CARPARTS.COM, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (in thousands, except per share data, or as otherwise indicated) (Form 10-Q)

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Caution

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," "would", "will likely
continue," "will likely result" and similar expressions that contemplate future
events may identify forward-looking statements.

The information contained in this section is not a complete description of our
business or the risks associated with an investment in our common stock. We urge
you to carefully review and consider the various disclosures made by us in this
report and in our other reports filed with the U.S. Securities and Exchange
Commission ("SEC"), which are available on the SEC's website at
http://www.sec.gov. The section entitled "Risk Factors" set forth in Part II,
Item 1A of this report, and similar discussions in our other SEC filings,
describe some of the important factors, risks and uncertainties that may affect
our business, results of operations and financial condition and could cause
actual results to differ materially from those expressed or implied by these or
any other forward-looking statements made by us or on our behalf. You are
cautioned not to place undue reliance on these forward-looking statements, which
are based on current expectations and reflect management's opinions only as of
the date thereof. We do not assume any obligation to revise or update
forward-looking statements. Finally, our historic results should not be viewed
as indicative of future performance.

Overview

We are a leading online provider of aftermarket auto parts, including
replacement parts, hard parts, and performance parts and accessories. We
principally sell our products to individual consumers through our flagship
website at www.carparts.com and online marketplaces. Our proprietary product
database maps our SKUs to product applications based on vehicle makes, models
and years. 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.

We believe by disintermediating the traditional auto parts supply chain and
selling products directly to customers online allows us to efficiently deliver
products to our customers. Our mission is getting drivers back on the road and
our strategy consists of the Right Part, Right Time, Right Place, as outlined
below:

Right Part means ensuring our customers can find a solution to fix their vehicle
on our website. Our efforts to accomplish this include curating our proprietary
catalogue, creating a fast, mobile-friendly user experience, building world
class data science and inventory forecasting teams and investing more heavily in
our logistics and merchandising capabilities. We continue to take steps to
improve our product offerings and offer customers premium products at value
prices to assist customers on finding the right part.

Right Time means getting the customers back on the road quickly. We added new
distribution centers over the past two years, and plan to add more in the
future, to continue improving the customer click to delivery time so that we can
keep meeting our customers' evolving expectations. Our goal is to continue to
make investments to improve delivery times by getting closer to our customers to
provide them the parts they need in adequate time to get back on the road
quickly.

Right Place means empowering our customers to choose how they want to repair and
maintain their vehicle. Whether the customer is a Do-It-Yourself ("DIY") or a
Do-It-For-Me ("DIFM") customer, we intend to continue offering them the
resources, tools, and turn-key solutions to get back on the road. Our vision is
to provide customers an experience where they can order their repairs or
maintain their vehicle and never leave their house. Whether we send a mobile
mechanic or refer the customer to a trusted auto repair shop, we intend to be
there to solve the customer's needs and make investments in our technology, or
other platforms, to bring this vision to reality.

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Industry-wide trends that support our strategy and future growth include:

1.Number of SKUs required to serve the market. The number of automotive SKUs has
grown dramatically over the last several years. In today's market, unless the
consumer is driving a high volume produced vehicle and needs a simple
maintenance item, the part they need is not typically on the shelf at a
brick-and-mortar store. We believe our user-friendly flagship website provides
customers with a favorable alternative to the brick-and-mortar shopping
experience by offering a comprehensive selection of approximately 865,000 SKUs
with detailed product descriptions, attributes and photographs combined with the
flexibility of fulfilling orders using both drop-ship and stock-and-ship
methods.
2.U.S. vehicle fleet expanding and aging. The average age of U.S. light
vehicles, an indicator of auto parts demand, remained near record-highs at
11.9 years during 2020, according to the U.S. Auto Care Association. In
addition, IHS, a market analytics firm, found that the total number of light
vehicles in operation in the U.S. has increased to record levels, and should
continue to rise through 2021, and beyond. We believe an increasing vehicle base
and rising average age of vehicles will have a positive impact on overall
aftermarket parts demand because older vehicles generally require more repairs.
In many cases we believe these older vehicles are driven by DIY car owners who
are more likely to handle any necessary repairs themselves rather than taking
their car to the professional repair shop.
3.Growth of online sales. The U.S. Auto Care Association estimated that overall
revenue from online sales of auto parts and accessories would reach over $21
billion by 2023. Improved product availability, lower prices and consumers'
growing comfort with digital platforms are driving the shift to online sales. We
believe that we are well positioned for the shift to online sales due to our
history of being a leading source for aftermarket automotive parts through our
flagship website and online marketplaces.

