Inc.
(incorporated by reference to the Current Report on Form 8 K filed on March 25, 2013).
3.3
Amended and Restated Bylaws of CarParts.com, Inc., (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2023).
4.1*
Specimen common stock certificate.
4.2
Description of Common Stock of the Company.
10.1+*
CarParts.com, Inc. 2006 Equity Incentive Plan.
10.2+*
Form of Stock Option Agreement under the CarParts.com, Inc. 2006 Equity Incentive Plan.
10.3+*
Form of Notice of Grant of Stock Option under the CarParts.com, Inc. 2006 Equity Incentive Plan.
10.4+*
Form of Acceleration Addendum to Stock Option Agreement under the CarParts.com, Inc. 2006 Equity Incentive Plan.
10.5+*
CarParts.com, Inc. 2007 Omnibus Plan and Form of Award Agreements.
10.6+
Independent Director Compensation Plan
10.7+
Form of Indemnification Agreement for Officers and Directors (incorporated by reference to Exhibit 10.7 to the Annual
Report on Form 10 K filed with the Securities and Exchange Commission on March 11, 2016).
10.10+
Employment Agreement dated November 27, 2018 between the Company and Lev Peker (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8 K filed with the Securities and Exchange Commission on November 28,
2018).
10.13+
Form of Notice of Grant of Restricted Stock Units to Directors under the CarParts.com, Inc. 2016 Equity Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10 Q filed with the Securities and Exchange
Commission on August 9, 2018).
10.14+
CarParts.com, Inc. Director Payment Election Plan (incorporated by reference to Exhibit 10.68 to the Company’s Quarterly
Report on Form 10 Q filed with the Securities and Exchange Commission on November 9, 2011).
10.16
Lease Agreement dated April 17, 2013 by and among the Company and STORE Master Funding III, LLC (incorporated by
reference to the Current Report on Form 8 K filed on April 23, 2013)
10.17+
Form of Stock Unit Award Agreement (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on February 18, 2014).
Table of Contents
47
Exhibit No.
Description
10.18+
Form of Stock Unit Award Agreement under the CarParts.com, Inc. 2007 Omnibus Incentive Plan (incorporated by
reference to Exhibit 99.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
February 18, 2014).
10.21
Form of 2019 Performance Restricted Stock Unit Award Agreement under the CarParts.com, Inc. 2016 Equity Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on August 8, 2019)).
10.22
Form of 2018 Restricted Stock Unit Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8 K filed with the Securities and Exchange Commission on January
11, 2018).
10.23
Deed of Lease dated February 4, 2016 by and between the Company and Liberty Property Limited Partnership
(incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10 K filed with the Securities and Exchange
Commission on March 11, 2016).
10.24
CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8
K filed with the Securities and Exchange Commission on June 2, 2016).
10.25
Form of Employee Option Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8 K filed with the Securities and Exchange Commission on June 2, 2016).
10.26
Form of Director Option Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2016).
10.27
Form of Restricted Stock Unit Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated by
reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2,
2016).
10.28
Form of Performance Restricted Stock Unit Award Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 26, 2017).
10.29
Form of Performance Cash Bonus Award Agreement under the CarParts.com, Inc. 2016 Equity Incentive Plan (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
January 26, 2017).
10.30
Form of Director and Section 16 Officer Restricted Stock Unit Agreement under the CarParts.com, Inc. 2016 Equity
Incentive Plan (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 26, 2017).
10.31
Deferred Compensation Plan (incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 7, 2017).
10.36+
CarParts.com, Inc. 2021 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2023).
10.38
CarParts.com, Inc. Officer and Director Share Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2021).
10.39
Equity Offering Sales Agreement, dated December 20, 2021, by and among CarParts.com, Inc. and D.A. Davidson & Co.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 21, 2021).
Table of Contents
48
Exhibit No.
Description
10.40+
Employment Agreement dated December 5, 2022, between the Company and Michael Huffaker (incorporated by reference
to Exhibit 99.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 5,
2022).
10.41+
Amended and Restated Credit Agreement, dated as of June 17, 2022, by and among CarParts.com, Inc., certain of its wholly
owned subsidiaries and JPMorgan Chase Bank, N.A., as a lender and as administrative agent (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2022).
10.42+
Amended and Pledge and Security Agreement, dated as of June 17, 2022, by and among CarParts.com, Inc., certain of its
wholly owned subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2022).
10.43+
Employment Agreement dated October 28, 2024, between the Company and David Meniane
10.44+
Employment Agreement dated October 28, 2024, between the Company and Ryan Lockwood
10.45+
Employment Agreement, dated October 28, 2024, between the Company and Michael Huffaker
10.46+
Employment Agreement, dated October 28, 2024, between the Company and Kals Subramanian
19
CarParts.com, Inc. Insider Trading Policy
21.1
Subsidiaries of CarParts.com, Inc.
23.1
Consent of Independent Registered Public Accounting Firm
24.1
Power of Attorney (included as part of signature page).
31.1
Certification of the Principal Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as amended
31.2
Certification of the Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as amended
32.1
Certification of the Chief Executive Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
Certification of the Chief Financial Officer required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
97
CarParts.com, Inc. Executive Incentive Compensation Clawback Policy (incorporated by reference to Exhibit 97 to the
Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2024).
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Table of Contents
49
Exhibit No.
Description
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
*
Incorporated by reference to the exhibit of the same number from the registration statement on Form S-1 of the Company (File
No. 333-138379) initially filed with the Securities and Exchange Commission on November 2, 2006, as amended.
+
Indicates a management contract or compensatory plan or arrangement.
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
F- 1
Consolidated Balance Sheets
F- 3
Consolidated Statements of Operations and Comprehensive Operations
F- 4
Consolidated Statements of Stockholders’ Equity
F- 5
Consolidated Statements of Cash Flows
F- 6
Notes to Consolidated Financial Statements
F- 7
Table of Contents
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of CarParts.com, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CarParts.com, Inc. and its subsidiaries (the Company) as of December
28, 2024 and December 30, 2023, the related consolidated statements of operations and comprehensive operations, stockholders’ equity and
cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2024
and December 30, 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory Reserves
As disclosed in Note 1 to the consolidated financial statements, inventory is reported net of a reserve for obsolete and slow-moving
products. The process of determining the inventory reserve requires management to evaluate and make judgments about expected
disposition of inventory, generally, through sales or liquidations of obsolete products, and expected recoverable values based on currently
available or historical information.
We identified the inventory reserve as a critical audit matter as there was a high degree of auditor judgment, subjectivity and increased
audit effort when performing audit procedures to evaluate management’s significant assumptions, including the assumption that the
historical inventory movements are indicative of future sales.
Our audit procedures related to the Company’s estimation of inventory reserves included the following, among others:
Table of Contents
F-2
●
Tested management’s process for determining the inventory reserve.
●
Developed an independent expectation of slow-moving and obsolete inventory at year-end based on historical trends and other sources
of independently obtained industry data and compared it to management’s estimate.
●
Evaluated subsequent events or transactions occurring prior to the date of the auditor’s report.
Long-lived Asset Impairment Test
As disclosed in Note 1 to the consolidated financial statements, management assesses long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. If an indicator of impairment
exists for any grouping of assets, management tests the asset group for impairment by comparing estimates of future undiscounted cash
flows expected to be generated by the asset group to the carrying value of the asset group. If the carrying value of the asset group is greater
than the estimated future undiscounted future cash flows, the asset group is considered impaired, and an impairment charge is recorded for
the amount by which the carrying value of the asset group exceeds its fair value. As of December 28, 2024, the Company concluded that its
sole asset group exhibited indicators of impairment, which required management to test the asset group for impairment. No impairment
charges were necessary as a result of the indicator of impairment that existed as of December 28, 2024.
We identified the evaluation of management’s long-lived asset impairment test as a critical audit matter because of the significant judgment
required by management in determining the estimated undiscounted future cash flows, including assumptions related to the forecasted
revenue, gross profit margin, operating expenses and adjusted earnings before interest, tax, depreciation and amortization. Auditing
management’s assumptions required significant auditor judgment and increased audit effort, including the involvement of valuation
specialists, due to the potential impact of these assumptions on the accounting estimate.
Our audit procedures related to the evaluation management’s long-lived asset impairment test included the following, among others:
●
Developed an independent estimate of undiscounted future cash flows, including estimates of future revenue, gross profit margin,
operating expenses and adjusted earnings before interest, tax, depreciation and amortization, using historical results and available
industry information.
●
Utilized our valuation specialists to corroborate market multiples used by management to estimate the residual value of the asset group
by comparing it to publicly available external market data.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Irvine, California
March 25, 2025
Table of Contents
F-3
CARPARTS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value Data)
December 28,
December 30,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
36,397
$
50,951
Accounts receivable, net
6,098
7,365
Inventory, net
90,353
128,901
Other current assets
6,020
6,121
Total current assets
138,868
193,338
Property and equipment, net
32,206
26,389
Right-of-use - assets - operating leases, net
26,682
19,542
Right-of-use - assets - finance leases, net
10,765
15,255
Other non-current assets
2,053
3,331
Total assets
$
210,574
$
257,855
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
60,365
$
77,851
Accrued expenses
16,083
20,770
Right-of-use - obligation - operating, current
5,810
4,749
Right-of-use - obligation - finance, current
3,471
4,308
Other current liabilities
4,694
5,308
Total current liabilities
90,423
112,986
Right-of-use - obligation - operating, non-current
23,203
16,742
Right-of-use - obligation - finance, non-current
8,842
12,327
Other non-current liabilities
2,931
2,969
Total liabilities
125,399
145,024
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 57,454 and 56,303 shares issued and outstanding
as of December 28, 2024 and December 30, 2023 (of which 3,786 are treasury stock)
61
60
Treasury stock
(11,912)
(11,912)
Additional paid-in capital
325,546
312,874
Accumulated other comprehensive income
1,055
783
Accumulated deficit
(229,575)
(188,974)
Total stockholders’ equity
85,175
112,831
Total liabilities and stockholders' equity
$
210,574
$
257,855
See accompanying notes to consolidated financial statements.
Table of Contents
F-4
CARPARTS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(In Thousands, Except Per Share Data)
Fiscal Year Ended
December 28,
December 30,
2024
2023
Net sales
$
588,846
$
675,729
Cost of sales (1)
392,107
446,323
Gross profit
196,739
229,406
Operating expense
237,374
239,287
Loss from operations
(40,635)
(9,881)
Other income (expense):
Other income, net
1,466
3,197
Interest expense
(1,165)
(1,394)
Total other income, net
301
1,803
Loss before income taxes
(40,334)
(8,078)
Income tax provision
267
145
Net loss
(40,601)
(8,223)
Other comprehensive gain (loss):
Foreign currency adjustments
87
—
Actuarial gain (loss) on defined benefit plan
185
(305)
Unrealized loss on deferred compensation trust assets
—
(38)
Total other comprehensive gain (loss)
272
(343)
Comprehensive loss
$
(40,329)
$
(8,566)
Net loss per share:
Basic and diluted net loss per share
$
(0.71)
$
(0.15)
Weighted-average common shares outstanding:
Shares used in computation of basic and diluted net loss per share
57,026
56,570
(1) Excludes depreciation and amortization expense which is included in operating expense as described in “Note 1 – Summary of
Significant Accounting Policies and Nature of Operations”.
See accompanying notes to consolidated financial statements.
Table of Contents
F-5
CARPARTS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)
Accumulated
Additional
Other
Total
Common Stock
Paid-in-
Treasury
Comprehensive
Accumulated
Stockholders’
Shares
Amount
Capital
Stock
Income
Deficit
Equity
Balance, December 31, 2022
54,653
$
57
$
297,265
$
(7,625)
$
1,126
$
(180,751)
$
110,072
Net loss
—
—
—
—
—
(8,223)
(8,223)
Issuance of shares in connection with stock option exercise
1,674
2
2,648
—
—
—
2,650
Issuance of shares in connection with restricted stock units vesting
1,078
1
—
—
—
—
1
Issuance of shares in connection with BOD fees
5
—
23
—
—
—
23
Issuance of shares in connection with ESPP
114
—
483
—
—
—
483
Share-based compensation
—
—
12,479
—
—
—
12,479
Stock repurchase
(1,221)
—
(24)
(4,287)
—
—
(4,311)
Actuarial loss on defined benefit plan
—
—
—
—
(305)
—
(305)
Unrealized loss on deferred compensation trust assets
—
—
—
—
(38)
—
(38)
Balance, December 30, 2023
56,303
$
60
$
312,874
$
(11,912)
$
783
$
(188,974)
$
112,831
Net loss
—
—
—
—
—
(40,601)
(40,601)
Issuance of shares in connection with restricted stock units vesting
847
1
(471)
—
—
—
(470)
Issuance of shares in connection with BOD fees
34
—
43
—
—
—
43
Officers and directors stock purchase plan
10
—
10
—
—
—
10
Issuance of shares in connection with ESPP
260
—
359
—
—
—
359
Share-based compensation
—
—
12,731
—
—
—
12,731
Foreign currency adjustments
—
—
—
—
87
—
87
Actuarial gain on defined benefit plan
—
—
—
—
185
—
185
Balance, December 30, 2024
57,454
$
61
$
325,546
$
(11,912)
$
1,055
$
(229,575)
$
85,175
See accompanying notes to consolidated financial statements.
Table of Contents
F-6
CARPARTS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended
December 28,
December 30,
2024
2023
Operating activities
Net loss
$
(40,601)
$
(8,223)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense
18,975
16,690
Amortization of intangible assets
121
36
Share-based compensation expense
11,985
11,675
Stock awards issued for non-employee director service
43
23
Stock awards related to officers and directors stock purchase plan from payroll deferral
10
—
Gain from disposition of assets
(70)
(78)
Amortization of deferred financing costs
65
65
Changes in operating assets and liabilities:
Accounts receivable
1,267
(1,101)
Inventory
38,547
6,681
Other current assets
102
549
Other non-current assets
1,168
(248)
Accounts payable and accrued expenses
(21,187)
23,696
Other current liabilities
(615)
686
Right-of-use obligation - operating leases - current
1,514
631
Right-of-use obligation - operating leases - long-term
(1,131)
(714)
Other non-current liabilities
145
(367)
Net cash provided by operating activities
10,338
50,001
Investing activities
Additions to property and equipment
(20,573)
(11,879)
Cash paid for intangible assets
(76)
(108)
Proceeds from sale of property and equipment
92
86
Net cash used in investing activities
(20,557)
(11,901)
Financing activities
Borrowings from revolving loan payable
229
244
Payments made on revolving loan payable
(229)
(244)
Repurchase of treasury stock
—
(4,311)
Payments on finance leases
(4,311)
(4,738)
Net proceeds from issuance of common stock for ESPP
359
483
Statutory tax withholding payment for share-based compensation
(470)
—
Proceeds from exercise of stock options
—
2,650
Net cash used in financing activities
(4,422)
(5,916)
Effect of exchange rate changes on cash
87
—
Net change in cash and cash equivalents
(14,554)
32,184
Cash and cash equivalents, beginning of period
50,951
18,767
Cash and cash equivalents, end of period
$
36,397
$
50,951
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use operating asset acquired
$
12,857
$
—
Right-of-use finance asset acquired
$
—
$
784
Accrued asset purchases
$
502
$
1,499
Share-based compensation expense capitalized in property and equipment
$
746
$
804
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes
$
178
$
210
Cash paid during the period for interest
$
1,165
$
1,394
Cash received during the period for interest
$
1,466
$
2,030
See accompanying notes to consolidated financial statements.
Table of Contents
F-7
CARPARTS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
Note 1 – Summary of Significant Accounting Policies and Nature of Operations
CarParts.com, Inc. (including its subsidiaries) is a leading online retailer of aftermarket auto parts and accessories. The Company
primarily sells its products to individual consumers through its flagship website located at www.carparts.com, our app, online marketplaces,
and offline to wholesale distributors. Our corporate website is located at www.carparts.com/investor. References to the “Company,” “we,”
“us,” or “our” refer to CarParts.com, Inc. and its consolidated subsidiaries.
The Company’s products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the
maintenance and repair market, and other parts and accessories. The replacement parts category is primarily comprised of body parts for
the exterior of an automobile as well as certain other mechanical or electrical parts that are not related to the functioning of the engine or
drivetrain. Our parts in this category typically replace original body parts that have been damaged as a result of general wear and tear or a
collision. In addition, we sell an extensive line of mirror products, including one of our own house brands called Kool-Vue
®, which are
marketed and sold as aftermarket replacement parts and as upgrades to existing parts. The hard parts category is primarily comprised of
engine components and other mechanical and electrical parts including one of our house brands of catalytic converters called Evan
Fischer
®. These hard parts serve as replacement parts that are generally used by professionals and do-it-yourselfers for engine and
mechanical maintenance and repair. We also offer other parts and accessories, which generally consist of parts that enhance the
performance of the automobile, upgrade existing functionality of a specific part or improve the physical appearance or comfort of the
automobile, including parts from one of our own house brands, JC Whitney®.
The Company is a Delaware C corporation and is headquartered in Torrance, California. The Company has employees located in both
the United States and the Philippines.
Fiscal Year
The Company’s fiscal year is based on a 52/53 week fiscal year ending on the Saturday closest to December 31. The fiscal year ended
December 28, 2024 (fiscal year 2024) is a 52 week period and December 30, 2023 (fiscal year 2023) is a 52 week period.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Based on our current operating plan, we believe that our existing cash, cash equivalents, investments, cash flows from operations and
available debt or equity financing will be sufficient to finance our operational cash needs through at least the next twelve months.
Segment Information
The Company manages its operations as a single operating and reportable segment in accordance with ASC 280, Segment Reporting.
The Company’s chief operating decision maker (“CODM”) reviews the consolidated financial information for purposes of allocating
resources and making operating decisions. Refer to “Note 11 – Segment Information” for further information.
Table of Contents
F-8
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. A key estimate made by management relates primarily to determining the net realizable
value of inventory. Actual results could differ from this estimate.
Cash and Cash Equivalents
The Company considers all money market funds and short-term investments purchased with original maturities of ninety days or less
to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments that are not measured at fair value include accounts receivable, accounts payable and debt. Refer to “Note 2 –
Fair Value Measurements” for additional fair value information. The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term maturities.
Accounts Receivable and Concentration of Credit Risk
Accounts receivable are stated net of allowance for expected credit losses. The allowance for expected credit losses is determined
primarily on the basis of past collection experience and general economic conditions. The Company determines terms and conditions for its
customers primarily based on the volume purchased by the customer, customer creditworthiness and past transaction history.
Concentrations of credit risk are primarily limited to the offline sales customer base to which the Company’s products are sold, which
is related to trade receivables that are approximately 22% and 20% of total accounts receivable, net, balance as of the year ended December
28, 2024 and December 30, 2023, respectively. The Company does not believe significant concentrations of credit risk exist as a significant
portion of the outstanding trade receivables balance is insured by a third-party credit insurance company.
Inventory
Inventories consist of finished goods available-for-sale and are stated at the lower of cost or net realizable value, determined using the
first-in first-out (“FIFO”) method. The Company purchases inventory from suppliers both domestically and internationally, and routinely
enters into supply agreements with Asia-Pacific based suppliers in China and Taiwan and also U.S. based suppliers who are primarily drop-
ship vendors. The Company believes that its products are generally available from more than one supplier and seeks to maintain multiple
sources for its products, both internationally and domestically. The Company primarily purchases products in bulk quantities to take
advantage of quantity discounts and to ensure inventory availability. Inventory is reported at the lower of cost or net realizable value. We
recognize provisions for obsolete and slow-moving inventory primarily based on judgments about expected disposition of inventory,
generally, through sales, or liquidations of obsolete inventory, and expected recoverable values per SKU based on currently available or
historical information.
Inventory as of December 28, 2024 and December 30, 2023 included items in-transit to our distribution centers, in the amounts of
$19,964 and $26,801, respectively.
Website and Software Development Costs
The Company capitalizes certain costs associated with website and software developed for internal use according to ASC 350-50 -
Intangibles – Goodwill and Other – Website Development Costs and ASC 350-40 Intangibles – Goodwill and Other – Internal-Use
Software, when both the preliminary project design and testing stage are completed and management has authorized further funding for the
project, which it deems probable of completion and to be used for the
Table of Contents
F-9
function intended. Capitalized costs include amounts directly related to website and software development such as payroll and payroll-
related costs for employees who are directly associated with, and who devote time to, the internal-use software project and website.
Capitalization of such costs ceases when the project is substantially complete and ready for its intended use. These amounts are amortized
on a straight-line basis over two to five years once the software and/or website enhancement is placed into service. The Company
capitalized website and software development costs of $16,264 and $9,951 during fiscal years 2024 and 2023, respectively. As of
December 28, 2024 and December 30, 2023, our internally developed website and software costs amounted to $40,471 and $24,215,
respectively, and the related accumulated amortization amounted to $24,625 and $13,608, respectively.
Long-Lived Assets and Intangibles Subject to Amortization
The Company accounts for the impairment and disposition of long-lived assets, including intangibles subject to amortization, in
accordance with ASC - 360 Property, Plant and Equipment (“ASC 360”). Management assesses potential impairments whenever events or
changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. If an indicator of impairment
exists for any grouping of assets, an estimate of the undiscounted future cash flows is compared to its carrying value. An impairment loss
will result when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of
the asset or asset group. Impairment losses will be recognized in operating results. No impairment charges were recorded for the fiscal
years ending December 28, 2024 and December 30, 2023.
Deferred Financing Costs
Deferred financing costs are being amortized to interest expense over the term of the revolving loan using the straight-line method,
which approximates amortization the effective interest method.
Revenue Recognition
The Company recognizes revenue from product sales and shipping revenues, net of promotional discounts and return allowances, when
the following revenue recognition criteria are met: a contract has been identified, separate performance obligations are identified, the
transaction price is determined, the transaction price is allocated to separate performance obligations and revenue is recognized upon
satisfying each performance obligation. The Company transfers the risk of loss or damage upon shipment, therefore, revenue from product
sales is recognized when it is shipped to the customer. Return allowances, which reduce product revenue by the Company’s best estimate of
expected product returns, are estimated using historical experience.
The Company evaluates the criteria of ASC 606 - Revenue Recognition Principal Agent Considerations in determining whether it is
appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the
Company is primarily responsible for fulfilling the promise to provide a specified good or service, the Company is subject to inventory risk
before the good or service has been transferred to a customer and the Company has discretion in establishing the price, revenue is recorded
at gross.
Payments received prior to the delivery of goods to customers are recorded as deferred revenue in other current liabilities in the
consolidated balance sheets.
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount
offers, such as percentage discounts off current purchases and other similar offers. Current discount offers, when accepted by the
Company’s customers, are treated as a reduction to the purchase price of the related transaction.
Sales discounts are recorded in the period in which the related sale is recognized. Sales return allowances are estimated based on
historical amounts and are recorded upon recognizing the related sales. Credits are issued to customers for returned products.
