This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Pep Boys Still Driving to Nowhere

Stocks in this article: PBY AAP AZO WMT

Gross margin continue to erode, including a Q3 drop of 150 basis points. Even though the company deserves credit for service revenue growth, service margin still managed to drop by five points. This is despite the fact that customers have responded well with higher transactions.

An argument can be made that the higher traffic actually hurt. Here too, Wal-Mart, which has an auto services business of its own, is undercutting Pep Boys' margins. And from a profitability standpoint, it doesn't appear as if management has an suitable answer. So does Pep Boys want to be a service-oriented business or a retail business? The "joint model" is still not working - not to the extent that it does for AutoZone and Advance Auto Parts.

Expectations for the Fourth Quarter

According to Yahoo! (YHOO), Pep Boys will announce fourth-quarter and full-year fiscal 2012 earnings on Tuesday. It's worth noting that the company has yet to confirm this. Here again, this brings up concern about the company's management and direction, which also suggests there's no enthusiasm about what the report may say. For that matter, the Street isn't expecting much.

Average estimates for full-year revenue is at $2.07 billion, which would represent 0.2% year-over-year growth, or roughly flat from the $2.06 billion posted a year ago. The company is expected to report earnings of 31 cents a share, which would be a year-over-year decline of 42% from earnings per share of 54 cents. These are not exactly breath-taking numbers.

Absent some clear fundamental changes, it's hard to see a silver lining with Pep Boys, especially since this turnaround story has been going on now for 15 years. Management must still address the fact that its stores are often considered to be in "undesirable locations" and are inefficiently operated from the standpoint that the store seems to have more space than is utilized.

Bottom Line

All of that said, the effort it would take for Pep Boys to fix itself is not impossible. However, it may require "getting worse" before the things get better.

Management should consider exiting the services business and focus solely on the retail end. Unfortunately, this would create additional "unusable space," which is already a concern. Thus, the "getting worse" part.

Suffice it to say, there are much better investment opportunities out there. And even for more risk-tolerant investors, this is not a stock bet on, especially since the valuation is already trading at almost twice that of Auto Zone and Advance Auto Parts.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs