Online Auto Parts Retailer Grinding Wall Street Gears

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For some companies, going public can be a fruitful move. For others, it can turn rotten pretty quickly.


In less than two months since going public, Carson-based U.S. Auto Parts Network Inc. has seen its stock chopped in half, from a high of more than $12 to $5.12 on March 29. The stock plunged after the company revealed several embarrassing management mistakes during a March 20 conference call. The troubles have elicited legal action and left at least some analysts wondering if the problems reflect deeper troubles.


Mehran Nia, president and chief executive of the online auto parts retailer, acknowledged two issues during the call “which had a negative impact in our first quarter margin,” including an inability to fill all of its orders in 2006 and the underpricing of some performance and accessory parts.


Michael McClane, chief financial officer, said it took management several months to notice that one of its vendors was out of stock, forcing the company to credit customers. Also, some employees had priced parts too low. That also was not discovered for months, and it cost the company about $500,000.


Despite record sales of $120 million for 2006, an increase of 101 percent from 2005, company executives also announced a possible first-quarter loss for 2007. This, along with the revelations of mismanagement, fueled a massive sell off by stockholders. The day after the announcement, the company’s stock price, which opened at $11.07, dropped more than 40 percent.


Since then the stock price has continued to fall, but at a more gradual clip, dipping below $6 last week its lowest price since going public.


Last Wednesday, the law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP announced it was pursuing a class-action lawsuit against U.S.


Auto Parts for allegedly failing to disclose its problems to shareholders before its IPO. And on Thursday, Kahn Gauthier Swick LLC announced a separate lawsuit against the company on similar grounds.


The problems have been an embarrassment for the company, but they may not spell doom.


Analysts with the middle-market investment banking firm Piper Jaffray & Co. last week rated the stock “outperform” with a $9 target price, saying the problems are likely short-term. The firm cited U.S. Auto Parts’ online presence, low-cost offshore operations and attractive valuation as indicators of the company’s brighter future.


Jordan Rohan, an analyst with RBC Capital Markets, rated the stock “sector perform” with an $8 target price, suggesting the gaffes could have lasting effects on the perceived credibility of management.


U.S. Auto Parts went public Feb. 9, selling 10 million shares at an initial offering of $10 each.


The company, started in 1995, sells after-market car parts through a network of affiliated Web sites. It offers about 550,000 products and specializes in engine parts, body parts, performance parts and accessories.


Company executives expect sales to grow to between $170 million and $185 million this year.

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