Is Buyout of Pep Boys Going Bad? (PBY, AZO, ORLY)

In a preliminary report on first quarter results, Pep Boys projected revenues of $524-$526 million, sharply lower than the consensus estimate of $558.3 million and EPS in the range of flat to $0.04. In the same period a year ago, Pep Boys showed revenue of $5.135 million and EPS of $0.23. The company had only this to say this morning: “[F]irst quarter results were below expectations due to a variety of factors occurring in the ordinary course of business.”

Competitors Autozone Inc. (NYSE: AZO) and O’Reilly Automotive Inc. (NASDAQ: ORLY) had no such “factor” to report during the first quarter as both handily beat expectations. So what’s up with Pep Boys and the Gores takeover at $15/share?

One analyst told Bloomberg News that Gores was aware of the possible downturn in Pep Boys’ business in January when the acquisition was being discussed:

There is no way [Gores] can pretend that this wasn’t what was represented by management. They will have a tough time getting out of the deal because “they already revised the offer because of recent performance,” [the analyst] said.

But if Gores really has cold feet about the deal and can wangle a way out of it, even temporarily, Pep Boys’ shareholders may not like the results.

Shares of Pep Boys are down about -24% at $11.35 in mid-afternoon today, within a 52-week range of $8.18-$15.46.

Paul Ausick