Table of Contents
F-10
No customer accounted for more than 10% of the Company’s net sales.
The following table provides an analysis of the allowance for sales returns and the allowance for expected credit losses (in thousands):
Charged to
Balance at
Revenue,
Balance at
Beginning
Cost or
End of
of Period
Expenses
Deductions
Period
Fifty-Two Weeks Ended December 28, 2024
Allowance for sales returns
$
3,191
$
42,542
$
(42,845)
$
2,888
Allowance for expected credit losses
1
144
(76)
69
Fifty-Two Weeks Ended December 30, 2023
Allowance for sales returns
$
3,073
$
45,526
$
(45,408)
$
3,191
Allowance for expected credit losses
35
(6)
(28)
1
Cost of Sales
Cost of sales consists of the direct costs associated with procuring parts from suppliers and delivering products to customers. These
costs include direct product costs, outbound freight and shipping costs, warehouse supplies and warranty costs, partially offset by purchase
discounts. Total freight and shipping expense, excluding surcharges, included in cost of sales for fiscal years 2024 and 2023 was $100,768
and $106,018, respectively. Depreciation and amortization expenses are excluded from cost of sales and included in operating expense.
Warranty Costs
The Company or the vendors supplying its products provide the Company’s customers limited warranties on certain products that
range from 30 days to lifetime. Historically, the Company’s vendors have been the party primarily responsible for warranty claims.
Standard product warranties sold separately by the Company are recorded as deferred revenue and recognized ratably over the life of the
warranty, ranging from one to five years. The Company also offers extended warranties that are imbedded in the price of selected private
label products sold. The product brands that include the extended warranty coverage are offered at three different service levels: (a) a five
year unlimited product replacement, (b) a five year one-time product replacement, and (c) a three year one-time product replacement.
Warranty costs relating to merchandise sold under warranty not covered by vendors are estimated and recorded as warranty obligations at
the time of sale based on each product’s historical return rate and historical warranty cost. The standard and extended warranty obligations
are recorded as warranty liabilities and included in other current liabilities in the consolidated balance sheets.
Operating Expense
Operating expense consists of marketing, general and administrative, fulfillment, and technology expense. The Company also includes
share-based compensation expense in the applicable operating expense category based on the respective equity award recipient’s function.
Marketing costs, including advertising, are expensed as incurred. The majority of advertising expense is paid to internet search engine
service providers, television advertising, and internet commerce facilitators. For fiscal years 2024 and 2023, the Company incurred
advertising costs of $81,860 and $83,146, respectively. Marketing expense also includes payroll and related expenses associated with our
customer service and marketing personnel. General and administrative expense consists primarily of administrative payroll and related
expenses, merchant processing fees, legal and professional fees and other administrative costs. Fulfillment expense consists primarily of
payroll and related costs associated with warehouse employees and the Company’s purchasing group, facilities rent, building maintenance,
depreciation and other costs associated with inventory management and wholesale operations. Technology expense consists primarily of
payroll and related expenses of the Company’s information technology personnel, the cost of hosting the Company’s servers,
communications expenses and internet connectivity costs, computer support and website and software development amortization expense.
Marketing expense, general and administrative expense, and fulfillment expense also includes depreciation and amortization expense.
Table of Contents
F-11
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC 718 - Compensation – Stock Compensation
(“ASC 718”). All share-based payment awards issued to employees are recognized as share-based compensation expense in the statements
of operations and comprehensive operations based on their respective grant date fair values. Compensation expense for service-based
restricted stock units and restricted stock awards are based on the closing stock price of our common stock on the date of grant, and is
recognized on a straight-line basis over the requisite service period. Compensation expense for performance-based awards is measured
based on the amount of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding
the relevant performance criteria.
Compensation expense for stock options is based on the fair value estimated on the date of grant using an option pricing model, and is
recognized over the vesting period of three to four years. The Company currently uses the Black-Scholes option pricing model to estimate
the fair value of share-based payment awards for such stock options, which is affected by the Company’s stock price and a number of
assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. Expected volatility is based on the
historical volatility of the Company’s stock price for a period approximating the expected life. The expected life of an award is based on
combining historical exercise data with expected weighted time outstanding. The risk-free interest rate is based on the implied yield
available on U.S. Treasury issues for the expected life of awards. The expected dividend yield assumption is based on the Company’s
expectation of paying no dividends on its common stock.
In accordance with ASC 718, we recognize forfeitures as they occur.
Other Income, net
Other income, net consists of miscellaneous income or expense and interest income comprised primarily of interest income on
investments.
Interest Expense
Interest expense consists primarily of interest expense on our revolving loan and letters of credit balances, deferred financing cost
amortization, and finance lease interest.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 - Income Taxes (“ASC 740”). Under ASC 740, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. When appropriate, a valuation allowance is established to reduce deferred tax assets, which include tax credits and loss carry
forwards, to the amount that is more likely than not to be realized. In making such determination, the Company considers all available
positive and negative evidence, including future reversals of existing taxable temporary differences, future taxable income exclusive of
reversing temporary differences and carryforwards, taxable income in prior carryback years, tax planning strategies and recent financial
operations.
The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely to be realized upon ultimate settlement. The Company considers many factors when evaluating and
estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual
outcomes. As of
Table of Contents
F-12
December 28, 2024, the Company had no material unrecognized tax benefits, interest or penalties related to federal and state income tax
matters. The Company’s policy is to record interest and penalties as income tax expense.
Taxes Collected from Customers and Remitted to Governmental Authorities
The Company presents taxes collected from customers and remitted to governmental authorities on a net basis in accordance with the
guidance on ASC 606-10-32-2 - Taxes Collected from Customers and Remitted to Governmental Authorities.
Leases
The Company accounts for leases in accordance with ASC 842 – Leases (“ASC 842”), which requires lessees to record right-of-use
assets and related right-of-use obligations on the balance sheet for all leases with terms longer than 12 months. The Company determines if
an arrangement contains a lease at inception. For purposes of calculating operating lease obligations under the standard, the Company's
lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option.
The Company's leases do not contain material residual value guarantees or material restrictive covenants.
The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company’s operating leases
generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to
determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest
a lessee would pay to borrow on a collateralized basis over a similar term with similar payments. Lease expense is recognized on a straight-
line basis over the lease term.
Foreign Currency Translation
In accordance with ASC 830, Foreign Currency Matters, the functional currency for our Philippines subsidiary is the U.S. dollar, our
reporting currency. Foreign currency assets and liabilities are remeasured into U.S. dollars using current exchange rates, except for
nonmonetary assets and equity, which are remeasured at historical exchange rates. Revenue and expenses are remeasured using average
exchange rates during the fiscal year, except for expenses related to nonmonetary assets, which are remeasured at historical exchange rates.
Comprehensive Loss
The Company reports comprehensive loss in accordance with ASC 220 - Comprehensive Income (“ASC 220”). Accumulated other
comprehensive income, included in the Company’s consolidated balance sheets, includes one-time foreign currency translation adjustments
related to the Company’s foreign operations, unrealized loss on deferred compensation trust assets, and actuarial gain (loss) on the
Company’s defined benefit plan in the Philippines. The Company presents the components of net loss and other comprehensive gain (loss)
in its consolidated statements of operations and comprehensive operations.
Recently Adopted Accounting Standard
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07,
Segment Reporting (Topic 280) “Improvements to Reportable Segment Disclosures.” This ASU requires an entity that has a single
reportable segment, such as the Company, to disclose the title and position of the individual identified as the CODM. Additionally, the ASU
requires disclosure of the significant segment expenses that are regularly provided to the CODM and included in the reported measure of
segment loss. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024 on a retrospective basis. The Company adopted the provisions of the ASU beginning with this Annual Report on
Form 10-K for the fiscal year ended December 28, 2024, and applied the amendment retrospectively in its consolidated financial statements
(see Note 11 “Segment Information”).
Table of Contents
F-13
Recent Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure, which
expands the disclosures required for income taxes, primarily through changes to the rate reconciliation and income taxes paid information.
This ASU is effective for fiscal years beginning after December 15, 2024, with early adopted permitted. The amendment should be applied
on a prospective basis while retrospective application is permitted. The Company is currently evaluating the effect of this update on its
consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation
Disclosures (Subtopic 220-40). This ASU requires disclosure, in the notes to the consolidated financial statements, of specified information
about certain costs and expenses. This ASU is effective for annual periods beginning after December 15, 2026, with early adoption
permitted. The company is currently evaluating the impact of this update on its consolidated financial statements.
Note 2 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability.
Provisions of ASC 820 establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers
include:
Level 1 – Observable inputs such as quoted prices in active markets;
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 – Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
Financial Assets Valued on a Recurring Basis
As of December 28, 2024 and December 30, 2023, the Company held certain assets that are required to be measured at fair value on a
recurring basis. These included the Company’s cash and cash equivalents which consist primarily of money market funds and short-term
investments with original maturity dates of three months or less at the date of purchase. The Company determines fair value of these assets
through quoted market prices and as such they are considered Level 1 assets. Level 1 cash and cash equivalents were valued at $36,397 and
$50,951 as of December 28, 2024 and December 30, 2023, respectively. During fiscal years 2024 and 2023 there were no transfers into or
out of Level 1 and Level 2 assets.
Non-Financial Assets Valued on a Non-Recurring Basis
The Company’s long-lived assets, including intangible assets subject to amortization, are measured at fair value on a non-recurring
basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment. As of December 28, 2024
and December 30, 2023, the Company determined long-lived assets, including intangible assets, were not impaired, as such, they were not
measured at fair value.
Note 3 – Property and Equipment, Net
The Company’s property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and
amortization expense for fiscal years 2024 and 2023 was $18,975 and $16,690, respectively. The cost and related accumulated depreciation
of assets retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings. Repairs and
maintenance are expensed as incurred.
Table of Contents
F-14
Property and equipment consisted of the following as of December 28, 2024 and December 30, 2023:
December 28, 2024 December 30, 2023
Machinery and equipment
$
18,101
$
10,150
Computer software (purchased and developed) and equipment
40,768
24,523
Vehicles
154
180
Leasehold improvements
3,958
2,751
Furniture and fixtures
594
540
Construction in process
5,297
12,006
68,872
50,150
Less accumulated depreciation and amortization
(36,666)
(23,761)
Property and equipment, net
$
32,206
$
26,389
Construction in process primarily relates to the Company’s internally developed software.
Depreciation and amortization of property and equipment is calculated by using the straight-line method for financial reporting
purposes, at rates based on the following estimated useful lives:
Years
Machinery and equipment
2
- 5
Computer software (purchased and developed)
2
- 5
Computer equipment
2
- 5
Vehicles
3
- 5
Leasehold improvements*
3
- 5
Furniture and fixtures
3
- 7
*
The estimated useful life is the lesser of 3-5 years or the lease term, whichever is shorter.
Note 4 – Borrowings
The Company maintains an asset-based revolving Credit Facility that provides for, among other things a revolving commitment, which
is subject to a borrowing base derived from certain receivables, inventory and property and equipment.
On June 17, 2022, the Company and JPMorgan entered into an Amended and Restated Credit Agreement (as amended, the “Credit
Agreement”) amending and restating in its entirety the original Credit Agreement dated April 26, 2012, as amended through the Fourteenth
Amendment. The Credit Agreement, as amended and restated, provides for the revolving commitment in an aggregated principal amount of
$75,000 (formerly $30,000) and allows for an uncommitted ability to increase the aggregate principal amount by an additional $75,000 to
$150,000 (formerly $40,000 maximum) subject to certain terms and conditions. The Credit Facility matures on June 17, 2027.
As of December 28, 2024 and December 30, 2023, the Company’s outstanding revolving loan balance was $0, respectively. As of
December 28, 2024 and December 30, 2023, our outstanding standby letters of credit balance was $680, respectively, and we had $0 of our
trade letters of credit outstanding in accounts payable in our consolidated balance sheets.
Loans drawn under the Credit Facility bear interest, at the Company’s option, at a per annum rate equal to either (a) SOFR plus an
applicable margin of 1.50% to 2.00% per annum based on the Company’s fixed charge coverage ratio, or (b) a “an alternate prime base
rate” subject to an increase from 0.00% to 0.50% per annum based on the Company’s fixed charge coverage ratio. As of
December 28, 2024, the Company’s SOFR based interest rate was 6.46% and the Company’s prime based rate was 8.00%. A commitment
fee, based upon undrawn availability under the Credit Facility bearing interest at a rate of either 0.20% or 0.25% per annum based upon
undrawn availability, is payable monthly. Under the terms of the terms of the agreement with JPMorgan, cash receipts are deposited into a
lock-box, which are at
Table of Contents
F-15
the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing
under the Credit Agreement. The cash dominion period is triggered in an event of default or if excess availability is less than the $9,000 for
three consecutive business days, and will continue until, during the preceding 45 consecutive days, no event of default existed and excess
availability has been greater than $9,000 at all times (with the trigger subject to adjustment based on the Company’s revolving
commitment). In addition, the Company’s required excess availability related to the “Covenant Testing Trigger Period” (as defined under
the Credit Agreement) is less than $7,500 for three consecutive business days, the Company shall be required to maintain a minimum fixed
charge coverage ratio of 1.0 to 1.0, and continuing until excess availability has been greater than or equal to $7,500 at all times for 45
consecutive days (with the trigger subject to adjustment based on the Company’s revolving commitment).
Certain of the Company’s domestic subsidiaries are co-borrowers (together with the Company, the “Borrowers”) under the Credit
Agreement, and certain other domestic subsidiaries are guarantors (the “Guarantors” and, together with the Borrowers, the “Loan Parties”)
under the Credit Agreement. The Borrowers and the Guarantors are jointly and severally liable for the Borrowers’ obligations under the
Credit Agreement. The Loan Parties’ obligations under the Credit Agreement are secured, subject to customary permitted liens and certain
exclusions, by a perfected security interest in (a) all tangible and intangible assets and (b) all of the capital stock owned by the Loan Parties
(limited, in the case of foreign subsidiaries, to 65% of the capital stock of such foreign subsidiaries). The Borrowers may voluntarily prepay
the loans at any time. The Borrowers are required to make mandatory prepayments of the loans (without payment of a premium) with net
cash proceeds received upon the occurrence of certain “prepayment events,” which include certain sales or other dispositions of collateral,
certain casualty or condemnation events, certain equity issuances or capital contributions, and the incurrence of certain debt.
The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable
to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, fundamental changes, investments,
dispositions, prepayment of other indebtedness, mergers, and dividends and other distributions. The Credit Agreement requires us to obtain
a prior written consent from JPMorgan when we determine to pay any dividends on or make any distribution with respect to our common
stock.
Events of default under the Credit Agreement include: failure to timely make payments due under the Credit Agreement; material
misrepresentations or misstatements under the Credit Agreement and other related agreements; failure to comply with covenants under the
Credit Agreement and other related agreements; certain defaults in respect of other material indebtedness; insolvency or other related
events; certain defaulted judgments; certain ERISA-related events; certain security interests or liens under the loan documents cease to be,
or are challenged by the Company or any of its subsidiaries as not being, in full force and effect; any loan document or any material
provision of the same ceases to be in full force and effect; and certain criminal indictments or convictions of any Loan Party.
Note 5 – Stockholders’ Equity and Share-Based Compensation
Stock Repurchase Program
On July 27, 2021, the Company’s Board of Directors authorized a stock repurchase program under which the Company may purchase
up to $30 million of the Company’s common stock from time to time. The repurchases of common stock may be executed through open
market purchases, block trades, the implementation of a 10b5-1 plan, and/or any other available methods. During the fiscal year ended
December 28, 2024, the Company did not repurchase any shares of common stock. During the fiscal year ended December 30, 2023, the
Company repurchased 1,221 shares of its common stock at a total cost of $4,287, excluding commissions, at an average price of $3.51 per
share. The share repurchase program has an expiration date of July 26, 2026.
Table of Contents
F-16
Employee Stock Purchase Plan
In May 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan (“ESPP”), and the ESPP was amended in
May 2023. Under the ESPP, eligible employees who participate in an offering period may have a certain percentage of their eligible
earnings withheld, up to certain limitations, to purchase shares of common stock at 85% of the lower of the fair market value on the first or
the last business day of the six-month offering period. A total of 750 shares of common stock have been reserved for issuance under the
ESPP. During the fiscal years ended December 28, 2024 and December 30, 2023, 260 shares and 114 shares, respectively, were issued
under the ESPP.
The estimated fair value of employee stock purchase rights under the ESPP was determined using the Black-Scholes option pricing
model with the following assumptions:
Fiscal Year Ended
December 28, 2024
December 30, 2023
Expected life
0.5 years
0.5 years
Risk-free interest rate
5.26% - 5.37%
4.76% - 5.47%
Expected volatility
54.1% - 70.2%
44.5% - 71.3%
Expected dividend yield
—%
—%
Share-Based Compensation Plan Information
The Company adopted the 2016 Equity Incentive Plan ("2016 Equity Plan") on March 9, 2016, which became effective on May 31,
2016, following stockholder approval. Subject to adjustment for certain changes in the Company’s capitalization, the aggregate number of
shares of the Company’s common stock that may be issued under the 2016 Equity Plan will not exceed the sum of (i) two million five
hundred thousand (2,500) new shares, (ii) the number of unallocated shares remaining available for the grant of new awards under the
Company’s prior equity plans described below (the “Prior Equity Plans”) as of the effective date of the 2016 Plan (which was equal to
3,894 shares as of May 31, 2016) and (iii) any shares subject to a stock award under the Prior Equity Plans that are not issued because such
stock award expires or otherwise terminates without all of the shares covered by such stock award having been issued, that are not issued
because such stock award is settled in cash, that are forfeited back to or repurchased by the Company because of the failure to meet a
contingency or condition required for the vesting of such shares, or that are reacquired, withheld (or not issued) to satisfy a tax withholding
obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award. In addition, the share reserve will
automatically increase on January 1st of each year, for a period of nine years, commencing on January 1, 2017 and ending on (and
including) January 1, 2026, in an amount equal to one million five hundred thousand (1,500) shares per year; however the Board of
Directors of the Company may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share
reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would
otherwise occur pursuant the automatic increase. Options granted under the 2016 Equity Plan generally expire no later than ten years from
the date of grant and generally vest over a period of four years. The exercise price of all option grants must be equal to 100% of the fair
market value on the date of grant. As of December 28, 2024, approximately 364 shares were available for future grants under the 2016
Equity Plan.
Table of Contents
F-17
The following tables summarizes the Company’s stock option activity for the fiscal years ended, and details regarding the options
outstanding and exercisable as of December 28, 2024 and December 30, 2023:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Grant Date
Contractual
Intrinsic
Shares
Price
Term (in years)
Value(1)
Options outstanding, December 30, 2023
1,693
$
2.79
Granted
110
$
1.10
Exercised
—
$
—
`
Forfeited
(4)
$
8.01
Expired
(103)
$
5.20
Options outstanding, December 28, 2024
1,696
$
2.53
4.45
$
2
Vested and expected to vest at December 28, 2024
1,696
$
2.53
4.45
$
2
Options exercisable, December 28, 2024
1,586
$
2.62
4.09
$
—
Weighted
Weighted
Average
Average
Remaining
Aggregate
Grant Date
Contractual
Intrinsic
Shares
Price
Term (in years)
Value(1)
Options outstanding, December 31, 2022
3,463
$
2.25
Granted
—
$
—
Exercised
(1,673)
$
1.58
Cancelled:
Forfeited
(68)
$
2.82
Expired
(29)
$
7.40
Options outstanding, December 30, 2023
1,693
$
2.79
5.03
$
1,642
Vested and expected to vest at December 30, 2023
1,693
$
2.79
5.03
$
1,642
Options exercisable, December 30, 2023
1,642
$
2.71
4.98
$
1,631
(1) These amounts represent the difference between the exercise price and the closing price of CarParts.com, Inc. common stock at the end
of the respective fiscal year as reported on the NASDAQ Stock Market, for all options outstanding that have an exercise price
currently below the closing price.
During fiscal year 2024, 110 stock options were granted under the 2016 Equity Plan. No stock options were granted under the 2016
Equity Plan during the fiscal year 2023. The intrinsic value of stock options at the date of the exercise is the difference between the fair
value of the stock at the date of exercise and the exercise price. During fiscal years 2024 and 2023, the total intrinsic value of the exercised
options was $0 and $5,421, respectively. The Company had $65 of unrecognized share-based compensation expense related to stock
options outstanding as of December 28, 2024, which the expense is expected to be recognized over a weighted-average period of
2.60 years.
Restricted Stock Units and Restricted Stock Awards
During the fiscal years 2024 and 2023, the Company granted an aggregate of 3,033 and 2,311, respectively, of Restricted Stock Units
(“RSUs”) and Restricted Stock Awards (“RSAs”) to certain employees of the Company. The RSUs and RSAs were granted under the 2016
Equity Incentive Plan and reduced the pool of equity instruments available under that plan.
The vesting of each RSU and RSA is subject to the employee’s continued employment through applicable vesting dates. Some RSUs
and RSAs granted to certain executives may vest on an accelerated basis in part or in full upon the occurrence of certain events. The RSUs
and RSAs are accounted for as equity awards and are measured at fair value based upon the grant date price of the Company’s common
stock. The closing price of the Company’s common stock on
Table of Contents
F-18
each grant date during 2024 ranged from $0.74 to $2.92. The closing price of the Company’s common stock on each grant during 2023
ranged from $3.25 to $6.86. Compensation expense is recognized on a straight-line basis over the requisite service period of one-to-three
years. Compensation expense for performance-based RSUs (“PSUs”) is measured based on the amount of shares ultimately expected to
vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.
During 2024 there were 3,033 RSUs and RSAs granted that were time-based.
During 2023 there were 1,517 RSUs granted that were time-based and 794 granted that were performance-based. As of December 30,
2023, the performance criteria established to trigger vesting of the PSUs granted in 2023 was met.
For the fiscal year ended December 28, 2024, we recorded compensation expense of $12,494 related to RSUs and RSAs. As of
December 28, 2024, there was unrecognized compensation expense of $12,653 related to unvested RSUs and RSAs based on awards that
are expected to vest. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.49 years.
Share-Based Compensation Expense
The share-based compensation expense is net of amounts capitalized to internally-developed software of $746 and $804 during the
fiscal years 2024 and 2023, respectively.
For the fiscal years 2024 and 2023, the Company recorded share-based compensation expense related to stock options, RSUs and
RSAs of $11,985 and $11,675, respectively.
Note 6 – Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
Fiscal Year Ended
December 28, 2024 December 30, 2023
Net loss per share:
Numerator:
Net loss allocable to common shares
$
(40,601)
$
(8,223)
Denominator:
Weighted-average common shares outstanding (basic and diluted)
57,026
56,570
Basic and diluted net loss per share
$
(0.71)
$
(0.15)
For the fiscal years ended December 28, 2024 and December 30, 2023, all outstanding potentially dilutive securities have been
excluded from the calculation of diluted net loss per share as the effect of including such securities would have been anti-dilutive.
