PRTS 10-K & 10-Q changes, risk factors and insider trading

For example, during the first quarter of 2018, the United States Customs and Border Protection (“CBP”) imposed an enhanced bonding requirement on the Companyus at a level equivalent to three times the commercial invoice value of each shipment. While thewe Company hadhave been granted relief removing the bonding requirement, CBP may impose other requirements on the Companyus which would make it more difficult or more expensive for the Companyus to import products. If we were unable to import products from China and Taiwan or were unable to import products from China and Taiwan in a cost-effective manner, we could suffer irreparable harm to our business and be required to significantly curtail our operations, file for bankruptcy or cease operations.

Third-party marketplaces account for a significant portion of our revenues. Our sales on third-party marketplaces (including eBay and Amazon) represented a combined 36.5%33.5% of total sales in the fiscal year ended DecemberJanuary 28,3, 2024.2026. We anticipate that sales of our products on third-party marketplaces will continue to account for a significant portion of our revenues. In the future, the loss of access to these third-party marketplaces, or any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the success of our business depends partly on continued access to these third-party marketplaces. Our relationships with our third-party marketplace providers could deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products on a timely basis or to protect a third-party’s intellectual property. In addition, third-party marketplace providers could prohibit our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel could result in lower sales, and as a result, our business and financial results may suffer.

WeOur maintain aAmended Credit Facility that provides for, among other things, a revolving commitment in an aggregate principal amount of up to $75,000 subject to a borrowing base derived from certain of our receivables, inventory and property and equipment. Our Credit Facility also provides for an option to increase the aggregate principal amount from $75,000 to $150,000, subject to certain terms and conditions. Our credit agreement with JPMorgan originally entered into on April 26, 2012 (as amended, the “Credit Agreement”) includes a number of restrictive covenants. These covenants could impair our financing and operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:

In addition, our Amended Credit Facility is subject to a borrowing base derived from certain of our receivables, inventory, property and equipment. In the event that components of the borrowing base are adversely affected for any reason, including adverse market conditions or downturns in general economic conditions, we could be restricted in the amount of funds we can borrow under the Amended Credit Facility. Furthermore, in the event that components of the borrowing base decrease to a level below the amount of loans then-outstanding under the Amended Credit Facility, we could be required to immediately repay loans to the extent of such shortfall. If any of these events were to occur, it could severely impact our liquidity and capital resources, limit our ability to operate our business and could have a material adverse effect on our financial condition and results of operations.

Under certain circumstances, our Amended Credit Agreement may also require us to satisfy a financial covenant, which could limit our ability to react to market conditions or satisfy extraordinary capital needs and could otherwise impact our liquidity and capital resources, restrict our financing and have a material adverse effect on our results of operations.

Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If we are unable to satisfy the financial covenants and tests at any time and unable to obtain waivers from our lenders with respect to such requirements, we may not be able to borrow under the Amended Credit Facility or may be required to immediately repay loans under the Amended Credit Facility, and our liquidity and capital resources and ability to operate our business could be severely impacted, which would have a material adverse effect on our financial condition and results of operations. In those events, we may need to sell assets or seek additional equity or additional debt financing or attempt to modify our existing Amended Credit Agreement. There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Amended Credit Agreement.

While we did not have any outstanding revolver loan debt under our Amended Credit Agreement as of DecemberJanuary 28,3, 2024,2026, we may have outstanding revolver loan debt in the future. Any outstanding indebtedness would have important consequences, including the following:

We may not be able to generate sufficient cash from operations to meet our debt service obligations as well as fund necessary capital expenditures and general operating expenses. In addition, if we need to refinance our debt, or obtain additional debt financing or sell assets or equity to satisfy our debt service obligations, we may not be able to do so on commercially reasonable terms, if at all. If this were to occur, we may need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations, file for bankruptcy or cease operations. The Company’sOur outstanding letters of credit balance as of DecemberJanuary 28,3, 20242026 was $680, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet.

We review our long-lived assets for impairment annually, or when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered are changes in circumstances indicating that the carrying value of our assets may not be fully recoverable, including a decrease in future cash flows. Events and circumstances that may affect the fair value of long-lived assets may include, among other things, external factors such as macroeconomic, industry, and market conditions, as well as cost factors, overall financial performance,performance otherincluding relevantcash entity-specificflow eventslosses, orand decreasesustained decline in shareour price.stock Shouldprice and market capitalization compared to the reviewnet indicatebook thatvalue. During the carryingyear valueended isJanuary not3, fully2026, recoverable,we therecognized amount of thean impairment loss ison determinedlong-lived byassets comparingof the$3,690. carryingWe valuewill continue to theassess estimated fair value. We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment ofwhether our long-lived assets isare determined,impaired whichin wouldfuture negativelyperiods. affectFor ouradditional resultsinformation regarding these impairment charges, refer to Note 3 – “Property and Equipment, Net” under the section “Impairment of operations.Long-lived Assets” in the accompanying notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Our top ten suppliers represented approximately 51%46% of our total product purchases during the fiscal year ended DecemberJanuary 28,3, 2024.2026. Our ability to acquire products from our suppliers in amounts and on terms acceptable to us is dependent upon a number of factors that could affect our suppliers and which are beyond our control. For example, financial or operational difficulties that some of our suppliers may face could result in an increase in the cost of the products we purchase from them. If we do not maintain our relationships with our existing suppliers or develop relationships with new suppliers on acceptable commercial terms, we may not be able to continue to offer a broad selection of merchandise at competitive prices and, as a result, we could lose customers and our sales could decline.

For a number of the products that we sell, we outsource the distribution and fulfillment operation and are dependent on certain drop-ship suppliers to manage inventory, process orders and distribute those products to our customers in a timely manner. For the fiscal year ended DecemberJanuary 28,3, 2024,2026, our product purchases from three drop-ship suppliers represented approximately 13%12% of our total product purchases. Because we outsource to suppliers a number of these traditional retail functions relating to those products, we have limited control over how and when orders are fulfilled. We also have limited control over the products that our suppliers purchase or keep in stock. Our suppliers may not accurately forecast the products that will be in high demand or they may allocate popular products to other resellers, resulting in the unavailability of certain products for delivery to our customers. Any inability to offer a broad array of products at competitive prices and any failure to deliver those products to our customers in a timely and accurate manner may damage our reputation and brand and could cause us to lose customers and our sales could decline.

Additionally, we have experienced significant competitive pressure from certain of our suppliers who are now selling their products directly to customers. Since our suppliers have access to merchandise at very low costs, they can sell products at lower prices and maintain higher gross margins on their product sales than we can. Our financial results have been negatively impacted by direct sales from our suppliers to our current and potential customers, and our total number of orders and average order value may decline due to increased competition. Continued competition from our suppliers may also continue to negatively impact our business and results of operations, including through reduced sales, lower operating margins, reduced profitability, loss of market share and diminished brand recognition. We have implemented and will continue to implement several strategies to attempt to overcome the challenges created by our suppliers selling directly to our customers and potential customers, including optimizing our pricing, selling kits and the complete job, continuing to increase our mix of house brands products and improving our websites, which may not be successful. If these strategies are not successful, our operating results and financial conditions could be materially and adversely affected.

Our purchases of auto parts from our Asian suppliers are denominated in U.S. dollars; however, a change in the foreign currency exchange rates could impact our product costs over time. Our financial reporting currency is the U.S. dollar and changes in exchange rates significantly affect our reported results and consolidated trends. For example, if the U.S. dollar weakens year-over-year relative to currencies in our international locations, our consolidated gross profit and operating expenses would be higher than if currencies had remained constant. Similarly, our operating expenses in the Philippines are generally paid in Philippine Pesos, and as the exchange rate fluctuates, it could adversely impact our operating results.

