• Net Sales: Increased 6.4% to a first-quarter record of $169.9 million.
• Gross Profit: Increased 9.8% to $29.2 million.
• Gross Margin: Increased to 17.2% from 16.6% a year earlier.
• Operating Expenses: $35.6 million, impacted by non-cash foreign exchange loss and severance expenses.
• Net Loss: $18.1 million compared to a net loss of $1.4 million a year ago.
• EBITDA: Negative $1.1 million, impacted by non-cash items.
• Cash Used in Operating Activities: Approximately $20.8 million.
• Net Bank Debt: $136.3 million at the end of the quarter.
• Total Cash and Availability: Approximately $90 million.
• Expected Fiscal '25 Sales: Between $746 million and $766 million, representing 3.9% to 6.6% year-over-year growth.
• Expected Operating Income: Between $62 million and $67 million before certain non-cash impacts and severance expenses.

• Warning! GuruFocus has detected 6 Warning Signs with MPAA.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Motorcar Parts of America Inc (NASDAQ:MPAA) achieved a record first-quarter sales performance with a 6.4% increase to $169.9 million.
• Gross profit increased by 9.8% to $29.2 million, and gross margin improved to 17.2% from 16.6% a year earlier.
• The company expects annualized savings of approximately $7 million from strategic cost reduction initiatives.
• MPAA is experiencing strong growth in its brake program, which is expected to lead to margin accretion and operational efficiencies.
• The company is expanding its presence in the Mexican market, which is showing significant growth potential, and is well-positioned to capitalize on this opportunity.

Negative Points

• The fiscal first-quarter results were negatively impacted by a non-cash $11.1 million foreign exchange loss due to a strong dollar versus the peso.
• Operating expenses increased significantly to $35.6 million from $16.1 million last year, partly due to severance expenses.
• Interest expenses rose to $14.4 million from $11.7 million last year, primarily due to accounts receivable discount programs.
• The company reported a net loss of $18.1 million for the fiscal first quarter, compared to a net loss of $1.4 million a year ago.
• Inventory levels increased, which could indicate potential challenges in managing supply chain and demand forecasting.

Q & A Highlights

Q: Can you provide a breakdown of revenue by product line for the first quarter and comment on inventory at retail customers and sell-through versus sell-in dynamics? A: For the first quarter, the product mix was 65% rotating electrical, 7% wheel hubs, 24% brakes, and 4% others. We are seeing a pickup in business, with July being the highest in the company's history. Customers are bringing in inventory with the expectation of increased demand.

Q: What is your latest thinking on interest expense given that rates are coming down? A: Every point in interest reduction on the supply chain factoring is worth $7 million to us. We are encouraged by the reduction in interest rates and are focused on eliminating waste and improving efficiencies to enhance earnings.

Q: Why did inventory increase compared to a year ago? A: Inventory growth in the first quarter was primarily to support expected sales increases. We anticipate significant progress in working capital as we move into the stronger second quarter.

Q: When does the next tranche of brake business come into your revenues? A: The biggest piece starts in January, but we have new business in wheel hubs and rotating electrical starting in the next few months. We also have significant new business in our diagnostic and hard parts categories.

Q: Can you discuss the higher-than-normal returns and their impact? A: Returns were higher due to one large customer whose purchases were lower, but returns remained consistent. This has already normalized in the current quarter. Additionally, a large incentive program was taken early, affecting the quarter's results.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.