Note 7 – Income Taxes
The components of loss before income taxes consist of the following:
Fiscal Year Ended
December 28, 2024
December 30, 2023
Domestic operations
$
(41,208)
$
(8,888)
Foreign operations
874
810
Total loss before income taxes
$
(40,334)
$
(8,078)
Table of Contents
F-19
The income tax provision consists of the following:
Fiscal Year Ended
December 28, 2024
December 30, 2023
Current:
State tax
$
67
$
(87)
Foreign tax
200
232
Total current taxes
267
145
Deferred:
Federal tax
(5,730)
(737)
State tax
(1,054)
(128)
Total deferred taxes
(6,784)
(865)
Valuation allowance
6,784
865
Income tax provision
$
267
$
145
Income tax provision differs from the amount that would result from applying the federal statutory rate as follows:
Fiscal Year Ended
December 28, 2024
December 30, 2023
Income tax at U.S. federal statutory rate
$
(8,470)
$
(1,643)
Share-based compensation
2,598
817
State income tax, net of federal tax effect
(780)
(170)
Foreign tax
178
173
Other
(43)
103
Change in valuation allowance
6,784
865
Effective tax provision
$
267
$
145
For fiscal years 2024 and 2023, the effective tax rate for the Company was (0.7)%, (1.8)%, respectively. The Company’s effective tax
rate for fiscal years 2024 and 2023 differs from the U.S. federal rate primarily as a result of non-deductible share-based compensation and
the change in the valuation allowance maintained against the Company’s deferred tax assets.
Table of Contents
F-20
Deferred tax assets and deferred tax liabilities consisted of the following:
December 28, 2024
December 30, 2023
Deferred tax assets:
Inventory and inventory related allowance
$
1,944
$
1,605
Lease liabilities
9,564
8,609
Share-based compensation
3,782
4,024
Book over tax depreciation
2,383
1,043
Intangibles
78
90
Sales and bad debt allowances
1,092
1,130
Accrued compensation
142
127
Net operating loss
34,998
29,632
Other
114
47
Total deferred tax assets
54,097
46,307
Valuation allowance
(45,463)
(38,458)
Net deferred tax assets
8,634
7,849
Deferred tax liabilities:
Right-of-use assets
8,633
7,847
Other
1
2
Total deferred tax liabilities
8,634
7,849
Net deferred tax assets
$
—
$
—
As of December 28, 2024, federal and state net operating loss (“NOL”) carryforwards were $127,019 and $93,822, respectively.
Federal NOL carryforwards of $891 were acquired in the acquisition of WAG which are subject to Internal Revenue Code section 382 and
limited to an annual usage limitation of $135. Federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards also
begin to expire in 2029. The state NOL carryforwards expire in the respective tax years as follows:
2029
$
1,814
2030
9,455
2031
14,557
2032
22,740
2033
24,832
Thereafter
20,424
$
93,822
Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its
deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax
assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal
of existing taxable temporary differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult
when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As of December 28,
2024, mainly due to cumulative losses in recent years, the Company maintained a valuation allowance in the amount of $45,463 against
deferred tax assets that were not more likely than not of being realized.
We are subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2020-2024 remain
open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the
tax years 2021-2024 remain open. The Company does not anticipate a significant change to the amount of unrecognized tax benefits within
the next twelve months.
Included in accrued expenses are income taxes receivable of ($284) and ($267) as of December 28, 2024 and December 30, 2023,
respectively, consisting primarily of current state taxes. Included in other non-current liabilities are
Table of Contents
F-21
income taxes payable of $1,227 and $1,124 as of December 28, 2024 and December 30, 2023, respectively, relating to accrued future
foreign withholding taxes.
Note 8 – Commitments and Contingencies
Facilities Leases
The Company’s leases its corporate headquarters located in Torrance, California. The Company also leases warehouse space in
LaSalle, Illinois, Chesapeake, Virginia, Las Vegas, Nevada, Grand Prairie, Texas, and Jacksonville, Florida, in addition to leasing office
space for the Philippines subsidiary.
During the first quarter of 2024, the Company entered into a lease agreement for a new distribution center in Las Vegas, Nevada. The
lease commenced on February 1, 2024 with a eighty-seven month lease term set to expire in April of 2031. The Company is obligated to
pay approximately $186 in monthly base rent (rent abatement for three months in the first year), which shall increase by 4% each year
beginning on the second-year anniversary of the lease term. In accordance with ASU 842 – Leases (“ASC 842”), the Company recorded
$12,857 in Right-of-use assets – operating, non-current, and $12,018 in Right-of-use obligation – operating, non-current, with $839
recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet at the commencement of the lease.
Table of Contents
F-22
Quantitative information regarding the Company’s leases are as follows (in thousands):
Fiscal Year ended
December 28, 2024
December 30, 2023
Components of lease cost
Finance lease cost components
Amortization of finance lease assets
$
4,491
$
5,040
Interest on finance lease liabilities
866
1,058
Total finance lease costs
$
5,357
$
6,098
Operating lease costs
$
4,884
$
4,488
Total lease cost
$
10,241
$
10,586
Supplemental cash flow information related to
operating and finance leases is as follows:
Fiscal Year ended
December 28, 2024
December 30, 2023
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash outflow from operating leases
$
7,006
$
5,549
Operating cash outflow from finance leases
866
1,058
Financing cash outflow from finance leases
4,311
4,738
Weighted-average remaining lease term-finance
leases (in years)
5.4
5.6
Weighted-average remaining lease term-
operating leases (in years)
4.9
4.6
Weighted-average discount rate-finance leases
6.48
%
6.13
%
Weighted-average discount rate-operating leases
6.37
%
4.08
%
Lease commitments as of December 28, 2024 were as follows:
Finance Leases Operating Leases
Total
2025
$
4,123
$
7,444
$
11,567
2026
3,171
6,861
10,032
2027
1,870
6,918
8,788
2028
1,192
5,253
6,445
2029
1,057
4,003
5,060
Thereafter
3,637
3,897
7,534
Total minimum payments required
15,052
34,377
49,429
Less portion representing interest
2,739
5,364
8,103
Present value of lease obligations
$
12,313
$
29,013
$
41,326
Less current portion of lease obligations
3,471
5,810
9,281
Long-term portion of lease obligations
$
8,842
$
23,203
$
32,045
Table of Contents
F-23
Legal Matters
Asbestos. A wholly-owned subsidiary of the Company, Automotive Specialty Accessories and Parts, Inc. and its wholly-owned
subsidiary Whitney Automotive Group, Inc. ("WAG"), are named defendants in several lawsuits involving claims for damages caused by
installation of brakes during the late 1960’s and early 1970’s that contained asbestos. WAG marketed certain brakes, but did not
manufacture any brakes. WAG maintains liability insurance coverage to protect its and the Company’s assets from losses arising from the
litigation and coverage is provided on an occurrence rather than a claims made basis, and the Company is not expected to incur significant
out-of-pocket costs in connection with this matter that would be material to its consolidated financial statements.
Ordinary course litigation. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business,
including, for example, claims relating to product liability, workplace injuries, intellectual property rights, and employment matters. For
example, a worker, who was directly employed by the Company’s third party labor contracting firm at the Company’s Grand Prairie, Texas
warehouse has filed a negligence claim in the Superior Court of the State of California, Los Angeles Count y, Central District relating to
a workplace injury from March 2021. In July 2024, the Court granted the Company’s motion for summary judgement. Appeals could be
filed by the plaintiff and the Company intends to continue to defend itself vigorously, although there can be no assurance that there will not
be some liability. As of the date hereof, the Company believes that the final disposition of such matters will not have a material adverse
effect on the financial position, results of operations or cash flow of the Company. The Company maintains liability insurance coverage to
protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.
Related Party Matters
The Company has entered into indemnification agreements with the Company’s directors and executive officers. These agreements
require the Company to indemnify these individuals to the fullest extent permitted under law against liabilities that may arise by reason of
their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be
indemnified.
Note 9 – Employee Retirement Plan and Deferred Compensation Plan
Effective February 17, 2006, the Company adopted a 401(k) defined contribution retirement plan covering all full time employees who
have completed one month of service. The Company may, at its sole discretion, match fifty cents per dollar up to 6% of each participating
employee’s salary. The Company’s contributions vest in annual installments over three years. Discretionary contributions made by the
Company totaled $981 and $939 for fiscal years 2024 and 2023, respectively.
In January 2010, the Company adopted the CarParts.com, Inc. Management Deferred Compensation Plan (the “Deferred
Compensation Plan”), for the purpose of providing highly compensated employees a program to meet their financial planning needs. The
Deferred Compensation Plan provides participants with the opportunity to defer up to 90% of their base salary and up to 100% of their
annual earned bonus, all of which, together with the associated investment returns, are 100% vested from the outset. The Deferred
Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally
funded by the Company through the purchase of mutual funds, held by a rabbi trust. The deferred compensation liabilities (consisting of
employer contributions, employee deferrals and associated earnings and losses) are general unsecured obligations of the Company.
Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants’
selected investments. The Company may at its discretion contribute certain amounts to eligible employee accounts. In January 2010, the
Company began to contribute 50% of the first 2% of participants’ eligible contributions into their Deferred Compensation Plan accounts.
The Deferred Compensation Plan was terminated in the fourth quarter of 2023, and the obligations were paid out in 2024. As of
December 28, 2024, the assets and associated liabilities of the Deferred Compensation Plan were $0, respectively, and were $539 and $914,
respectively, as of December 30, 2023 and are included in other non-current
Table of Contents
F-24
assets, other current liabilities and other non-current liabilities in our consolidated balance sheets. The interest dividend and
realized/unrealized gain/loss for fiscal years 2024 and 2023 was immaterial.
Note 10 – Product Information
As described in detail under “Note 1 – Summary of Significant Accounting Policies and Nature of Operations”, the Company’s
products consist of replacement parts serving the wear and tear and body repair market, hard parts to serve the maintenance and repair
market, and other parts and accessories. The Company sells its products in the United States. The following table summarizes the
approximate distribution of the Company’s revenue by product type.
Fiscal Year Ended
December 28, 2024
December 30, 2023
House Brands
Replacement Parts
63 %
65 %
Hard Parts(1)
19 %
19 %
Other(1)
1 %
1 %
Branded
Replacement Parts
2 %
2 %
Hard Parts(1)
14 %
12 %
Other(1)
1 %
1 %
Total
100 %
100 %
(1)
During the first quarter of 2024, the Company updated the product classification of certain parts to better reflect their part category. Prior period figures have been
updated to reflect the new presentation.
Note 11 – Segment Information
The Company operates as a single reportable segment (referred to as “segment” herein), engaged in the distribution and selling of
aftermarket auto part products (SKUs) to customers through the flagship website, www.carparts.com, app, and online marketplaces. No
individual operating segments were identified by the Company.
The Company’s CODM is the Chief Executive Officer. The CODM assesses performance for the entire Company and decides how
to allocate resources based on consolidated net loss that is reported on the consolidated statement of operations. The determination that the
Company operates as a single segment is consistent with the nature of the operations and the consolidated financial information regularly
reviewed by the CODM, for the purposes of evaluating key operating decisions, allocating resources, and planning and forecasting the
consolidated operating budget. The measure of segment assets is reported on the consolidated balance sheets as total assets. The accounting
policies of the segment are the same as those described in the detail under “Note 1 – Summary of Significant Accounting Policies and
Nature of Operations.”
