Tickers in this Article: PBY, AZO, ORLY, AAP, GPC
Automotive aftermarket retail and service chain Pep Boys Manny, Moe & Jack (NYSE:PBY) posted impressive earnings gains for its second quarter. The contribution from the purchase of a smaller tire retailer helped push up the profits, while offsetting what was otherwise a still sluggish consumer. (For more on interpeting earnings, check out Investors Beware: There Are 5 Types Of Earnings Per Share.)

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Profits Pumped Up By Tire Acquisition
Pep Boys' profit rose to 26 cents a share, or $13.9 million, from 20 cents or $10.6 million in the year ago quarter. Management noted that its acquisition of 85 Big 10 Tire stores was accretive to earnings. Sales were $522.6 million, up from $504.9 million in the year ago quarter, a 3.5% increase. Comparable sales, however, decreased by 1.3%. The high gas prices and economic headwinds were challenging for overall sales. Repair service sales were stable, while tire sales apart from the Big 10 acquisition were off, though the company says it will be ready to take advantage of pent up demand. Pep Boys' six months results on revenue and earnings are running ahead of the same period last year.

Auto Aftermarket Still Hot
The automobile aftermarket with repair service as well as parts, is very competitive with some strong performers, none more formidable than AutoZone (NYSE:AZO). AutoZone has grown its earnings by nearly 20% annually in the last five years, with an estimated consensus for its growth rate in the next five years of over 15%.The stock recently powered to a new 52-week high of over $318 a share, an even more impressive performance in a largely down market.

O'Reilly Automotive (Nasdaq:ORLY) is another auto parts retailer that's doing robust business, with its stock reflecting this also by trading near its 52-week high. O'Reilly and its peers - including Pep Boys - have benefited from the slow economy and the trend of consumers keeping their cars longer. In the case of O'Reilly, they supply parts to both do it yourselfers and professional mechanics, so they have both major channels of the repair sector covered. O'Reilly has an aggressive expansion plan to continue to open new stores.

More of the same good news can be told of Advance Auto Parts (NYSE:AAP). In its last quarterly report, delivered at the beginning of August, net income rose 12.6% year over year, while per share the increase was 26%. Advance's comparable store sales, however, grew more slowly, at a 2.5% clip compared to 5.8% the year before, while overall sales increased more than 4%. Genuine Parts (NYSE:GPC) has tried to beef up its sales growth in its NAPA automotive aftermarket segment, but has been unable to raise prices to retailers, which can pressure margins.

The Bottom Line
Pep Boys has been getting more favorable reviews from analysts, and has shown improvement in its year over year quarterly revenue and earnings numbers. The stock has long been considered a turnaround waiting to happen, yet it's traded well below its 52-week high for awhile. It is showing better margin performances, especially operating margin and net margins. The problem for Pep Boys remains the tremendous strength of AutoZone and the other potent competitors it's up against. Comps show some weakness which indicates Pep Boys still has work to do to secure its value niche so it doesn't get squeezed further in its space. (To help you identify a turnaround stock, read Turnaround Stocks: U-Turn To High Returns.)

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