Vice President of Communications and Culture. Please go ahead.
Hello, everyone. Thank you for joining the call today to discuss our second quarter 2022 results. Joining me today from the company are David Meniane, Chief Executive Officer, and Ryan Lockwood, Chief Financial Officer. The prepared remarks and responses to your questions could contain certain forward-looking statements related to the business under the Federal Securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with the business. For a discussion of the material risks and factors that could affect results, please refer to the CarParts.com Annual Report on Form 10-K and 10-Q as filed with the SEC, both of which can be found on the investor relations website. 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 CarParts.com press release issued today. With that, I would now like to turn the call over to David.
Thank you, Tina, and good afternoon, everyone. As reported in today's release, for Q2 2022, our team achieved record sales of 176 million, up 12% year-over-year, and adjusted EBITDA of 8.3 million. This represents our tenth consecutive quarter of double-digit year-over-year revenue growth and a 44% increase on a two-year stack. We're also excited to announce our new 150 million five-year credit facility with our partners at JPMorgan Chase. Our leadership has continued executing on the four areas of focus, outstanding customer service, operational excellence, financial discipline, and innovation. Number one, outstanding customer service. As a reminder, over one-third of our e-commerce revenues come from repeat customers. As we think about capital and resource allocation, we see a significant opportunity to increase our focus and efforts on customer-centric initiatives.
Our entire team is fully committed to simplifying and removing the stress from vehicle care by redefining ourselves from a parts company to a customer-oriented company with an unparalleled digital-first experience. Number two, operational excellence. As the business continues to grow and evolve, we see opportunities for our teams to collaborate and improve performance by systematically removing inefficiencies and improving process. Focusing on driving results is key for us, as evidenced with our year-to-date results and our ability to simultaneously open two distribution centers in this environment. We're always raising the bar and aligning people, process, and strategy with the needs of our customers, which is part of our DNA. Number three, financial discipline. Over the last 3.5 years, we have invested in building a scalable foundation, which we are now leveraging.
Our management team strongly believes that financial resilience and disciplined capital allocation will be key to our success in times of market uncertainty. Profitable growth and free cash flow generation are more important than ever, and it's where we will focus our energy and resources. Our team remains committed to being prudent and intentional with every dollar we deploy. Our business model is rooted in positive unit economics, even after fulfillment and customer acquisition. This will help create an exceptional company for our shareholders to own for the long term. Number four, innovation. As we think about the future, we are committed to growing our addressable market and turning more of our customers into repeat customers. The opportunity is the Do-It-For-Me customer who relies on outside help to complete a repair or maintenance job.
In the spirit of simplifying and removing the stress from vehicle care, we have been working on expanding our offering to include the ability for our customers to find a trusted local mechanic to assist with their repair. We're excited to report that we have already completed hundreds of successful bookings. We recently launched a new experience on our website, which is live in certain test markets. With this newly built functionality, some of our customers have the option to book an appointment with a certified mechanic of their choice directly on CarParts.com with full transparency of the installation price. Now, Ryan will discuss our financial results and a quick operational update.
Thanks, David. In Q2, we generated revenue of $176 million, up 12% from the prior year period, resulting from the great execution by our entire team. On a two-year stack, revenue increased 44%. If you'll recall, Q2 of 2021 benefited from the inflow of pandemic-related federal stimulus funds, resulting in an increased consumer spending. Gross profit for the quarter was a record 62 million, up 16%, with gross margins improving 120 basis points to 35% this year versus 33.9% in the same year period. The improved gross margin continues to reflect purchasing and freight savings being driven by our data science and supply chain teams. Net income for the quarter was 4.1 million versus 2.1 million in Q2 of 2021.
Adjusted EBITDA in Q2 was 8.3 million, flat to last year, reflecting the impact of self-funding our new Jacksonville distribution center, including rent and start-up expenses. Turning to our balance sheet. As David indicated, we entered into a $75 million credit facility with the ability to accordion to 150 million. We believe the terms are attractive and that it further reinforces that we have enough liquidity to grow without tapping the capital markets. We appreciate the support of our partners at JPMorgan Chase & Co., who have been with us for many years. At the end of Q2, our facility was undrawn. At the quarter end, our cash position was 15 million, and we were successful in building our inventory to 163 million.