Table of Contents
F-25
The CODM is regularly provided with significant segment expenses. The following table summarizes the Company’s segment net
sales, significant segment expenses, and segment loss:
Fiscal Year ended
December 28, 2024
December 30, 2023
Net sales
$
588,846
$
675,729
Product COGS
279,100
327,921
Freight and fuel surcharge expense
113,007
118,402
Advertising expense
81,860
83,146
Employee payroll expense
79,136
81,933
Rent and facilities expense
15,493
13,045
Depreciation and amortization
18,975
16,690
Stock compensation expense
11,985
11,675
Other segment items(1)
30,192
31,776
Interest (income) expense, net
(301)
(636)
Net loss
$
(40,601)
$
(8,223)
(1)
Other segment items primarily includes technology expense, general and administrative expense, fulfillment expense and marketing expense.
Table of Contents
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 2025
CARPARTS.COM, INC.
By: /s/ David Meniane
David Meniane
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of CarParts.com, Inc., do hereby constitute and appoint David Meniane and Ryan
Lockwood, and each of them, our true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be
done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby, ratifying and confirming all
that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following
persons on behalf of the registrant in the capacities and on the dates indicated:
/s/ David Meniane
Chief Executive Officer and Director
March 25, 2025
David Meniane
(principal executive officer)
/s/ Ryan Lockwood
Chief Financial Officer
March 25, 2025
Ryan Lockwood
(principal financial and accounting officer)
/s/ Warren B. Phelps III
Chairman of the Board
March 25, 2025
Warren B. Phelps III
/s/ Jay K. Greyson
Director
March 25, 2025
Jay K. Greyson
/s/ Jim Barnes
Director
March 25, 2025
Jim Barnes
/s/ Lisa Costa
Director
March 25, 2025
Lisa Costa
/s/ Nanxi Liu
Director
March 25, 2025
Nanxi Liu
/s/ Henry Maier
Director
March 25, 2025
Henry Maier
/s/ Ana Dutra
Director
March 25, 2025
Ana Dutra
Signature
Title
Date
Exhibit 10.43
CARPARTS.COM, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment (the “Amendment”) is entered into effective as of by and between David Meniane (“Executive”) and
CarParts.com, Inc. (the “Company,” and together with Executive, the “Parties”).
WHEREAS, the Parties entered into an employment agreement dated March 15, 2022 (the “Employment Agreement”) and
desire to make the amendments to the Employment Agreement as set forth in this Amendment.
1.
The fourth sentence of Section 4.B. of the Employment Agreement, titled “Other Equity Compensation,” is hereby
amended and restated in its entirety as follows:
“The vesting of all stock options, restricted stock unit awards (“RSUs”) and other equity compensation awards (both time-based
vesting and performance-based vesting at target level) granted to Executive that are assumed, substituted or otherwise continued
as part of a Change in Control (as defined in the Company's 2016 Equity Incentive Plan (the “Plan”) and are outstanding on the
date of Executive's termination or resignation shall accelerate in full in the event that the Executive's employment is terminated
without Cause (as defined herein) or Executive resigns for Good Reason (as defined herein), in either case, within the period
beginning three months before, and ending twelve months following, the Change in Control (each, a “Change in Control
Termination”).”
2.
The sixth sentence of Section 4.B. of the Employment Agreement, titled “Other Equity Compensation” is hereby
amended and restated in its entirety as follows:
“The provisions of this Section 4B of this Agreement shall govern the acceleration of Executive's stock options, RSUs and other
equity compensation awards in the event of a Change in Control Termination and the period for which Executive's stock options
remain exercisable following Executive's termination or resignation for any reason and shall supersede any provisions to the
contrary in any other agreement.”
3.
Full Force and Effect. To the extent not expressly amended hereby, the Agreement shall remain in full force and effect.
4.
Entire Agreement. This Amendment and the Employment Agreement constitute the full and entire understanding and
agreement between the Parties with regard to the subjects hereof and thereof, respectively. This Amendment may be amended at any time
only by mutual written agreement of the Parties.
-2-
5.
Counterparts. This Amendment may be executed in counterparts, all of which together shall constitute one instrument,
and each of which may be executed by less than all of the parties to this Amendment.
6.
Governing Law. This Amendment will be governed by the laws of the State of California (with the exception of its
conflict of laws provisions).
IN WITNESS WHEREOF, each of the Parties has executed this Amendment, in the case of the Company by its duly authorized
officer, effective as of the date set forth above.
CARPARTS.COM, INC.
EXECUTIVE
By:
Date:
Date:
Exhibit 10.44
CARPARTS.COM, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment (the “Amendment”) is entered into effective as of by and between Ryan Lockwood (“Executive”) and
CarParts.com, Inc. (the “Company,” and together with Executive, the “Parties”).
WHEREAS, the Parties entered into an employment agreement dated March 15, 2022 (the “Employment Agreement”) and
desire to make the amendments to the Employment Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the promises, mutual covenants, and above recitals, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, Executive and the Company hereby agree as follows:
1.
Section 4.B. of the Employment Agreement, titled “Other Equity Compensation,” is hereby amended and restated in its
entirety as follows:
“Other Equity Compensation. Executive shall also be entitled to participate in any other equity incentive plans of the Company.
All such other options or other equity awards will be made at the discretion of the Company's Compensation Committee of the
Board of Directors pursuant and subject to the terms and conditions of the applicable equity incentive plan, including any
provisions for repurchase thereof. The option exercise price or value of any equity award granted to Executive will be established
by the Company's Board of Directors as of the date such interests are granted but shall not be less than the fair market value of the
class of equity underlying such award. The vesting of all stock options, restricted stock unit awards (“RSUs”) and other equity
compensation awards (both time-based vesting and performance-based vesting at target level) granted to Executive that are
assumed, substituted or otherwise continued as part of a Change in Control (as defined in the Company's Equity Incentive Plan
(the “Plan”)) and are outstanding on the date of Executive's termination or resignation in the event that the Executive's
employment is terminated without Cause (as defined herein) or Executive resigns for Good Reason (as defined herein), in either
case, within the period beginning three months before, and ending twelve months following, the Change in Control (each, a
“Change in Control Termination”) shall accelerate in full. In the event of Executive's termination or resignation for any reason,
all stock options granted to Executive that are outstanding on the date of such termination or resignation shall remain exercisable
until the earlier of (i) the expiration date set forth in the applicable stock option agreement or (ii) the expiration of one (1) year
measured from the date of Executive's termination or resignation. The provisions of this Section 4B of this Agreement shall
govern the acceleration of Executive's stock options, RSUs and other equity compensation awards in the event of a Change in
Control Termination and the period for which Executive's stock options remain exercisable following Executive's termination or
resignation for any reason and shall supersede any provisions to the contrary in any other agreement.”
-2-
2.
Section 7.C.ii. of the Employment Agreement is hereby amended and restated as follows:
“(ii) continuation of Executive's Annual Salary, which shall be payable in accordance with the Company's standard pay schedules
for a period of six months (or twelve months in the case of a Change in Control Termination) (provided however that if Executive
obtains other employment, then his severance payments shall be reduced after the first six months of the foregoing one year
severance period by any amounts received by Executive from his new employer for the balance of the one year severance period).
3.
Full Force and Effect. To the extent not expressly amended hereby, the Agreement shall remain in full force and effect.
4.
Entire Agreement. This Amendment and the Employment Agreement constitute the full and entire understanding and
agreement between the Parties with regard to the subjects hereof and thereof, respectively. This Amendment may be amended at any time
only by mutual written agreement of the Parties.
5.
Counterparts. This Amendment may be executed in counterparts, all of which together shall constitute one instrument,
and each of which may be executed by less than all of the parties to this Amendment.
6.
Governing Law. This Amendment will be governed by the laws of the State of California (with the exception of its
conflict of laws provisions).
IN WITNESS WHEREOF, each of the Parties has executed this Amendment, in the case of the Company by its duly authorized
officer, effective as of the date set forth above.
CARPARTS.COM, INC.
EXECUTIVE
By:
Date:
Date:
Exhibit 10.45
CARPARTS.COM, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment (the “Amendment”) is entered into effective as of by and between Michael Huffaker (“Executive”) and
CarParts.com, Inc. (the “Company,” and together with Executive, the “Parties”).
WHEREAS, the Parties entered into an employment agreement dated December 5, 2022 (the “Employment Agreement”) and
desire to make the amendments to the Employment Agreement as set forth in this Amendment.
1.
The fifth sentence of Section 4.B. of the Employment Agreement, titled “Other Equity Compensation,” is hereby
amended and restated in its entirety as follows:
“The vesting of all stock options, restricted stock unit awards (“RSUs”) and other equity compensation awards (both time-based
vesting and performance-based vesting at target level) granted to Executive that are assumed, substituted or otherwise continued
as part of a Change in Control (as defined in the Company's 2016 Equity Incentive Plan (the “Plan”) and are outstanding on the
date of Executive's termination or resignation shall accelerate in full in the event that the Executive's employment is terminated
without Cause (as defined herein) or Executive resigns for Good Reason (as defined herein), in either case, within the period
beginning three months before, and ending twelve months following, the Change in Control (each, a “Change in Control
Termination”).”
2.
The seventh sentence of Section 4.B. of the Employment Agreement, titled “Other Equity Compensation” is hereby
amended and restated in its entirety as follows:
“The provisions of this Section 4B of this Agreement shall govern the acceleration of Executive's stock options, RSUs and other
equity compensation awards in the event of a Change in Control Termination and the period for which Executive's stock options
remain exercisable following Executive's termination or resignation for any reason and shall supersede any provisions to the
contrary in any other agreement.”
3.
Full Force and Effect. To the extent not expressly amended hereby, the Agreement shall remain in full force and effect.
4.
Entire Agreement. This Amendment and the Employment Agreement constitute the full and entire understanding and
agreement between the Parties with regard to the subjects hereof and thereof, respectively. This Amendment may be amended at any time
only by mutual written agreement of the Parties.
-2-
5.
Counterparts. This Amendment may be executed in counterparts, all of which together shall constitute one instrument,
and each of which may be executed by less than all of the parties to this Amendment.
6.
Governing Law. This Amendment will be governed by the laws of the State of California (with the exception of its
conflict of laws provisions).
IN WITNESS WHEREOF, each of the Parties has executed this Amendment, in the case of the Company by its duly authorized
officer, effective as of the date set forth above.
CARPARTS.COM, INC.
EXECUTIVE
By:
Date:
Date:
Exhibit 10.46
CARPARTS.COM, INC.
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment (the “Amendment”) is entered into effective as of by and between Kalamegam Subramanian
(“Executive”) and CarParts.com, Inc. (the “Company,” and together with Executive, the “Parties”).
WHEREAS, the Parties entered into an employment agreement dated April 18, 2022 (the “Employment Agreement”) and desire
to make the amendments to the Employment Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the promises, mutual covenants, and above recitals, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, Executive and the Company hereby agree as follows:
1.
Section 4.B. of the Employment Agreement, titled “Other Equity Compensation,” is hereby amended and restated in its
entirety as follows:
“Other Equity Compensation. Executive shall also be entitled to participate in any other equity incentive plans of the Company.