Impact of COVID-19

The COVID-19 pandemic created uncertainty and challenges on the United States
and global economy and some challenges continued through the third quarter of
2021. Since the onset of the pandemic, our top priority remains the health and
safety of our employees as most have continued to work from home, in addition to
ensuring our customers continue receiving our high-quality, personalized
service. Our distribution centers continue to remain operational while our
safety protocols direct employees onsite to continue to adhere to, and follow,
the COVID-19 safety guidelines recommended from the Centers for Disease Control
and Prevention (CDC).



We continue to monitor and proactively mitigate risks in our supply chain
because of the global supply chain disruption and port congestion. We have
incurred, and may in the future incur, additional freight and container costs
and may also continue to incur increased costs relating to workforce shortages,
overtime charges, and detention costs at one or more of our distribution centers
due to the continued effects of the COVID-19 pandemic. However, the ultimate
extent of the effects from the COVID-19 pandemic on the Company, our financial
condition, results of operations, liquidity, and cash flows will be dependent on
evolving developments which are uncertain and cannot be predicted at this time.
See the "Risk Factors" section set forth in Part II, Item 1A for further
discussion of risks related to COVID-19.



Factors affecting our performance

We believe that our performance and future success depend on a number of factors
that present significant opportunities for us but also pose risks and
challenges, including those discussed in Part II, Item IA, of this Quarterly
Report on Form 10-Q and in Part I, Item IA, in our Annual Report on Form 10-K
for the fiscal year ended January 2, 2021.



Abstract

For the third quarter of 2021, the Company generated net sales of $141,846,
compared with $117,406 for the third quarter of 2020, representing an increase
of 20.8%. The Company incurred a net loss of $4,659 for the third quarter of
2021 compared to net income of $1,385 for the third quarter of 2020. The
Company's net (loss) income before interest expense, net, income tax provision,
depreciation and amortization expense, amortization of intangible assets, plus
share-

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based compensation expense ("Adjusted EBITDA") of $2,295 in the third quarter of
2021 compared to $5,131 in the third quarter of 2020. 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 EBTIDA
and a reconciliation from net (loss) income.

Net sales increased in the third quarter of 2021 compared to the third quarter
of 2020 primarily driven by continued strong demand and the expanded capacity
from our Grand Prairie distribution center. Gross profit increased by 9.8% to
$47,333 and gross margin decreased 330 basis points to 33.4% compared to 36.7%
in the third quarter of 2020. The decrease in gross margin was primarily driven
by unfavorable inbound and outbound freight costs in the third quarter of 2021
as well as a lack of certain favorable one-time items in the prior year period.

Total expenses, which primarily consisted of cost of sales and operating
expense, increased in the third quarter of 2021 compared to the same period in
2020. The changes in both cost of sales and operating expense are described in
further detail under - "Results of Operations" below.

Non-GAAP measures

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) income before (a) interest expense, 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.

The Company believes 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's
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 Company's business and results
of operations.

Management uses Adjusted EBITDA as one measure of the Company's operating
performance because it assists in comparing the Company's operating performance
on a consistent basis by removing the impact of share-based 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 Company also believes 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's 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, the Company expects to continue to incur expenses similar to
the non-GAAP adjustments described above, and exclusion of these items from the
Company's non-GAAP measures should not be construed as an inference that these
costs are unusual, infrequent or non-recurring.

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The table below reconciles net (loss) income to Adjusted EBITDA for the periods
presented (in thousands):


                                         Thirteen Weeks Ended              

Thirty-nine weeks completed

                                October 2, 2021     September 26, 2020      October 2, 2021      September 26, 2020
Net (loss) income              $         (4,659)    $             1,385    $         (5,309)    $              1,975
Depreciation & amortization                2,573                  1,766                7,123                   5,298
Amortization of intangible
assets                                        28                     25                   83                      75
Interest expense, net                        309                    304                  821                   1,453
Taxes                                         39                     45                  207                     199
EBITDA                         $         (1,710)    $             3,525    $           2,925    $              9,000
Stock compensation expense     $           4,005    $             1,606    $          11,277    $              5,991
Adjusted EBITDA                $           2,295    $             5,131    $          14,202    $             14,991




Results of Operations

The following table shows the selected transaction status data for the periods indicated, expressed as a percentage of net sales:

