CarParts.com Signals Profit Pivot Despite Sales Drop

CarParts.com Inc ((PRTS)) has held its Q1 earnings call. Read on for the main highlights of the call.

CarParts.com’s latest earnings call struck a cautiously optimistic tone, highlighting a sharp turn in profitability despite softer sales. Management underscored a long-awaited operational inflection, with cost cuts, better marketing efficiency and new partnerships pushing adjusted EBITDA back into positive territory, even as fuel-driven freight costs and a roughly 10% revenue decline tempered the headline results.

Positive Adjusted EBITDA Inflection

CarParts.com delivered a notable profitability milestone as adjusted EBITDA turned positive at $585,000 in the first quarter of 2026, compared with a loss of about $6.2 million a year earlier. The nearly $7 million swing marked the company’s first positive adjusted EBITDA since early 2024 and signaled that its restructuring and efficiency efforts are beginning to take hold.

Improved GAAP Loss and Gross Margin

The company narrowed its GAAP net loss to $1.9 million from $15.3 million in the prior-year quarter, reflecting significant progress toward break-even. Gross profit reached $42.9 million on $132.0 million in net sales, with gross margin inching up to 32.5%, about 40 basis points higher than the same period in 2025 despite top-line pressure.

Significant Operating Expense Reductions

Operating discipline was a major theme, with total operating expenses falling to $46.0 million from $62.5 million year over year. Management attributed the roughly 26% reduction to lower advertising spend, improved warehouse efficiency and headcount cuts, positioning the company with a leaner cost base as new growth initiatives scale.

Strong Liquidity Position

On the balance-sheet front, CarParts.com ended the quarter with $38 million in cash and no borrowings on its revolving credit facility. This liquidity cushion gives the company flexibility to invest in partnerships, technology and inventory while navigating macro headwinds and working toward sustained free cash flow.

A-Premium Partnership Growth

The A-Premium partnership emerged as a key growth engine, with its annualized revenue run rate approaching $45 million, up from $35 million at year-end. Management outlined a near-term target of $50 million and long-term potential in excess of $100 million, emphasizing that the model generates attractive contribution margins without requiring CarParts.com to carry inventory.

JC Whitney Launch and Inventory Financing

The company also highlighted momentum at JC Whitney, where a 30,000-SKU branded catalog is being built in partnership with A-Premium. About 7,000 SKUs are already live on Amazon and generating week-over-week revenue, supported by an $8 million private placement to fund inventory that management expects will be accretive as it turns.

Progress on Last-Mile and Fulfillment

CarParts.com reported early progress on its last-mile delivery ambitions, having delivered more than 2,000 packages through its network while running next-day service from two of its four warehouses. The company is targeting 300,000 packages over the next 12 to 24 months, aiming to capture meaningful savings on shipping big and bulky items.

Technology and AI Deployments

Technology investments featured prominently, with two AI systems now live: ‘Spark,’ a customer-facing shopping assistant, and ‘Zaap,’ which automates returns, cancellations and warranty claims. Both are built around the company’s proprietary fitment and catalog data, with management positioning them as levers to enhance customer experience and lower operating costs.

Supply-Chain Investment in Taipei

To reinforce its supply chain, CarParts.com opened a branch office in Taipei, deepening ties with suppliers that account for about 70% of its purchases. The move is aimed at improving lead times and enabling more consolidated sourcing, which management views as a strategic long-term investment to support margin stability and product availability.

Recurring Fee Income Programs

Beyond core parts sales, the company is steadily building recurring fee income through programs such as memberships, extended warranties and its new CarParts.com Mastercard. Over 1,000 cards have been activated, and combined fee-based offerings now generate more than $4 million in annual revenue, enhancing customer lifetime value and retention.

Nonrecurring Gain and Inventory Efficiency

Results also benefited from a $2.3 million noncash gain related to the sale of Manila operations, which management framed as part of a broader focus on capital efficiency. Inventory levels declined to roughly $91 million from $95 million at year-end, reflecting a growing drop-ship mix and a reduced need for owned inventory.

Net Sales Decline

Despite these gains, net sales slipped to $132.0 million from $147.4 million, a roughly 10% year-over-year decline. Executives attributed the drop to deliberate advertising optimization toward higher-intent customers, pricing actions and weather-related softness, arguing that the trade-off sacrificed some volume in favor of better profitability.

Freight and Fuel Headwinds

Rising oil prices, which climbed about 50% during the quarter, added pressure by pushing up freight costs and fuel surcharges. Management responded with real-time pricing changes that helped protect gross profit dollars, but these moves also weighed on top-line volume as consumers contended with higher prices.

Continuing GAAP Net Loss

Even with substantial improvement, CarParts.com remains shy of full GAAP profitability, posting a $1.9 million net loss for the quarter. Executives framed this as a transitional stage, noting that the adjusted EBITDA turnaround and reduced operating expenses lay the groundwork for closing the remaining gap.

Tariff Claim Uncertainty

The call also flagged unresolved tariff-related matters, with management estimating up to $4.3 million in potential IEEPA claim recoveries under a structured process. However, they stressed that outcomes remain uncertain and that no recovery is assumed in current planning, leaving this as a possible upside rather than a core thesis.

Gross Margin Mix Shift Considerations

Investors were cautioned that as the mix shifts further toward drop-ship and partnership models, reported gross margin percentages could compress even as contribution margin dollars grow. Management warned that headline margin metrics may therefore mislead some observers, urging focus on underlying unit economics and cash generation instead.

Early-Stage Initiatives and Execution Risk

Several initiatives highlighted on the call remain in early innings, including scaling JC Whitney, expanding the last-mile network to 300,000 packages and broadening AI deployments. Management acknowledged that the current numbers are still small and that realizing projected savings and revenue will require disciplined execution and additional proof points.

Share Issuance and Convertible Notes

Capital structure also drew attention, with the share count at about 80.58 million following the issuance of 10 million shares in the JC Whitney private placement at $0.80. The company carries $25.3 million in convertible notes with a conversion price of $1.20, presenting potential dilution that equity investors will need to weigh against the growth investments those funds support.

Forward-Looking Guidance and Path to Free Cash Flow

CarParts.com reaffirmed its goal of becoming free-cash-flow positive in 2026, laying out a roadmap centered on growing contribution margin dollars, keeping fixed costs structurally lower and boosting capital efficiency. Management pointed to A-Premium’s expanding run rate, the planned 30,000-SKU JC Whitney catalog and a 300,000-package last-mile target as key milestones, while emphasizing that the current quarter’s adjusted EBITDA, cash balance and fee income provide tangible proof points for the strategy.

CarParts.com’s earnings call painted a picture of a company in the midst of a disciplined turnaround, trading near-term revenue softness for structural profitability gains. With positive adjusted EBITDA, tighter costs and growing partnership-driven revenue streams, management argues the pieces are in place for a free-cash-flow-positive 2026, though investors will remain focused on execution, capital structure and the durability of these early gains.