August 4, 2010, 2:19 PM

Whitney acquisition will deliver missing parts for U.S. Auto

U.S. Auto Parts expects the Whitney Automotive Group purchase to help it sustain double-digit growth.

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U.S. Auto Parts Network Inc. expects the acquisition of Whitney Automotive Group and its massive inventory of millions of auto parts and accessories to fill the gaps in its own product line and provide exposure to an additional 3 million unique visitors each month, says Shane Evangelist, CEO. Combining those factors with U.S. Auto Parts’ online sales strategies will help the company sustain double-digit quarterly sales growth, Evangelist tells Internet Retailer.

“U.S. Auto Parts is getting diversification of product mix,” Evangelist says. “Our focus is body and engine parts and Whitney’s is mostly accessories.” The product mix is crucial to maintaining growth in a changing marketplace. When new car sales go up, people buy more accessories and when new car sales go down, people buy more parts because they are keeping cars longer, he says.

The acquisition also will help U.S. Auto Parts, No. 91 in the Internet Retailer Top 500 Guide, diversify its revenue mix, Evangelist said on the company’s second quarter earnings call Monday. “Our current revenue mix does not represent the overall market and certainly does not represent the online market,” he said. “We will go from a revenue mix of approximately 45% engine, 37% body, 10% accessories and 8% performance parts to 32% engine, 23% body, 37% accessories and 8% performance.”

U.S. Auto Parts also gets a slice of automotive parts history: Whitney has been selling parts and accessories for 95 years. “The acquisition gives U.S. Auto a key element we have been lacking, a very recognizable consumer-facing brand in the online auto parts market,” Evangelist said.

U.S. Auto Parts’ total cash commitment to the acquisition is about $41 million, he said. That total comes from the stock purchase price of $27.5 million plus a combination of integration expenses and negative working capital of about $13.5 million, Evangelist said. “We are funding the transaction with cash from our balance sheet along with $35 million in our approved credit facility from Silicon Valley Bank.”

The deal for Whitney, No. 119 in the Internet Retailer Top 500 Guide, is expected to close in August and add an additional $110 million to $120 million in annual revenue to U.S. Auto Parts Network, the company says. U.S. Auto Parts Network generated sales of $176.3 million in 2009.

Whitney carries more than 6 million automotive parts and accessories in its online inventory and owns a 300,000-square-foot Illinois distribution center that holds approximately $15 million in inventory and was custom built for the business-to-consumer distribution of auto parts, Evangelist said. The distribution center will enable U.S. Auto Parts to reach 96% of the country’s population within two days via ground delivery, he said.

90% of it Whitney’s information systems will be converted to U.S. Auto Parts’ technology, much of which is homegrown, including its e-commerce platform, Evangelist said.

U.S. Auto Parts has logged strong growth in the first half of 2010, which reflects its evolving online sales strategy, Evangelist said. “In addition to our focus on improving the customer delivery experience, we began to improve the front end user experience with better navigation and product display. We became more competitively priced on certain projects, started to build a private-label engine business and started to add new branded SKUs in a significant manner.”

For the second quarter of fiscal 2010 ended July 3, U.S. Auto Parts Network reported:

  • Web sales of $53.2 million, up by 21.5% from $43.8 million.
  • Net loss was $500,000 compared with a net loss of $600,000 in Q2 of 2009.

For the second quarter, U.S. Auto Parts also reported:

  • Capital expenditures were $3 million including $1.8 million of internally developed software and web site development costs.
  • Technology expense was $1.2 million or 2.2% of net sales, compared with 3.0% ($1 million) of net sales in the prior year period. The decrease reflects fixed cost leverage from increased sales, the company says.
  • Marketing expense, excluding advertising expense, was $4.0 million or 7.2% of net sales for the quarter.
  • Fulfillment expense was $2.9 million or 5.3% of sales. The decrease was attributed to fixed cost leverage from higher sales, U.S. Auto Parts says.

For the first six months of fiscal 2010, U.S. Auto Parts Network reported:

  • Web sales of $109.5 million, up by 31% from $83.5 million in the prior year period.
  • Net income was $2 million compared with a net loss of $50,000 in Q2 of 2009.

U.S. Auto Parts also is growing its auto repair information site, which helps generate leads to the e-commerce sites, including USAutoParts.com and PartsTrain.com. AutoMD.com now is averaging about 300,000 monthly visitors and has added a question and answer section, Evangelist said. In its first four months the section logged more than 20,000 questions, he said.

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