Pep Boys-Manny, Moe & Jack (PBY) operates a chain of retail stores offering automotive service, tires, parts and accessories to the “do-it-yourself” customer. Additionally, the Company operates SUPERCENTERS, which services both the do-it-yourself and the “do-it-for-me” DIFM customers. The SUPERCENTERS also offer a commercial sales program that provides credit tires and parts to unaffiliated automobile repair shops.

Founded in 1921, the Company is headquartered in Philadelphia, Pennsylvania.

Source: Reuters.com, SEC Filings.

Source: Reuters.com, SEC Filings.

The mean of analysts polled by Thomson Reuters rate PBY a “Buy,” or “Hold”; three analysts rating the stock as a “Buy,” the same as three months ago; zero analysts expect the stock to “Outperform,” the same as three months ago; and three analyst rating the stock as a “Hold,” the same as three months ago.

Overview

PBY operates a chain of retail stores offering automotive service, tires, parts and accessories to the “do-it-yourself” customer. Additionally, the Company operates SUPERCENTERS, which services both the do-it-yourself and the “do-it-for-me” DIFM customers. The SUPERCENTERS also offer a commercial sales program that provides credit tires and parts to unaffiliated automobile repair shops.

Retail Environment

The global recession has taken a profound toll on retailers not seen since the 1930s, as all but the lowest price-point merchants have experienced deep declines in top-line revenue. In past recessions, high-ticket luxury retailers were unaffected by slow to negative economic conditions, rising unemployment and lower consumer spending. This recession, however, has affected the luxury goods market especially hard, giving rise to the notion that the ongoing credit crisis is more severe than all post-WWII recessions and will be long lasting.

According to a recent telephone survey conducted by BDO Seidman LLP, the retail environment remains murky, with 69% of chief financial officers (CFOs) at major U.S. retailers saying that the American Recovery and Reinvestment Act of 2009 was ineffective in its goal of reinvigorating the U.S. economy. For most of this decade, consumers spent beyond their disposable incomes, relying on ever increasing home prices and loose lending standards to facilitate the shortfall in income and further spending. Home prices, as well as equities prices (another source of the wealth effect), have since tumbled hard, cutting off the means for robust consumer spending. “Cash for clunkers” and stimulus provided through the first-time home buyers program were grossly inadequate, and may have only allowed for a brief respite in the decline in economic activity in the United States.

Expected increases in unemployment will provide additional headwinds to an already difficult retail environment. The BDO Seidman survey confirms this sentiment, citing unemployment as the principal factor for a continued difficult retail environment among 62% of CFOs polled. The soft housing market was cited as the second most important factor, at 20%, credit availability (11%), government stimulus (4%), and higher fuel costs (1%).

The survey results regarding the debate about the prospects and duration of the recession reveal a meaningful rebound in consumer spending sometime in the second quarter of 2010 among 41% of CFOs, while 17% expect the weak retail environment won’t end until 2011 or later.

Company Outlook

The Company’s latest earnings release for the second quarter ended August 1 showed net income increased to $7.7 million, compared with $5.4 million for the same period last year. Revenue dropped 2% to $488.9 million, while earnings per share was 15 cents, up from 10 cents a year ago. The mean analysts’ estimate polled by Thomson Reuters was for $502.4 million of revenue and an EPS of 14 cents per share.

The Company said that discretionary spending at its stores is down, and will focus its efforts on delivering appropriate products and services to value-minded consumers. The Company plans to rollout more service and tire centers, which it believes will provide an EBITDA of approximately $150,000 per center, annually. Total investment for each center is expected to total approximately $500,000. Revenue from the centers is expected to vary from $1.0 million to $1.5 million per center, with 15 new centers targeted for 2009 and between 20 and 40 targeted to be opened in 2010.

Overall, management doesn’t expect significant top-line growth, but does anticipate continued weakness from the consumer until the U.S. economy is clearly on track to real GDP growth and lower unemployment rates. In its latest 10-Q, the tone of management in its assessment of the current retail environment and the Company was one of caution.

Source: http://stockcharts.com/h-sc/ui?s=pby

PBY trades above its 13-day moving average. This bullish sign is significant because the moving average is also positively trending.

The MACD for PBY currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average; and the MACD is also above the critical level of 0, which implies that the underlying moving averages are trending higher. Overall, the graph is bullish, as the price recently broke-out of its trend line highs formed since late June.

Source: Thomson Financial

Data provided by Thomson Financial

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