Why Shares of Pep Boys Fell

Is this meaningful? Or just another movement?

Jeremy Bowman
Jeremy Bowman
Apr 15, 2014 at 8:22PM
Consumer Goods

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of The Pep Boys -- Manny, Moe, and Jack (UNKNOWN:PBY.DL) were looking rusty today, falling as much as 16% and finishing down 15% after a disappointing earnings report.

So what: The automotive aftermarket chain badly missed the mark on the bottom line, reporting a net loss of $0.06 on expectations of a $0.05-per-share profit. Revenue, meanwhile, increased 0.2% on an even calendar basis to $495.7 million, but that was also well below the consensus at $531.2 million as comparable sales were down 2.4%. CEO Mike Odell noted that several components of the business are continuing to grow, including service revenue and customer counts, but a drop in tire pricing weighed on profits, which he expects to continue through the first half of the year. 

Now what: Pep Boys shares hit a 52-week low on the news, as this was the fourth straight quarter that the company has missed earnings estimates. Notably, shares of competitors such as Advance Auto Parts and O'Reilly Auto Parts  are trading near 52-week highs, making Pep Boys' problems seem deeper than tire prices. Given the continued weakness in tire pricing expected, shares could fall further. I'd like to see an earnings beat and positive comps before getting bullish on Pep Boys.