Q3 2023 CarParts.com Inc Earnings Call
Speaker 1: transcript
Speaker 1: Senior Vice President of Global Communications and Culture. Please go ahead.
President of Global Communications and culture. Please go ahead.
Speaker 2: transcript
Speaker 2: Hello everyone, and thank you for joining us for the CarParts.com third quarter 2023 conference call.
Hello, everyone and thank you for joining us for the car parts Dot Com third quarter 2023 conference call.
Speaker 2: transcript
Speaker 2: I'd like to start by welcoming the investors and others who are attending this meeting remotely. Joining me today from the company are David Mignon, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Huffaker, Chief Operating Officer.
I'd like to start by welcoming the investors and others, who are attending this meeting remotely joining.
Joining me today from the company are David Mignon, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael How Baker Chief operating officer.
Speaker 2: transcript
Speaker 2: Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business under the federal securities laws.
Before I turn it over to David to start the meeting I have some important disclosures there.
Their prepared remarks and responses to your questions could contain certain forward looking statements related to the business under the federal Securities laws.
Speaker 2: transcript
Speaker 2: Actual results may differ materially from those contained in or implied by these forward looking statements due to the risks and uncertainties associated with the business.
Actual results may differ materially from those contained in or implied by these forward looking statements due to the risks and uncertainties associated with the business.
Speaker 2: transcript
Speaker 2: For a discussion of material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10K and 10Qs as filed with the SEC, both of which can be found on our Investor Relations website.
For a discussion of material risks and other important factors that could affect results. Please refer to the car parts Dotcom annual report on Form 10-K, and 10-Qs as filed with the SEC both of which can be found on our Investor Relations website.
Speaker 2: transcript
Speaker 2: On the call, both GAP and non- GAAP financial measures will be discussed. A reconciliation of GAP to non- GAAP financial measures is provided in the carparts.com press release issue today. And with that, I would now like to turn it over to David.
On the call both GAAP and non-GAAP financial measures will be discussed a reconciliation of GAAP to non-GAAP financial measures is provided in the car Parc Dotcom press release issued today.
And with that I would now like to turn it over to David.
Yeah.
Speaker 3: transcript
Speaker 3: Thank you, Tina, and thank you to all our stakeholders for joining us.
Thank you Tina and thank you to all our stakeholders for joining us.
Speaker 3: transcript
Speaker 3: Today we reported our 15th consecutive quarter of year over year growth with $167 million in revenue, up 1% from the prior year period of $165 million. And on a two-year stack revenues for the quarter are up 17%. Adjusted EBITDA was $3 million and we repurchased another 245,000 shares during the quarter.
Today, we reported our 15th consecutive quarter of year over year growth with $167 million in revenue up 1% from the prior year period of $165 million.
And on a two year stack revenues for the quarter are up 17%.
Adjusted EBITDA was $3 million and we repurchased another 245000 shares during the quarter the.
Speaker 3: transcript
Speaker 3: The $67 million in cash on our balance sheet at the end of the quarter demonstrates the resilience of our business, given the challenging economic environment.
The $67 million in cash on our balance sheet at the end of the quarter demonstrates the resilience of our business given the challenging economic environment.
Speaker 3: transcript
Speaker 3: We generated strong unit growth in the quarter, even with a softening consumer who is choosing to defer non-essential purchases. As a result, we experienced price deflation in the most recent quarter, which muted our net revenue growth. However, we believe that as consumer confidence rebounds, we will be well positioned to support them with the parts and resources they need.
We generated strong unit growth in the quarter, even with a softening consumer who is choosing to defer nonessential purchases.
As a result, we experienced price deflation in the most recent quarter, which muted our net revenue growth. However, we believe that as consumer confidence rebounds, we will be well positioned to support them with the parts and resources they need.
Speaker 3: transcript
Speaker 3: On our last earnings call, we discussed our six strategic priorities that range from table stakes to industry disruption. We believe by focusing on these growth levers, we can profitably reach $1 billion in company revenues and beyond. E-commerce fundamentals, digital transformation, assortment and catalog, marketing and customer experience, innovation, supply chain and logistics. Let me briefly-
On our last earnings call, we discussed our six strategic priorities that range from table Stakes to industry disruption, we believe by focusing on these growth levers. We can profitably reached $1 billion in company revenues and beyond E Commerce fundamentals digital transformation assortment and catalog.
Marketing and customer experience innovation supply chain and logistics let.
Let me briefly touch on each of these.
Speaker 3: transcript
Speaker 3: First, e-commerce fundamentals. Over the last few months, we have made impactful changes to our current website, including search improvements that give more accurate results to our customers. Within the first month of implementing these changes, we generated an incremental $250,000 in revenue.
First e-commerce fundamentals over the last few months, we have made impactful changes to our current website, including search improvements that give more accurate results to our customers within the first month of implementing these changes we generated an incremental $250000 in revenues.
Speaker 3: transcript
Speaker 3: Currently, we're upgrading and modernizing our website platform, which will allow us to add features that include continuous improvements in search results, cross-cell and up-cell capabilities, loyalty programs, VIN lookup, and more. These enhancements are aimed to make the digital experience as seamless and simple as walking up to the counter at an auto-part store. We expect the platform modernization to be completed by the end of Q1, 2024, and subsequent improvements to follow.
Currently we're upgrading and modernizing our website platform, which will allow us to add features that include continuous improvements in search results cross sell and up sell capabilities loyalty program, then look up and more these enhancements are aimed to make the digital experience as seamless and simple as walking up to.
The counter at an auto parts store, we expect the platform modernization to be completed by the end of Q1 2024 and subsequent improvements to follow.
Speaker 3: transcript
Speaker 3: We also completed the successful launch of our mobile app. To date, we have over 70,000 downloads and $2 million of revenue. We believe that building a direct relationship with the 80% of our customers that use their mobile phones will reduce our reliance on search engines and performance marketing. By engaging with customers through the app, we will have a cost effective way to promote our brands and products while incentivizing repeat purchases.
We also completed the successful launch of our mobile App to date, we have over 70000 downloads and $2 million of revenue, we believe that building a direct relationship with the 80% of our customers that use their mobile phones will reduce our reliance on search engines and performance marketing.
By engaging with customers through the App, we will have a cost effective way to promote our brands and products, while incentivising repeat purchases.
Speaker 3: transcript
Speaker 3: Second, digital transformation. We continue to leverage our new ERP by retiring old systems, migrating to the clouds, and upgrading critical infrastructures. These initiatives fundamentally change the way we execute by removing roadblocks and legacy technology that, saving the way for a multi-billion-dollar scalable infrastructure.
Second digital transformation, we continue to leverage our new ERP by retiring old systems migrating to the cloud and upgrading critical infrastructures. These initiatives fundamentally changed the way, we execute by removing roadblocks and legacy technology that paving the way for <unk>.
<unk> billion scalable infrastructure.
Speaker 3: transcript
Speaker 3: Consequently, we have kicked off an upgrade and cloud migration of both our order management system and proprietary catalog. These are substantial upgrades and we expect them to take approximately 24 months. Once complete, we will not only have access to more features and functionality, but also save up to $1 million in free cash flow per year.
Consequently, we have kicked off an upgrade and cloud migration of both our order management system and proprietary catalog. These are substantial upgrades and we expect them to take approximately 24 months.
Once complete we will not only have access to more features and functionality, but also save up to $1 million in free cash flow per year.
Speaker 3: transcript
Speaker 3: Third, assortment and catalog. We're evolving from our inception as a collision parts retailer to establish ourselves as the go-to destination for all automotive repair and maintenance requirements. This transformation will enable us to expand our market share and grow our repeat customer base.
Third assortment and catalog, we're evolving from our inception as a collision parts retailer to establish ourselves as the go to destination for all automotive repair and maintenance requirements. This transformation will enable us to expand our market share and grow our repeat customer base to achieve this we are incorporating.
Speaker 3: transcript
Speaker 3: To achieve this, we are incorporating additional brands, categories, and products all while upholding our promise of a carefully curated assortment. Our ongoing focus remains on maximizing gross profit dollars with both national brands and our house branded products.
Aiding additional brands categories and products, all while upholding our promise of a carefully curated assortment our ongoing focus remains on maximizing gross profit dollars with both national brands and our house branded products.
