U.S. Auto Parts Network, Inc.  one of the largest online providers of aftermarket automotive parts and accessories, reported results for the fourth quarter and full year ended December 31, 2019, showing a trimming of sales, but improved gross profit.

Fourth Quarter 2019 Summary vs. Year-Ago Quarter

• Private label sales increased 15% Y/Y.
• Gross profit increased 28% to $21.2 million, with gross margin up 800 basis points to 33.7%.
• Net sales declined as expected to $63.0 million compared to $64.7 million due to reduction of unprofitable business lines.
• Net loss was $(25.1) million or $(0.70) per share, compared to a net loss of $(4.5) million or $(0.13) per share. Q4 2019 includes a $(21.5) million deferred tax valuation allowance.
• Adjusted EBITDA increased 137% to $1.7 million.
• Ended the quarter with no revolver debt.

Full Year 2019 Summary vs. 2018

• Private label sales increased 6% Y/Y.
• Gross profit increased 7% to $84.2 million, with gross margin up 280 basis points to 30.0%.
• Net sales declined as expected to $280.7 million compared to $289.5 million due to reduction of unprofitable business lines.
• Net loss was $(31.5) million or $(0.89) per share, compared to a net loss of $(4.9) million or $(0.14) per share. The change was driven by the deferred tax valuation allowance and transition cost and detention related costs.
• Adjusted EBITDA was $4.5 million vs. $10.4 million.

Management Commentary

“The fourth quarter marked a key inflection point in our business, as the strategies and initiatives we deployed over the course of 2019 began to materialize in our results,” said Lev Peker, CEO of U.S. Auto Parts. “Our elimination of unprofitable revenue and strict focus on private label sales led to our strongest level of gross margin in eight years. Further, our implementation of various cost reduction initiatives has created a leaner and more efficient operating model, which enabled us to more than double adjusted EBITDA to $1.7 million during the quarter. We began our turn-around strategy roughly one year ago, and these exceptional improvements tell us that our strategy is working.

“While we are very proud of our work last year and the improvements we have made. We view these recent results as a guidepost. They are proof we are moving in the right direction, but we do not for a minute think our work is done. There is still plenty we want to accomplish and improve upon, and we have taken concrete steps in 2019 to position U.S. Auto Parts to make further improvements in 2020. In fact, through the first two months of this year, we are currently on pace to generate more than 30% growth in private label sales compared to Q1 2019, resulting in double digit growth in the overall business, while maintaining our strong level of gross margin. We are still in the early innings of taking U.S. Auto Parts to its full potential.”

Fourth Quarter 2019 Financial Results

Net sales in the fourth quarter of 2019 were $63.0 million compared to $64.7 million in the year-ago quarter. As expected, the decline was driven by a proactive reduction of low-margin and unprofitable branded sales, partially offset by a 15% increase in higher-margin private label sales. Private label sales accounted for approximately 90%of sales in the fourth quarter of 2019 compared to 76% in the year ago period.

Gross profit in the fourth quarter increased 28% to $21.2 million compared to $16.6 million last year, with gross margin up 800 bps to 33.7% compared to 25.6%. These improvements were driven by strong growth in private label sales, as well as inventory mix and higher in-stock rates.

Total operating expenses in the fourth quarter were $23.3 million compared to $21.3 million in the fourth quarter last year. The increase was driven by personnel costs related to the new DC & marketing spend.

Net loss in the fourth quarter increased to $(25.1) million compared to $(4.5) million in the fourth quarter last year. This was driven by a valuation allowance of $(21.5) million related to our tax deferred assets.

Adjusted EBITDA in the fourth quarter increased to $1.7 million compared to $0.7M in the year-ago quarter, with the improvements driven by the aforementioned increase in higher-margin private label sales and prudent cost and inventory management.

At fiscal year-end December 28, 2019, the company had no revolver debt and a cash balance of $2.3 million compared to no debt and a $2.0 million cash balance at December 29, 2018.

Key Operating Metrics
		Q4 2019		Q4 2018		Q3 2019
Conversion Rate 1			2.8	%		2.5	%		3.2	%
Unique Visitors (millions) 1			13.3			16.5			13.8
Number of Orders – E-commerce only (thousands)			375			415			441
Number of Orders – Online Marketplace (thousands)			432			346			412
Total Number of Internet Orders (thousands)			807			761			853
Revenue Capture (% Sales) 2			90.7	%		86.7	%		89.3	%
Average Order Value – Total Internet Orders		$	77		$	85		$	78

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1.	Excludes online marketplaces.
2.	Revenue capture is the amount of actual dollars retained after taking into consideration returns, credit card declines and product fulfillment and excludes online marketplaces.

Conference Call

U.S. Auto Parts CEO Lev Peker and CFO/COO David Meniane hosted conference call, followed by a question and answer period March 9. A telephone replay of the conference call is available through March 23, 2020.

Toll-free replay number: 844‑512‑2921
International replay number: 412‑317‑6671
Replay ID: 13698758

U.S. Auto Parts’ flagship websites include www.carparts.com, www.jcwhitney.com, and www.autopartswarehouse.com as well as the Company’s corporate website at www.usautoparts.com.