DEF: CarParts.com Seeks Reverse Stock Split Amid Performance Woes

CarParts.com, Inc. will hold its 2026 Annual Meeting to vote on a reverse stock split, a new stock incentive plan, and director elections, following a year of significant financial underperformance and a strategic investment.

Summary

• The 2026 Annual Meeting of Stockholders will be held virtually on May 11, 2026, at 9:00 a.m. Pacific Time.
• Stockholders will vote on the election of one Class II director, ratification of RSM US LLP as independent auditors for fiscal year 2026, adoption of the 2026 CarParts.com Stock Incentive Plan, and approval of a reverse stock split.
• A proposal for a reverse stock split at a ratio of 1-for-5 to 1-for-20 is being put to a vote, with the Board having discretion on the final ratio and implementation.
• The company reported a net loss of $49.7 million for fiscal year 2025, compared to a net loss of $40.6 million in fiscal year 2024.
• Adjusted EBITDA for fiscal year 2025 was -$14.0 million, a decline from -$7.055 million in fiscal year 2024.
• Revenue for fiscal year 2025 was $547.5 million, falling short of the minimum target of $610 million for executive bonuses.
• Executive officers did not receive a cash bonus for fiscal year 2025 due to financial performance below minimum thresholds for sales and Adjusted EBITDA.
• Total Shareholder Return (TSR) for 2025 was -39.60%, and performance-vesting restricted stock awards tied to relative TSR did not vest.
• A $35.7 million strategic investment was completed on September 10, 2025, by International Auto Parts (Cayman) Limited, Axislink Holding B.V., and Lovely Peach Limited, including $25.0 million in convertible notes and $10.7 million from common stock sale.
• The company received a notice from Nasdaq on June 13, 2025, regarding its stock price being below the $1.00 minimum bid requirement, and was granted an extension until June 8, 2026, to regain compliance after transferring to The Nasdaq Capital Market.
• The proposed 2026 Stock Incentive Plan would authorize up to 4,700,000 new shares, plus remaining shares from the 2016 plan, to attract and retain talent.
• The Board of Directors maintains a separation between the Chairman and Chief Executive Officer roles and has a majority of independent directors.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a low sentiment score due to significant financial underperformance in 2025, the necessity of a reverse stock split to maintain Nasdaq listing, and the resulting dilution from the proposed new stock incentive plan, despite a recent capital raise and governance efforts.

Positives

• A $35.7 million strategic investment in September 2025 provided capital to support growth initiatives and maintain the company's public listing status.
• The company demonstrates a commitment to strong corporate governance, including a Code of Ethics, Corporate Governance Guidelines, and an independent Compensation Committee.
• Stockholders have shown consistent high support for the executive compensation program, with 91.9%, 88.8%, and 90.2% approval in 2023, 2024, and 2025, respectively.
• The Board of Directors has a diverse composition, with three of six members being female and two of six representing a minority group as of March 11, 2026.
• The company has launched an initiative to enhance ESG policies and disclosures, aligning with SASB e-commerce industry guidelines and publishing a Corporate Social Responsibility Report.

Negatives

• The company experienced a net loss of $49.7 million in fiscal year 2025, an increase from $40.6 million in fiscal year 2024.
• Adjusted EBITDA was negative $14.0 million in fiscal year 2025, worsening from negative $7.055 million in fiscal year 2024.
• Revenue of $547.5 million in fiscal year 2025 did not meet the minimum threshold of $610 million for executive annual incentive bonuses.
• Executive officers did not receive cash bonuses for fiscal year 2025 due to underperformance against sales and Adjusted EBITDA targets.
• Total Shareholder Return (TSR) was -39.60% in 2025, leading to no payout for performance-vesting restricted stock awards tied to relative TSR.
• The company's stock price fell below Nasdaq's $1.00 minimum bid price requirement, necessitating a transfer to The Nasdaq Capital Market and a proposal for a reverse stock split to regain compliance.
• The proposed 2026 Stock Incentive Plan, if approved, will result in potential voting power dilution of 5.6% from new shares requested and a total potential dilution of 16% including outstanding awards and shares expected to be granted.