                                                        Thirteen Weeks Ended                    Thirty-Nine Weeks Ended
                                                October 2, 2021    September 26, 2020    October 2, 2021    September 26, 2020
Net sales                                                 100.0 %               100.0 %            100.0 %               100.0 %
Cost of sales                                              66.6                  63.3               66.3                  64.9
Gross profit                                               33.4                  36.7               33.7                  35.1
Operating expense                                          36.4                  35.3               34.7                  34.0
(Loss) income from operations                             (3.0)                   1.4              (1.0)                   1.1
Other income (expense):
Other income, net                                           0.0                   0.0                0.0                   0.0
Interest expense                                          (0.3)                 (0.2)              (0.2)                 (0.4)
Total other expense, net                                  (0.3)                 (0.2)              (0.2)                 (0.4)
(Loss) income before income taxes                         (3.3)            
      1.2              (1.2)                   0.7
Income tax provision                                        0.0                     -                0.0                   0.1
Net (loss) income                                         (3.3) %                 1.2 %            (1.2) %                 0.6 %



Thirteen and thirty-nine weeks completed October 2, 2021 Compared to the thirteen and thirty-nine weeks completed September 26, 2020

Net sales and gross margin


                                               Thirteen Weeks Ended                       Thirty-Nine Weeks Ended
                                     October 2, 2021      September 26, 2020      October 2, 2021      September 26, 2020

                                                  (in thousands)                              (in thousands)
Net sales                            $        141,846    $            117,406    $         444,184     $           324,154
Cost of sales                                  94,513                  74,285              294,328                 210,425
Gross profit                         $         47,333    $             43,121    $         149,856     $           113,729
Gross margin                                     33.4 %                  36.7 %               33.7 %                  35.1 %




Net sales increased $24,440, or 20.8%, for the third quarter of 2021 compared to
the third quarter of 2020. Net sales increased $120,030, or 37.0%, for the
thirty-nine weeks ended October 2, 2021 ("YTD Q3 2021") compared to the same
period in 2020. The net sales increase was primarily driven by continued strong
demand and the expanded capacity from our Grand Prairie distribution center.

Gross profit increased $4,212 or 9.8%, for the third quarter of 2021 compared to
the same period of 2020 and increased $36,127, or 31.8%, in YTD Q3 2021 compared
to the same period of 2020. Gross margin decreased 330 basis points to 33.4% in
the third quarter of 2021 compared to 36.7% in the third quarter of 2020. Gross
margin decreased 140

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basis points to 33.7% for YTD Q3 2021 compared to 35.1% in the same period of
2020. The decrease in gross margin was primarily driven by unfavorable inbound
and outbound freight costs in the third quarter of 2021 as well as a lack of
certain favorable one-time items in the prior year period.

Exploitation charges

                                                  Thirteen Weeks Ended                        Thirty-Nine Weeks Ended
                                       October 2, 2021        September 26, 2020      October 2, 2021      September 26, 2020

                                                     (in thousands)                               (in thousands)
Operating expense                      $         51,668      $             41,389    $         154,353     $           110,174
Percent of net sales                               36.4 %                    35.3 %               34.7 %                  34.0 %



Operating expense increased $10,279, or 24.8% for the third quarter of 2021 and
increased $44,179, or 40.1%, in YTD Q3 2021 compared to the same periods in 2020
primarily due to an increase in fulfillment expense as well as an increase in
payroll related expenses. The increase in fulfillment expense for the third
quarter of 2021 was primarily due to a higher number of fulfilled orders and
inventory receipts as well as additional expenses related to the Grand Prairie
distribution center expansion that is expected to open in the first quarter of
2022. The increase in fulfillment expense for YTD Q3 2021 was primarily due to a
higher number of fulfilled orders and inventory receipts as well as additional
expenses incurred from our Grand Prairie distribution center that opened in the
fourth quarter of 2020. The increase in payroll related expenses for the third
quarter and YTD Q3 2021 was primarily due to an increase in foundational
investments in our business to support our current and future growth.

Total other expenses, net

                                                Thirteen Weeks Ended                        Thirty-Nine Weeks Ended
                                      October 2, 2021       September 26, 2020     October 2, 2021       September 26, 2020

                                                   (in thousands)                               (in thousands)
Other expense, net                    $          (285)     $              (302)    $          (605)     $            (1,381)
Percent of net sales                             (0.2) %                  (0.2) %             (0.1) %                  (0.4) %




Total other expense, net, decreased $17, or 5.6%, and decreased $776, or 56.2%,
for the third quarter and YTD Q3 2021, respectively, compared to the same
periods in 2020. The YTD decrease was primarily due to a decrease in interest
expense attributable to the lower utilization of our revolving loan and trade
letters of credit during YTD Q3 2021 compared to the same period in 2020.