As of DecemberJanuary 28,3, 2024,2026, our NOL carryforwards for federal and state were $127,019$152,613 and $93,822,$108,281, respectively. In order to preserve our substantial tax assets associated with the NOLs and built-in-losses under Section 382 of the Internal Revenue Code, we adopted a Tax Benefits Preservation Agreement (“Rights Agreement”). Under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” may be subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than 50% over such stockholders’ lowest percentage ownership during the testing period (generally three years). Purchases of our common stock in amounts greater than specified levels, which will be beyond our control, could create a limitation on our ability to utilize our NOLs for tax purposes in the future. The Rights Agreement is intended to impose certain ownership limitations to prevent the purchase of our common stock in amounts that could jeopardize our ability to utilize our NOLs. While we entered into the Rights Agreement in order to preserve our NOLs, the Rights Agreement could inhibit acquisitions of significant stake in us and may prevent a change in our control. As a result, the Rights Agreement may have an “anti-takeover” effect. Similarly, the limits on the amount of common stock that a stockholder may own may make it more difficult for stockholders to replace current management or members of the board of directors. Although we have taken steps intended to preserve our ability to utilize our NOLs, including the adoption of the Rights Agreement, such efforts may not be successful.

PossibleThe newimposition of tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations.

Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S., among other restrictions. Throughout 2018 and 2019, and just recently in 2025, the U.S. imposed tariffs on imports from several countries, including China. In February 2025, the U.S. administration announced increased tariff on imports from China, where agenerally significantaround portion20% of our private label products are sourced.sourced, and our remaining private label products are imported from Taiwan and other countries. Following the U.S. administration’s announcements, China has also announced corresponding retaliatory tariff measures. On February 20, 2026, the United States Supreme Court issued a ruling relating to tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) and held that IEEPA does not authorize the President to impose tariffs, which invalidated tariffs imposed pursuant to that authority. However, tariffs imposed under other legal authorities (including, for example, Sections 301 and 232) may remain in effect, and the U.S. administration has announced new tariff measures under other authorities, including a temporary import surcharge under Section 122 (which is subject to statutory duration limits and may be extended only by an Act of Congress). We are closely monitoring this evolving situation and evaluating our responses, which may include price adjustments or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the impact of such tariffs or trade restrictions. If further tariffs are imposed on imports of our products, or retaliatory trade measures are taken by China or other countries in response to existing or future tariffs, we could be forced to raise prices on all of our imported products or make changes to our operations, any of which could materially harm our revenue or operating results. Any additional future tariffs or quotas imposed on our products or related materials may impact our sales, gross margin and profitability if we are unable to pass increased prices onto our customers. Currently, we cannot fully determine how these tariffs will affect our business operations. The overall impact on our business will be influenced by several variables, including the duration and potential expansion of current tariffs, future changes to tariff rates, scope, or enforcement, retaliatory measures by impacted trade partners, inflationary effects and broader macroeconomic responses, changes to consumer purchasing behavior, ability to pass-through cost increases to the customer, and the effectiveness of our responses in managing these challenges.

In 2018, for example, the CBP alleged that certain repair grilles we imported by the Company were counterfeit and infringed on trademarks registered by OEMs. TheWhile Companywe subsequently settled with CBP, however, to the extent that the OEMs are successful in obtaining and enforcing other intellectual property rights, we could be restricted or prohibited from selling certain aftermarket products which could have an adverse effect on our business. Infringement claims could also result in increased costs of doing business arising from new importing requirements, increased port and carrier fees and legal expenses, adverse judgments or settlements or changes to our business practices required to settle such claims or satisfy any judgments. Litigation or regulatory enforcement could also result in interpretations of the law that require us to change our business practices or otherwise increase our costs and harm our business. We may not maintain sufficient, or any, insurance coverage to cover the types of claims that could be asserted. If a successful claim were brought against us, it could expose us to significant liability.

It is essential to our business strategy that our technology and network infrastructure remain secure and is perceived by our customers to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks. Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign private parties and state actors. As a leading online source for automotive aftermarket parts, we have in the past experienced and we could continue to face cyber-attacks that attempt to penetrate our network security, including our data centers, to sabotage or otherwise disable our network of websites and online marketplaces, misappropriate our or our customers’ proprietary information, which may include personally identifiable information, or cause interruptions of our internal systems and services. For example, in June 2020, we werehave, in the subjectpast, ofexperienced cybersecurity incidents, including a ransomware attackattack. onSuch our network that briefly disrupted access to some of our systems. Although weincidents did not paymaterially theaffect ransomwareour andbusiness, did not incur any finesoperations, or settlements,financial we did incur out of pocket expenses costs related to this incident of $100,000.condition. If future incidents are successful, any of these attacks could negatively affect our reputation, damage our network infrastructure and our ability to sell our products, harm our relationship with customers that are affected and expose us to financial liability.

We have experienced brief computer system interruptions in the past, and we believe they may continue to occur from time to time in the future. Our systems and operations are also vulnerable to damage or interruption from a number of sources, including a natural disaster or other catastrophic event such as an earthquake, typhoon, volcanic eruption, fire, flood, terrorist attack, computer viruses, power loss, telecommunications failure, physical and electronic break-ins and other similar events. For example, our headquarters and the majority of our infrastructure, including some of our servers, are located in Southern California, a seismically active region. We also maintain offshore and outsourced operations in the Philippines, an area that has been subjected to a typhoon and a volcanic eruption in the recent past. In addition, California has in the past experienced power outages as a result of limited electrical power supplies and due to recent fires in the southern part of the state. Such outages, natural disasters and similar events may recur in the future and could disrupt the operation of our business. Our technology infrastructure is also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Although the critical portions of our systems are redundant and backup copies are maintained offsite, not all of our systems and data are fully redundant. We do not presently have a formal disaster recovery plan in effect and may not have sufficient insurance for losses that may occur from natural disasters or catastrophic events. Any substantial disruption of our technology infrastructure could cause interruptions or delays in our business and loss of data or render us unable to accept and fulfill customer orders or operate our websites in a timely manner, or at all.

We recently completed a multi-year implementation of a new global enterprise resource planning system (ERP) in that was implemented in fiscal year 2022. The ERP is designed to accurately maintain the company'sour books and records and provide important information to the company'sour management team for use in the operation of the business. The Company'sOur ERP required the investment of significant human and financial resources. If the ERP system does not continue to operate as intended, or requires significant updates, it could adversely affect our financial reporting systems and our ability to produce financial reports and process transactions. Additionally, if we are unable to successfully maintain or implement any new IT system, remediate, update or integrate our existing systems at times when necessary, our financial position, results of operations and cash flows could be negatively impacted.

We also use social media platforms as marketing tools or as channels to disseminate information. For example, the Companywe and itsour executive officers maintain Facebook, Instagram, Twitter, LinkedIn, and other social media accounts, where marketing and other information relevant to customers and investors is disseminated. As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.

Since the completion of our initial public offering in February 2007 through DecemberJanuary 28,3, 2024,2026, the trading price of our common stock has been volatile. We have also experienced significant fluctuations in the trading volume of our common stock. General economic and political conditions unrelated to our performance may also adversely affect the price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of any such litigation if it were initiated. The initiation of any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations.

While management has concluded that our internal controls over financial reporting were effective as of DecemberJanuary 28,3, 2024,2026, we have in the past identified, and could in the future identify, a significant deficiency or material weakness in internal control over financial reporting or fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to properly maintain an effective system of internal control over financial reporting, it could impact our ability to prevent fraud or to issue our financial statements in a timely manner that presents fairly our financial condition and results of operations. The existence of any such deficiencies or weaknesses, even if remediated, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits, regulatory investigations and other penalties.