As a reminder, we are currently carrying approximately 40 million or eight extra weeks of inventory to account for longer lead times in the supply chain. Over time, as the supply chain normalizes, we expect this inventory to be converted back to cash. We will likely work down some of that safety stock as we focus on free cash flow and further reinforcing our balance sheet. Our goal remains to be able to deliver to 80%-90% of our customers in one-day transit time, and we continue to be pleased with our Texas expansion, which is now fully stocked. We also recently opened our brand new Jacksonville, Florida distribution center that includes new best-in-class technology tools that over time should drive operational efficiencies. Despite what we're seeing in the broader macro environment, we continue to optimize the business towards a balance of growth and profitability.
For the first four weeks of Q3, our robust inventory position is helping us against prior year comparisons. For net revenues in the back half of 2022, we continue to project double-digit year-over-year growth. With that, I'd like to turn it back to David for some closing remarks.
Thank you, Ryan. We're excited to build a trusted and disruptive platform where we can help our customers solve their auto repair and maintenance needs. Our goal is to become the number 1 destination for customers that need help fixing their vehicles. Q2 was another record for our company, and this performance would not have been possible without the incredible dedication from all our teams across the globe. As we look forward to the next evolution of our company, we are honored, humbled, and excited to be working with such an amazing group of people. Thank you again to all our team members for coming to work every day, ready to crush it. As we say at CarParts.com, "Get after it." I'll now turn it over to the operator to open it up for questions.
As a reminder, to ask a question, press star one on your telephone. Please stand by while on the Q&A. Our first question is from the line of Tom Forte from D.A. Davidson.
Victoria here. I have a couple of questions. Congrats on the performance in the quarter. The first question I had is, can you talk about your gross margin performance? What were the contributing factors? It looks like you had gross margin expansion versus last year.
Yeah. Thanks, Tom. You know, obviously, we feel very good about how gross margin is turning out, both up nominally, sequentially and year-over-year. You know, we continue to leverage our data science team to basically, you know, optimize for price as well as, you know, leaning on our vertically integrated supply chain, which I think gives us a benefit over some of our competitors who have, you know, a worse ability to stay in stock compared to us.
Great. Then second, can you talk about where you are now? You talked a little in your prepared remarks, but where are you now in your Do-It-For-Me efforts, and when can we expect that to start to meaningfully contribute to your revenue?
Yeah. Hi, Tom. It's David. I think, you know, if you think about auto repair in general, you know, the majority of the time, you know, at least my experience has been it's complex and stressful. The long-term vision is really to make auto care simple and stress-free. I think the Do It For Me opportunity is part of that. Obviously, it's a big project, it's a big endeavor, but we're very excited about the progress. I think the great thing is that it expands the total addressable market, but more importantly, it gives our customer a new option depending on what type of repair they wanna do. Now, as of today, you know, like we called it out in the prepared remarks, we've done hundreds of successful bookings.
We have the experience that is now live on the website in certain markets. Now it's just the beginning, but in the last three months, we've made a big push to get this going. Super proud of the efforts of the team. I don't expect it to meaningfully contribute to top line, yet. We're really focusing on the customer experience. Over time, and especially over the long run, I think this is a game changer for our company.
Great. Last question, and thanks for taking my question. With the expansion of Grand Prairie, Texas, fulfillment center, seemingly behind you in the opening of Jacksonville, how should we think about your plans for additional fulfillment center square footage over the next 12 months?
Yeah, good question. I think, you know, short term, you know, in this environment, we're really focusing on, you know, free cash flow and profitable growth. So we really wanna get the maximum out of the current network before investing in a new building. You know, right now, at least internally, the focus is on operational efficiencies and leveraging some of the tools, the new tools and software that we're implementing in Jacksonville. We're really learning and focusing on driving the most out of what we have in the network. Now, medium-term, obviously, as we called out many times before, we're gonna open another DC. The goal is always to provide the best level of customer service, and that means, you know, one-day shipping to 80%-90%.
Again, right now, as far as the main focus is free cash flow and operational efficiencies and getting most out of the current network.
All right. One quick point of clarification then. Grand Prairie expansion in Jacksonville, what percent operational are they? Are they 100%? How close to 100% are they?
Well, you know, Texas is pretty full right now. I mean, the team has done a great job on the installation, the staffing, the training. You know, it was an expansion. Jacksonville, it's almost full right now. Again, you know, we got the labor, we started shipping. I think that for 2023 peak season, it should really help us. You know, it went live during the quarter. What I'm most excited about, Tom, is really for the second half of the year that, you know, as Ryan called it out in his prepared remarks, we're really targeting double-digit year-over-year growth, but at the same time, kind of balancing that growth and profitability.
Thank you, David. Thank you, Ryan.
Thank you, Tom.
Thank you. Thank you. Our next question comes from the line of Darren Aftahi
Hello?
Hey.
Hey, it's Darren Aftahi. I was a little confused when they talked about my colleague. Anyway. Hey, guys, hope you're well.
Hey, Darren. Good to hear from you.
Likewise. Three if I may. I think I just heard you say, to Tom's question, that Jacksonville is almost full. I guess how contributory was it top line wise to the business?
Yeah, that's a good question, Darren. I think, you know, the challenge with a same store metric like this for an online retailer is that, you know, for us, you're always focusing on delivery speed, and so we're constantly optimizing for shipping times and transportation costs. So if you're looking at it on a same store basis, it's kind of difficult to quantify.
Okay. Fair enough. I noticed inventory ticked up, but it sort of slowed on the margin. I guess kinda having said that, your context about generating cash, could you just kinda shed some light about, you know, container pricing, logistics, supply chain, kinda where you see things? I know there's been some consternation with COVID in Asia, but, like, just kinda where are we? Have we plateaued in terms of, you know, that multi-wrenching system and do inventory levels maybe fall from here, plateau? Just any kind of color will be great.
Yeah. I think we're definitely seeing some signs of improvement. Now, whether it's, you know, short term or long term, it's hard to say. You know, I think we've built some great capabilities in-house. Now to the inventory question, and we've always called it out, you know, it's always a game of parts availability and having the inventory in stock close to the customer. Now in the past two years, to navigate the supply chain disruption, we had to build this extra safety stock, and we have been carrying that extra eight weeks or call it about $40 million. Now, as I said, because of the signs of improvement over time, I think that you're gonna see this inventory level come down and convert it back to cash.
Now, it is a little more complicated than just giving you a number because it's at SKU level, at the vendor level. I think over the next, call it six-12 months, you're gonna see some of that inventory revert back to cash, and us carrying less inventory to support this level of business.
Great. Just last one for me. On the Do It For Me, how much like what is the source of marketing where you're getting customers from? Like, how much cost was there in the quarter related to that?
Yeah. Two-part question. The number one is the source of customers right now is our existing customer base. You know, on CarParts.com, I think we've built a fantastic destination for auto repair. We have over 100 million visitors on our website. On top of that, you know, we have a pretty robust email list with millions of customers. Again, as we called out, about one-third of our revenues on e-commerce come from repeat customers. There's plenty of opportunities for us to offer this service to our current customers. I think right now, at least for phase one, we're okay with targeting the current customer. Now, the second part of your question is in terms of extra cost. I don't think we're spending any incremental dollars to make this work.
What we're doing is really reprioritizing our efforts around the Do-It-For-Me initiative. You know, we have a technology team, we have a marketing team. We think that the Do-It-For-Me opportunity is gonna be a game changer. It's just a matter of allocating more resources and more capacity to that, which is how we were able to push out this new phase of the initiative in the last three months. We've made significant improvement, as reflected by the several hundred bookings. I think that's gonna get better. Right now, the whole team is really focused on making this phase a success.
Great. Thanks, guys.
Thank you. Our next question comes from the line of Ryan Sigdahl, Lake Street Capital Markets.
This one's for me. Just wondering if you could give us an update on mechanical parts for business during the quarter and kinda how that's tracking and how that contribution's been looking?
Hey, yes, I do have that number. For mechanical, we are at, hard parts was 27%, replacement parts was 67%, and performance was 6%. It's basically flat year-over-year, a hair down sequential, but I wouldn't read too much into the minor fluctuations. Over the long run, the goal is still to be at that, you know, call it 45%-50% mechanical, 45%-50% collision, and that last, you know, 5%-10% performance accessories. That's the target long-term goal.
Right. Makes sense. Next one for me. Have you seen any labor challenges ramping up either the distribution centers in Grand Prairie or Jacksonville?
Yeah, I think every retailer and anyone in the industrial warehouse space is always competing for talent. You know, I think we're always looking to, number one, have a safe environment, building a great culture, great values, diversity, inclusion, equality. We're constantly investing in that. You know, we've also done a good job at setting a compensation structure that incentivizes performance, where we do, you know, gain sharing and, referral bonuses, retention bonuses. You know, I think there's a lot of different things that you can do, but ultimately, I think that our warehouse associates are bought into the vision. They're bought into the business that we're trying to build and really a big part of the culture.
You know, for us, we always see ourselves as a supply chain company first, and the warehouse teams are really the heart of our company.
