Retail Service

BB&T is high on Pep Boys and tire demand

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BB&T Capital Markets reiterated its "Buy" rating on the shares of Pep Boys-Manny, Moe & Jack because of positive trends.

Improved July sales, driven by strong service demand, offset soft May and June sales trends at Pep Boys, which posted net profit of $33 million on net sales of $525.7 million for its second quarter ended July 31, 2012.

(To read more about the company's 2Q financial results, click on "Pep Boys 2Q: tires, parts, labor up 3.8%.")

Competitive pricing and an "improving replacement cycle" drove service, according to BB&T analyst Bret Jordan. "As aggressively priced oil changes contributed to a 7.8% increase in service customer count and +3.8% segment comp, we believe Pep Boys emerged from the second quarter with increased market share in a gradually recovering demand environment.

"Entering the initial replacement cycle of recently improved new car sales, we anticipate continued improvements in service volumes for Pep Boys. Similarly, with a potential rebound in tire demand after significant tire purchase deferral, we anticipate tailwinds for service bay traffic through (fiscal) 2014."

Jordan says margins on tires are improving, and should continue through the second half of next year.

"Lower input prices and improving seasonal demand leads us to believe that companywide margins likely troughed in the first quater and should sustain recovery."

BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.

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