Risks

• Uncertainties regarding the business and the economy generally could impact future performance.
• Competitive pressures in the e-commerce industry pose a challenge.
• Dependence on search engines to attract customers creates vulnerability.
• Demand for the company's products and the online market/channel mix for aftermarket auto parts are critical factors.
• Increases in transportation, labor, and commodity/component pricing could raise costs.
• Operating restrictions in the credit agreement may limit operational flexibility.
• Weather, customs issues, and supply chain disruptions could negatively affect operations.
• There is no assurance that a reverse stock split will increase or sustain the market price of common stock, or improve trading liquidity.
• Investors, analysts, and market participants may hold a negative perception of reverse stock splits.
• The stock prices of some companies that have effected reverse stock splits have subsequently declined, sometimes significantly.
• The reverse stock split will increase the number of authorized but unissued shares, which could be dilutive to existing stockholders if issued in the future.
• The issuance of additional authorized shares could be used to deter a potential takeover, which might otherwise be beneficial to stockholders.

Future Outlook

The company expects to build upon its ESG progress and continue developing its long-term ESG roadmap. The shares authorized under the proposed 2026 Stock Incentive Plan are anticipated to be sufficient for making awards of share-based compensation for one to three fiscal years, depending on various factors including stock prices and competitive market practices. No additional special retention awards for named executive officers are currently contemplated as of March 15, 2026. The next advisory vote on executive compensation is scheduled for the 2027 Annual Meeting of Stockholders, and the next Say-on-Pay frequency vote is in 2029.

Management Comments

• David Meniane, CEO, urges stockholders to promptly vote, emphasizing the importance of shares and votes being represented at the virtual Annual Meeting.
• The Board believes that the process established to administer its risk oversight function would be effective under a variety of leadership frameworks.
• The Compensation Committee believes it possesses the skills and resources required to effectively discharge its duties in reviewing and recommending compensation arrangements for NEOs.
• The Compensation Committee believes that unvested equity awards are a key factor in motivating and retaining executive personnel, as well as incentivizing them to preserve and grow the future value of the stock.
• The Compensation Committee emphasizes that the Retention RSAs granted in January 2025 were special, one-time awards intended to address unique business circumstances and retention risk, and does not expect to make additional grants of this type.
• The Board believes that the executive compensation program was designed appropriately and is working to ensure that management's interests are aligned with stockholders' interests to support long-term value creation.

Industry Context

StockSavvy.ai notes that CarParts.com operates in a highly competitive and dynamic e-commerce industry, which is currently experiencing macroeconomic volatility affecting both the automotive and e-commerce sectors. The company's challenges, such as its stock price falling below Nasdaq's minimum bid requirement, are not uncommon for smaller-cap companies in volatile markets. The strategic investment and proposed reverse stock split reflect broader industry trends where companies seek capital infusion and undertake corporate actions to maintain market viability and attract institutional investors, who often avoid lower-priced stocks. The emphasis on ESG oversight and board diversity aligns with increasing investor and regulatory expectations across all industries.

Comparison to Industry Standards

• The Compensation Committee utilized a peer group of heavily technology-enabled companies with an internet or applications software focus, including Americas Car-Mart, Lulus Fashion Lounge Holdings, Brightcove, Superior Industries International, Duluth Holdings, The Honest Company, Edgio, Stoneridge, Brilliant Earth Group, The Buckle, Holley, The Lovesac Company, iRobot, The RealReal, Motorcar Parts of America, ThredUp, PetMed Express, Turtle Beach, and Purple Innovation.
• At the time of peer group selection, the median revenue and market capitalization of these firms were approximately $546 million and $164 million, respectively, indicating the company benchmarks itself against a diverse set of e-commerce and technology-adjacent businesses.
• Executive compensation for NEOs in fiscal 2025 was maintained at levels below the peer group's 50th percentile for total compensation, reflecting the company's financial performance in 2024.
• The company's Total Stockholder Return (TSR) performance for 2025 (-39.60%) was compared against the constituents of the Russell 2000 Index for performance-vesting restricted stock units, indicating a relative underperformance that resulted in no payouts for these awards.

