Financial Health and Strategic Focus

¶ … financial health and strategic focus of Pep Boys (Manny, Moe and Jack's company)?

The financial health of Pep Boys is strong. Evidence of this can be seen by comparing the total amounts of revenues for the company with that of the total outstanding debt. Currently, Pep Boys has revenues of $1.91 billion and $307 million in debt. The total amount of cash that they have available is $39 million. What this shows, is that the company is that financially solid. This is because the revenues are high enough to pay off any outstanding debt. ("Pep Boys," 2010)

The strategic focus of the company has been to offer great services and discounts on auto parts. It was founded in 1921, off of the basic principal of supplying low cost auto parts, to the general public and large corporate customers. Over the decades, the company has continued to maintain this focus by: having a unique product mix, large inventories at regional warehouses, improving repair / maintenance services and using technology. As a result, these two elements have allowed the company to expand the number of stores, to become one of the largest auto parts retailers in the country. ("The Pep Boys Story," 2010)

What this shows, is that the company has continued to embrace the original idea of the founders. Where, they are constantly seeking out ways, to provide low cost auto parts to consumers with great automotive services. This combination, has allowed Pep Boys to provide both, when many retailers are scaling back on the various services that they offer. Over the course of time, this strategy has allowed the company to craft a unique way of providing a variety of automotive services, without charging a small fortune for the parts / services that customers require. ("The Pep Boys Story," 2010)

What are the future prospects for this company?

Pep Boys is the only company in America that is focused on providing consumers with great service and discount prices. Where, the business will focus on four key segments of the retail automotive market to include: replacement tires, the do-it-yourself customers, the do it for me customers and supplying other automotive suppliers (as a whole seller). These different factors have allowed the company to create a unique business model that helps contribute to the long-term growth of the company. ("Fact Sheet," 2010) Evidence of this can be seen by looking no further than recent quarterly earnings of the company. Where, they reported an increase in revenues from the first quarter to the second quarter, with Pep Boys seeing an improvement in this number. Where, the total revenues for the first to second quarters would increase from: $496 million to $510 million. (Sushinsky, 2010) This is significant, because during one of the worst economic contractions since the Great Depression, the company is continuing to find ways to improve their overall levels of profitability.

When you combine these results, with low amounts of debt that the company has on their balance sheet, means that they could purchase a weaker competitor. At which point, they can begin to implement their strategy of offering low prices and great service, at these different locations. This would allow the company to take advantage of the weaker competitors, by purchasing them during times of financial distress (at a fraction of their value). Over the course of time, this would help to increase the company's dominance of the retail automotive parts market. It would also, help Pep Boys to increase their overall reach and compete more effectively, against some of their largest rivals in the market to include: Auto Zone and O'Reilly Automotive. This makes the future prospects of the company bright, given the facts that they are financially stable and have a unique brand. If management decides to purchase weaker competitors, this could help to increase the long-term economic growth of the company by: giving them additional locations / markets and allowing them to expand their reach within local retail automotive markets. (Sushinsky, 2010)

Would you invest a significant portion of your retirement assets in this company?

Yes. The reason why is an investment in the company will ensure that you are receiving consistent dividends and the potential for long-term growth. Currently, the company is paying a dividend of $.12. Where, they have consistently paid a quarterly dividend since 1988.

("Pep Boys," 2010) for retirement assets, this will help to increase the total return, as the dividends that are received can be placed in some kind of money market or reinvested into the company. During times when you are building for retirement, reinvesting the dividends in the stock will allow you to take advantage of a principal known as cost averaging. This is where you are consistently investing in the stock over the course of time. The idea is: as the stock falls, those purchases at the lower prices will reduce the average price that you own the company. Over the long-term, this could help to reduce the price that an investor would own the stock substantially, helping contribute to their long-term appreciation. ("Dollar Cost Averaging," 2010) if someone is retired, the dividends that are received can be sent directly to the shareholder or they can be invested in money market. This is important, because the consistency of the company's ability to pay and raise their dividends, means that retirement assets will receive a higher return.

However, there are high amounts of volatility in the stock; this means that this would be a good long-term investment for retirement assets. This can be seen by looking at the beta factor. Simply put, this will tell you how volatile the stock is in relation to market averages. When you see a reading below 1.0, this would indicate that the price of the stock is less volatile than the markets. (McClure, 2010) While anything higher, would show increased amounts of volatility compared to the major market averages. In the case of Pep Boys, the stock currently has a beta factor of 1.66. As a result, the price of the stock has seen a gain of 1.25% over the last year, in comparison with the S&P 500, which saw an increase of 21.21%. ("Pep Boys," 2010) This is significant, because it shows how an investment in the common stock of Pep Boys, could increase volatility over the short-term. Yet, if a retirement investor took a long-term focus, they could overcome these underlying amounts of volatility. Therefore, the company is an attractive area to invest a large portion of retirement assets with. As the consistent dividends and strong financial position of the company; are all showing, how investing in it for this purpose would be financially prudent over the long-term.