O’Reilly Automotive Inc (ORLY), AutoZone, Inc. (AZO): Auto Parts Retailers Are Revving it Up

Finally, shares of The Pep Boys – Manny, Moe & Jack (NYSE:PBY) rebounded about 10% in a week on the O’Reilly Automotive Inc (NASDAQ:ORLY) news. The sales outlook offered some encouragement, despite unfavorable operating characteristics at the company.

Not only did Pep Boys’ comps fall significantly in the fourth quarter, but its profitability is under pressure, as heightened labor costs and weak margins at new Service & Tire Centers are weighing on the bottom line. The company has plans to continue to add new such locations.

Based on the less profitable operating structure and the fact that The Pep Boys – Manny, Moe & Jack (NYSE:PBY) is likely losing market share, it is more of a risk than its competitors. Then again, management’s new customer-focused strategy, combined with lower interest costs thanks to debt restructuring, might well allow for a sizable earnings turnaround this year. In all, the shares lack appeal at this time. Over the long run, the company is aiming to gain steam through a value-priced, differentiated set of product offerings, and a customer centric service offering. Thus, there could be long-term upside, given a conducive industry environment.

The scoop

Sales for these auto parts retailers are apt to bounce back this year. Higher discretionary spending and stable gas prices would help. Should same-store sales continue to fall short of expectations, the sector might reduce its rate of expansion or enhance its commercial operations to an even greater extent. For now, though, expansion ought to remain key to performance. Stocks in the group are largely worth keeping for their potential. The first three (O’Reilly Automotive Inc (NASDAQ:ORLY), AutoZone, Inc. (NYSE:AZO), and Advance Auto Parts, Inc. (NYSE:AAP)) are also buoyed by share buybacks.

The article Auto Parts Retailers Are Revving it Up originally appeared on Fool.com and is written by Damon Churchwell.

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