All such other options or other equity awards will be made at the discretion of the Company’s Compensation Committee of the
Board of Directors pursuant and subject to the terms and conditions of the applicable equity incentive plan, including any
provisions for repurchase thereof. The option exercise price or value of any equity award granted to Executive will be established
by the Company’s Board of Directors as of the date such interests are granted but shall not be less than the fair market value of the
class of equity underlying such award. The vesting of all stock options, restricted stock unit awards (“RSUs”) and other equity
compensation awards (both time-based vesting and performance-based vesting at target level) granted to Executive that are
assumed, substituted or otherwise continued as part of a Change in Control (as defined in the Company’s Equity Incentive Plan
(the “Plan”)) and are outstanding on the date of Executive’s termination or resignation in the event that the Executive’s
employment is terminated without Cause (as defined herein) or Executive resigns for Good Reason (as defined herein), in either
case, within the period beginning three months before, and ending twelve months following, the Change in Control (each, a
“Change in Control Termination”) shall accelerate in full. In the event of Executive’s termination or resignation for any reason,
all stock options granted to Executive that are outstanding on the date of such termination or resignation shall remain exercisable
until the earlier of (i) the expiration date set forth in the applicable stock option agreement or (ii) the expiration of one (1) year
measured from the date of Executive’s termination or resignation. The provisions of this Section 4B of this Agreement shall
govern the acceleration of Executive’s stock options, RSUs and other equity compensation awards in the event of a Change in
Control Termination and the period for which Executive’s stock options remain exercisable following Executive’s termination or
resignation for any reason and shall supersede any provisions to the contrary in any other agreement.”
-2-
2.
Section 7.C.ii. of the Employment Agreement is hereby amended and restated as follows:
“(ii) continuation of Executive’s Annual Salary, which shall be payable in accordance with the Company’s standard pay schedules
for a period of six months (or twelve months in the case of a Change in Control Termination).
3.
Full Force and Effect. To the extent not expressly amended hereby, the Agreement shall remain in full force and effect.
4.
Entire Agreement. This Amendment and the Employment Agreement constitute the full and entire understanding and
agreement between the Parties with regard to the subjects hereof and thereof, respectively. This Amendment may be amended at any time
only by mutual written agreement of the Parties.
5.
Counterparts. This Amendment may be executed in counterparts, all of which together shall constitute one instrument,
and each of which may be executed by less than all of the parties to this Amendment.
6.
Governing Law. This Amendment will be governed by the laws of the State of California (with the exception of its
conflict of laws provisions).
IN WITNESS WHEREOF, each of the Parties has executed this Amendment, in the case of the Company by its duly authorized
officer, effective as of the date set forth above.
CARPARTS.COM, INC.
EXECUTIVE
By:
Date:
Date:
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name
Jurisdiction
DBA
CarParts.com, Inc. (Philippines) Corporation
Philippines
Go Fido, Inc.
Delaware
Automotive Specialty Accessories and Parts, Inc. (1)
Delaware
Whitney Automotive Group, Inc. (2)
Delaware
(1) Subsidiary of Go Fido, Inc.
(2) Subsidiary of Automotive Specialty Accessories and Parts, Inc.
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements (Nos. 333-143179, 333-149973, 333-158224, 333-
165493, 333-173851, 333-204096, 333-210093, 333-212256, 333-216671, 333-226736, 333-239993, 333-254457, 333-
257580, 333-261253, 333-262247, 333-269461, 333-273586, 333-276734 and 333-284349) on Form S-8 and Registration
Statements (Nos. 333-163811, 333-188492, 333-197903, 333-213223 and 333-240467) on Form S-3 of CarParts.com, Inc.
and its subsidiaries (formerly known as U.S. Auto Parts Network, Inc.) of our report dated March 25, 2025, relating to the
consolidated financial statements of CarParts.com, Inc. and its subsidiaries, appearing in this Annual Report on Form 10-K of
CarParts.com, Inc. and its subsidiaries for the year ended December 28, 2024.
/s/ RSM US LLP
Irvine, California
March 25, 2025
EXHIBIT 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Meniane, certify that:
1. I have reviewed this annual report on Form 10-K of CarParts.com, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2025
/s/ DAVID MENIANE
David Meniane
Chief Executive Officer
(principal executive officer)
EXHIBIT 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ryan Lockwood, certify that:
1. I have reviewed this annual report on Form 10-K of CarParts.com, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2025
/s/ RYAN LOCKWOOD
Ryan Lockwood
Chief Financial Officer
(principal financial officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CarParts.com, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 28,
2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Meniane, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: March 25, 2025
/s/ DAVID MENIANE
David Meniane
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CarParts.com, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 28,
2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ryan Lockwood, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 25, 2025
/s/ RYAN LOCKWOOD
Ryan Lockwood
Chief Financial Officer
1
Exhibit 19
STATEMENT OF COMPANY POLICY
REGARDING INSIDER TRADING
Updated May 25, 2023
This policy applies to all officers, directors and employees
of CarParts.com, Inc. (the “Company”)
and supersedes all prior insider trading policies
I.
THE NEED FOR A POLICY STATEMENT
Under the federal securities laws, it is illegal to trade in the Company’s securities while in the possession of material
nonpublic information about the Company. It is also illegal to disclose or give material nonpublic information to others who may
trade on the basis of that information or to advise others how to trade while in possession of material nonpublic information. Any
person who possesses material nonpublic information about the Company is deemed to be an “insider.” The category of insiders
is NOT limited to officers and directors.
Insider trading violations are pursued vigorously by the Securities and Exchange Commission (the “SEC”) and the U.S.
Attorneys and such violations are punished severely. While the regulatory authorities concentrate their efforts on the individuals
who trade, or who tip inside information to others who trade, the federal securities laws also impose potential liability on
companies and other controlling persons if they fail to take reasonable steps to prevent insider trading by Company personnel.
Both the SEC and the Nasdaq Stock Market are very effective at detecting and pursuing insider trading cases. The SEC has
successfully prosecuted cases against employees trading through foreign accounts, trading by family members and friends, and
trading involving only a small number of shares.
The Company has adopted this Statement of Company Policy Regarding Insider Trading (the “Policy Statement”) both
to satisfy the Company’s obligation to prevent insider trading and to help Company personnel avoid the severe consequences
associated with violations of the insider trading laws. This Policy Statement is also intended to prevent even the appearance of
improper conduct on the part of anyone employed by or associated with the Company (not just the officers or directors of the
Company).
2
II.
THE PENALTIES
The consequences of an insider trading violation can be extremely serious and severe:
Traders and Tippers. Company personnel (or their tippees) who trade on inside information (or tip inside information to
others) are subject to the following penalties, among other things:
·
A civil penalty of up to three times the profit gained or loss avoided;
·
A criminal fine of up to $5,000,000 (no matter how small the profit from the trade); and
·
A jail term of up to twenty years.
A person who tips information to a person who then trades is subject to the same penalties as the tippee, even if the
person did not trade and did not profit from the tippee’s trading.
Control Persons. The Company and its supervisory personnel, if they fail to take appropriate steps to prevent illegal
insider trading, can be subject to the following penalties:
·
A civil penalty of up to $1,000,000 or, if greater, three times the profit gained or loss avoided as a result of the
employee’s violation; and
·
A criminal penalty of up to $25,000,000.
Company-Imposed Sanctions. Compliance with the policies of the Company is a condition of continued employment or
service with the Company of each employee, officer and director. An employee’s failure to comply with the Company’s insider
trading policy will subject the employee to Company-imposed sanctions, which may include dismissal for cause, whether or not
the employee’s failure to comply results in a violation of law. The Company reserves the right to determine, in its own discretion
and on the basis of the information available to it, whether this Policy Statement has been violated. The Company may also
determine that specific conduct violates this Policy Statement whether or not the conduct also violates the law. It is not necessary
for the Company to wait for the filing or conclusion of a civil or criminal action against the alleged violator before taking
disciplinary action.
III.
STATEMENT OF POLICY
It is the policy of the Company that no director, officer or other employee of the Company who is aware of material
nonpublic information relating to the Company may, directly or through family members or other persons or entities, (a) buy or
sell securities of the Company (other than pursuant to a pre-approved trading plan that complies with SEC Rule 10b5-1), or
engage in any other action to take personal advantage of that information, or (b) pass that information on to others outside the
Company, including family, friends and acquaintances. In addition, it is the policy of the Company that no director, officer or
other employee of the Company who, in the course of working for the Company, learns of material nonpublic information about
a company with which the Company does business, including a customer or
3
supplier of the Company, may trade in that company’s securities until the information becomes public or is no longer material.
No Exception for Emergencies. Transactions that may be necessary or justifiable for independent reasons (such as the
need to raise money for an emergency expenditure) are not excepted from the policy. If the employee, officer or director has
material, nonpublic information, the prohibition still applies. The securities laws do not recognize such mitigating circumstances,
and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company’s reputation for
adhering to high standards of conduct.
Disclosure of Information to Others. The Company is required under Regulation FD of the federal securities laws to
avoid the selective disclosure of material nonpublic information. The Company has established procedures for releasing material
information in a manner that is designed to achieve broad public dissemination of the information immediately upon its release.
You may not disclose such information to anyone outside the Company, including family members and friends, other than in
accordance with those procedures. You may not pass on to others any inside information about the Company or recommend the
purchase or sale of the Company’s securities while in the possession of material nonpublic information (even if that information
itself is not disclosed). You also may not discuss the Company or its business in an Internet ‘chat room’ or similar Internet-based
forum.
Contract Personnel (Non-Employees). The Company sometimes utilizes the services of contract personnel who are not
employees of the Company. As such, non-employee personnel may have access to material nonpublic information about the
Company. The Company expects all such contract personnel to comply with its policies on the trading of its securities to the
same extent as employees are required to comply with such policies. The Company will take appropriate action against any such
personnel and the organizations for which they are employed if there is a failure to comply with the policies of the Company.
Material Information. Material information is any information that a reasonable investor would consider important in
making a decision to buy, hold or sell securities. Any information that could be expected to affect the Company’s stock price,
whether it is positive or negative, should be considered material. Some examples of information that ordinarily would be
regarded as material are set forth below but this list is not exhaustive – other information may be deemed material based upon the
circumstances:
·
Financial information, including revenue results, operating income or loss, or net income or loss;
·
Earnings that are inconsistent with the consensus expectations of the investment community or other earnings
guidance, projections or budgets;
·
News about a significant contract or cancellation of an existing significant contract;
·
News about significant new products, services or lines of business;
·
The gain or loss of a significant supplier of products or services;
·
A pending or proposed merger, acquisition, joint venture or tender offer;
4
·
A pending or proposed acquisition or disposition of a significant asset(s);
·
A change in the Company’s dividend policy or the declaration of a stock split,
·
The implementation, change in or results of a Company stock buy-back;
·
A public or private offering of additional securities, borrowings, credit facilities or other financing transactions;
·
A change in the Board of Directors, senior management or any other major personnel changes;
·
Significant legal exposure due to actual, pending or threatened litigation; or
·
Impending bankruptcy or the existence of financial or liquidity problems.
Twenty-Twenty Hindsight. Remember, anyone scrutinizing your transactions will be doing so after the fact, with the
benefit of 20/20 hindsight. As a practical matter, before engaging in any transaction, you should carefully consider how
enforcement authorities and others might view the transaction in hindsight.
When Information is “Public.” If you are aware of material nonpublic information, you may not trade until the
information has been disclosed broadly to the marketplace (such as by press release or an SEC filing) and the investing public
has had time to absorb the information fully. To avoid the appearance of impropriety, as a general rule, information should not
be considered fully absorbed by the marketplace until after the second trading day after the information is released. If, for
example, the Company were to make an announcement on a Monday during market hours or after the conclusion of trading, you
should generally not trade in the Company’s securities until Thursday (in the absence of intervening market holidays). If the
Company were to make an announcement on Monday before the commencement of trading, you should generally not trade in the
Company’s securities util Wednesday. If an announcement were made on a Friday, Wednesday generally would be the first
eligible trading day after the announcement.