Income tax provision


                                                    Thirteen Weeks Ended                          Thirty-Nine Weeks Ended
                                          October 2, 2021        September 26, 2020      October 2, 2021         September 26, 2020

                                                       (in thousands)                                  (in thousands)
Income tax provision                     $              39      $                 45    $             207       $                199
Percent of net sales                                   0.0 %                     0.0 %                0.0 %                      0.1 %



For the thirteen and thirty-nine weeks ended October 2, 2021, the effective tax
rate for the Company was (0.8%) and (4.1%), 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, certain employee compensation, 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 offsets the tax on the current period pre-tax loss.

For the thirteen and thirty-nine weeks ended September 26, 2020, the effective
tax rate for the Company was 3.1% and 9.2%, 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 offsets
the tax of the current period pre-tax income.

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The Company accounts 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's 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 thirty-nine weeks ended October 2, 2021, there was no material change from
fiscal year ended January 2, 2021 in the amount of the Company's deferred tax
assets that are not considered to be more likely than not to be realized in
future years.



On December 27, 2020, the Consolidated Appropriations Act ("CAA") was enacted in
further response to the COVID-19 pandemic, in combination with omnibus spending
for the 2021 federal fiscal year. The CAA extended many of the provisions
enacted by the CARES Act, which did not have a material impact on the Company's
consolidated financial statements for the thirteen and thirty-nine weeks ended
October 2, 2021. On March 11, 2021, the American Rescue Plan Act of 2021
("ARPA") was enacted in still further response to the COVID-19 pandemic. The
Company is evaluating the provisions of ARPA, but does not expect it to have a
material impact on the Company's consolidated financial statements for the
2021
fiscal year.

Foreign Currency

The impact of foreign currencies is linked to our offshore operations in The Philippines and the sale of our products in Canada and was not important to our operations.

Liquidity and capital resources

Sources of liquidity

During the thirty-nine weeks ended October 2, 2021, we primarily funded our
operations with cash and cash equivalents generated from operations and
remaining proceeds from our public equity offering that occurred in August 2020.
As of October 2, 2021, our outstanding revolving loan balance under our Credit
Facility was $0. We had cash and cash equivalents of $20,680 as of
October 2, 2021, representing a $15,122 decrease from $35,802 of cash as of
January 2, 2021. Based on our current operating plan, and despite the current
uncertainty resulting from the COVID-19 pandemic, we believe that our existing
cash and cash equivalents, investments, cash flows from operations and available
funds under our 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).

From October 2, 2021, our credit facility provided for a revolving commitment of up to $ 30,000 subject to a borrowing base derived from certain of our receivables, inventories and property, plant and equipment (see “Debt and available borrowing resources” below).

Working capital

As of October 2, 2021 and January 2, 2021, our working capital was $73,384 and
$67,396, 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.

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Cash Flows

The following table summarizes the key cash flow metrics from our consolidated
statements of cash flows for the thirty-nine weeks ended October 2, 2021 and
September 26, 2020 (in thousands):


                                                                     Thirty-Nine Weeks Ended
                                                            October 2, 2021        September 26, 2020
Net cash (used) provided by operating activities           $          (8,349)     $              1,610
Net cash used in investing activities                                 (8,407)                  (6,936)
Net cash provided by financing activities                               1,661                   62,019
Effect of exchange rate changes on cash                                  (27)                        5
Net change in cash and cash equivalents                    $         (15,122)     $             56,698




Operating Activities
Net cash (used) provided by operating activities for the thirty-nine weeks ended
October 2, 2021 and September 26, 2020 was ($8,349) and $1,610, respectively.
The decrease was primarily driven by an increase in inventory from anticipated
demand for online auto parts and stocking up for the Grand Prairie distribution
center expansion that is expected to open in the first quarter of 2022.

Investment activities

For the thirty-nine weeks ended October 2, 2021 and September 26, 2020, the net cash used in investing activities is the result of acquisitions of property, plant and equipment ($ 8,407 and $ 6,936, respectively), which are primarily related to capitalized website and software development costs.

Fundraising activities

Net cash provided by financing activities was $1,661 for the thirty-nine weeks
ended October 2, 2021, primarily due to $3,230 of proceeds from exercises of
stock options, partially offset by $1,566 of payments on finance leases. Net
cash provided by financing activities was $62,019 for the thirty-nine weeks
ended October 2, 2020, primarily due to $60,531 of net proceeds from the
issuance of common stock in the August 2020 public equity offering.