Speaker 3: transcript
Speaker 3: fourth, marketing and customer experience. I want to emphasize that at CarCarts, the customer is at the center of everything we do. With over one third of our e-commerce revenues coming from repeat customers, we continue to make considerable inroads at building a direct relationship with them and moving us away from a dependency on search and page channels.
Fourth marketing and customer experience.
I want to emphasize that our carhartt the customer is at the center of everything we do with over one third of our E Commerce revenues coming from repeat customers. We continue to make considerable inroads at building a direct relationship with them and moving us away from a dependency on search and paid channels in.
Speaker 3: transcript
Speaker 3: In the spirit of growing our community and meeting our customers where they are, we have recently launched our first podcast called In the Garage by CarParts.com, which is now available on all platforms, including Spotify and YouTube.
In the spirit of growing our community and meeting our customers where they are we have recently launched our first podcast called in the garage by car parts Dot Com, which is now available on all platforms, including Spotify and Youtube.
Speaker 3: transcript
Speaker 3: Our YouTube channel continues to grow with both educational and instructional videos. The objective is clear, to remove the stress from a historically burdensome process. We aim to do this by building a hub for consumers to learn about their vehicle's maintenance and repair needs with links to purchase products directly from our website or app and how to videos that empower them to tackle easy jobs.
Our Youtube channel continues to grow with both educational and instructional videos. The objective is clear to remove this stressed from a historically burdensome process. We aim to do this by building a hub for consumers to learn about their vehicles maintenance and repair needs with links to purchase products directly from our website.
Our app and how to videos that empower them to tackle easy jobs.
Speaker 3: transcript
Speaker 3: Next with a 105 year heritage and ESOS deeply rooted in the automotive industry and the quintessential garage staple. We're excited to announce the return of JCWay.
Next with a 105 year heritage and ethos deeply rooted in the automotive the automotive industry and the quintessential garage staple we're excited to announce the return of JC Whitney.
Speaker 3: transcript
Speaker 3: If you head to jcwittney.com, you will find our new lifestyle-driven website where we are re-engaging with the community through content, events, and collaborations. Feel free to sign up for the inaugural edition of our new magazine that is in homage to the iconic catalog. And this is just the beginning. We expect to have more updates over the next year with a full brand strategy around our crown jewel trademark.
If you had to JC Whitney Dot Com, you will find our new lifestyle, driven web site, where we are re engaging with the community through content events and collaborations feel free to sign up for the inaugural addition of our New magazine that is an homage to the iconic catalog and this is just the beginning we expect to have more updates over the.
Next year with a full brand strategy around our crown jewel trademark.
Speaker 3: transcript
Speaker 3: At the intersection of our assortment and marketing priorities, we will also be reducing the number of house brands on our website. This will allow us to focus our capital, resources, and efforts on building J.C. Whitney, which we believe will result in a more efficient marketing spend and accelerated growth.
At the intersection of our assortment and marketing priorities. We will also be reducing the number of house brands on our website. This will allow us to focus our capital resources and efforts on building JC Whitney, which we believe will result in a more efficient marketing spend and accelerated growth.
Speaker 3: transcript
Speaker 3: Next, innovation. Our do-it-for-me pilot is performing in line with expectations with continued strong customer NPS score. Our current e-commerce strategic priorities align perfectly with the next set of enhancements for this integration. The upgrades to search results, including cross-sell, upsell, and VIN lookup, will be catalyst to the next iteration of this offering.
Next innovation our do it for me pilot is performing in line with expectations with continued strong customer NPS score.
Our current e-commerce strategic priorities align perfectly with the next set of enhancements for this integrations the upgrades to search results, including cross sell upsell and then look up will be catalyst to the next iteration of this offering.
Speaker 3: transcript
Speaker 3: In other areas of the business, we are exploring multiple ways to disrupt the industry. Blending generative AI, proprietary language models, and natural language processing with decades of customer data and our proprietary catalog will become central to building a competitive mode around our business.
In other areas of the business, we are exploring multiple ways to disrupt the industry blending generative AI proprietary language models and natural language processing with decades of customer data and our proprietary catalog will become central to building a competitive moat around our business.
Speaker 3: transcript
Speaker 3: Over time, we believe these technologies will allow us to run on a lower fixed operating expense ratio and get us the operating leverage we need to increase free cash flow. And finally,
Over time, we believe these technologies will allow us to run on a lower fixed operating expense ratio and get us the operating leverage we need to increase free cash flow.
And finally supply chain and logistics.
Speaker 3: transcript
Speaker 3: There is a certain level of customer expectations when it comes to delivery speed. With fast shipping becoming more of the norm, paired with the reality that our customers need their part to get back on their journey, we have been very focused on improving the speed of click to delivery. And I'm happy to announce that our customers are getting our parts faster than they have at any point in our company history. For more details on our supply chain and logistics, I would like to turn it over to Michael.
There is a certain level of customer expectation when it comes to delivery speed with fast shipping becoming more of the norm paired with the reality that our customers need their part to get back on their journey, we have been very focused on improving the speed of click to delivery and I'm happy to announce that our customers are getting our parts faster than they have it.
Any point in our company history for more details on our supply chain and logistics I would like to turn it over to Michael.
Speaker 3: transcript
Speaker 3: Thank you, David. I'm happy to announce that there have been several other improvements that the team has been working on to increase efficiency, reduce costs, and improve the customer satisfaction.
Thank you David I am happy to announce that there have been several other improvements that the team has been working on to increase efficiency reduce costs and improve the customer satisfaction. We recently closed our return center in Peru, and now have decentralized returns across the network. This has resulted in improved processing and lower.
Speaker 4: transcript
Speaker 4: We recently closed our return center in Peru and now have decentralized returns across the network. This has resulted in an improved processing and lower returns cost.
Returns cost.
Speaker 4: transcript
Speaker 4: With our original Las Vegas lease expiring, we have chosen to move our Nevada warehouse to a brand new, larger location, which will almost double our footprint within the Las Vegas metro. This building will serve as our West Coast flagship and will carry between 80 to 90% of our assortment.
With our original Las Vegas lease expiring, we have chosen to move our novato warehouse to a brand new larger location, which will almost double our footprint within the Las Vegas Metro. This building will serve as our west coast flagship and will carry between 80% to 90% of our assortment.
Speaker 4: transcript
Speaker 4: It will feature a state of the ARC pick module and extensive conveyance that will allow for a significant reduction in operating costs due to pick efficiency in both our conveyor belt and non-convable assortment.
It will feature a state of the art pick module and extensive convenience that will allow for a significant reduction in operating costs due to pick efficiency in both our conveyor will and non conveyal assortment.
Speaker 4: transcript
Speaker 4: This newly expanded assortment will allow us to reduce last mile transportation costs compared to our current shipment topology. We expect this building to begin operating in Q2 2024. From a CAPEX standpoint, we expect to deploy approximately $7 million with an ROI in excess of 30% in the form of lower transportation costs and higher sales.
This newly expanded assortment will allow us to reduce last mile transportation cost compared to our current shipment top biology. We expect this building to begin operating in Q2 2024 from a capex standpoint, we expect to deploy approximately $7 million with an ROI in excess of 30% in the form of lower transportation.
<unk> costs and higher sales. We have also made considerable progress on process optimization inventory placement and technology investments. Let me give you a brief update on each of these.
Speaker 4: transcript
Speaker 4: We have also made considerable progress on process optimization, inventory placement, and technology investments. Let me give you a brief update on each of these.
Speaker 4: transcript
Speaker 4: first process optimization. We continue to make progress on reducing inefficiencies while streamlining existing processes.
First process optimization, we continue to make progress on reducing inefficiencies, while streamlining existing processes.
Speaker 4: transcript
Speaker 4: Our labor costs continue to trend downward, and our year-to-date, year-over-year improvement in labor costs as a percent of revenue is now down almost 60%.
Our labor costs continue to trend downward and our year to date year over year improvement in labor cost as a percent of revenue is now down almost 60 basis points.
Speaker 4: transcript
Speaker 4: Second, inventory placement. While we have always optimized inventory placement, the global supply chain shock led to suboptimal inventory placement across the network. Now that supply chain issues have abated, we are fully optimizing placement within our current network. This will serve to mitigate last mile transportation costs and lower click to deliver times across the network.
Second inventory placement, while we have always optimize inventory placement the global supply chain shock led to suboptimal inventory placement across the network now that supply chain issues have abated, we are fully optimizing placement within our current network. This will serve to mitigate last mile transportation costs and lower <unk>.
