Man, it looks like Moe doesn't know Jack after all.
Auto parts and service retailer Pep Boys
Like a dropped screw that rolls to the furthest recesses of a garage, comparable merchandise sales fell by more than 3%, which is troublesome since they make up more than 80% of the company's revenue. Management estimated that the decision to halt commercial sales at some stores contributed one percentage point of the drop.
Pep Boys has been facing tough industry conditions even as it affects a turnaround strategy while also bringing on a new CEO. Certainly the company has its hands full, but they seem a bit greasy. O'Reilly Automotive
There's speculation that Pep Boys is grooming itself for a buyout, which has probably done more to grease the stock's rise than any real operational efficiencies. Consolidation is not bad for the industry, considering the effects rising gas prices may have on competitors' business. While AAA expects miles driven this year to rise, and Pep Boys looks to the number of older cars on the road as a model for forecasting trends, a period of rising interest rates can't help it improve its profitability as much as it needs.
Newly installed CEO Jeffrey Rachor was cautiously optimistic about this quarter's swing to profitability, noting the after-market automotive retail chain had "turned the corner on restoring the company to profitability, [but] much work remains to realize the company's true financial potential, including continued margin expansion, cost management, and profitable sales growth."
Pep Boys has managed to put two quarters of profits together back-to-back, which is something it hasn't been able to do for a few years now. With the upcoming second quarter typically one of its better ones, Pep Boys may yet string together a third winning quarter.
That's not to say that Pep Boys stock is a buy just yet. Its valuation is still rich, about three times more on a forward to Advance Auto Parts
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