Auto parts retailer Pep Boys (NYSE:PBY) will report first-quarter 2007 financial results tomorrow, May 23.

What analysts say:

  • Buy, sell, or waffle? There's not much pep in the step of the eight analysts that cover Pep Boys; half of them say sell, three say hold, and only pip says buy.
  • Revenues. That could be because sales are only expected to inch up 2% to $567.1 million.
  • Earnings. Or it could be because they're anticipating earnings turning from a $0.05 per-share profit last year to a $0.02 per-share loss this time out.

What management says:
Pep Boys has a new president and CEO running things -- and he's taken off down a bumpy road. Last quarter the company reported a 6% increase in sales in one of its slowest quarters, though it did benefit from an extra selling week. The company's CFO says that although it's "difficult to precisely carve out a week from an overall reporting period, we estimate that the 14th week did not have a material affect on results," which improved operating profitability by merely a half million dollars. The bulk of its revenues, though, comes from merchandise sales (more than 80%) and same-store sales declined 1.5% in that category.

What management does:
Pep Boys is different than Advance Auto Parts (NYSE:AAP) and AutoZone (NYSE:AZO) in that it offers automotive repairs and installations. The others are strictly retail operations. That differentiation should help Pep Boys, particularly during the winter months, because the do-it-yourself market, which comprises a large component of its business, is more willing to let someone else do the work when it's cold outside. That helps explain why comps rose 2% in that segment last quarter.

Pep Boys was also able to improve its situation by offering fewer discounts, although the impact on comps remains to be seen.

Margin

01/06

04/06

07/06

10/06

02/07

Gross

22.7%

22.9%

23.2%

24.0%

25.2%

Operating

(0.4%)

(0.2%)

(0.2%)

0.3%

1.0%

Net

(1.7%)

(1.6%)

(1.6%)

(1.6%)

(0.1%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The turnaround seems to be gaining traction at Pep Boys, albeit slowly. Those who would send it to the junk heap don't seem to want to give it or its new CEO time for a jump-start. O'Reilly Automotive (NASDAQ:ORLY), which caters more to the professional mechanic, had an impressive quarter, with comps rising 6.8% and revenues rising 14% from last year. With Advance reporting in-line results last week and AutoZone reporting tomorrow, investors will have a better indication of how the industry is performing.

Cost-cutting is the watchword for the industry these days, and Pep Boys has been hard at it. Yet at 47 times forward earnings, the auto parts specialist is charging the market a rate that a mechanic could envy. Pep Boys may not be up on blocks, but unless it executes flawlessly, shares could experience a blow-out.

Related Foolishness:

Pep Boys has earned a one-star rating from Motley Fool CAPS, the investor intelligence community. You can add your voice to the stock-rating service by joining today.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. AutoZone is a former Motley Fool Inside Value selection. The Motley Fool has a disclosure policy.