Our Board of Directors has periodically authorized share repurchases, funded from available working capital, including up to $30 million authorized in July 2021. The share repurchase program has an expiration date of July 26, 2026. Although our Board of Directors has authorized our share repurchase program, this program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The share repurchase program could affect the price of our common stock, increase volatility and diminish our cash reserves. In addition, there can be no guarantee that repurchases made under our share repurchase program, if any, will enhance shareholder value. As of DecemberJanuary 28,3, 2024,2026, the Companywe remained authorized to repurchase up to approximately $25,234 in shares of itsour common stock.

We are required to meet the Nasdaq GlobalCapital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common stock which, could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.

Our common stock is currently listed on the Nasdaq Global SelectCapital Market of The Nasdaq Stock Market, LLC (“Nasdaq”), which has qualitative and quantitative continued listing criteria. However, we cannot assure you that our common stock will continue to be listed on Nasdaq in the future. In order to continue listing our common stock on Nasdaq, we are required to meet the continued listing requirements of the Nasdaq GlobalCapital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share. If we do not meet these continued listing requirements, our common stock could be delisted.

On SeptemberJune 18,13, 2024,2025, we received a deficiency letter (the “Deficiency Letter”) from the Listing Qualifications Department (the “Staff”) of Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until MarchDecember 17,10, 2025, to regain compliance. WhileTo regain compliance, the bid price of our common stock must’ve closed at $1.00 per share or more for a minimum of ten consecutive business days during such 180-day compliance period. In response, on December 9, 2025, we regainedsubmitted compliancean withapplication to transfer the Bidlisting Priceof Ruleour incommon Januarystock 2025,from therethe canNasdaq beGlobal noSelect assurance that we will not face similar challenges relatingMarket to the Nasdaq complianceCapital in the future, including compliance with the Bid Price Rule.Market.

Following Nasdaq’s approval of the extended compliance period, we intend to continue to actively monitor the minimum bid price requirement and, as appropriate, will consider available options to resolve any deficiencies and regain compliance, including by effecting a reverse stock split if necessary. If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. In such case, our stockholders’ ability to trade, or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. In addition, delisting could also result in a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities.

We are a leading online provider of aftermarket auto parts, including replacement parts, hard parts, and other parts and accessories. Our proprietary product database maps our SKUs to product applications based on vehicle makes, models and years. We principally sell our products to individual consumers through our flagship website at www.carparts.com, our mobile app, online marketplaces and onlineour marketplaces.wholesale platform. Our corporate website is located at www.carparts.com/investor. The inclusion of our website addresses in this report does not include or incorporate by reference into this report any information on our websites.

For fiscal year 2024,2025, the Company’s operations generated net sales of $588,846,$547,525, compared to $675,729$588,846 for fiscal year 2023,2024, representing a decrease of 12.9%.7.0%. The Company incurred a net loss of $50,443 for fiscal year 2025 compared to a net loss of $40,601 for fiscal year 2024 compared to a net loss of $8,223 for fiscal year 2023.2024. The Company’s net loss before interest expense (income) expense,, net, income tax provision, depreciation and amortization expense, amortization of intangible assets, impairment of long-lived assets, share-based compensation expense, workforce transition costs, and distribution center costs and strategic alternatives exploration costs ("Adjusted EBITDA"), was $(14,008) in fiscal year 2025 compared to $(7,055) in fiscal year 2024 compared to $19,687 in fiscal year 2023.2024. Refer to the section below titled “Non-GAAP measures” for information regarding our use of Adjusted EBITDA and a reconciliation from net loss.

Net sales decreased in fiscal year 20242025 compared to fiscal year 20232024 primarily driven by the continued challenging consumer environment and our re-pricing strategyefforts to focusincrease onprofitability higherby valuerationalizing customers.marketing spend. Gross profit decreased by 14.2%8.8% to $196,739.$179,348. Gross margin decreased 5060 basis points to 32.8% in fiscal year 2025 compared to 33.4% in fiscal year 2024 compared to 33.9% in fiscal year 2023.2024. The decrease in gross margin was primarily driven by unfavorableproduct freightmix costs,and the impact from tariffs, partially offset by our re-pricingpricing strategy.increases.

Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Exchange Act, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net loss before (a) interest (incomeexpense) expense,income, net; (b) income tax provision; (c) depreciation and amortization expense; and (d) amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before share-based compensation expense, workforce transition costs, and distribution center costs.costs, strategic alternatives exploration costs and impairment of long-lived assets.

TheWe Company believesbelieve that these non-GAAP financial measures provide important supplemental information to management and investors. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’sour operations that, when viewed with the accounting principles generally accepted in the United States (“GAAP”) results and the accompanying reconciliation to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting the Company’sour business and results of operations.

Management uses Adjusted EBITDA as one measure of the Company’sour operating performance because it assists in comparing the Company’sour operating performance on a consistent basis by removing the impact of stock compensation expense, as well as other items that we do not believe are representative of our ongoing operating performance. Internally, this non-GAAP measure is also used by management for planning purposes, including the preparation of internal budgets; for allocating resources to enhance financial performance; and for evaluating the effectiveness of operational strategies. The CompanyWe also believesbelieve that analysts and investors use Adjusted EBITDA as a supplemental measure to evaluate the ongoing operations of companies in our industry.

This non-GAAP financial measure is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the Company’sour consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. In addition, thewe Company expectsexpect to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company’sour non-GAAP measures should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

Net Sales. Online and offline sales represent two different sales channels for our products. Online is our primary sales channel as we generate net sales primarily from eCommerce sales of auto parts to individual consumers through our mobile-friendly website at www.carparts.com, our mobile app, online marketplaces, and onlineour marketplaces.wholesale platform. Online marketplaces consist primarily of sales of our products on online marketplace websites, where we sell through online storefronts that we maintain on third-party owned websites such as eBay and Amazon. Our offline sales channel represents our distribution of products directly to commercial customers by selling auto parts to collision repair shops.shops through our wholesale platform. Our offline sales channel also includes both stock ship distribution as well as drop ship programs for automotive warehouse distributors and other online resellers. The product mix includes the majority of our house brands stock ship parts, which include theincludes replacement collisionparts, hard parts (maintenance and ourrepair Kool-Vue®components), mirrorother line.parts (performance upgrades) and specialty products across domestic and import vehicle applications.

Operating Expense. Operating expense consists of marketing, general and administrative, fulfillment, and technology expense. We also include share-based compensation expense in the applicable operating expense category based on the respective equity award recipient’s function. Marketing expense consists of online advertising spend, television advertising, internet commerce facilitator fees and other advertising costs, as well as payroll and related expenses associated with our customer service and marketing personnel. General and administrative expense consists primarily of administrative payroll and related expenses, merchant processing fees, legal and professional fees and other administrative costs. Fulfillment expense consists primarily of payroll and related costs associated with our warehouse employees and our purchasing group, facilities rent, building maintenance, depreciation and other costs associated with inventory management and our wholesale operations. Technology expense consists primarily of payroll and related expenses of our information technology personnel, the cost of hosting our servers, communications expenses and internet connectivity costs, computer support and software development amortization expense. Marketing expense, general and administrative expense, and fulfillment expense also includes depreciation and amortization expense. In fiscal year 2025, operating expense also consists of impairment loss on long-lived assets. See further information of impairment in “Note 3 – Property and Equipment, Net” in the Notes to the Consolidated Financial Statements included in Part II, Item 8, of this report Other Income, Net. Other income, net primarily consists of miscellaneous income or expense and interest income comprised primarily of interest income on investments.

Fifty-TwoFifty-Three Weeks Ended DecemberJanuary 28,3, 20242026 Compared to the Fifty-Two Weeks Ended December 30,28, 20232024

Net sales decreased $86,883,$41,321, or 12.9%,7.0%, for fiscal year 20242025 compared to fiscal year 20232024 primarily driven by the continued challenging consumer environment and our re-pricing strategyefforts to focusincrease onprofitability higherby valuerationalizing customers.marketing spend.

