Automotive aftermarket chain The Pep Boys, Manny, Moe & Jack (NYSE:PBY) reported earnings that disappointed Wall Street. The company showed a slight increase in sales and income for its first quarter, but both missed analyst expectations.

TUTORIAL: Brokers and Online Trading

Gas Prices and Weather Dampen Earnings
The company cited high gasoline prices as well as rainy weather as holding back the consumer during the quarter. Sales increased from $510 million in the year ago quarter to $513.5 million in the first quarter this year, though comparable store sales decreased 0.6%. Analysts looked for $537 million in sales, according to Thomson Reuters I/B/E/S. Net income edged up to $12.37 million from $11.95 million in the year ago quarter. Earnings per share remained flat at 23 cents, with analysts looking for 30 cents. Pep Boys has had a trend of flat or lower revenue in the last five years, with net income in the black only in the last two. Wall Street has been looking for a promised turnaround from the company.

A Tough Sector
The automotive aftermarket for parts and service is a highly competitive space. The leader, AutoZone (NYSE:AZO), recently reported another stand out quarter with sales up 8.6% and income up over 12%. It has strong cash flow and has been repurchasing shares. It's an aggressive, focused and successful company. Advance Auto Parts (NYSE:AAP) and O'Reilly Automotive (Nasdaq:ORLY) are two other major players that are not far behind. Both continue to deliver impressive results. Smaller US Auto Parts Network (Nasdaq:PRTS) has a more uphill battle, as it has been fighting through losses in its last several years. The possibilities of consolidation are still strong in the sector.

Pep Boys Current Business
The results for the first quarter showed a 1.6% comparable gain in service sales, with a 1.2% decrease in merchandise sales. The tire centers helped lead the service segment growth. The company added several service and tire center locations, which were funded internally with cash on hand. Pep Boys replacement parts division for commercial vehicles as well as its replacement tire selling are considered by the company as two of its strong points, along with its usual automotive maintenance and repair services. Pep Boys is striving to hold its value niche. Whether this will be enough to fend off such vigorous competitors as AutoZone, Advance Auto and O'Reilly is unclear.

The Bottom Line
Bloomberg reported that Pep Boys suspended its search for a buyer in February when the company allegedly couldn't get a sufficiently attractive bid. Although the company declined to comment then, it had supposedly wanted a bid in the low teens, but could only get nibbles at $10 or $11 a share, so it took itself out of the market. There are a couple of possible things to surmise about this. Pep Boys knew and still knows it's in a difficult competitive position. Although it's attempting to keep up with competitors, the probability that potential buyers didn't value the business close to what the company may have is telling. Now, by posting an essentially flat quarter, Pep Boys is effectively losing ground. (Accident, theft, vandalism - make sure your coverage will protect you when you need it most. Check out Top Tips For Cheaper, Better Car Insurance.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  2. Term

    What are Mutually Exclusive Events?

    In statistics, mutually exclusive situations involve the occurrence of one event that does not influence or cause another event.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  6. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  7. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  8. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
  9. Economics

    Explaining the Participation Rate

    The participation rate is the percentage of civilians who are either employed or unemployed and looking for a job.
  10. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  4. Altman Z-Score

    The output of a credit-strength test that gauges a publicly traded ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!