The market for auto part retailers has been quite lucrative lately. As consumers become increasingly frugal about their spending, they avoid spending on big ticket items such as cars. Thus, in order to avoid their huge spending on cars, they try and maintain the existing one as much as possible. This leads to more servicing on the vehicles which became expensive with the growing age of the car. Thus, the average life of cars has increased to 11.4 years in the recent years. This has given a lot of opportunities to the aftermarket retailers who provide such service as well as auto parts.
Pep Boys – Manny, Moe & Jack (PBY, Financial) is one such example of this kind. It provides auto parts and other auto services to customers. However, its performance has not been at par with other similar players since competition has become tough. It recently reported its third quarter numbers, which failed to please the Streets, sending its share price down by 4%. Let us take a look.
A snapshot of the numbers
The top line of the company inched up 2.1% to $517.6 million, over last year. This was higher than the analysts’ estimate of $512.6 million. Sales were driven by same store sales growth of 1.2%. The best-performing segment during the quarter was the service segment, where comp sales rose 6.1%. However, merchandise segment was a laggard. Same store sales in this segment dropped 0.2% during the quarter.
The ecommerce segment was also a bright spot. This is mainly because online shopping has become increasingly popular among customers. People find it convenient to make their purchases online which is also cheaper compared to the physical stores. Therefore, peer AutoZone (AZO, Financial) acquired AutoAnything, an online auto parts retailer, in order to expand its ecommerce business. The buyout did help the aftermarket retailer to grow its online business.
Other categories which showed growth were the tires and commercial segment sales. Demand for tires was high during the quarter due to more wear and tear. Although the Commercial segment has gained a lot of popularity, it provides lower margins to the retailer.
Further, the earnings of the company dropped a whopping 92.5% to $0.03 per share. The bottom line missed on the analysts’ expectations by $0.12 per share. This fall was mainly because of one-time expenses such as asset impairment charges and severance charges. Also, the company was unable to manage its expenses well.
Delving deeper
When compared to other industry players, Pep Boys has been the worst performer, in terms of share price movement. Its share price has dropped 32.5% in the last year, whereas its peers have registered growth in the share price with AutoZone registering a gain of 30.2% during the period.
Nonetheless, Pep Boys plans to expand its presence into new regions such as Denver, Cincinnati and Baltimore in the first and second quarters of fiscal 2015.
The bottom line
Pep Boys is unable to keep pace with its peers and the competitive pressures in the industry. Lack of promotion is another reason why people are less attracted to the retailer. However, its efforts to increase its footprint and expand its business should be helpful. Thus, one should stay away from this company and rather invest in its peers if aftermarket retail is the industry you want to invest in.
