Pep Boys Reports Net Loss from Continuing Operations
PHILADELPHIA--May 1, 20052, 2005--The Pep Boys - Manny, Moe & Jack , the nation's leading automotive aftermarket retail and service chain, announced the following results for the thirteen weeks (first quarter) ended April 30, 2005.Operating Results
Sales
Sales for the thirteen weeks ended April 30, 2005 were $564,226,000, 0.3% less than the $566,133,000 recorded last year. Comparable merchandise sales increased 0.7% and comparable service revenue decreased 4.6%. Recategorizing Sales to more accurately reflect the two areas of automotive aftermarket in which the Company competes, comparable Retail Sales (DIY and Commercial) increased 1.0% and comparable Service Center Revenue (labor plus installed merchandise and tires) decreased 2.1%.
Earnings
Net Earnings from Continuing Operations decreased from Net Earnings of $15,082,000 ($0.27 per share - basic, $0.25 diluted) to a Net Loss of $2,386,000 ($0.04 per share - basic and diluted).
Commentary
Pep Boys Chairman and CEO, Larry Stevenson, commented, "As I have repeatedly cautioned investors, the near term results of our turnaround will continue to be uneven. While Pep Boys has a very exciting future ahead, achieving fundamental and sustainable performance improvements will take time. On the Retail side, we continue to refine our product mix, pricing and promotional programs to achieve the most appropriate balance between retail sales growth and profitability. As we continue to work against our Service Center improvement initiatives, we expect our financial results to begin to reflect the benefits of these initiatives during the second half of the year."
He continued, "We are excited about our store refurbishment program, which has yielded very positive customer response and incremental sales in the markets that we have renovated to date. During the first quarter, we grand re-opened 76 stores in our largest market, Los Angeles. Our second largest market, Philadelphia, is scheduled to re-grand open in June, with Chicago to follow in July."
CFO Harry Yanowitz said, "While business conditions remain difficult, we are working to return our product margins to historic rates and carefully adjusting elements of our SG&A costs to more closely fit our current revenues. Our retail comparisons will continue to be a challenge in the second quarter given last year's strong results, but the service comparisons will ease slightly. While we remain concerned about gas prices and product cost increases, particularly with their effect on our lower-income customer base, the Pep Boys team is focused on delivering long-term operating improvement."
Accounting Matters
Service Labor Reallocation
As previously announced, effective the first day of this quarter, we restructured our field operations into separate retail and service teams. In connection with this restructuring, certain retail personnel, who were previously utilized in merchandising roles supporting the service business, were reassigned to purely service-related responsibilities. The labor and benefits costs related to these associates, approximately $4.7 million per quarter, which were previously recognized in SG&A, are now recognized in Costs of Service Revenue.
Co-op Advertising
Currently, a portion of our vendor support funds are provided in support of specific advertising costs or "co-op," which, in accordance with EITF No. 02-16, we account for as a reduction of SG&A. We are in the process of restructuring our vendor agreements to provide flexibility in how we apply vendor support funds, to eliminate the administrative burden of tracking the application of such funds and to ensure that we are receiving the best possible pricing. Based on these renegotiations, we believe that future allowances received from vendors will be prospectively accounted for as a reduction of inventories and recognized as a reduction to cost of sales as the related inventories are sold, in accordance with EITF No. 02-16. We anticipate that the majority of the new vendor agreements will be finalized and in effect by the end of the second quarter. Assuming that all of our vendor agreements had been so restructured as of January 30, 2005, both our SG&A and Gross Profit for the first quarter would have increased by approximately $8.8 million, without materially impacting inventory valuation or Net Earnings from Continuing Operations.
Pep Boys Financial Highlights
Thirteen Weeks Ended: April 30, 2005 May 1, 2004
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Total Revenues $564,226,000 $566,133,000
Net (Loss) Earnings From Continuing
Operations $ (2,386,000) $ 15,082,000
Average Shares - Diluted 55,185,000 63,587,000
Basic (Loss) Earnings Per Share
from Continuing Operations $ (0.04) $ 0.27
Diluted (Loss) Earnings Per Share
from Continuing Operations $ (0.04) $ 0.25
Pep Boys has 593 stores and more than 6,000 service bays in 36 states and Puerto Rico. Along with its vehicle repair and maintenance capabilities, the Company also serves the commercial auto parts delivery market and is one of the leading sellers of replacement tires in the United States.