Can Pep Boys Earnings Match AutoZone and Advance Auto Parts?

Pep Boys will release its quarterly report on Monday, and investors have looked forward to seeing whether the stock can sustain its recent upward momentum. Even as shares trade at their best levels since early 2012, Pep Boys faces plenty of competition from AutoZone and Advance Auto Parts . For the much-smaller Pep Boys to compete, it will have to execute well on its combination parts and repair business model and start boosting its profits.

Pep Boys seeks to go farther than most conventional auto-parts stores like AutoZone and Advance Auto Parts, going beyond simply selling parts to offer full automotive repair and maintenance services to its customers. That gives Pep Boys a revenue source that its rivals lack, but it also leaves the company exposed to economic trends among car owners that Advance Auto and AutoZone don't have to worry about. Let's take an early look at what's been happening with Pep Boys over the past quarter and what we're likely to see in its report.

Stats on Pep Boys

Source: Yahoo! Finance.

Can Pep Boys earnings finally produce a positive surprise?
In recent months, analysts have had mixed views on Pep Boys earnings, cutting their October quarter estimates by $0.02 per share but boosting their full-year fiscal 2014 projections by three times that amount. The stock has steadily risen, gaining 17% since early September.

A big part of those gains came from Pep Boys' July quarter report. Pep Boys reported only a modest gain of 0.4% in overall revenue, with comparable-store sales falling 1.3%. Service revenue actually rose on a comparable-store basis, but the company's merchandise business dropped more dramatically. Yet investors looked past the revenue trends and emphasized substantial gains in operating profits and rising margins from the year-ago quarter in sending the stock higher.

The big question for Pep Boys is whether increased sales of new vehicles will eventually threaten its growth. As the average age of vehicles on the road has increased, Pep Boys, AutoZone, and Advance Auto have all seen greater traffic. But if pent-up demand for new vehicles finally gives way to car owners making the plunge and getting rid of their older vehicles, it could spell trouble for Pep Boys in both segments of its business.

To try to counter any negative trends, Pep Boys has done its part to make its stores more attractive. With new store designs, waiting areas will be more appealing to customers, making them more likely to come back for repeat business the next time their vehicles need service. At the same time, though, Pep Boys has grown through acquisitions in an attempt to compete more effectively against AutoZone and Advance Auto by building more name-brand recognition in the industry. That's especially important given the recent move that Advance Auto made to acquire General Parts International, taking aim directly at AutoZone.

In the Pep Boys earnings report, watch to see how sales in the company's various segments pan out. If repairs rebound, it could point to the success of its remodeling attempts. But falling services revenue could suggest that new-car sales are eating into Pep Boys' business, making it that much harder for the company to catch up with Advance Auto and AutoZone in the long run.

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The article Can Pep Boys Earnings Match AutoZone and Advance Auto Parts? originally appeared on Fool.com.

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