Management Changes

Corporate Governance

Related Party Transactions

• The company has entered into indemnification agreements with its directors and executive officers, requiring indemnification to the fullest extent permitted by law and advancement of expenses.
• On September 10, 2025, the company completed a $35.7 million strategic investment with International Auto Parts (Cayman) Limited, Axislink Holding B.V., and Lovely Peach Limited (collectively, the Strategic Investors).
• Axislink Holding B.V., a beneficial owner of more than 5% of outstanding common stock, acquired 5,538,958 shares for approximately $6.6 million and holds approximately $23.2 million in convertible notes.
• An Investor Rights Agreement was entered into with the Strategic Investors, granting them the right to collectively designate up to two non-voting board observers as long as they collectively own at least 10% of outstanding common stock.
• The Investor Rights Agreement also provides the Strategic Investors with demand and piggyback registration rights for their shares.
• Upon full conversion of the convertible notes, the Strategic Investors will be collectively entitled to designate two individuals for appointment to the Board as directors, subject to customary qualifications and fiduciary duties.

Stakeholder Impact

• Shareholders face potential dilution from the proposed 2026 Stock Incentive Plan and the increased number of authorized but unissued shares if the reverse stock split is approved.
• Shareholders will experience a reduction in the number of shares they own if the reverse stock split is implemented, though their percentage ownership will remain the same (excluding fractional share rounding).
• Employees, officers, consultants, independent contractors, and advisors are eligible to receive awards under the proposed 2026 Stock Incentive Plan, which aims to attract, retain, and motivate talent.
• Executive officers did not receive cash bonuses for fiscal year 2025 due to underperformance, directly impacting their short-term incentive compensation.
• Strategic investors (International Auto Parts (Cayman) Limited, Axislink Holding B.V., and Lovely Peach Limited) gain significant governance rights, including board observer and future director designation rights, and registration rights, enhancing their influence and liquidity options.
• The company's ability to attract and retain employees and service providers may be negatively impacted by a low stock price, which the reverse stock split aims to address.

Next Steps

• Stockholders will vote on the election of one Class II director at the Annual Meeting on May 11, 2026.
• Stockholders will vote on the ratification of RSM US LLP as independent auditors for fiscal year 2026.
• Stockholders will vote on the adoption of the 2026 CarParts.com Stock Incentive Plan.
• Stockholders will vote on the approval of an amendment to the Certificate of Incorporation to provide for a reverse stock split.
• Stockholders will vote on an advisory (non-binding) resolution regarding executive compensation (Say-on-Pay Proposal).
• Stockholders will vote on the adjournment or postponement of the Annual Meeting, if necessary.
• The Board of Directors will determine the final ratio (between 1-for-5 and 1-for-20) and discretionarily effect the reverse stock split if approved by stockholders.
• Upon full conversion of the convertible notes, the Board will be increased to eight members, and strategic investors will be entitled to designate two individuals for appointment as directors.
• The company expects to continue developing its long-term ESG roadmap.
• The next advisory vote on executive compensation will be held in connection with the 2027 Annual Meeting of Stockholders.
• The next Say-on-Pay frequency vote is scheduled for 2029.
• Stockholder proposals for the 2027 Annual Meeting under Rule 14a-8 must be received by December 11, 2026.
• Stockholder proposals not under Rule 14a-8 or director nominations for the 2027 Annual Meeting must be received between January 11, 2027, and February 10, 2027.

Key Dates

Recommendation

The company faces significant headwinds, including substantial net losses and negative Adjusted EBITDA in fiscal 2025, and a stock price below Nasdaq's minimum bid, necessitating a reverse stock split. While the recent $35.7 million strategic investment provides capital and the company is taking steps to improve corporate governance and executive alignment, the immediate financial performance is concerning. The proposed reverse stock split carries inherent risks and negative perceptions. A 'hold' recommendation is appropriate for existing investors to monitor the effectiveness of the reverse stock split in stabilizing the stock price and the impact of the strategic investment on future financial performance. New investors should exercise extreme caution given the current financial challenges and market risks.

Keywords

CarParts.com, PRTS, SEC filing, Proxy Statement, Annual Meeting, Reverse Stock Split, Stock Incentive Plan, Executive Compensation, Corporate Governance, Nasdaq Listing, Financial Performance, EBITDA, Total Shareholder Return, Strategic Investment, Risk Factors, E-commerce, Auto Parts