CarParts.com Q3 2025: Contradictions in Ad Spend, Tariff Impact, Strategic Shifts, and Revenue Decline

Date of Call: None provided

Financials Results

• Revenue: $127.8M, down 12% YOY (vs $144.8M prior year)
• Gross Margin: 33.1%, down from 35.2% in the prior year; up from 32.1% in Q1

Guidance:

• Expect to be free cash flow positive in 2026.
• Continue reducing ad spend (from 17.7% to 12.5% of gross e-commerce revenue) with further improvement expected through 2026.
• Targeting $50M incremental near-term revenue from A-Premium, with potential to exceed $100M annually over time.
• Managing tariff impact via vendor concessions, pricing, inventory prep and sourcing diversification.
• Focus on growing mobile app, fee-based monetization and expanding product assortment to drive profitable growth.

Business Commentary:

* Strategic Investment and Partnerships: - CarParts.com closed on a $35.7 million strategic investment from A-Premium, ZongTeng Group, and CDH Investments. - The investment aims to enhance product assortment, logistics capabilities, and capital positions for sustainable growth.

• Earnings and Profitability Improvement:
• Revenue for Q3 was $128 million, down 12% year-over-year, driven by a shift in consumer acquisition strategies.

• Profitability improved with adjusted EBITDA and free cash flow both increasing quarter-over-quarter despite seasonal headwinds.

• Operational Efficiency and Cost Management:

• The company streamlined corporate headcount and reduced underperforming software, aligning operational fixed costs with volume.

• Gross margin improved from 32.1% in Q1 to 33.1% in Q3, with variable contribution margin expanding to low 9% range.

• Customer Acquisition and Retention Focus:

• CarParts.com shifted from volume-focused acquisition through paid search to a more balanced approach emphasizing retention, mobile app, and owned channels.
• This strategic pivot aimed to lower acquisition costs, increase customer lifetime value, and drive more predictable profitability.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management emphasized strategic progress: closed $35.7M strategic investment, Q3 gross margin 33.1% with contribution margin expansion quarter-to-quarter, adjusted EBITDA and free cash flow improved sequentially, and stated "We expect to be free cash flow positive in 2026." Focus on partnerships, cost discipline and profitable customer acquisition.

Contradiction Point 1

Ad Spend and Profitability Focus

It involves changes in strategic priorities and operational efficiency, affecting investor expectations and financial forecasts.

Can you provide an update on the progress of your strategic initiatives? - John Blackledge (Cowen and Company)

20251111-2025 Q3: Ad spend decreased from 17.7% to 12.5% of gross e-commerce revenue. - Ryan Lockwood(CFO)

Can you elaborate on the company's strategic investments and partnerships? - Ryan Lockwood, Chief Financial Officer, CarParts.com

2025Q3: This quarter, we saw a rather significant improvement in our marketing efficiency by reducing ad spend by 5%. - Ryan Lockwood(CFO)

Contradiction Point 2

Impact of Tariffs on Business

It addresses how the company is managing the tariff environment and its impact on operations and cost structure.

What is the status of your strategic initiatives? - John Blackledge (Cowen and Company)

20251111-2025 Q3: Approximately 20% of our private label products are imported from China. We're actively managing the tariff environment, implementing cost concessions, dynamic pricing adjustments, and optimizing our supply chain. - David Meniane(CEO)

What were the key financial results for Q3? - Ryan Lockwood, Chief Financial Officer, CarParts.com

2025Q3: We are seeing an increase in our outbound freight costs, which is due to the global transportation environment, and we are also seeing a material impact from the tariffs. - Ryan Lockwood(CFO)

Contradiction Point 3

Strategic Initiatives and Financial Impact

It involves the strategic initiatives implemented by the company and their impact on financial performance, which are crucial for investor expectations.

What is the status of your strategic initiatives? - David Meniane (CEO & Director)

20251111-2025 Q3: Our strategic changes focus on profitability and efficiency. Ad spend decreased from 17.7% to 12.5% of gross e-commerce revenue. Contribution margin improved by over 300 basis points from Q1 to Q3, demonstrating effective implementation of strategic changes. - Ryan Lockwood(CFO)

- Ryan Lockwood (Chief Financial Officer)

2025Q2: Our marketing efficiency improved as measured by cost per acquisition and cost per order dropped by 4% and 5% respectively. Our mobile app and e-commerce revenues reached record levels. We've seen sequential improvements in our e-commerce and offline channels. - Ryan Lockwood(CFO)

Contradiction Point 4

Revenue Growth and Strategic Shifts

It involves the company's reported revenue growth and the impact of strategic shifts, which are critical for assessing the company's performance and future prospects.

Can you provide an update on financial performance and the outlook for the future? - Ryan Lockwood (Chief Financial Officer)

20251111-2025 Q3: Revenue in Q3 was $127.8 million, down 12% year-over-year. Gross profit was $42.3 million, down 17% compared to the prior year due to increased outbound freight and tariff charges. - Ryan Lockwood(CFO)

Are there any explicit Q&A segments in this earnings call transcript? - Ryan Lockwood (Chief Financial Officer)

2025Q2: Revenue increased by 5% to $151.9 million, driven by e-commerce and offline channels, partially offset by softness in the marketplace channel. - Ryan Lockwood(CFO)