Transactions by Family Members. The insider trading policy also applies to your family members who reside with you,
anyone else who lives in your household, and any family members who do not live in your household but whose transactions in
Company securities are directed by you or are subject to your influence or control (such as parents or children who consult with
you before they trade in Company securities). You are responsible for the transactions of these other persons, and therefore
should make them aware of the need to confer with you before they trade in the Company’s securities.
Stock Option Exercises. The Company’s insider trading policy does not apply to the exercise of an employee stock
option, or to the exercise of a tax withholding right pursuant to which you elect to have the Company withhold shares subject to
an option to satisfy tax withholding requirements. The policy does apply, however, to any sale of stock as part of a broker-
assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise
price of an option.
5
Additional Prohibited Transactions. The Company considers it improper and inappropriate for any director, officer or
other employee of the Company to engage in short-term or speculative transactions in the Company’s securities. It therefore is
the Company’s policy that directors, officers and other employees may NOT engage in any of the following transactions:
a.
Short Sales. Short sales of the Company’s securities evidence an expectation on the part of the seller that the
securities will decline in value, and therefore signal to the market that the seller has no confidence in the Company or its short-
term prospects. In addition, short sales may reduce the seller’s incentive to improve the Company’s performance. For these
reasons, short sales of the Company’s securities are prohibited by this Policy Statement. In addition, Section 16(c) of the
Exchange Act prohibits officers and directors from engaging in short sales.
b.
Publicly-Traded Options. A transaction in options is, in effect, a bet on the short- term movement of the
Company’s stock, and therefore creates the appearance that the director, officer or employee is trading based on inside
information. Transactions in options also may focus the director’s, officer’s or employee’s attention on short-term performance at
the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative securities
involving the Company, on an exchange or in any other organized market, are prohibited by this Policy Statement. (Option
positions arising from certain types of hedging transactions are governed by the section below captioned “Hedging
Transactions”).
c.
Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker without the
customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a
loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a
time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company securities,
directors, officers and other employees are prohibited from holding Company securities in a margin account or pledging
Company securities as collateral for a loan. An exception to this prohibition exists where a person wishes to pledge Company
securities as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan
without resort to the pledged securities.
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale
contracts, allow a director, officer or employee to lock in much of the value of his or her stock holdings, often in exchange for all
or part of the potential for upside appreciation in the stock. These transactions allow the director, officer or employee to continue
to own the covered securities, but without the full risks and rewards of ownership. When that occurs, the director, officer or
employee may no longer have the same objectives as the Company’s other stockholders. Therefore, the Company discourages
you from engaging in such transactions. Any person wishing to enter into such an arrangement must first pre-clear the proposed
transaction with the Board of Directors. Any request for pre-clearance of a hedging or similar arrangement must be submitted to
the General Counsel for approval by the Board of Directors at least one week prior to the proposed execution of documents
evidencing the proposed transaction and must set forth a justification for the proposed transaction.
6
Post-Termination Transactions. The Policy Statement continues to apply to your transactions in Company securities
even after you have terminated service as an employee, officer or director of the Company. If you are in possession of material
nonpublic information when your service terminates, you may not trade in Company securities until that information has become
public or is no longer material.
Event Specific Black-Outs; Cancellation of Existing Orders. The Company may, on occasion, engage in a major
transaction or experience a significant event which would constitute material inside information. The Company reserves the right
to enforce a trading window, and, in its sole discretion, may prohibit you from trading in Company stock during such transaction
or event. As such, the Company may require you to cancel existing orders (including good until cancelled orders) and also may
instruct your broker to cancel any such orders. Do not assume that the Company will notify you when it believes you are in
possession of inside information. The law states that you may not trade while in the possession of inside information. Ultimately,
however, the responsibility for adhering to this Policy Statement and avoiding unlawful transactions rests with the
individual employee, officer or director.
Company Assistance. Any person who has a question about this Policy Statement or its application to any proposed
transaction may obtain additional guidance from the Company’s General Counsel at (310) 735-0089. In addition, you should
contact the General Counsel before trading any securities of the Company.
Other Procedures. The Company may change these procedures or adopt such other procedures in the future as the
Company considers appropriate or advisable in order to carry out the purposes of this Policy Statement or to comply with the
federal securities laws.
No Third Party Rights. This Policy Statement is not intended to create any rights in third parties with respect to any
violation of its terms and is also not intended to create any legal liability for the Company or any employee, officer or director
beyond those for which they are already responsible under applicable securities laws.
Certifications. All employees, officers and directors must certify their understanding of, and intent to comply with, this
Policy Statement. A copy of the certification that all employees (other than executive officers) must sign is attached to this Policy
Statement. Please return an executed copy of the attached certification immediately. Directors, executive officers and certain key
employees who have been notified by the Company’s General Counsel are also subject to additional restrictions on their
transactions in Company securities, which are described in an Addendum to this Policy Statement.
Administration. The Company’s General Counsel is responsible for administration of this policy.
7
ADDENDUM TO STATEMENT OF
COMPANY POLICY REGARDING
INSIDER TRADING
FOR
RESTRICTED PERSONS
Effective March 11, 2021
Updated May 25, 2023
To help prevent inadvertent violation of federal securities laws and to avoid the appearance of trading while in possession
of or while aware of inside information, the Company’s Board of Directors has adopted this Addendum to the Statement of
Company Policy Regarding Insider Trading (the “Addendum”). This Addendum applies to directors, executive officers, and
certain key employees designated by the Company’s General Counsel (“Restricted Persons”). The Company’s General Counsel
may from time to time designate new individuals to become subject to this Addendum. This Addendum is in addition to and
supplements the Company’s Statement of Company Policy Regarding Insider Trading.
Blackout Period. Restricted Persons may not trade in securities in the open market during a no-trade period (“Blackout
Period”). An exception to this prohibition may apply for transactions effected pursuant to a pre-approved Rule 10b5-1 plan as
discussed below. The Company’s quarterly Blackout Period begins at the end of the fifteenth calendar day of the third month of
every fiscal quarter and continues until the second full trading day after the Company’s earnings for that quarter are publicly
released. If, for example, the Company were to make an announcement on a Monday during market hours or after the conclusion
of trading, the Blackout Period would run until the commencement of trading on Thursday. If the Company were to make an
announcement on a Monday before the commencement of trading, the Blackout Period generally would run until the
commencement of trading on Wednesday (in the absence of intervening market holidays). If an announcement were made on a
Friday after the conclusion of trading, Wednesday generally would be the first eligible trading day after the announcement. If an
announcement were made on a Friday before the commencement of trading, Tuesday generally would be the first eligible trading
day after the announcement. The General Counsel may impose additional Blackout Periods for all or some Covered Individuals
and other employees when the Company may be aware of material nonpublic information as the General Counsel deems
necessary or appropriate. All Covered Individuals also are subject to all other restrictions in this policy.
Pre-clearance Procedures. Each Restricted Person must obtain pre-clearance from the Company’s General Counsel
before engaging in any transaction in the Company’s securities the following transactions (including any transactions by their
immediate family members) in transactions involving the Company’s securities. A request for pre-clearance should be submitted
to the Company’s General Counsel at least two business days in advance of the proposed transaction. The Company’s General
Counsel is under no obligation to approve a trade submitted for pre-clearance, and may determine not to permit the trade.
Clearance of a transaction is valid only for a 48-hour period. The Company may on occasion issue interim earnings guidance or
other potentially material information by means of a press release, SEC filing on Form 8-K or other means designed to achieve
widespread dissemination of the information. You should anticipate that trades are unlikely to be pre-cleared while the Company
is in the process of assembling the information to be released and until the information has been released and fully absorbed by
the
8
market.
10b5-1 Plans. Under SEC Rule 10b5-1, a person may have an affirmative defense to insider trading liability for transactions in
the Company’s securities that are effected pursuant to a written contract or plan meeting certain requirements. In short, the rule
presents an opportunity for a person to pre-arrange a sale or purchase of the Company’s securities (including an option exercise),
provided that, at the time the person establishes such a plan, he or she is not aware of material nonpublic information and other
requirements specified by the rule. In order to satisfy Rule 10b5-1, such a plan must meet each of the following requirements, as
applicable, and any other requirements of Rule 10b5-1:
(a) Be documented in writing to instruct another person who is not aware of material nonpublic information to execute the
transactions;
(b) Be established in good faith and at a time when the person is not aware of material nonpublic information and operated in
good faith;
(c) Specify objective criteria (date, price threshold, etc.) used to determine the timing and terms of the purchase or sale, and
otherwise not be subject to any influence or discretion from the person establishing the plan;
(d) Section 16 officers and directors are required to have a cooling off period that begins on the date that a plan is adopted or
modified, and ends on the later of 90 days following such adoption or modification or two business days following the
Company’s disclosure of financial results in a Form 10-Q or Form 10-K, with such cooling off period not to exceed 120
days, unless such cooling off period is not required pursuant to Rule 10b5-1;
(e) Individuals other than Section 16 officers and directors are required to have a cooling off period of 30 days from adoption
or modification of a plan, unless such cooling off period is not required pursuant to Rule 10b5-1;
(f) Section 16 officers and directors will also be required to make representations within the 10b5-1 plan that they are not
aware of any material non-public information and the plan is being adopted or modified in good faith;
(g) Subject to certain exceptions, no person should have more than one 10b5-1 plan in place with a single broker-dealer; and
(h) Subject to certain exceptions, no more than one single-trade 10b5-1 plan should be adopted by a person within a 12-
month period; a “single-trade plan” is one that is designed to effect a purchase or sale of all shares covered by the plan in
a single transaction.
The Company requires pre-approval by the Company’s General Counsel of all Rule 10b5-1 plans relating to the Company’s
securities established by Restricted Persons. In addition, Rule 10b5-1 plans are subject to certain guidelines which have been
approved by the Company’s Board of Directors. The General Counsel will not approve a Rule 10b5-1 plan if a Restricted Person
intends to enter into such plan during a Blackout Period or otherwise adopts a plan which is not in
9
compliance with the Company’s Rule 10b5-1 plan guidelines.
The Company is required to report in its periodic reports filed with the SEC the adoption, material modification, and termination
of Rule 10b5-1 plans and other types of written trading arrangements by its directors and officers as well as the material terms
(other than pricing terms) of such trading arrangements. Section 16 insiders will also be required to indicate within their Form 4
filings whether a purchase or sale was made under a 10b5-1 plan, and the date of adoption of such plan. In addition, gifts of
securities, which previously could be reported after the end of the year on Form 5, are now required to be reported on Form 4
within two business days following such gift.
10
CERTIFICATION
I hereby certify that:
1.
I have read and understand Statement of Company Policy Regarding Insider Trading and Addendum thereto
dated May 25, 2023 (the “Policy Statement”). I understand that the General Counsel of CarParts.com, Inc. (the “Company”) is
available to answer any questions I have regarding the Policy Statement.
2.
I agree that I will comply with the Policy Statement for as long as I am subject to the Policy Statement.
3.
I agree that the Company may at any time and in its sole discretion issue a prohibition on trading in Company
securities and that the Company shall have full power and authority to cancel any outstanding orders, including “good until
cancelled” orders, that I may place, but that I have the sole responsibility for compliance with the Policy Statement rests with me.
I further agree and represent that I will never trade in Company securities while I am in possession of material nonpublic
information regarding the Company.
4.
This certification constitutes consent for the Company to issue any necessary stop-transfer orders to the
Company’s transfer agent to enforce compliance with this Policy Statement.
Signature:
Print Name:
Date: