Pep Boys Cranks It Up

Last month, auto part store Pep Boys -- Manny, Moe & Jack (NYSE: PBY  ) saw its third-quarter net income rise 23%, helped by better tire and service sales. This quarter was also the 11th straight quarter in which the company from Philadelphia improved profitability on a year-over-year basis. In a way, the recession in the U.S. has helped auto part retailers' record better sales.

Recession? Not for us
The sluggish economy coupled with high unemployment has reduced the purchasing power of consumers and bound them to maintain their old cars rather than buy new ones. This has been helping aftermarket and auto market retailers such as Pep Boys, O'Reilly (Nasdaq: ORLY  ) , and AutoZone (NYSE: AZO  ) record better sales.

In their most recent quarters, O'Reilly's profits shot up 27% to a record $148 million, and AutoZone saw double-digit EPS growth for the 12th consecutive quarter.

Helped by its "surround sound" marketing effort, weak gas prices, and strong tire sales, Pep Boys saw its revenue rise by 5%. However, comparable sales fell 0.4% as a result of a 0.6% fall in comparable merchandise sales. Its retail business remained on the drier side, reflecting weak consumer demand. A 1% fall in selling, general, and administrative expenses did help boost profits, though.    

The road ahead
Pep Boys opened six service and tire centers this quarter, taking the total to 159. On Oct. 10, it rolled out TreadSmart as part of its eServe platform, which helps consumers research, purchase, and schedule the installation of tires through its website pepboys.com. TreadSmart has met with initial success and the signs, according to CEO Mike Odell, are "encouraging."  

Current market conditions for Pep Boys are encouraging and are likely to help Pep Boys boost profits again in the next quarter.

Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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