Gross profit decreased $32,667,$17,391, or 14.2%,8.8%, in fiscal year 20242025 compared to fiscal year 2023.2024. Gross margin decreased 5060 basis points to 32.8% in fiscal year 2025 compared to 33.4% in fiscal year 2024 compared to 33.9% in fiscal year 2023.2024. The decrease in gross margin was primarily driven by unfavorableproduct freightmix costs,and the impact from tariffs, partially offset by our re-pricingpricing strategy.increases.

Operating expense decreased $1,913,$9,151, or 0.8%,3.9%, for fiscal year 20242025 compared to fiscal year 2023.2024. OperatingThe expensedecrease as a percent of net sales increased 4.9% to 40.3% in fiscal year 2024,was mainly attributable to investmentsfavorable inpayroll ourcosts business,due suchto asheadcount brandreductions and favorable marketing investmentsspend, andpartially one-timeoffset costs related toby the moveimpairment toloss theon newlong-lived Las Vegas distribution center, in addition to an unfavorable marketing spend.assets.

Total Other (Expense) Income, Net

Total other (expense) income, net, decreased $1,502,$1,507, or 83.3%,500.7%, for fiscal year 20242025 compared to fiscal year 20232024 primarily driven by an increase in interest expense due to higher borrowings on the revolving loan payable and a decrease in interest income due to a lower cash balance duringthroughout 2024.2025.

TheWe Company accountsaccount for income taxes in accordance with ASC 740 - Income Taxes (“ASC 740”). Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal of existing taxable temporary differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As of DecemberJanuary 28,3, 2024,2026, due to cumulative losses in recent years, the Companywe maintained a valuation allowance in the amount of $45,463$55,405 against deferred tax assets that were not more likely than not to be realized.

As of DecemberJanuary 28,3, 2024,2026, the Companywe had no material unrecognized tax benefits, interest or penalties related to federal and state income tax matters. As of DecemberJanuary 28,3, 2024,2026, the Company’sour federal and state NOL carryforwards were $127,019$152,613 and $93,822,$108,281, respectively. Federal NOL carryforwards of $891$622 were acquired in the acquisition of WAG which are subject to Section 382 of the Code and limited to an annual usage limitation of $135. The Company’sOur federal NOL carryforwards begin to expire in 2029, while state NOL carryforwards also begin to expire in 2029.

During the fifty-twofifty-three weeks ended DecemberJanuary 28,3, 2024,2026, we primarily funded our operations with cash and cash equivalents generated from operations.operations, borrowings from our revolving loan, the issuance of the Convertible Notes with an aggregate principal amount of $25,000 (see “Note 4 - Borrowings”) and the issuance of common stock for $10,733 of gross proceeds (see “Note 5 – Stockholders’ Equity and Share-Based Compensation”). We had cash and cash equivalents of $36,397$25,821 as of DecemberJanuary 28,3, 2024,2026, representing a $14,554$10,576 decrease from $50,951$36,397 of cash and cash equivalents as of December 30,28, 2023.2024. Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds under our Amended Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “Debt and Available Borrowing Resources” and “Funding Requirements” below).

As of January 3, 2026 and December 28, 2024 and December 30, 2023,2024, our working capital was $48,445$53,817 and $80,352,$48,445, respectively.

Net cash (used in) provided by operating activities for the fiscal years ended January 3, 2026 and December 28, 2024 and December 30, 2023 was $10,338$(34,076) and $50,001,$10,338, respectively. The decrease in net cash provided by operating activities was primarily driven by a lowerhigher net loss in fiscal year 2025, in addition to the decrease in net cash inflowoutflow from the change in working capital, mainly attributable to moderating our inventory position in additionfiscal year 2025 due to the higheruncertainty netfrom loss for 2024.tariffs.

For the fiscal year ended January 3, 2026, net cash used in investing activities was primarily the result of additions to property and equipment of $7,961, which are mainly related to capitalized website and software development costs. For the fiscal year ended December 28, 2024, net cash used in investing activities was primarily the result of additions to property and equipment of $20,573, which are mainly related to capitalized website and software development costs and machinery and equipment additions, primarily related to the new Las Vegas distribution center. For the fiscal year ended December 30, 2023, net cash used in investing activities was primarily the result of additions to property and equipment of $11,879, which are mainly related to capitalized website and software development costs.

Net cash provided by (used in) financing activities was $4,422$31,397 and $5,916$(4,422) for the fiscal years ended DecemberJanuary 28,3, 20242026 and December 30,28, 2023,2024, respectively. The decreaseincrease was primarily attributable to the absenceissuance of the Convertible Notes with an aggregate principal amount of $25,000 and $10,733 of gross proceeds from the exerciseissuance of common stock options in 2024.September 2025.

Total debt was $34,010 as of January 3, 2026, which primarily consists of Convertible Notes payable and right-of-use obligations-finance. Total debt was $12,313 as of December 28, 20242024, compared to $16,635 as of December 30, 2023 andwhich primarily consists of right-of-use obligations-finance.

TheWe Company maintainsmaintain an asset-based revolvingAmended Credit Facility that provides for, among other things, a revolving commitment, which is subject to a borrowing base derived from certain receivables, inventory and property and equipment. On JuneSeptember 17,8, 2022,2025, the Companywe and JPMorgan entered into anthe First Amendment to the existing Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) amending and restating in its entirety the original Credit AgreementAgreement, dated Aprilas 26,of 2012.June As17, amended,2022. theThe CreditFirst AgreementAmendment provides for the revolving commitment in an aggregate principal amount of up to $75,000$25,000 (formerly $30,000$75,000), a sublimit of $2,500 for the issuance of letters of credit and allows for an uncommitted ability to increase the aggregaterevolving principal amountcommitment by an additional $75,000 to $150,000 (formerly $40,000 maximum),$125,000, subject to certain terms and conditions. The Amended Credit Facility now matures on September 8, 2026 (formerly June 17, 2027.2027).

As of January 3, 2026 and December 28, 2024 and December 30, 2023,2024, our outstanding revolving loan balance was $0 and $0, respectively. During the fiscal years ended January 3, 2026 and December 28, 2024, we borrowed and paid down $20,675 and $0, respectively, from the revolving loan under the Amended Credit Facility. The outstanding standby letters of credit balance as of December 28, 2024 and December 30,28, 20232024 waswere $680 and $680, respectively, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheets. We use the trade letters of credit in the ordinary course of business to satisfy certain vendor obligations.

Loans drawn under the Amended Credit Facility bear interestinterest, at our option, at a per annum rate equal to either (a) Adjusted Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 1.50% to 2.00%3.00% per annum based on the Company’s fixed charge coverage ratio,annum, or (b) an “alternate prime base rate” subject toplus an increaseapplicable frommargin 0.00%of to 0.50%1.50% per annum based on the Company’s fixed charge coverage ratio.annum. As of DecemberSeptember 28,27, 2024,2025, the Company’s SOFR based interest rate was 6.46%6.78% and the Company’s prime based rate was 8.00%.8.25%. A commitment fee, based upon undrawnunused availability under the Amended Credit Facility bearing interest at a rate of either 0.20% or 0.25%0.50% per annum based on the amount of undrawn availability,annum, is payable monthly. Under the terms of the Credit Agreement, cash receipts are deposited into a lock-box, which are at the Company’s discretion unless the “cash dominion period” is in effect, during which cash receipts will be used to reduce amounts owing under the Credit Agreement. The cashCovenant dominionTesting periodTrigger isPeriod triggered in an event of default or if “excess availability,” (as defined under the Amended Credit Agreement,Agreement) means the period commencing on any day that excess availability is less than the $9,000 (12% of the aggregate revolving commitment)$5,000 for three consecutive business days,days and will continue until, during the preceding 45 consecutive days, no event of default existed anduntil excess availability has been greater thanthan, $9,000or equal to, $5,000 at all times (withfor 45 consecutive days. In addition, upon the triggeroccurrence subjectof toa adjustment based on the Company’s revolving commitment). The Company’s required excess availability related to the “Covenant Testing Trigger Period”Period, (as defined under the Credit Agreement) is less than $7,500 (10% of the aggregate revolving commitment) for three consecutive business days, the Companywe shall be required to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0, and continuing until excess availability has been greater than or equal to $7,500 at all times$5,000 for 45 consecutive days (with the trigger subject to adjustment based on the Company’s revolving commitment).days.

