AAP) and AutoZone ( AZO), it is fair to say Pep Boys, which has been marred with weak same-store sales and eroding margins, has not been alone in its struggles. I won't deny that after a couple of tune-ups, management had made meaningful progress. But I'm still concerned by the air being sucked out of the company's operating model. Not to mention, Wal-Mart ( WMT), which has an auto services business of its own, is beginning to encroach more on Pep Boys' merchandise business and its services revenue. However, with shares of Pep Boys now up more than 22% year to date, the Street assumes the company will eventually get its house in order. But that has always been a big bet. It's not the first time investors have chosen a favorite, even if the business model looks flawed. But Pep Boys, which has become a perpetual turnaround story for 15 years, no longer deserves the type of pass that it has gotten. MCD), I'm willing to give Pep Boys the benefit of the doubt, accepting that consumers might have postponed vehicle repairs due to the weak economy. But here's the thing: I said this same thing regarding Pep Boys not only last year, but also several months ago. After Monday's debacle, which included a 9-cents earnings miss and a revenue shortfall, there's no place today for Pep Boys to hide.
What's more, given the fact there continues to be an obvious divergence in the company's service/merchandise model, management should now seek to do what the numbers say should have been done several years ago -- kill merchandise. This is the only way to get Pep Boys back to solid growth. It's costing too much money to compete with Wal-Mart's lower prices. For instance, while same-store sales did decline again this quarter by 1.3%, the service business still grew -- albeit modestly by 0.2%. The merchandise business, however, declined year-over-year by 1.7%. But when looking at the merchandise business on a GAAP basis, the same-store number is even worse, coming in at decrease of 2.6% year over year. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.