Click to deliver times across the network.
Speaker 4: transcript
Speaker 4: And third, supply chain technology investments. We recently installed our first networked KubeScan machine, which will allow for more accurate dimensions to leverage our proprietary cartonization tool.
Third supply chain technology investments, we recently installed our first network cheapest game machine, which will allow for more accurate dimensions to leverage our proprietary carbonization tools combining this with our recently completed audit to optimize our box assortment, we will reduce the amount of air shipping in each package. These implementations.
Speaker 4: transcript
Speaker 4: Combining this with a recently completed audit to optimize our box assortment, we will reduce the amount of air shipping in each package. These implementations, long-term, will further give us greater control of our last mile costs. Over time, we think that the investments we are making will result in a minimum of 100 basis points improvements from current levels that should flow to the bottom line.
Long term will further give us greater control of our last mile costs over time, we think that the investments. We are making will result in a minimum of 100 basis points improvements from current levels that should flow to the bottom line.
Speaker 4: transcript
Speaker 4: As always, I want to thank our Fulfillment Center team members for their commitment to safety, hard work, and their incredible performance this year. I will now turn it over to Ryan.
As always I want to thank our fulfillment center team members for their commitment to safety hard work and their incredible performance. This year I will now turn it over to Ryan.
Speaker 4: transcript
Speaker 4: Thank you, Michael. Q3 marked our 15th consecutive quarter of year-over-year growth with revenues of $167 million, up 1% from $165 million.
Thank you Michael Q3 marked our 15th consecutive quarter of year over year growth with revenues of $167 million up 1% from $165 million.
Speaker 4: transcript
Speaker 4: in the third quarter. We still expect full year revenues to be up in the low single digits year over year while remaining free cash flow positive and maintaining a robust balance.
In the third quarter, we still expect full year revenues to be up in the low single digits year over year, while remaining free cash flow positive and maintaining a robust balance sheet.
Speaker 4: transcript
Speaker 4: Gross profit for the quarter was $54.8 million, down slightly from the $56.1 million in the prior year. Gross margin was 32.9% of sales versus $34.1 in the prior year as we continue to experience higher outbound transportation costs and a shift in product mix.
Gross profit for the quarter was $54 8 million down slightly from the $56 1 million in the prior year.
Gross margin was 32, 9% of sales versus $34 one in the prior year as we continue to experience higher outbound transportation costs and a shift in product mix.
Tina Mirfarsi: Senior Vice President of Global Communications and Culture. Please go ahead. Hello, everyone, and thank you for joining us for the carparts.com third quarter 2023 conference call. I'd like to start by welcoming the investors and others who are attending this meeting remotely. Joining me today from the company are David Meniane, Chief Executive Officer, Ryan Lockwood, Chief Financial Officer, and Michael Huffaker, Chief Operating Officer.
Speaker 4: transcript
Speaker 4: gap net loss for the quarter was 2.5 million compared to a net loss of 0.9 million in the prior year.
GAAP net loss for the quarter was $2 5 million compared to a net loss of $0 9 million in the prior year.
Speaker 4: transcript
Speaker 4: We reported adjusted EBITDA of $3 million, down from $6.3 million in the prior year period. This was driven by higher outbound freight costs, increased performance marketing spend, and the economic impact of consumer spending patterns. However, this was partially offset by improvements in warehouse fulfillment costs.
We reported adjusted EBITDA of $3 million down from $6 3 million in the prior year period. This was driven by higher outbound freight costs increased performance marketing spend and the economic impact of consumer spending patterns. However, this was partially offset by improvements in warehouse fulfillment costs.
Tina Mirfarsi: Before I turn it over to David to start the meeting, I have some important disclosures. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business under the federal security's laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to the risks and uncertainties associated with the business.
Speaker 4: transcript
Speaker 4: Digital transformation should impact our cash and operating expense over the next 18 to 24 months by approximately 1 to 2 million dollars, which consists of overlapping software and maintenance expense.
Digital transformation should impact our cash in operating expense over the next 18 to 24 months by approximately $1 million to $2 million.
Which consists of overlapping software and maintenance expense.
Speaker 4: transcript
Speaker 4: To clarify, this is because we'll be paying for the new systems that we're implementing while also maintaining the old systems we're upgrading. But as David mentioned, we believe we can save up to 1 million per year.
To clarify this is because we will be paying for the new systems that we're implementing while also maintaining the old systems, we're upgrading.
But as David mentioned, we believe we can save up to $1 million per year.
Tina Mirfarsi: For a discussion of material risks and other important factors that could affect results, please refer to the carparts.com annual report on Form 10K and 10Qs as filed with the SCC, both of which can be found on our investor relations website. On the call, both GAP and non-GAP financial measures will be discussed. A reconciliation of GAP to non-GAP financial measures is provided in the carparts.com press release issue today.
Speaker 4: transcript
Speaker 4: once we upgrade our infrastructure and move to the cloud, which we believe
Once we upgrade our infrastructure and move to the cloud.
Which we believe.
Speaker 4: transcript
Speaker 4: will provide an immediate ROI once implemented and allow us to execute much more efficiently in the years ahead.
We will provide an immediate ROI once implemented and allow us to execute much more efficiently in the years ahead.
Speaker 4: transcript
Speaker 4: Turning to the balance sheet, we ended the quarter with $67 million of cash and no revolver debt, up from $16.7 million of cash from the prior year period. For the quarter, we generated $808,000 of interest income.
Turning to the balance sheet, we ended the quarter with $67 million of cash and no revolver debt up from $16 7 million of cash from the prior year period for the quarter, we generated $808000 of interest income in.
Speaker 4: transcript
Speaker 4: In the current economic environment, our significant cash position continues to highlight the resilience of our business model. And we are proud of our relentless dedication to financial distance.
In the current economic environment, our significant cash position continues to highlight the resilience of our business model and we are proud of our relentless dedication to financial discipline. We believe we have ample liquidity and have no intention or need to raise capital at current valuations the inventory balance at quarter end was $124 million.
David Meniane: And with that, I would now like to turn it over to David. Thank you, Tina, and thank you to all our stakeholders for joining us. Today, we reported our 15th consecutive quarter of year-over-year growth with $167 million in revenue, up 1% from the prior year period of $165 million. And on a two-year stack revenues for the quarter are up 17%. Adjusted EBITDA was $3 million, and we repurchased another 245,000 shares during the quarter.
Speaker 4: transcript
Speaker 4: We believe we have ample liquidity and have no intention or need to raise capital at current valuation.
Speaker 4: transcript
Speaker 4: The inventory balance at quarter end was $124 million with pandemic related supply chain disruptions behind us, we can carry less inventory both on hand and in transit, which reduces some of our working capital requirements. However, you can expect us to continue building inventory through the remainder of the year as we prepare for our peak selling season, which occurs late Q1 and continues through Q2.
With pandemic related supply chain disruptions behind us we can carry less inventory both on hand, and in transit, which reduces some of our working capital requirements. However, you can expect us to continue building inventory through the remainder of the year as we prepare for our peak selling season, which occurs late Q1 and continues through Q2.
David Meniane: The $67 million in cash on our balance sheet at the end of the quarter demonstrates the resilience of our business given the challenging economic environment. We generated strong unit growth in the quarter, even with a softening consumer who is choosing to defer non-essential purchases. As a result, we experienced price deflation in the most recent quarter, which muted our net revenue growth. However, we believe that as consumer confidence rebounds, we will be well positioned to support them with the parts and resources they need.
Speaker 4: transcript
Speaker 4: We are also maintaining a disciplined capital allocation program, which includes continuing our current share repurchase plan, if and when it is prudent. With that said, during the third quarter, we repurchased 245,000 shares for approximately $1.1 million.
We are also maintaining a disciplined capital allocation program, which includes continuing our current share repurchase plan, if and when it is prudent.
With that said during the third quarter, we repurchased 245000 shares for approximately $1 1 million.
Speaker 4: transcript
Speaker 4: Under the current share repurchase program, we have approximately $27.4 million remaining of the $30 million authorization that extends through July 2024. We believe that our company is incredibly valuable and the impact of our strategic priorities will compound our value over time through multiple cycles.
Under the current share repurchase program, we have approximately $27 4 million remaining of the $30 million authorization that extends through July 2024, we believe that our company is incredibly valuable and the impact of our strategic priorities will compound our value over time through multiple cycles as.