Certain of the Company’sour domestic subsidiaries are co-borrowers (together with the Company, the “Borrowers”) under the Amended Credit Agreement, and certain other domestic subsidiaries are guarantors (the “Guarantors” and, together with the Borrowers, the “Loan Parties”) under the Amended Credit Agreement. The Borrowers and the Guarantors are jointly and severally liable for the Borrowers’ obligations under the Amended Credit Agreement. The Loan Parties’ obligations under the Amended Credit Agreement are secured, subject to customary permitted liens and certain exclusions, by a perfected security interest in (a) all tangible and intangible assets and (b) all of the capital stock owned by the Loan Parties (limited, in the case of foreign subsidiaries, to 65% of the capital stock of such foreign subsidiaries). The Borrowers may voluntarily prepay the loans at any time. The Borrowers are required to make mandatory prepayments of the loans (without payment of a premium) with net cash proceeds received upon the occurrence of certain “prepayment events,” which include certain sales or other dispositions of collateral, certain casualty or condemnation events, certain equity issuances or capital contributions, and the incurrence of certain debt.

The Amended Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Companyus and itsour subsidiaries, including, among other things, restrictions on indebtedness, liens, fundamental changes, investments, dispositions, prepayment of other indebtedness, mergers, and dividends and other distributions.

Events of default under the Amended Credit Agreement include: failure to timely make payments due under the Amended Credit Agreement; material misrepresentations or misstatements under the Amended Credit Agreement and other related agreements; failure to comply with covenants under the Amended Credit Agreement and other related agreements; certain defaults in respect of other material indebtedness; insolvency or other related events; certain defaulted judgments; certain ERISA-related events; certain security interests or liens under the loan documents cease to be, or are challenged by the Companyus or any of itsour subsidiaries as not being, in full force and effect; any loan document or any material provision of the same ceases to be in full force and effect; and certain criminal indictments or convictions of any Loan Party. As of DecemberJanuary 28,3, 2024,2026, thewe Company waswere in compliance with all covenants under the Amended Credit Agreement.

Impairment of Long-Lived Assets. We assess potential impairments whenever events or changes in circumstances indicate that the carrying value of our long-lived assets, or asset group, may not be recoverable. If an indicator of impairment exists, we review the recoverability of our long-lived assets by estimating the future undiscounted future cash flows compared to the carrying value of such assets.assets, or asset group. An impairment loss will result when the carrying value of the asset group exceeds the undiscounted future cash flows of the asset group. Impairment losses will be recognized in operating results. No impairment charges were recorded for the fiscal years ended December 28, 2024 and December 30, 2023.

Third-party marketplaces account for a significant portion of our revenues. Our sales on third-party marketplaces (including eBay and Amazon) represented a combined 30.5%30.6% of total sales in the thirteentwenty-six weeks ended AprilJuly 4, 2026. We anticipate that sales of our products on third-party marketplaces will continue to account for a significant portion of our revenues. In the future, the loss of access to these third-party marketplaces, or any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the success of our business depends partly on continued access to these third-party marketplaces. Our relationships with our third-party marketplace providers could deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products on a timely basis or to protect a third-party’s intellectual property. In addition, third-party marketplace providers could prohibit our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel could result in lower sales, and as a result, our business and financial results may suffer.

During the firstsecond quarter of 2026, we recorded a net loss, and our net losses may continue in the future.

If our net losses continue in the future, they could severely impact our liquidity, as we may not be able to provide positive cash flows from operations in order to meet our working capital requirements. We may need to borrow additional funds from our Amended Credit Facility, which under certain circumstances may not be available, sell additional assets or seek additional equity or additional debt financing in the future. In such case, there can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all. If our net losses were to continue, and if we are not able to raise adequate additional financing or proceeds from asset sales to continue to fund our ongoing operations, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations, file for bankruptcy or cease operations.

Our operations are restricted by our Amended Credit Agreement, and our ability to borrow funds under our Amended Credit Facility is subject to a borrowing base.

We maintain an Amendeda Credit Facility that provides for, among other things, a revolving commitment in an aggregate principal amount of up to $25,000 subject to a borrowing base primarily derived from certain of our receivables, inventorycash and propertycash equivalents, certain receivables and equipment. Our Amended Credit Facility also provides for an option to increase the aggregate principal amount by $125,000, subject to certain terms and conditions, and provides for a sublimit of $2,500 for the issuance of letters of credit.inventory. The Amended Credit Facility matures on SeptemberMarch 8,31, 2026.2028.

Our Amended Credit Agreement includes a number of restrictive covenants. These covenants could impair our financing and operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:

In addition, our Amended Credit Facility is subject to a borrowing base derived primarily from cash and cash equivalents, certain of our receivables, inventory, propertyreceivables and equipment.inventory. In the event that components of the borrowing base are adversely affected for any reason, including adverse market conditions or downturns in general economic conditions, we could be restricted in the amount of funds we can borrow under the Amended Credit Facility. Furthermore, in the event that components of the borrowing base decrease to a level below the amount of loans then-outstanding under the Amended Credit Facility, we could be required to immediately repay loans to the extent of such shortfall. If any of these events were to occur, it could severely impact our liquidity and capital resources, limit our ability to operate our business and could have a material adverse effect on our financial condition and results of operations.

Under certain circumstances, our Amended Credit Agreement may also require us to satisfy a financial covenant, which could limit our ability to react to market conditions or satisfy extraordinary capital needs and could otherwise impact our liquidity and capital resources, restrict our financing and have a material adverse effect on our results of operations.

Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If we are unable to satisfy the financial covenants and tests at any time and unable to obtain waivers from our lenders with respect to such requirements, we may not be able to borrow under the Amended Credit Facility or may be required to immediately repay loans under the Amended Credit Facility, and our liquidity and capital resources and ability to operate our business could be severely impacted, which would have a material adverse effect on our financial condition and results of operations. In those events, we may need to sell assets or seek additional equity or additional debt financing or attempt to modify our existing Amended Credit Agreement. There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Amended Credit Agreement.

While we did not have any outstanding revolver loan debt under our Amended Credit Agreement, as of AprilJuly 4, 2026, we may have outstanding revolver loan debt in the future. Any outstanding indebtedness would have important consequences, including the following:

We may not be able to generate sufficient cash from operations to meet our debt service obligations as well as fund necessary capital expenditures and general operating expenses. In addition, if we need to refinance our debt, or obtain additional debt financing or sell assets or equity to satisfy our debt service obligations, we may not be able to do so on commercially reasonable terms, if at all. If this were to occur, we may need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations, file for bankruptcy or cease operations. Our outstanding letters of credit balance as of AprilJuly 4, 2026 was $680,$0, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheet.

Our top ten suppliers represented approximately 56% of our total product purchases during the thirteentwenty-six weeks ended AprilJuly 4, 2026. Our ability to acquire products from our suppliers in amounts and on terms acceptable to us is dependent upon a number of factors that could affect our suppliers and which are beyond our control. For example, financial or operational difficulties that some of our suppliers may face could result in an increase in the cost of the products we purchase from them. If we do not maintain our relationships with our existing suppliers or develop relationships with new suppliers on acceptable commercial terms, we may not be able to continue to offer a broad selection of merchandise at competitive prices and, as a result, we could lose customers and our sales could decline.

