Can Pep Boys Earnings Match AutoZone and Advance Auto Parts?

Pep Boys (NYSE: PBY  ) will release its quarterly report on Monday, and investors have looked forward to seeing whether the stock can sustain its recent upward momentum. Even as shares trade at their best levels since early 2012, Pep Boys faces plenty of competition from AutoZone (NYSE: AZO  ) and Advance Auto Parts (NYSE: AAP  ) . For the much-smaller Pep Boys to compete, it will have to execute well on its combination parts and repair business model and start boosting its profits.

Pep Boys seeks to go farther than most conventional auto-parts stores like AutoZone and Advance Auto Parts, going beyond simply selling parts to offer full automotive repair and maintenance services to its customers. That gives Pep Boys a revenue source that its rivals lack, but it also leaves the company exposed to economic trends among car owners that Advance Auto and AutoZone don't have to worry about. Let's take an early look at what's been happening with Pep Boys over the past quarter and what we're likely to see in its report.

Stats on Pep Boys

Analyst EPS Estimate

$0.14

Change From Year-Ago EPS

16.7%

Revenue Estimate

$521.74 million

Change From Year-Ago Revenue

2.4%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Can Pep Boys earnings finally produce a positive surprise?
In recent months, analysts have had mixed views on Pep Boys earnings, cutting their October quarter estimates by $0.02 per share but boosting their full-year fiscal 2014 projections by three times that amount. The stock has steadily risen, gaining 17% since early September.

A big part of those gains came from Pep Boys' July quarter report. Pep Boys reported only a modest gain of 0.4% in overall revenue, with comparable-store sales falling 1.3%. Service revenue actually rose on a comparable-store basis, but the company's merchandise business dropped more dramatically. Yet investors looked past the revenue trends and emphasized substantial gains in operating profits and rising margins from the year-ago quarter in sending the stock higher.

The big question for Pep Boys is whether increased sales of new vehicles will eventually threaten its growth. As the average age of vehicles on the road has increased, Pep Boys, AutoZone, and Advance Auto have all seen greater traffic. But if pent-up demand for new vehicles finally gives way to car owners making the plunge and getting rid of their older vehicles, it could spell trouble for Pep Boys in both segments of its business.

To try to counter any negative trends, Pep Boys has done its part to make its stores more attractive. With new store designs, waiting areas will be more appealing to customers, making them more likely to come back for repeat business the next time their vehicles need service. At the same time, though, Pep Boys has grown through acquisitions in an attempt to compete more effectively against AutoZone and Advance Auto by building more name-brand recognition in the industry. That's especially important given the recent move that Advance Auto made to acquire General Parts International, taking aim directly at AutoZone.

In the Pep Boys earnings report, watch to see how sales in the company's various segments pan out. If repairs rebound, it could point to the success of its remodeling attempts. But falling services revenue could suggest that new-car sales are eating into Pep Boys' business, making it that much harder for the company to catch up with Advance Auto and AutoZone in the long run.

What's the best stock for next year?
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Click here to add Pep Boys to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2755900, ~/Articles/ArticleHandler.aspx, 9/17/2014 11:41:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement