Pep Boys Announces Third Quarter Results
13 November 1998
Pep Boys Announces Third Quarter Results
PHILADELPHIA--Nov. 12, 1998--The Pep Boys -- Manny, Moe & Jack , the nation's leading automotive aftermarket retail and service chain, announced record sales but a decline in earnings for the thirteen weeks ended Oct. 31, 1998.Results for the third quarter and nine months ended Oct. 31, 1998, were negatively impacted by after tax charges of $16,160,000 relating to the sale and closure of 109 Express stores.
Operating Results
Third Quarter
Sales for the quarter ended Oct. 31, 1998, rose to a record $615,967,000, 17.2% greater than the $525,564,000 recorded last year. Service labor revenue, exclusive of installed product, climbed to a record $103,055,000, 21.1% greater than the $85,064,000 recorded last year.
Comparable store sales increased 9.8% during the quarter while comparable service labor revenue and comparable tire sales increased 11.5% and 17.0%, respectively.
Service labor revenue, exclusive of installed product, and tires accounted for 16.7% and 14.8%, respectively, of total sales.
Results for the period, which were adversely impacted by a reduction in volume discounts, lower gross margins associated with the commercial delivery program and shifts in the sales mix, as well as after tax charges of $16,160,000, $.26 per share-basic and diluted, to earnings to reflect the costs associated with the recent sale and closure of 109 Express stores, were a loss of $3,921,000, $.06 per share-basic and diluted, as compared to earnings of $24,120,000, $.39 per share-basic, $.38 per share-diluted, earned last year.
Nine Months
Sales for the nine months ended Oct. 31, 1998, rose to a record $1,835,492,000, 18.1% greater than the $1,554,140,000 recorded last year. Service labor revenue, exclusive of installed product, grew to a record $308,000,000, 22.9% more than the $250,622,000 recorded last year.
Comparable store sales increased 7.8% during the first nine months of the year while comparable service labor revenue and comparable tire sales increased 12.0% and 14.9%, respectively.
Service labor revenue, exclusive of installed product, and tires accounted for 16.8% and 14.1%, respectively, of total sales.
Results for the nine months ended Oct. 31, 1998, which were adversely impacted by a reduction in volume discounts, lower gross margins associated with the commercial delivery program and shifts in the sales mix, as well as after tax charges of $16,160,000, $.26 per share-basic and diluted, to earnings to reflect the costs associated with the recent sale and closure of 109 Express stores, were $23,841,000, $.39 per share-basic and diluted, as compared to earnings of $77,354,000, $1.27 per share-basic, $1.22 per share-diluted, earned last year.
Store Expansion Program
Nine Supercenters were opened during the quarter. Highlighting the third quarter expansion was the Company's first store in the state of Minnesota.
In addition to the store in Inver Grove Heights, Minn., Supercenters, which typically feature 12 service bays, were opened in State College, Selinsgrove and Lancaster, Penn., St. Petersburg, Fla., Pittsfield, Mass., Los Angeles, Calif., Muncie, Ind., and Las Vegas, Nev.
On Oct. 5, 1998, the Company announced the sale of the real estate assets relating to 100 of its non-service/non-tire format Express stores for $108 million in cash as well as the closure of nine other Express stores. The closures were effectuated by October 10 and the sale was consummated on Oct. 21.
As of Oct. 31, 1998, Pep Boys operated 628 stores, including 6,491 service bays, in 37 states and Puerto Rico. Pep Boys anticipates opening ten Supercenters during the fourth quarter and approximately 40 Supercenters during the fiscal year ending Jan. 29, 2000, all of which will be funded out of working capital.
Commentary
Pep Boys' CEO, Mitchell G. Leibovitz, made the following comments:
"Although our bottom line results continue to be severely impacted by lower merchandise margins due, in large part, to atypical replenishment, our third quarter was both positive and pivotal for a number of reasons.
"In addition to the fact that comparable store sales increases escalated over the course of the quarter, we significantly reduced our investment in fixed assets and inventory while simultaneously strengthening our strategic position.
"The financially attractive sale of the real estate assets relating to 100 of our non-service, non-tire format Express stores for $108 million enhanced our balance sheet and reduced our exposure in the do-it-yourself category.
"This was accomplished without impacting the competitive advantages that we enjoy in our highly successful service and tire offerings as well as our rapidly growing commercial delivery program. Collectively, those three categories account for more than 80% of automotive aftermarket revenue and are experiencing significantly greater industry-wide growth than the do-it-yourself category which only accounted for 18% of aftermarket revenue in 1997.
"In addition, our commercial delivery program, which was aggressively rolled out during the first half of the year, is already profitable and our cash flow/balance sheet objectives to reduce inventory and capital expenditures by at least $100 million each are all but assured.
"As we have said from the outset, 1998 was going to be a transitional year for Pep Boys. We established a number of key objectives at the beginning of the year and we should achieve those objectives by year-end. We continue to believe that Pep Boys is the best positioned company in the rapidly changing automotive aftermarket and are looking forward to 1999 and beyond with enthusiasm."
Pep Boys Financial Highlights
Thirteen Thirteen
Weeks Ended Weeks Ended
Oct. 31, 1998 Nov. 1, 1997
--------------- ---------------
Total Revenues $ 615,967,000 $ 525,564,000
Net Earnings (Loss) $ ( 3,921,000)(a) $ 24,120,000
Basic Earnings (Loss) Per Share $ (.06) $ .39
Diluted Earnings (Loss) Per Share $ (.06) $ .38
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
Oct. 31, 1998 Nov. 1, 1997
----------------- -----------------
Total Revenues $ 1,835,492,000 $ 1,554,140,000
Net Earnings $ 23,841,000(a) $ 77,354,000
Basic Earnings Per Share $ .39 $ 1.27
Diluted Earnings Per Share $ .39 $ 1.22
(a) Includes after tax charges to earnings of $16,160,000, $.26
per share-basic and diluted, to reflect the costs associated with the
sale and closure of 109 Express stores
Note: Certain statements made herein are forward-looking and as a result involve risks and uncertainties. Actual results could differ materially from expected results due to factors beyond the control of the Company, including the strength of the national and regional economies and consumers' ability to spend, the health of various segments of the market that the Company serves-particularly the do-it-yourself segment, the weather in geographical regions with a high concentration of the Company's stores, competitive pricing, location and number of competitors' stores, product costs, the ability to attract and retain qualified personnel, the ability to acquire real estate, facilities and equipment and the ability to reduce inventory levels during 1998.
Further risk factors are discussed in the Company's filings with the Securities and Exchange Commission, including its most recent Form 10-K, a copy of which may be obtained from the Company without charge.