For a number of the products that we sell, we outsource the distribution and fulfillment operation and are dependent on certain drop-ship suppliers to manage inventory, process orders and distribute those products to our customers in a timely manner. For the thirteentwenty-six weeks ended AprilJuly 4, 2026, our product purchases from three drop-ship suppliers represented approximately 17%21% of our total product purchases. Because we outsource to suppliers a number of these traditional retail functions relating to those products, we have limited control over how and when orders are fulfilled. We also have limited control over the products that our suppliers purchase or keep in stock. Our suppliers may not accurately forecast the products that will be in high demand or they may allocate popular products to other resellers, resulting in the unavailability of certain products for delivery to our customers. Any inability to offer a broad array of products at competitive prices and any failure to deliver those products to our customers in a timely and accurate manner may damage our reputation and brand and could cause us to lose customers and our sales could decline.

In addition, our distribution centers are susceptible to damage or interruption from human error, sickness related to a pandemic, fire, flood, power loss, telecommunications failures, terrorist attacks, acts of war, break-ins, earthquakes and similar events. We do not currently maintain back-up power systems at our fulfillment centers. WeWhile dowe not presently have a formalmaintain disaster recovery plan and our business interruptioncontinuity insurancemeasures, maywe cannot guarantee these will be insufficientsufficient to compensateavoid usmaterial forharm lossesduring thata maysignificant occurinterruption in the event operations at our fulfillment center are interrupted.centers. In addition, alternative arrangements may not be available, or if they are available, may increase the cost of fulfillment. Any interruptions in our fulfillment operations for any significant period of time, including interruptions resulting from the expansion of our existing facilities or the transfer of operations to a new facility, could damage our reputation and brand and substantially harm our business and results of operations.

If we are unable to substantially utilize our net operating loss (“NOLs”) carry-forwards, our financial results may be adversely affected, and protections implemented by us to preserve our NOLs may have unintended anti-takeover effects.affected.

This and other limitationsLimitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than they would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. For example, if and when we seek to apply our NOL carry-forwards to reduce our tax liability, we will have the burden of proof with respect to the losses we incurred —in some cases up to 20 years ago. We may not meet our burden of proof if these records are difficult to locate or otherwise are unavailable, which could diminish the value of the available NOL carry-forwards. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed.

Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S., among other restrictions. Throughout 2018 and 2019, and just recently in 2025, the U.S. imposed tariffs on imports from several countries, including China. In February 2025, the U.S. administration announced increased tarifftariffs on imports from China, where generally around 20% of our private label products are sourced, and our remaining private label products are imported from Taiwan and other countries. Following the U.S. administration’s announcements, China also announced corresponding retaliatory tariff measures. On February 20, 2026, the United States Supreme Court issued a ruling relating to tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) and held that IEEPA does not authorize the President to impose tariffs, which invalidated tariffs imposed pursuant to that authority. However, tariffs imposed under other legal authorities (including, for example, Sections 301 and 232) may remain in effect, and the U.S. administration has announced new tariff measures under other authorities, including a temporary import surcharge under Section 122 (which is subject to statutory duration limits and may be extended only by an Act of Congress).We are closely monitoring this evolving situation and evaluating our responses, which may include price adjustments or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the impact of such tariffs or trade restrictions. If tariffs are imposed on imports of our products, or retaliatory trade measures are taken by China or other countries in response to existing or future tariffs, we could be forced to raise prices on all of our imported products or make changes to our operations, any of which could materially harm our revenue or operating results. Any additional future tariffs or quotas imposed on our products or related materials may impact our sales, gross margin and profitability if we are unable to pass increased prices onto our customers. Currently, we cannot fully determine how these tariffs will affect our business operations. The overall impact on our business will be influenced by several variables, including the duration and potential expansion of current tariffs, future changes to tariff rates, scope, or enforcement, retaliatory measures by impacted trade partners, inflationary effects and broader macroeconomic responses, changes to consumer purchasing behavior, ability to pass-through cost increases to the customer, and the effectiveness of our responses in managing these challenges.

Our use of artificial intelligence (“AI”), including our recently launched AI-powered shopping assistant, and our AI-enabled call center technology, may expose us to operational, legal, regulatory, cybersecurity, competitive, and reputational risks that could adversely affect our business, financial condition, and results of operations. AI-enabled tools—particularly those that interact directly with customers—can produce inaccurate, incomplete, misleading, biased, offensive, or otherwise inappropriate outputs, including incorrect product recommendations, comparisons, compatibility guidance, promotional or pricing-related information, or other statements that customers may rely upon when making purchasing decisions. We have implemented a responsible AI usage policy. However, even if we employ testing, monitoring, and human oversight, AI systems are probabilistic and may perform inconsistently, may be vulnerable to manipulation (including prompt-based attacks), and may create elevated customer service burdens, increased returns, chargebacks, or disputes, any of which could harm conversion, retention, and brand trust. Similar to other e-commerce and commerce-technology companies, our AI efforts also depend on data quality and model performance; training data or inputs may be incomplete or biased, and outputs may give rise to claims of unfairness, discrimination, or deceptive practices, as well as diminished customer confidence in our platform.

We have experienced brief computer system interruptions in the past, and we believe they may continue to occur from time to time in the future. Our systems and operations are also vulnerable to damage or interruption from a number of sources, including a natural disaster or other catastrophic event such as an earthquake, typhoon, volcanic eruption, fire, flood, terrorist attack, computer viruses, power loss, telecommunications failure, physical and electronic break-ins and other similar events. For example, our headquarters and the majority of our infrastructure, including some of our servers, are located in Southern California, a seismically active region. In addition, California has in the past experienced power outages as a result of limited electrical power supplies and due to recent fires in the southern part of the state. Such outages, natural disasters and similar events may recur in the future and could disrupt the operation of our business. Our technology infrastructure is also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Although the critical portions of our systems are redundant and backup copies are maintained offsite, not all of our systems and data are fully redundant. WeWhile dowe not presently have a formalmaintain disaster recovery plan in effect and maybusiness notcontinuity havemeasures, we cannot guarantee these will be sufficient insuranceto foravoid lossesmaterial thatharm mayduring occura fromsignificant naturalservice disasters or catastrophic events.disruption. Any substantial disruption of our technology infrastructure could cause interruptions or delays in our business and loss of data or render us unable to accept and fulfill customer orders or operate our websites in a timely manner, or at all.

We recently completed a multi-year implementation of a new global enterprise resource planning system (ERP) that was implemented in fiscal year 2022. The ERP is designed to accurately maintain our books and records and provide important information to the our management team for use in the operation of the business. Our ERP required the investment of significant human and financial resources. If the ERP system does not continue to operate as intended, or requires significant updates, it could adversely affect our financial reporting systems and our ability to produce financial reports and process transactions. Additionally, if we are unable to successfully maintain or implement any new IT system, remediate, update or integrate our existing systems at times when necessary, our financial position, results of operations and cash flows could be negatively impacted.

Since the completion of our initial public offering in February 2007 through AprilJuly 4, 2026, the trading price of our common stock has been volatile. We have also experienced significant fluctuations in the trading volume of our common stock. General economic and political conditions unrelated to our performance may also adversely affect the price of our common stock. In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of any such litigation if it were initiated. The initiation of any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations.

The outstanding Convertible Notes are payable at their maturity in September 2028, or upon an earlier change of control of the Company, at the election of the holders. Even if the holders desire to convert the Convertible Notes, we may be restricted from issuing shares of common stock upon such conversion due to, among other things, CFIUS restrictions, Nasdaq limitations, or insufficient authorized shares of common stock. If we are not able to issue shares of common stock upon a conversion of the Convertible Notes, or if the holders do not elect to convert the Convertible SharesNotes when due upon their maturity or an earlier change of control or event of default, we will need to repay the Convertible Notes and accrued interest with cash.