David Meniane: On our last earnings call, we discussed our six strategic priorities that range from table stakes to industry disruption. We believe by focusing on these growth levers, we can profitably reach $1 billion in company revenues and beyond. E-commerce fundamentals, digital transformation, assortment and catalog, marketing and customer experience, innovation, supply chain and logistics. Let me briefly touch on each of these. First, e-commerce fundamentals. Over the last few months, we have made impactful changes to our current website, including search improvements that give more accurate results to our customers.
Speaker 4: transcript
Speaker 4: As we look to the remainder of the year, we'll continue balancing financial prudence with opportunistically returning capital to shareholders. I would like to now turn it over to David.
As we look to the remainder of the year, we will continue balancing financial prudence with Opportunistically, returning capital to shareholders I would like to now turn it over to David for final remarks.
Speaker 3: transcript
Speaker 3: Thank you both. At CarParts.com, we put the customer at the center of everything we do, focusing on strategic priorities that we believe are making our company significantly more valuable and that will benefit our stakeholders for years to come. Our journey is powered by digital transformation to create a best-in-class mobile experience, a growing curated assortment, fulfillment network expansion, and harnessing advanced data science and AI.
At <unk> Dot Com, we put the customer at the center of everything we do focusing on strategic priorities that we believe are making our company significantly more valuable and that will benefit our stakeholders for years to come our journey is powered by digital transformation to create a best in class mobile experience are growing <unk>.
David Meniane: Within the first month of implementing these changes, we generated an incremental $250,000 in revenue. Currently, we're upgrading and modernizing our website platform, which will allow us to add features that include continuous improvements in search results, cross-cell and up-cell capabilities, loyalty programs, VIN lookup, and more. These enhancements are aimed to make the digital experience as seamless and simple as walking up to the counter at an auto part store.
Good assortment fulfillment network expansion and harnessing advanced data science and AI. Thank.
Speaker 3: transcript
Speaker 3: Thank you to the entire Car Parts team. We're proud of your hard work and your investment in our company's long-term success.
Thank you to the entire car parts team. We're proud of your hard work and your investment in our company's long term success working alongside you everyday is what makes us so tremendously excited for our future we could not do this without you. Thank you to everyone who has joined US today and as we see at <unk> Dot com get after it.
David Meniane: We expect the platform modernization to be completed by the end of Q1, 2024, and subsequent improvements to follow.
Speaker 4: transcript
Speaker 4: Working alongside you every day is what makes us so tremendously excited for our future. We could not do this without you. Thank you to everyone who's joined us today and as we say at carparts.com, get after it. We'll now turn it over to the operator to open it up for questions.
I will now turn it over to the operator to open it up for questions.
Speaker 1: transcript
Speaker 1: As a reminder to ask a question please press star 11 on your telephone and wait for your name to be announced. To withdraw your question please press star 11 again.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
David Meniane: We also completed the successful launch of our mobile app. To date, we have over 70,000 downloads and $2 million of revenue. We believe that building a direct relationship with the 80% of our customers that use their mobile phones will reduce our reliance on search engines and performance marketing. By engaging with customers through the app, we will have a cost-effective way to promote our brands and products while incentivizing repeat purchases.
Speaker 1: transcript
Speaker 1: Please stand by when we compile the Q&A roster.
Please standby, while we compile the Q&A roster.
Speaker 1: transcript
Speaker 1: Our first question comes from the line of Ryan Sigdall from Craig Hallum Capital Group.
Our first question comes from the line of Ryan Cig Dahl from Craig Hallum Capital Group.
Hey, good afternoon guys.
Hey, How's it going.
Speaker 5: transcript
Speaker 5: Good, good, good. Ryan want to start with guidance. So you said you're still expecting low single digit revenue growth this year. Previously, I guess last quarter, he said 3 to 5%. So are we talking the same thing there? Or is it has there been a change here?
Got it good well Ryan want to start with guidance.
So you said, you're still expecting low single digit revenue growth. This year previously I guess last quarter, you said, 3% to 5%. So are we talking the same thing there.
David Meniane: Second, digital transformation. We continue to leverage our new ERP by retiring old systems, migrating to the clouds, and upgrading critical infrastructures. These initiatives fundamentally change the way we execute by removing roadblocks and legacy technology that, saving the way for a multi-billion-dollar scalable infrastructure. Consequently, we have kicked off an upgrade and cloud migration of both our order management system and proprietary catalog. These are substantial upgrades, and we expect them to take approximately 24 months. Once complete, we will not only have access to more features and functionality, but also save up to $1 million in free cash flow per year.
Has there been share yes.
Speaker 4: transcript
Speaker 4: Yeah, I think last time we said low to mid and I think we've narrowed it just to low to kind of give you guys a little bit more color.
I think last time, we said low to mid and I think we've narrowed it just below two.
Kind of give you guys a little bit more color.
Okay.
Speaker 5: transcript
Speaker 5: And then maybe can you talk about trends within the quarter kind of month to month on sales and then also how much was add spend up in the quarter and did that trend similarly to sales in the quarter?
And then maybe can you talk about trends within the quarter kind of month to month on sales and then also how much AD spend up in the quarter and did that trend similarly to sales in the quarter.
Speaker 6: transcript
Speaker 6: Sure, yeah. So for the month about Cobra, you know, we were actually up in units, but down slightly in dollars due to the deflation that David mentioned. But, you know, I think for us, as we've always said, we're going to focus on maximizing gross profit dollars net of variable costs. And in that respect, you know, we were running similar gross profit dollars, but higher variable contribution margin than prior year. I think overall for marketing.
Sure, Yes, so for the month of October we were actually up in units, but down slightly in dollars due to the deflation that David mentioned.
I think for US as we've always said, we're going to focus on maximizing gross profit dollars net of variable costs and in that respect we were running similar gross profit dollars, but higher variable contribution margin than prior year and I think overall for marketing.
David Meniane: Third, assortment and catalog. We're evolving from our inception as a collision parts retailer to establish ourselves as the go-to destination for all automotive repair and maintenance requirements. This transformation will enable us to expand our market share and grow our repeat customer base. To achieve this, we are incorporating additional brands, categories, and products all while upholding our promise of a carefully curated assortment. Our ongoing focus remains on maximizing gross profit dollars with both national brands and our house branded products.
Speaker 4: transcript
Speaker 4: I believe we were sequentially down on marketing, but up slightly from a year ago. We're still pretty confident in these marketing efforts, you know, as we go through the remainder of the year, and we look to, you know, hit that low single-digit growth rate for the full year.
I believe we were sequentially down on marketing, but up slightly from a year ago, we're still pretty confident in these marketing efforts.
As we go through the remainder of the year and we look to hit that that low single digit growth rate for the full year.
Speaker 5: transcript
Speaker 5: And just on gross margin, it's the weakest it's been in several years here, I guess. Can you talk through.
And just on gross margin.
David Meniane: Fourth, marketing and customer experience. I want to emphasize that at car parts, the customer is at the center of everything we do. With over one-third of our e-commerce revenues coming from repeat customers, we continue to make considerable inroads at building a direct relationship with them and moving us away from a dependency on search and paid channels. In the spirit of growing our community and meeting our customers where they are, we have recently launched our first podcast called In the Garage by carparts.com, which is now available on all platforms including Spotify and YouTube.
The weakest it's been in several years here I guess can you talk through the freight versus mix and what exactly within mix was negative in the quarter and then on the freight side can you talk about.
Speaker 5: transcript
Speaker 5: Freight versus mix and what exactly within mix with negative in the quarter and then on the freight side. Can you talk about when the FedEx surcharges went in places here versus last year? Or if there's something else on the outbound side.
When the fed ex surcharges went in place this year versus last year or if there's something else on the outbound side sure.
Speaker 6: transcript
Speaker 6: Sure, yeah. So freight surcharge is kicked in this month. So a little bit later than last year, where they kicked in end of Q at the end of September .
Sure, Yes, so freight surcharges kicked in this month, so a little bit later than last year, where they kicked in end of Q.
The end of September.
Speaker 6: transcript
Speaker 6: For the mixed, for gross margin, it was predominantly frank. I mean, almost the whole amount. Mixed, there was a slight shift in mix. So we went from 13% branded to 16% branded. And as you know, branded generally has a similar gross margin dollar profile, but a lower gross margin percentage profile.
