Pep Boys profit up as car owners make repairs

CHICAGO, Aug 15 Susan Kelly writing for Reuters said that auto parts retailer the Pep Boys - Manny, Moe & Jack on Thursday said its quarterly earnings rose 32 percent on stronger sales of replacement parts and a focus on shaving expenses.

Pep Boys shares, which have slumped in recent weeks as the retail sector has come under pressure from sluggish consumer spending, rose more than 6 percent in midday trading on the New York Stock Exchange.

The Philadelphia-based parts store and service center chain said net income for the fiscal second quarter ended Aug. 3 rose to $16.6 million, or 30 cents a share, from $12.5 million, or 24 cents a share, a year earlier.

Revenue in the quarter increased 2.2 percent to $585.8 million from $573.1 million in the year-ago period.

"In a relatively soft retail environment, their sales held up pretty well," said Advest Inc. analyst Bret Jordan.

Stores that sell automotive replacement parts for vehicles no longer under manufacturer's warranty protection have by and large enjoyed healthy profit growth as Americans hold onto their aging cars and trucks longer.

"The retail (auto parts) aftermarket typically benefits as the economy softens," said Jordan.

Pep Boys said it was the seventh consecutive quarter in which it reported earnings growth of more than 30 percent. Better margins on merchandise helped boost profit in addition to higher overall sales and tighter control of expenses, the company said.

"Despite the recent downturn in consumer confidence, we remain optimistic about our prospects for the balance of the year," Pep Boys Chairman and Chief Executive Mitchell Leibovitz said in a prepared statement.

Sales at stores open at least one year, or all but one of the company's 629 locations, were up 2 percent.

The company said its retail merchandise, installed merchandise and commercial delivery categories all rose, but service center revenue decreased 1.6 percent.

"Labor revenue, which has been lagging due to deferred consumer spending, improved over the course of the quarter," Leibovitz told investors on a conference call.

But the CEO said he believed the service center business has excellent growth potential due to industry consolidation that has left fewer players and Pep Boys' advantage as a combined parts retailer and repair shop operator.

Service center revenue now accounts for 18 percent of the company's total sales.

Pep Boys also said it is comfortable with analysts' consensus estimate for third-quarter earnings of 26 cents a share.

Shares of Pep Boys were up 83 cents, or 6.45 percent, at $13.70 in midday trading. The stock is off 22 percent for the year to date, compared with a 20 percent decline in the Standard & Poor's 500 stock average.

On Wednesday, retailer Advance Auto Parts Inc. said its earnings before items doubled and raised its full-year earnings guidance.