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AutoZone, Inc. (AZO), O’Reilly Automotive Inc (ORLY): Are Soaring New-Car Sales a Threat to The Pep Boys – Manny, Moe & Jack (PBY) Earnings?

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The Pep Boys – Manny, Moe & Jack (NYSE:PBY) will release its quarterly report on Tuesday, and investors have been somewhat uncertain lately about the company’s future prospects. Although analysts see The Pep Boys – Manny, Moe & Jack (NYSE:PBY) earnings continuing to grow, more favorable trends in the new-car market could eventually lead to less business for the parts and service company.

The Pep Boys - Manny, Moe & Jack (NYSE:PBY)

The Pep Boys – Manny, Moe & Jack (NYSE:PBY) offers a combination that many of its peers don’t, seeking to offer both automotive service and car-parts sales in a single unit. Yet that combination arguably leaves Pep Boys even more exposed to trends among retail customers than its more parts-focused competitors, which rely more on their relationships with outside commercial-repair businesses to drive sales. With more retail customers buying new cars, will The Pep Boys – Manny, Moe & Jack (NYSE:PBY) suffer from less demand for its service offerings? 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

Analyst EPS Estimate $0.19
Change From Year-Ago EPS 46%
Revenue Estimate $539.35 million
Change From Year-Ago Revenue 2.6%
Earnings Beats in Past 4 Quarters 0

Source: Yahoo! Finance.

How can Pep Boys earnings stop disappointing investors?
In recent months, analysts have marked down their views on the future of Pep Boys earnings. They’ve kept their July quarter estimates stable, but they’ve cut their full-year projections by $0.07 per share. The stock has followed suit, falling more than 7% since early June.

The Pep Boys – Manny, Moe & Jack (NYSE:PBY)’ first-quarter results showed some of the successes and challenges that the company has faced lately. Comparable-store sales rose just 1% during the April quarter, with merchandise sales staying mostly flat even as service-revenue comps jumped more than 4%. That’s consistent with the company’s strategy toward becoming more customer-focused as it seeks to differentiate itself from its rivals.

Yet one potential threat to The Pep Boys – Manny, Moe & Jack (NYSE:PBY) and its peers is growth in U.S. auto sales. In August, U.S. automakers continued their positive trend, with Ford Motor Company (NYSE:F) posting 12% gains in overall sales while General Motors Company (NYSE:GM) weighed in with a 15% increase. Ford Motor Company (NYSE:F)’s U.S. retail sales jumped 20%, with roughly equal gains in cars and trucks driving results higher. General Motors Company (NYSE:GM) cited pent-up demand as helping to push sales up, but that same pent-up demand could reduce the need for new-car buyers to need as much service on their vehicles as they needed on long-owned used cars, hurting Pep Boys’ service revenue.

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