Got it. Makes sense. Last one for me, just kinda touching on the Do-It-For-Me offering. You know, pretty helpful to hear some of the positive commentary on that. You know, what sort of feedback have you guys gotten from not only just your customers but mechanics that you have partnered with, whether it's adding, you know, customers that they wouldn't have thought that they would have gotten? Just kinda walk us through that, the partnership with mechanics you're using for the DIFM offering.
Yeah. For this phase of the initiative, we really partnered with mechanics that are already pre-bought in to the fact that they're the customer is gonna bring in the parts. Part of making the initiative a success, at least for this phase, is to have a pre-selection of mechanics that already know that customers are gonna come in, and the scheduling is transparent, and the zip codes and the part names and categories that we're focusing on. There's been a lot of communication up front so that there's no surprises at the mechanic. Now, obviously, you know, it's a new experience, and no one has done it before, so still working out the kinks. Overall, the feedback has been great. Frankly, I'm excited about the feedback from the customer because it gives them an alternative.
If they don't feel comfortable doing the repair themselves, they have this option. Also targeting another subset of customers that maybe doesn't feel like doing the repair themselves. For us, expanding that addressable market is what excites me the most.
Got it. Thanks, guys.
Thank you. Our next from Ryan.
Curious on the gross margin. Really solid this quarter, but as you think about kinda all the cost inflation and the moving pieces between how much cargo containers cost coming from China to so on and so forth, with FIFO accounting, anything to be aware of kinda as we model gross margin going forward, or is Q1, Q2 good run rates, kinda as you look at the moving pieces and the cost structure in your inventory?
Sure, yeah. Thanks, Ryan. You know, obviously, we kinda always say this, but you know, when we think about gross margins, EBITDA margins, we always really take a step back and look at it over multiple quarters and the full year. That being said, you know, we do feel still very good about the margin for the remainder of the year. For Q2, we were obviously up sequentially and year-over-year on a nominal basis. As far as container pressures go, we are mostly hedged, and our hedges are at very attractive rates. I think we feel very comfortable there as well, as far as the remainder of the year. Then obviously next year, I think going back to our history over the last three years, no matter what has happened, we've generally done a great job working through it.
I think whatever kind of pressures the environment might throw at us in 2023, I'm pretty confident our team can handle it.
Good. You talk about profitable growth, big focus or increased focus, at least in the near term. When we look at kinda the seasonally softer back half of the year, you think you can still stay profitable, if you're willing to comment on that?
Yeah. As far as profitability, absolutely. It's a laser focus to balance that back half growth with profitability. We do believe we will be profitable in the back half.
Just to clarify, are you talking EBITDA or net income?
Adjusted EBITDA margin and nominal.
Great. Thanks. David, maybe a question for you. I've seen, you know, some of these tech forward companies that are starting to lay off people, some good talent out there, and I've seen you kinda go open arms, embracing them if they wanna come work for CarParts.com. I guess, have you seen any success with that? Then also, you mentioned a little bit, but talk through kinda your retention of your existing employee base.
I think, listen, we've made significant investments in building a culture. You know, we're a culture that rewards discipline, excellence, and high performance. I think, you know, our turnover has been significantly lower than some of our competitors. I have been pretty public in, you know, our will to hire great talent. You know, for me, we're trying to build an exceptional business, and that starts with hiring the best people. Hiring, training, developing, and retaining. You know, so we've had good success. Obviously, if there's good talent out there, you know, in critical roles, yes, we want it. If this is gonna be a commercial for CarParts.com, I would go to CarParts.com/career.
If you have an exceptional friend and you're willing to work extremely hard to build an exceptional business, I think we can be a great destination.
Never miss an opportunity. I like it. You know, last question for me is, as you shift into the Do-It-For-Me business, can you talk through the mechanics a little bit of that, I guess, how you see the puts and takes from one marketing that, and I realize it's not as much this year, but kinda as you look to next year, marketing that product, selling that product, and then how that flows through kinda will flow through from a P&L, from a revenue standpoint, margin standpoint.
Ryan, you know, maybe I'll take that one. You know, for me, I always think about DIFM in two phases. You know, right now we're in this short term phase where we're focused on the customer experience. Really, if you think about it, there's no place that customers can go that they trust to get their car repaired, a single destination. If you have a car in warranty, you go to the dealership, but that's a very small fraction of actual regular people. Our goal is to get it right for the customer and take that stress out of car repair, and that's the phase we're in. Obviously, once we get this nailed down, then the next phase is to scale the offering, scale the market, scale the bookings, and with that, obviously comes marketing.
Good. Thanks, guys. Good luck. Nice quarter.
Thanks, Ryan. Appreciate it.
Thank you. This concludes today's conference call.