For the mixed for gross margin it was pre dominantly frame I mean, almost the whole amount mix there was a slight shift in mix. So we went from.
David Meniane: Our YouTube channel continues to grow with both educational and instructional videos. The objective is clear to remove the stress from a historically burdensome process. We aim to do this by building a hub for consumers to learn about their vehicles maintenance and repair needs with links to purchase products directly from our website or app and how-to videos that empower them to tackle easy jobs.
13% branded to 16% branded and as you know branded generally has sim.
Similar.
Gross margin dollar profile, but a lower gross margin percentage profile. So as an example, youll have a 100 dollar branded item was 25% margins that makes 25 gross profit dollars.
Speaker 6: transcript
Speaker 6: So as an example, you'll have a $100 branded item with 25% margins that makes 25 gross profit dollars.
David Meniane: Next, with a 105-year heritage and ethos deeply rooted in the automotive industry and the quintessential garage staple, we're excited to announce the return of JC Whitney. If you head to JCWitney.com, you will find our new lifestyle-driven website where we are re-engaging with the community through content, events, and collaborations. Feel free to sign up for the inaugural edition of our new magazine that is in homage to the iconic catalog. And this is just the beginning.
Speaker 6: transcript
Speaker 6: As a corollary, you might have a private label item that sells for $50 with 50% gross profit margins, also for $25 gross profit dollars. So for us, the way we look at it internally, we're pretty agnostic to the $25 versus $25, brought from a gross margin percentage basis. It can compress margins.
Corollary, you might have a private label item that sells for $50 with 50% gross profit margins also for 25 gross profit dollars. So for us the way we look at it internally, we're pretty agnostic to the $25 versus $25, but from a gross margin percentage.
Basis, it can compress margins.
Speaker 3: transcript
Speaker 3: And Ryan, it's David. If I can jump in, I guess I'll give you a couple of data points. You know, Q3, we saw significant unit growth.
And Ryan it's David if I can jump in I guess I'll give you a couple of data points Q3, we saw significant unit growth. We just got impacted by price compression and mostly deflation. So what we're seeing is we have deflation on the top line and we have a small amount of inflation on outbound transportation. So.
David Meniane: We expect to have more updates over the next year with a full brand strategy around our crown jewel trademark. At the intersection of our assortment and marketing priorities, we will also be reducing the number of house brands on our website. This will allow us to focus our capital, resources, and efforts on building JCWitney, which we believe will result in a more efficient marketing spend and accelerated growth.
Speaker 3: transcript
Speaker 3: We just got impacted by price compression and mostly deflation. So what we're seeing is we have deflation on the top line and we have a small amount of inflation on outbound transportation. So our cost per package was up somewhere between two to 3%, but then we're seeing deflation on the top line. So as a percentage, we're getting hit from the two sides. That's what's driving the decline in gross margin. So I'd say the majority of it is transportation driven. It's not mixed driven.
Our cost per package was up somewhere between 2% to 3%, but then we're seeing deflation on the top line. So as a percentage we're getting hit from the two sides. That's what's driving the decline in gross margin. So.
David Meniane: Next, innovation. Our do-it-for-me pilot is performing in line with expectations with continued strong customer NPS score. Our current e-commerce strategic priorities align perfectly with the next set of enhancements for this integration. The upgrades to search results, including cross-sell, upsell, and VIN look-up will be catalyst to the next iteration of this offering.
I'd say the majority of it is transportation driven it's not mix driven.
Helpful. Thanks, guys. Good luck.
Speaker 7: transcript
Speaker 7: Thanks.
Yes.
Speaker 1: transcript
Speaker 1: Thank you. One moment for our next question.
Thank you one moment for our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Darren Aftahi from Roth MKM.
Our next question comes from the line of Darren <unk> from Roth and Cam.
David Meniane: In other areas of the business, we are exploring multiple ways to disrupt the industry. Blending generative AI, proprietary language models, and natural language processing with decades of customer data in our proprietary catalog will become central to building a competitive mode around our business. Over time, we believe these technologies will allow us to run on a lower fixed operating expense ratio and get us the operating leverage we need to increase free cash flow.
Speaker 8: transcript
Speaker 8: Hey guys, thanks for taking my question. First one, can you just kind of talk about the app in the context of kind of the longer term benefits of search marketing and kind of how you plan to attack that?
Hey, guys. Thanks for taking my questions first one can you just kind of talk about the.
In the context of kind of the longer term benefits of.
Search marketing and kind of how you plan to attack that.
Speaker 3: transcript
Speaker 3: Yeah, of course, and it's David Daren. So, you know, I think for us, APP is probably one of the most transformational initiative that we worked on over the last couple of years.
Yes of course, and it's David Darrin, So I think for US App is probably one of the most transformational initiative that we worked on over the last couple of years.
David Meniane: And finally, supply chain and logistics. There is a certain level of customer expectations when it comes to delivery speed. With fast shipping becoming more of the norm, paired with the reality that our customers need their part to get back on their journey. We have been very focused on improving the speed of click to delivery. And I'm happy to announce that our customers are getting our parts faster than they have at any point in our company history.
Speaker 3: transcript
Historically, the majority of our customers find us on Google and so we rely heavily on search engine optimization and performance marketing on Google and so over time, what we're trying to do is get our customers to come to <unk> dot com directly so that we don't have to spend this much money on Google or performance.
Speaker 3: transcript
And so having that direct connection that direct line with our customer Thats. The game changing part, where we don't have to reacquire them when they want to make a purchase so today about 80% of our traffic is already on mobile what we're trying to do is get that mobile traffic to go from.
Michael Huffaker: For more details on our supply chain and logistics, I would like to turn it over to Michael. Thank you, David. I'm happy to announce that there have been several other improvements that the team has been working on to increase efficiency, reduce costs, and improve the customer satisfaction.
Speaker 3: transcript
Speaker 3: searching from searching on Google to directly on the app. So repeat purchase, post notifications, maintenance, VIP, subscription, like everything we can do to move away from search engine into direct marketing that has a huge impact on the PNL.
Searching from searching on Google to directly on the App, so repeat purchase push notifications maintenance.
Michael Huffaker: We recently closed our return center in Peru and now have decentralized returns across the network. This has resulted in improved processing and lower returns cost.
Subscription like everything we can do to move away from search engine and to direct marketing that has a huge impact on the P&L.
Michael Huffaker: With our original Las Vegas lease expiring, we have chosen to move our Nevada warehouse to a brand new, larger location, which will almost double our footprint within the Las Vegas Metro. This building will serve as our West Coast flagship and will carry between 80 to 90% of our assortment. It will feature a state-of-the-art pick module and extensive conveyance that will allow for a significant reduction in operating costs due to pick efficiency in both our conveiable and non-conveiable assortment. This newly expanded assortment will allow us to reduce last mile transportation costs compared to our current shipment topology. We expect this building to begin operating in Q2 2024.
Speaker 3: transcript
Speaker 3: And I think over time, what you'll see is our marketing spend should come down probably somewhere between 100 and 200 basis points. And that should flow to the bottom line.
And I think over time, what Youll see is our marketing spend should come down probably somewhere between 102 hundred basis points and that should flow to the bottom line.
Speaker 8: transcript
Speaker 8: And there's one more on this new Vegas facility. The 7 million in a cat-back.
That's helpful. And then just one more on this new Vegas facility.
The $7 million in Capex.
Speaker 8: transcript
Speaker 8: I guess how lucky that hits the balance sheet and cash flow statement. And then Mike, I think you talked about cost reduction as a result of the moving facility. If you're just kind of diving about a little bit more.
I guess, how is that going to hit.
On the balance sheet and cash flow statement, and then Mike I think you talked about cost reductions as a result of moving facilities kind of deal.
Dive into that a little bit more. Thanks Shar. This is Ryan I'll take the first part of the question that $7 million is going to basically be almost all capex you may have a little bit run through opex as we get that facility set up but the majority of its going to racks conveyance order pickers and hard items. So you will see that in the cash flow statement not ready to drop.
Speaker 6: transcript
Speaker 6: Sure, this is Ryan, I'll take the first part of the question. That $7 million is gonna basically be almost all CAPEX. You may have a little bit run through all PEX as we get that facility set up, but the majority of it's going to rack, conveyance, order pickers, and hard items. So you'll see that in the cash flow statement. Not running drawbacks.