While management has concluded that our internal controls over financial reporting were effective as of AprilJuly 4, 2026, we have in the past identified, and could in the future identify, a significant deficiency or material weakness in internal control over financial reporting or fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to properly maintain an effective system of internal control over financial reporting, it could impact our ability to prevent fraud or to issue our financial statements in a timely manner that presents fairly our financial condition and results of operations. The existence of any such deficiencies or weaknesses, even if remediated, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits, regulatory investigations and other penalties.

We cannot guarantee that our share repurchase programprogram, if any, will enhance shareholder value, and share repurchases could affect the price of our common stock.

Our Board of Directors has periodically authorized share repurchases, funded from available working capital, including up to $30 million authorizedrepurchases in Julythe 2021.past. TheAlthough our previous share repurchase program hasexpired an expiration date ofon July 26, 2026.2026, Althoughthe ourCompany Boardmay ofevaluate Directorsor hasadopt authorized ournew share repurchase program,programs thisin the future. However, any such share repurchase program doeswill not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. TheShare share repurchase programrepurchases could affect the price of our common stock, increase volatilityvolatility, and diminish our cash reserves.reserves, In addition,and there can be no guarantee that repurchases made under our previous share repurchase program or any future share repurchase program, if any, will enhance shareholder value. As of April 4, 2026, the Company remained authorized to repurchase up to approximately $25,234 in shares of our common stock.

Our common stock is currently listed on the Nasdaq Capital Select Market of The Nasdaq Stock Market, LLC (“Nasdaq”), which has qualitative and quantitative continued listing criteria. However, we cannot assure you that our common stock will continue to be listed on Nasdaq in the future. In order to continue listing our common stock on Nasdaq, we are required to meet the continued listing requirements of the Nasdaq Global Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common stock of $1.00 per share. If we do not meet these continued listing requirements, our common stock could be delisted.

ThereEven though we have been able to regain compliance with applicable Nasdaq continued listing requirements, there can be no assurance that we will be able to maintain such compliance in the future or that our securities, if delisted from Nasdaq in the future, would be listed on a national securities exchange, a national quotation service, the over-the-counter markets or the pink sheets. Delisting from Nasdaq, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our securities, decrease securities analysts’ coverage of us or diminish investor, supplier and employee confidence, any or all of which could materialmaterially adversely affect our business and results of operations.

You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report. Certain statements in this report, including statements regarding our business strategies, operations, financial condition, and prospects are forward-looking statements. Use of the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “wouldwould,”, “will likely continue,” “will likely result” and similar expressions that contemplate future events may identify forward-looking statements.

We continue to invest in modern technology, data, and design to power itsour digital platforms and improve ease of use across channels. In the fall of 2025, we launched Spark, our AI-powered shopping assistant, designed to help customers more easily discover products, navigate fitment, and complete purchases with greater confidence. We believe that we have a significant opportunity to become a preferred destination for automotive repair and maintenance by executing on our evolving strategy, which includes investing in technology, expanding product offerings and customer segments, and enhancing supply chain and logistics capabilities.

In tandem, we have refined our eCommerce experience and segmentation strategy to prioritize direct customer relationships and long-term engagement. In 2025, we launched the JC Whitney Performance Hub, featuring branded performance and upgrade products. We are also expanding our assortment in the European vehicle segment, having launched the CarParts Euro hub in early 2025. These strategic initiatives are intended to strengthen brand loyalty and increase customer lifetime value, while positioning CarParts.com as a trusted destination for automotive parts and maintenance support.hub.

For the firstsecond quarter of 2026, the Companywe generated net sales of $131,961,$135,640, compared with $147,378$151,949 for the firstsecond quarter of 2025, representing a decrease of 10.5%.10.7%. The CompanyWe incurred a net loss of $1,940$3,222 for the firstsecond quarter of 2026 compared to a net loss of $15,283$12,711 for the firstsecond quarter of 2025. The Company’sOur net loss before interest expense (income),expense, net, income tax provision (benefit) provision,, depreciation and amortization expense, amortization of intangible assets, plus share-based compensation expense, workforce transition costs, gain on sale of subsidiary and strategic alternatives exploration costs (“Adjusted EBITDA”) ofwas $585$1,763 in the firstsecond quarter of 2026 compared to $(6,2293,116) in the firstsecond quarter of 2025. Adjusted EBITDA is not a Generally Accepted Accounting Principle (“GAAP”) measure. See the section below titled “Non-GAAP measures” for information regarding our use of Adjusted EBTIDAEBITDA and a reconciliation from net loss.

Net sales decreased by 10.5%10.7% to $131,961$135,640 in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025. The decrease in net sales was primarily drivenattributable byto initiatives to improve profitability, including the Company’srationalization efforts to increase profitability by rationalizingof marketing spend.spend through reduced investment in lower-margin customers and customers with lower lifetime values (“LTVs”). Gross profit decreased by 9.3%9.5% to $42,943$45,056 and gross margin increased 40 basis points to 32.5%33.2% compared to 32.1%32.8% in the firstsecond quarter of 2025. The increase in gross margin was primarily driven by product mix and favorable freight costs.

Total expenses, which primarily consisted of cost of sales and operating expense, decreased in the firstsecond quarter of 2026 compared to the same period in 2025. The changes in both cost of sales and operating expense are described in further detail under — “Results of Operations” below.

Regulation G, “Conditions for Use of Non-GAAP Financial Measures,” and other provisions of the Exchange Act, define and prescribe the conditions for use of certain non-GAAP financial information. We provide EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA consists of net loss before interest expense (income),expense, net; income tax provision (benefit) provision; depreciation and amortization expense; amortization of intangible assets; while Adjusted EBITDA consists of EBITDA before share-based compensation expense, workforce transition costs, gain on sale of subsidiary and strategic alternatives exploration costs.

We believe that these non-GAAP financial measures provide important supplemental information to management and investors. TheseWe also believe that these non-GAAP financial measures reflect an additional way of viewing aspects of the Company’sour operations that, when viewed with the GAAP results and the accompanying reconciliation to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting the our business and results of operations.

Thirteen and Twenty-Six Weeks Ended AprilJuly 4, 2026 Compared to the Thirteen and Twenty-Six Weeks Ended MarchJune 29,28, 2025

Net sales decreased $15,417,$16,309, or 10.5%,10.7%, for the firstsecond quarter of 2026 compared to the same period in 2025. Net sales decreased $31,726, or 10.6%, for the twenty-six weeks ended July 4, 2026 (“YTD Q2 2026”) compared to the same period in 2025. The net sales decrease for the firstsecond quarter of 20262026, and YTD Q2 2026, was primarily drivenattributable byto initiatives to improve profitability, including the Company’srationalization efforts to increase profitability by rationalizingof marketing spend.spend through reduced investment in lower-margin customers and customers with LTVs.

Gross profit decreased $4,405,$4,723, or 9.3%,9.5%, for the firstsecond quarter of 2026 compared to the same period in 2025, and decreased $9,128, or 9.4%, in YTD Q2 2026 compared to the same period in 2025. Gross margin increased 40 basis points to 32.5%33.2% in the firstsecond quarter of 2026 compared to 32.1%32.8% in the firstsecond quarter of 2025, and gross margin increased 50 basis points to 32.9% in YTD Q2 2026 compared to the same period of 2025. The increase in gross margin was primarily driven by product mix and favorable freight costs.

Operating expense decreased $16,498,$13,918, or 26.4%,22.4%, and decreased $30,416 or 24.4%, for the firstsecond quarter of 2026 and YTD Q2 2026, respectively, compared to the same periodperiods in 2025. The decrease in operating expense was primarily attributable to favorable marketing spend,spend and favorable payroll costs due to headcount reductionsreductions, andin addition to the gain on sale of the Philippines subsidiary during YTD Q2 2026 that occurred in January 2026.

