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Car Parts Dealer Rides Rocky Road in Short Run

With the global economy teetering on the edge of another recession, investors have no appetite for stocks with long-term growth stories. That’s made the relatively small financial challenges facing U.S. Auto Parts Network Inc. an excuse for the market to hammer its shares.

The Carson online distributor of aftermarket automotive parts and accessories saw its stock hit a 52-week low Sept. 22 before recovering a bit to close the day at $4.31. It is down nearly 50 percent year to date.

“Investors don’t want to deal with a lot of risk right now – they’re more willing to buy a Treasury bond that pays 1.8 percent,” said Gary Prestopino, an analyst at Chicago-based Barrington Research with an “outperform” rating on U.S. Auto shares and a 12-month price target of $11 to $13.

Prestopino isn’t alone in believing that U.S. Auto will have a much better 2012. Six of the seven analysts covering the company have “buy” recommendations. Also, insiders Chief Financial Officer Theodore Sanders and Director Barry Phelps have bought shares recent ly.

Some of the company’s troubles are of its own making. U.S. Auto a year ago bought Chicago online accessories distributor Whitney Automotive for $27.5 million, plus the assumption of $11 million in debt, a deal widely applauded at the time.

But U.S. Auto has taken longer than many expected to integrate Whitney’s operations and inventory, and that’s been a drag on the company’s financials. Executives decided to make the merger of online sites less complicated by limiting updates to Whitney’s legacy site and not tweaking prices.

That depressed sales from JCWhitney.com and its print catalog by 13 percent from a year earlier in the second quarter ended July 2, and contributed $4.1 million to operational losses.

In addition, new policies implemented late last year at eBay, where the company maintains a presence, hurt sales. And like other e-commerce companies, U.S. Auto had to adapt to programming changes at Google in order to keep its name prominent in search rankings.

U.S. Auto’s family of sites includes AutoPartsWarehouse.com and AutoMD.com.

The changes hurt U.S. Auto’s profitability. The company reported a net loss of $2.6 million in the second quarter, compared with net income of $500,000 a year earlier. Net revenue was up 58 percent, but that was largely due to the addition of the Whitney’s operations.

Chief Executive Shane Evangelist said during a conference call last month that U.S. Auto was adjusting to the eBay and Google changes and that the Whitney integration should pay off in the long run.

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