Michael Huffaker: From a CapEx standpoint, we expect to deploy approximately $7 million with an ROI and excess of 30% in the form of lower transportation costs and higher sales.
Michael Huffaker: We have also made considerable progress on process optimization, inventory placement, and technology investments. Let me give you a brief update on each of these. First, process optimization. We continue to make progress on reducing inefficiencies while streamlining existing processes. Our labor costs continue to trend downward, and our year-to-day year-over-year improvement in labor costs as a percent of revenue is now down almost 60 basis points.
<unk>.
Speaker 6: transcript
Speaker 6: Yeah, and Darren, on the lower costs, so we're down around 60 basis points here over year with our current process improvement. Vegas with the pick module and other capabilities we're putting in will allow us over the long term to lower our cost profile within that building and we'll continue to make improvement throughout the rest of the network as we have.
Yes Darren.
The lower costs, so we're down around 60 basis points year over year with our current process improvement.
Vegas with pick module and other capabilities, we're putting in will allow us over the long term to lower our cost profile within that building and we will continue to make.
Improvement throughout the rest of the network as we have.
Michael Huffaker: Second, inventory placement. While we have always optimized inventory placement, the global supply chain shock led to suboptimal inventory placement across the network. Now that supply chain issues have abated, we are fully optimizing placement within our current network. This will serve to mitigate last-mile transportation costs and lower click-to-deliver times across the network.
Yeah.
Speaker 8: transcript
Speaker 8: Great. Ryan, you guys clarified this $7 million, wins that actually going to hit the P&L or hit the balance sheet in the castle, then.
Ryan can I, just clarify the $7 million wins that actually you and I hope the P&L or the.
Our balance sheet and cash flow statement.
Speaker 6: transcript
Speaker 6: You know, it depends. We actually just approved the invoices for some of this literally today before we took this call. So I think you might see a small amount hit this year in the majority of the remainder hit Q1.
It depends we actually just to prove the invoices for some of this literally today before we took this call. So.
I think you might see.
Small amount hit this year and the majority of the remainder of hit Q1.
Michael Huffaker: And third, supply chain technology investments. We recently installed our first network QPISGAM machine, which will allow for more accurate dimensions to leverage our proprietary cartonization tools. Combining this with a recently completed audit to optimize our box assortment, we will reduce the amount of air shipping in each package. These implementations, long-term, will further give us greater control of our last-mile costs. Over time, we think that the investments we are making will result in a minimum of 100 basis points improvements from current levels that should flow to the bottom line.
Okay, great. Thank you.
Yes.
Speaker 1: transcript
Speaker 1: Thank you. One moment for our next question.
Thank you one moment far next question.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Tom Forte from DA Davidson.
Our next question comes from the line of Tom Forte from D. A Davidson.
Speaker 9: transcript
Speaker 9: Hi, good afternoon. This is Sharon G on Fatom. I had two questions for the first one. How, if at all, are you guys impacted by the automotive labor strikes? Like, for example, we would think the production disruption would result in consumers holding onto their e-car. Which should be a positive for you.
Hi, Good afternoon. This is <unk> on for Tom I had two questions for the first one how if at all are you guys impacted by the automotive labor strikes like for example, we would think the production disruption would result in consumer's holding onto their economy, which should be a positive for you.
Michael Huffaker: As always, I want to thank our fulfillment center team members for their commitment to safety, hard work, and their incredible performance this year.
Speaker 3: transcript
Speaker 3: Yeah, I mean, in short term, probably very little impact, but long term, yes, I agree with you. I think, and not to get political, but, you know, if you're going to raise the cost of labor, I expect new car prices to go up.
Yes, I mean in short term, probably very little impact, but long term, yes, I agree with you.
Ryan Lockwood: I will now turn it over to Ryan. Thank you, Michael. Q3 marked our 15th consecutive quarter of year-over-year growth with revenues of 167 million, up 1% from 165 million in the third quarter.
I think.
Not to get political, but if youre going to raise the cost of labor I expect new car prices to go up.
Speaker 4: transcript
Speaker 4: So if you combine new car prices to go up.
So if you combined new car prices to go up as well as the cost of capital with interest rates being as high as they are today I think it is going to make it more difficult for American consumers too.
Speaker 4: transcript
Speaker 4: as well as the cost of capital with interest rates being as high as they are today. I think it's going to make it more difficult for American consumers to...
Ryan Lockwood: We still expect full-year revenues to be up in the low single digits year-over-year while remaining free cash flow positive and maintaining a robust balance sheet. Gross profit for the quarter was 54.8 million down slightly from the 56.1 million in the prior year. Gross margin was 32.9 percent sales versus 34.1 in the prior year as we continue to experience higher outbound transportation costs and a shift in product mix. Gap net loss for the quarter was 2.5 million compared to a net loss of 0.9 million in the prior year.
Speaker 4: transcript
Speaker 4: to buy a new car, and there's gonna be an incentive for them to hold onto their vehicle longer. And this is where a company like CarParts.com becomes a good destination to maintain your car, keep it running longer, both for upgrades, but also replacement. So long-term, I think it should be an opportunity for us to capture more customers.
To buy a new car and theres going to be an incentive for them to hold onto their vehicle longer and this is where a company like car parts Dot com becomes a good destination to maintain your car keep it running longer.
For upgrades, but also replacement so long term I think it should be an opportunity for us to capture more customers.
Speaker 9: transcript
Speaker 9: Thank you. And for my second question about your marketplace. So how are your marketplace sales performing on Amazon and eBay? For example, does it help you that Amazon had two mega sales in one calendar year this year?
Thank you and for my second question about your marketplace. So how are your marketplace sales performing on Amazon and ebay. For example, does it help you the Amazon had two mega sales in one calendar year this year.
Ryan Lockwood: We reported a justity bit off of 3 million down from 6.3 million in the prior year period. This was driven by higher outbound freight costs, increased performance marketing spend, and the economic impact of consumer spending patterns. However, this was partially offset by improvements in warehouse fulfillment costs.
Speaker 4: transcript
Speaker 4: You know our marketplaces are performing you know relatively in line with their you know their platform growth you know the growth on Amazon as a whole and Amazon just reported earnings has slowed down you know for us the biggest opportunity is to capture customers on e-commerce which is carparts.com and for Q3 it was you know one of the fastest going channels.
Our marketplaces are performing relatively in line with their their platform growth the growth on Amazon as a whole and Amazon just reported earnings has slowed down for us the biggest opportunity is to capture customers on E com, which is copper dot com and for Q3. It was one <unk>.
Ryan Lockwood: Digital transformation should impact our cash and operating expense over the next 18 to 24 months by approximately 1 to 2 million dollars which consists of overlapping software and maintenance expense. To clarify, this is because we'll be paying for the new systems that we're implementing while also maintaining the old systems we're upgrading. But as David mentioned, we believe we can save up to 1 million per year once we upgrade our infrastructure and move to the cloud, which we believe will provide an immediate ROI once implemented and allow us to execute much more efficiently in the years ahead.
The fastest growing channels. So our overall unit growth was significant and the growth on E. Com <unk> dot com was even higher than that so.
Speaker 4: transcript
Speaker 4: So, you know, our overall unit growth was significant and the growth on e-com, carparts.com was even higher than that. So, you know, over time for us, we need to get the mix.
Overtime for us we need to get the mix of Qatar, Stockholm revenue to be higher and the marketplace mix to be lower now it doesn't mean that marketplaces will decline. It just means that they need to grow at a slower rate than E com and E. Comm has to accelerate as well as the app. So I don't know if Michael wants to add anything yes, I mean longer term, we want to continue to drive bys.
Speaker 10: transcript
Speaker 10: of carpath.com revenue to be higher and the marketplace makes to be lower. Now it doesn't mean that marketplaces will decline. It just needs that they need to grow at a slower rate than E-Com and E-Com has to accelerate as well as the app. So I don't know if Michael wants to add anything. Yeah, I mean longer term, we want to continue to drive business towards our e-com site. We do have very, very, very high mobile traffic as a percent of the overall business. So the app...
<unk> towards our <unk> comps.
Ryan Lockwood: Turning to the balance sheet, we ended the quarter with 67 million of cash and no revolver debt, up from 16.7 million cash in the prior year period. For the quarter, we generated $808,000 of interest in cash. In the current economic environment, our significant cash position continues to highlight the resilience of our business model, and we are proud of our relentless dedication to financial discipline. We believe we have ample liquidity and have no intention or need to raise capital at current valuations.