Total Other Income (Expense) Income,, Net

Total other income (expense) income,, net, decreasedincreased $283,$211, or 9,433.3%,103.4%, and decreased $70, or 34.8%, for the firstsecond quarter of 2026 and YTD Q2 2026, respectively, compared to the same periodperiods in 2025. The increasesecond quarter change was primarily driven by an increase in other income during the quarter, offset by interest expense from the Convertible Notes that were issued by the Company in September 2025. The YTD Q2 2026 change was primarily driven by interest expense from the Convertible Notes that we issued in September 2025.

For the thirteen and twenty-six weeks ended AprilJuly 4, 2026, theour effective tax rate for the Company was 41.7%.(0.2)% and 21.1%, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, the write-off of an accrued withholding tax associated with the disposition of the Philippines entity,subsidiary, and a change in the valuation allowance that offset the tax of the current period pre-tax loss.

For the thirteen and twenty-six weeks ended MarchJune 29,28, 2025, theour effective tax rate for the Company was (0.90.7)%.% and (0.8)%, respectively. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, income of our Philippines subsidiary that is subject to different effective tax rates, share-based compensation that is either not deductible for tax purposes or for which the tax deductible amount is different than the financial reporting amount, and a change in the valuation allowance that offset the tax of the current period pre-tax loss.

TheWe Company accountsaccount for income taxes in accordance with ASC Topic 740 – Income Taxes (“ASC 740”). Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets. We currently have a full valuation allowance against our deferred tax assets. As of each reporting date, the Company’sour management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. For the thirteentwenty-six weeks ended AprilJuly 4, 2026, there was no material change from the fiscal year ended January 3, 2026 in the amount of the Company'sour deferred tax assets that are not considered to be more likely than not to be realized in future years.

During the thirteentwenty-six weeks ended AprilJuly 4, 2026, we primarily funded our operations with cash and cash equivalents generated from operations, borrowings from our revolving loan,operations and issuance of common stock for $8,000 of gross proceeds (see “Note 3 - Stockholders’ Equity and Share-Based Compensation”). As of AprilJuly 4, 2026 and January 3, 2026, our outstanding revolving loan balance under our Amended Credit Facility was $0 and $0, respectively. We had cash and cash equivalents of $37,856$38,171 as of AprilJuly 4, 2026, representing a $12,035$12,350 increase from $25,821 of cash as of January 3, 2026. Based on our current operating plan, we believe that our existing cash and cash equivalents, investments, cash flows from operations and available funds under our Amended Credit Facility will be sufficient to finance our operations through at least the next twelve months (see “Debt and Available Borrowing Resources” and “Funding Requirements” below).

As of AprilJuly 4, 2026 and January 3, 2026, our working capital was $58,127$55,816 and $53,817, respectively. The historical seasonality in our business during the year can cause cash and cash equivalents, inventory and accounts payable to fluctuate, resulting in changes in our working capital.

The following table summarizes the key cash flow metrics from our consolidated statements of cash flows for the thirteentwenty-six weeks ended AprilJuly 4, 2026 and MarchJune 29,28, 2025 (in thousands):

Net cash provided by (used in) operating activities for the thirteentwenty-six weeks ended AprilJuly 4, 2026 and MarchJune 29,28, 2025 was $7,261$10,643 and $5,505,($20,060), respectively. The increase was primarily driven by a lower net loss in the thirteentwenty-six weeks ended AprilJuly 4, 2026,2026 partiallyand offseta by lowerhigher net cash inflow from the change in working capital.

For the thirteentwenty-six weeks ended AprilJuly 4, 2026, net cash used in investing activities was primarily the result of additions to property and equipment of $2,099,$4,405, which are mainly related to capitalized website and software development costs. For the thirteentwenty-six weeks ended MarchJune 29,28, 2025, net cash used in investing activities was primarily the result of additions to property and equipment of $2,116,$4,408, which are mainly related to capitalized website and software development costs.

Net cash provided by financing activities was $7,167$6,406 for the thirteentwenty-six weeks ended AprilJuly 4, 2026, primarily due to $8,000 of gross proceeds from the issuance of common stock, partially offset by $720$1,411 of payments made on finance leases. Net cash usedprovided inby financing activities was $1,254$7,845 for the thirteentwenty-six weeks ended MarchJune 29,28, 2025, primarily due to $954$10,000 of net borrowings from the revolving loan payable, offset by $1,786 of payments made on finance leases.

Total debt was $33,412$32,850 as of AprilJuly 4, 2026 compared to $34,010 as of January 3, 2026 and primarily consists of Convertible Notes payable and right-of-use obligations – finance.

On September 8, 2025, the Companywe entered into a Purchase Agreement with certain investors, pursuant to which the Companywe issued Convertible Notes with an aggregate principal amount of $25,000. The Convertible Notes accrue interest quarterly at a rate of two percent (2%) per annum, payable in kind. The maturity date is September 10, 2028. The outstanding Convertible Notes principal balance, plus any unpaid and accrued interest, is convertible at the option of the investors into shares of our common stock of the Company at the maturity date, at a Conversion Price of $1.20$12.00 per share. As of AprilJuly 4, 2026 and January 3, 2026, the Convertible Notes payable balance was $25,288$25,416 and $25,161, respectively.

Amended Credit Facility

TheWe Companymaintain maintains an Amendeda Credit Facility that provides for, among other things, a revolving commitment, which is subject to a borrowing base derived primarily from cash and cash equivalents, certain receivables, inventoryreceivables and property and equipment.inventory. On SeptemberJune 8,15, 2025,2026, the Company and JPMorgan Chase Bankwe entered into the First Amendment to the Company’s existing Amended and Restateda Credit Agreement,Agreement datedwith asFBSF of June 17, 2022. The First Amendment providesproviding for thean asset-based revolving commitmentcredit facility in an aggregate maximum principal amount of $25,000 (formerly $75,000), a sublimit of $2,500 for the issuance of letters of credit and allows for an uncommitted abilityup to increase$25,000, the revolving commitmentsecured by ansubstantially additionalall $125,000,our subject to certain terms and conditions.assets. The Amended Credit Facility now matures on SeptemberMarch 8,31, 2026 (formerly June 17, 2027).2028.

As of AprilJuly 4, 2026 and January 3, 2026, our outstanding revolving loan balance was $0 and $0, respectively. As of AprilJuly 4, 2026 and January 3, 2026, the outstanding standby letters of credit balance was $680$0 and $680, respectively, and we had $0 of our trade letters of credit outstanding in accounts payable in our consolidated balance sheets. Loans drawn under the Credit Facility bear interest at a per annum rate equal to the One-Month Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 3.25% per annum.

The Amended Credit Agreement requires us to satisfy certain financial covenants which could limit our ability to react to market conditions or satisfy extraordinary capital needs and could otherwise restrict our financing and operations. If we are unable to satisfy the financial covenants and tests at any time, we may as a result cease being able to borrow under the Amended Credit Facility or be required to immediately repay loans under the Amended Credit Facility, and our liquidity and capital resources and ability to operate our business could be severely impacted, which would have a material adverse effect on our financial condition and results of operations. In those events, we may need to sell assets or seek additional equity or additional debt financing or attempt to modify our existing Amended Credit Agreement. There can be no assurance that we would be able to raise such additional financing or engage in such asset sales on acceptable terms, or at all, or that we would be able to modify our existing Amended Credit Agreement.

There were no significant changes to our critical accounting policies during the thirteen weeks ended AprilJuly 4, 2026. We believe our critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our historical consolidated financial condition and results of operations (for further detail, refer to our Annual Report on Form 10-K for the fiscal year ended January 3, 2026 that we filed with the SEC on March 5, 2026):