Pep Boys Reports Q1 Comparable Sales Decrease - Improved Operating Profit and Positive Service Center Comps
PHILADELPHIA--May 1, 20061, 2006--The Pep Boys - Manny, Moe & Jack , the nation's leading automotive aftermarket retail and service chain, announced the following results for the thirteen weeks ended April 29, 2006.Operating Results
Sales
Sales for the thirteen weeks ended April 29, 2006 were $555,929,000, 1.3% less than the $563,514,000 recorded last year. Comparable Sales decreased 0.9%, including a 1.0% comparable merchandise sales decrease and a 0.6% comparable service revenue decrease. In accordance with GAAP, merchandise sales includes merchandise sold through both our retail and service center lines of business and service revenue is limited to labor sales. Recategorizing Sales into the respective lines of business from which they are generated, comparable Retail Sales (DIY and Commercial) decreased 3.0% and comparable Service Center Revenue (labor plus installed merchandise and tires) increased 2.2%.
Earnings
Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle improved from a Net Loss of $2,468,000 (($0.04) per share - basic and diluted) to a Net Loss of $922,000 (($0.02) per share - basic and diluted).
Commentary
"The Pep Boys team continues to make steady progress against the significant operating challenges we faced last year. Our first quarter operating profit increased from $3.2 million to $7.2 million year over year," said CEO Larry Stevenson.
"In particular, as our field team has stabilized service center operations, we were able to report a substantial sequential improvement - not just the service center sales improvement we reported in Q4, but also an improvement from Q3 and Q4 last year in bottom line contribution."
Mr. Stevenson continued, "In our retail operations, despite lower sales (due in part to the grand re-opening of the Los Angeles market this quarter last year) and higher depreciation expense, we achieved improved operating results through tight SG&A expense controls and improved product margins."
Harry Yanowitz, CFO, commented, "During the quarter we improved our use of working capital, focusing on our most productive inventory, that resulted in an ending inventory balance slightly below this quarter last year. Operating results were helped through the settlement of a product liability legal reserve (approximately $2.3 million pre-tax) that reduced SG&A in this quarter. There were no material real estate gains or losses in Q1 this year or last year."
Accounting Matters
Co-op Advertising
During fiscal 2005, a portion of our vendor support funds were provided in support of specific advertising costs or "co-op," which, in accordance with EITF No. 02-16, we accounted for as a reduction of SG&A. We have completed the restructuring of substantially all of our vendor agreements to provide flexibility in how we use 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. In the first quarter of fiscal 2006, all of the allowances received from vendors were 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. 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 of fiscal 2005 would have increased by approximately $8.8 million, without materially impacting inventory valuation or Net Loss from Continuing Operations Before Cumulative Effect of Change in Accounting Principle.
Pep Boys Financial Highlights
Thirteen Weeks Ended: April 29, 2006 April 30, 2005
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Total Revenues $ 555,929,000 $ 563,514,000
Net Loss From Continuing Operations
Before Cumulative Effect of Change in
Accounting Principle $ (922,000) $ (2,468,000)
Average Shares - Basic and Diluted 54,224,000 55,185,000
Basic and Diluted Loss Per Share from
Continuing Operations Before Cumulative
Effect of Change in Accounting
Principle $ (0.02) $ (0.04)
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. Customers can find the nearest location by calling 1-800 -PEP-BOYS or by visiting pepboys.com.