We do have very very very high.
Mobile traffic as a percent of the overall business so the app.
Speaker 10: transcript
Speaker 10: and driving it to e-commerce where we're going to get out size growth. But, you know, eBay is an important partner of ours. We're going to continue to grow with them. And Amazon is an important partner and we'll continue to grow with them. But we're going to continue to focus to drive e-commerce. Thank you so much.
And driving it to e-commerce, where we're going to get outsized growth, but ebay as an important partner of ours, we're going to continue to grow with them.
Amazon is an important partner and we will continue to grow with them, but we're going to continue to focus to drive E comm.
Thank you so much.
Thank you.
One moment for our next question.
Speaker 1: transcript
Speaker 1: Our next question comes from the line of Ryan Myers from Lake Street.
Our next question comes from the line of Ryan Meyers from Lake Street.
Speaker 11: transcript
Speaker 11: Hey guys, thanks for taking my questions. First one for me, I'm just curious, what sort of signs are you waiting to see where you feel like the overall demand environment is beginning to improve? It sounds like unit growth is still strong, but it's kind of being offset by the price deflation. Just curious, what sort of things you guys are looking at at what you're paying attention to, or you feel like that demand environment's improving.
Hey, guys. Thanks for taking my questions.
First one for me and I'm just curious.
Ryan Lockwood: However, you can expect us to continue building inventory through the remainder of the year as we prepare for our peak selling season, which occurs late Q1 and continues through Q2. We are also maintaining a discipline to capital allocation program, which includes continuing our current share repurchase plan if and when it is prudent. With that said, during the third quarter, we repurchase 245,000 shares for approximately $1.1 million. Under the current share repurchase program, we have approximately 27.4 million remaining of the $30 million authorization that extends through July 2024.
What sort of signs are you waiting to see where you feel like.
The overall demand environment is beginning to improve it.
It sounds like unit growth is still strong, but it's kind of being offset by the price deflation.
Just curious what sort of things you guys are looking at what you are paying attention to or do you feel like the demand environment is improving.
Speaker 4: transcript
Speaker 4: Hey Ryan and David. Yeah, I think there's a lot of conflicting signals out there. All the indicators I'm looking at, some of them point up and some of them point down and it's really hard to tell what's happening. I think for me, when the environment changes or the macro changes or the fed goes and trickles,
Hey, Ryan it's David Yeah, I think theres, a lot of conflicting signals out there.
All the indicators I am looking at some of them up and some of them point down and it's really hard to tell.
Yes.
What's happening I think for me.
Ryan Lockwood: We believe that our company is incredibly valuable and the impact of our strategic priorities will compound our value over time through multiple cycles. As we look to the remainder of the year, we will continue balancing financial prudence with opportunistically returning capital to shareholders.
When the environment changes or the macro changes or the fed goes and trickles.
Speaker 4: transcript
Speaker 4: Such as interest rates, I think some companies kind of overreact.
Such as interest rates I think some companies kind of overreact I think for US we try to keep just a long term view.
Speaker 4: transcript
Speaker 4: I think for us, we try to keep just a long-term view. We have our vision, we have our strategy, we have our strategic priorities. We built some very solid capabilities, and we have a good kind of resource allocation plan. So I have no doubt that we're executing on the right roadmap with the right team and adequate resources. So for me, if we just continue executing and blocking and tackling, I think we can get to a billion dollars in revenue and beyond. We can do it profitably, and we can do it without raising additional capital.
We have our vision, we have our strategy, we have our strategic priorities. We built some very solid capabilities and we have a good kind of resource allocation plan. So I have no doubt that we're executing on the right road map with the right team and adequate resources. So for me. If we just continue executing and blocking and tackling I think we can get to $1 billion in <unk>.
David Meniane: I would like to now turn it over to David for final remarks. Thank you both. At CarParts.com, we put the customer at the center of everything we do, focusing on strategic priorities that we believe are making our company significantly more valuable and that will benefit our stakeholders for years to come.
Revenue and beyond we can do it profitably and we can do it without raising additional capital.
David Meniane: Our journey is powered by digital transformation to create a best-in-class mobile experience, a growing curated assortment, fulfillment network expansion and harnessing advanced data science and AI. Thank you to the entire CarParts team. We're proud of your hard work and your investment in our company's long-term success. Working alongside you every day is what makes us so tremendously excited for our future. We could not do this without you.
Speaker 11: transcript
Speaker 11: Got it, that's helpful. And then my other question, are there any levers that you guys can pull to help offset the negative impact of the price deflation that you're seeing?
Got it Thats helpful.
And then my other question are there any levers that you guys can pull could help offset the negative impact of the price deflation that youre seeing.
Speaker 3: transcript
Speaker 3: There's a lot of there's a lot of levers that we can pull and you know all of them kind of are all connected.
There's a lot of there's a lot of levers that we can pull and all of them kind of all are all connected.
Speaker 4: transcript
Speaker 4: You know, we have to deliver a great customer experience. We have to ship faster. We have to reach the customers where they are. And that's why we launched, you know, the podcast. That's why we have the JC Whitney initiative. There's a lot of things that we can do. I think one of the biggest levers we can pull right now is expanding our assortment. And to some extent, we've done a lot of that this year, but you're gonna see more of that next year. You know, historically, we played just a very narrow set of categories.
We have to deliver a great customer experience, we have to ship faster we have to reach the customers where they are and Thats why we launched the podcast. That's why we have the JC Whitney initiative. There is a lot of things that we can do I think one of the biggest levers we can pull right now is expanding our assortment and to some extent we've done a lot of that this year, but youre going to see more.
David Meniane: Thank you to everyone who's joined us today and as we see at CarParts.com, get after it.
Operator: We'll now turn it over to the operator to open it up for questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by when we compile the Q&A roster.
Of that next year. Historically, we played just a very narrow set of categories and so in simple terms I think we can sell more brands more products more categories. We can build our brand for our private label and over time all of these should drive.
Speaker 4: transcript
Speaker 4: And so in simple terms, I think we can sell more brands, more products, more categories. We can build a brand for our private label and over time, all of these should drive.
Ryan Sigdahl: Our first question comes from the line of Ryan Sigdal from Craig Hallam Capital Group. Hey, good afternoon, guys. How's it going? Good. Ryan wants to start with guidance. So you said you're still expecting low single-digit revenue growth this year. Previously, I guess last quarter, you said three to five percent. So are we talking the same thing there? Has there been a change here?
Speaker 4: transcript
Speaker 4: should drive growth. I mean, right now, and just to be clear, we are seeing significant growth in units. Again, we're just being impacted by deflation, but the business is growing, it's profitable, and we have a super solid balance sheet and no debt. So I think we're in a good spot. I think the economy and the deflation is kind of muting some of that growth, but overall the business is doing good. Great.
Should drive growth I mean, right now and just to be to be clear. We are seeing significant growth in units again, we're just being impacted by deflation, but the business is growing it's profitable and we have a super solid balance sheet and no debt. So I think we're in a good spot.
I think the economy and the deflation is kind of muting some of that growth, but overall the business is doing good.
Great. Thank you for taking my questions.
Ryan Lockwood: Yeah, I think last time we said low to mid and I think we've narrowed it just to low to kind of give you guys a little bit more color. And then maybe can you talk about trends within the quarter kind of month on sales and then also how much was add spend up in the quarter and did that trend similarly to sales in the quarter? Sure, yeah. So, for the month of October, you know, we were actually up in units, but down slightly in dollars due to the deflation that David mentioned.
Thanks Ryan.
Speaker 1: transcript
Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Ryan Lockwood: But, you know, I think for us, as we've always said, we're going to focus on maximizing gross profit dollars net of variable costs. And in that respect, you know, we were running a similar gross profit dollars, but higher variable contribution margin than prior year. I think overall for marketing. I believe we were sequentially down on marketing, but up slightly from a year ago, we're still pretty confident in these marketing efforts, you know, as we go through the remainder of the year and you look to, you know, hit that that low single digit growth rate for the full year.
Okay.
Sure.
Ryan Lockwood: I'm just on gross margin. It's the weakest. It's been in several years here. I guess can you talk through the freight versus mix and what exactly within mix with this negative in the quarter and then on the freight side, can you talk about when the FedEx surcharge is one of places here versus last year or if there's something else on the all bone side. Sure. Yeah. So freight surcharge is kicked in this month.