Debt and borrowing resources available

The total debt was $ 15,320 from October 2, 2021 compared to $ 13,011 from
January 2, 2021 and consists mainly of right-of-use – funding obligations.

The Company maintains a Credit Facility that provides for, among other things, a
revolving commitment in an aggregate principal amount of up to $30,000, which is
subject to a borrowing base derived from certain receivables, inventory and
property and equipment. Our Credit Facility also provides for an option to
increase the aggregate principal amount from $30,000 to $40,000 subject to
lender approval. As of October 2, 2021, our outstanding revolving loan balance
was $0. The outstanding standby letters of credit balance as of October 2, 2021
was $1,435, and we had $0 of our trade letters of credit outstanding in accounts
payable in our consolidated balance sheet. We used the trade letters of credit
in the ordinary course of business to satisfy certain vendor obligations.

Loans drawn under the Credit Facility bear interest at a per annum rate equal to
either (a) LIBOR plus an applicable margin of 1.25% to 1.75% per annum based on
the Company's fixed charge coverage ratio, or (b) an "alternate prime base rate"
subject to a reduction by 0.25% to 0.75% per annum based on the Company's fixed
charge coverage ratio. As of October 2, 2021, the Company's LIBOR based interest
rate was 1.38% (on $0 principal) and the Company's prime based rate was 3.00%
(on $0 principal). A commitment fee, based upon undrawn availability under the
Credit Facility bearing interest at a rate of 0.25% per 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 cash dominion period is
triggered in an event of default or if excess availability is less than the
$3,600

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for three consecutive business days, and will continue until, during the
preceding 45 consecutive days, no event of default existed and excess
availability has been greater than $3,600 at all times (with the trigger subject
to adjustment based on the Company's revolving commitment). In addition, in the
event that "excess availability," as defined under the Credit Agreement, is less
than $3,000 the Company shall be required to maintain a minimum fixed charge
coverage ratio of 1.0 to 1.0. The Credit Facility matures on December 16, 2022.

Our 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 Credit Facility or be required to
immediately repay loans under the 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 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 Credit Agreement.

Funding requirements

Based on our current operating plan, we believe that our existing cash, cash
equivalents, investments, cash flows from operations and available debt
financing will be sufficient to finance our operational cash needs through at
least the next twelve months. Our future capital requirements may, however, vary
materially from those now planned or anticipated. Changes in our operating
plans, lower than anticipated net sales or gross margins, increased expenses,
continued or worsened economic conditions, worsening operating performance by
us, or other events, including those described in "Risk Factors" included in
Part II, Item 1A may force us to sell assets or seek additional debt or equity
financings in the future, including the issuance of additional common stock
under a registration statement. As such, there can be no assurance that we would
be able to raise such additional financing or engage in asset sales on
acceptable terms, or at all. If we are not able to raise adequate additional
financing or proceeds from asset sales, we will need to defer, reduce or
eliminate significant planned expenditures, restructure or significantly curtail
our operations.

Off-balance sheet provisions

We do not have off-balance sheet arrangements.

Seasonality

We believe our business is subject to seasonal fluctuations. We have
historically experienced higher sales of replacement parts in winter months when
inclement weather and hazardous road conditions typically result in more
automobile collisions. Hard parts and performance parts and accessories have
historically experienced higher sales in the summer months when consumers have
more time to undertake elective projects to maintain and enhance the performance
of their automobiles and the warmer weather during that time is conducive for
such projects. These historical seasonality trends could continue, and such
trends may have a material impact on our financial condition and results of
operations in subsequent periods.

Critical accounting conventions and estimates

Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of our financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, net sales, costs and
expenses, as well as the disclosure of contingent assets and liabilities and
other related disclosures. On an ongoing basis, we evaluate our estimates,
including, but not limited to, those related to revenue recognition,
uncollectible receivables, inventory, valuation of deferred tax assets and
liabilities, intangible and other long-lived assets and contingencies. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about carrying values of our assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates, and we include any revisions to our estimates in our
results for the period in which the actual amounts become known.

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There were no significant changes to our critical accounting policies during the
thirteen weeks ended October 2, 2021. 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 that we
filed with the SEC on March 16, 2021):

? Inventory valuation – Inventory reserve

? Income taxes – Realization of deferred tax assets

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