Ryan Lockwood: So a little bit later than last year, where they kicked in end of Q at the end of September for the mix. It was for gross margin. It was predominantly free. I mean, almost the whole amount mix. There was a slight shift in mix. So we went from 13% branded to 16% branded. And as you know, branded generally has a similar gross margin dollar profile, but a lower gross margin percentage profile.
Ryan Lockwood: So as an example, you'll have a hundred dollar branded item with 25% margins that makes 25 gross profit dollars. As a corollary, you might have a private label item that sells for $50 with 50% gross profit margins also for 25 gross profit dollars. So for us, the way we look at it internally, we're pretty agnostic to the $25 versus $25 brought from a gross margin percentage basis. It can compress margins.
David Meniane: And Ryan, it's David. If I can jump in, I guess I'll give you a couple of data points. You know, Q three, we saw significant unit growth. We just got impacted by surprise compression and mostly deflation. So what we're seeing is we have deflation on the top line and we have a small amount of inflation on outbound transportation. So our cost per package was up somewhere between two to three percent. But then we're seeing deflation on the top line. So as a percentage, we're getting hit from the two sides. That's what's driving the decline in gross margin. So I'd say the majority of it is transportation driven. It's not mixed driven. Thank you.
Operator: One moment for our next question.
Darren Aftahi: Our next question comes from the line of Darren Aftahi from Roth MKM. Hey guys. Thank you for my question.
David Meniane: First one, can you just kind of talk about the app in the context of kind of the long richer benefits of church marketing kind of how you plan to attack that? Yeah, of course, and it's David Darren. So, you know, I think for us app is probably one of the most transformational initiative that we worked on over the last couple of years. You know, historically, the majority of our customers find us on Google.
David Meniane: And so, we rely heavily on search engine optimization and, you know, performance marketing on Google. And so, over time, what we're trying to do is get our customers to come to CarParts.com directly, so that we don't have to spend this much money on Google or performance marketing. So, having this direct connection, that direct line with our customer, that's the game-changing part, where we don't have to re-acquire them when they want to make a purchase.
David Meniane: So, today, about 80% of our traffic is already on mobile. What we're trying to do is get that mobile traffic to go from searching on Google to directly on the app. So, repeat purchase, post notifications, maintenance, VIP, subscription, like everything we can do to move away from search engine into direct marketing that has a huge impact on the P&L. And I think over time, what you'll see is our marketing spend should come down probably somewhere between 100 and 200 basis points. And that should flow to the bottom line. What's helpful?
Darren Aftahi: And there's one more on this new Vegas facility. There's 7 million in CapEx.
Ryan Lockwood: I guess, how is that going to hit the balance sheet and cash flow statement? And then, Mike, I think you talked about cost reduction as a result of moving facilities. You just kind of dive into that a little bit more. Thanks. Sure. This is Ryan. I'll take the first part of the question. That's $7 million is going to basically be almost all CapEx. You may have a little bit run through OPEX as we get that facility set up. But the majority of it's going to rack, conveyance, order, pickers, and hard items. So, you'll see that in the cash flow statement, not running through OPEX.
Michael Huffaker: Yeah, and Darren, on the lower cost. So, we're down around 60 basis points here over year with our current process improvement. Vegas with the pick module and other capabilities we're putting in will allow us over the long term to lower our cost profile within that building. And we'll continue to make improvement throughout the rest of the network as we pass. Great.
Darren Aftahi: Ryan, can I just clarify this 7 million? When's that actually going to hit the P&L or hit the balance sheet and cash flow statement? You know, it depends. We actually just approve of the invoices for some of this literally today before we took this call. So, I think you might see a small amount hit this year in the majority of the remainder if you want. Okay. Great. Thank you.
Tom Forte: One moment for our next question. Our next question comes from the line of Tom Forte from DA Davidson. Hi, good afternoon.
David Meniane: This is Sharon G on for Tom's. I had two questions for the first one. How, if at all, are you guys impacted by the automotive labor strikes? Like, for example, we would think the production disruption would result in consumers holding on to their use card. What should be a positive for you? Yeah, I mean, in short term, probably very little impact, but long term, yes, I agree with you. I think not to get political, but if you're going to raise the cost of labor, I expect new car prices to go up.
David Meniane: So if you combine new car prices to go up, as well as the cost of capital with interest rates being as high as they are today, I think it's going to make it more difficult for American consumers to buy a new car. And there's going to be an incentive for them to hold on to their vehicle longer. And this is where a company like CarParts.com becomes a good destination to maintain your car, keep it running longer, both for upgrades, but also replacement. So long term, I think it should be an opportunity for us to capture more customers.
Darren Aftahi: Thank you.
David Meniane: And for my second question about your marketplace. So how are your marketplace sales performing on Amazon and eBay? For example, does it help you that Amazon had two megacales in one calendar year to cure? Our marketplaces are performing relatively in line with their platform growth. The growth on Amazon as a whole and Amazon just reported earnings has slowed down. For us, the biggest opportunity is to capture customers on Ecom, which is CarParts.com.
David Meniane: And for Q3, it was one of the fastest growing channels. So our overall unit growth was significant. And the growth on Ecom, CarParts.com was even higher than that. So over time for us, we need to get the mix of CarParts.com revenue to be higher. And the marketplace mix to be lower. Now, it doesn't mean that marketplaces will decline. It just needs that they need to grow at a slower rate than Ecom.
David Meniane: And Ecom has to accelerate as well as the app. So I don't know if Michael wants to add anything. Yeah, I mean longer term, we want to continue to drive business towards our Ecom site. We do have very, very, very high mobile traffic as a percent of the overall business. So the app and driving it to Ecom, or where we're going to get out size growth. But, you know, eBay is an important partner of ours. We're going to continue to grow with them. And Amazon is an important partner. And we'll continue to grow with them. But we're going to continue to focus to drive Ecom.
Darren Aftahi: Thank you so much.
Operator: Thank you.
Ryan Myers: One moment for our next question. Our next question comes from the line of Ryan Myers from Lake Street. Hey guys, thanks for taking my questions. First one for me. I'm just curious, you know, what sort of signs are you waiting to see where you feel like the overall demand environment is beginning to improve? It sounds like unit growth is still strong, but it's going to be an offset by the price deflation. Just curious, you know, what sort of things you guys are looking at, what you're paying attention to, or you feel like that, that demand environment's improving.
David Meniane: Hey Ryan, David. Yeah, you know, I think there's a lot of conflicting signals out there. You can point up and some of them point down. And it's really hard to tell, you know, what's happening. I think for me, you know, when the environment changes or the macro changes or the feds goes, you know, and trickles, you know, touches interest rates, I think some companies kind of overreact. I think for us, we try to keep just a long-term view.
David Meniane: We have our vision, we have our strategies, we have our strategic priorities. We built some very solid capabilities and we have a good kind of resource allocation plan. So I have no doubt that we're executing on the right roadmap with the right team and adequate resources. So for me, if we just continue executing and blocking and tackling, I think we can get to a billion dollars in revenue and beyond. We can do it profitably and we can do it without raising additional capital.
David Meniane: That's helpful. And then my other question, are there any levers that you guys can pull to help offset the negative impact of the price deflation that you're seeing? There's a lot of levers that we can pull and all of them are all connected. We have to deliver a great customer experience. We have to ship faster. We have to reach the customers where they are. And that's why we launched the podcast. That's why we have the JC Whitney initiative.
David Meniane: There's a lot of things that we can do. I think one of the biggest levers we can pull right now is expanding our assortment. And to some extent we've done a lot of that this year, but you're going to see more of that next year. You know, historically, we played just a very narrow set of categories. And so in simple terms, I think we can sell more brands, more products, more categories.
David Meniane: We can build a brand for our private label. And over time, all of these should drive, should drive growth. I mean, right now, and just to be, to be clear, we are seeing significant growth in units. Again, we're just being impacted by deflation, but the business is growing. It's profitable. And we have a super solid balance sheet and no debt. So I think we're in a good spot. You know, I think the economy and the deflation is kind of muting some of that growth. But, you know, overall, the business is doing good.
Ryan Myers: Right.
Ryan Myers: Thank you for taking my questions. Thanks. Right.
Operator: Thank you.
Operator: This concludes today's conference call. Thank you for participating.
Operator: You may now disconnect.