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Pep Boys - Manny, Moe & Jack Placed on S&PWatch, Negative

18 November 1998

Pep Boys - Manny, Moe & Jack Placed on S&PWatch, Negative

    NEW YORK, Nov. 17 -- Standard & Poor's today placed its
triple-'B'-plus corporate credit, senior unsecured debt, and bank loan ratings
on Pep Boys - Manny, Moe & Jack and its triple-'B' subordinated debt rating on
CreditWatch with negative implications.
    The CreditWatch placement is a result of the decline in profitability
reported for 1998's third quarter and the nine-month year-to-date period and
Standard & Poor's concern that a turnaround may take longer than anticipated.
Profitability and credit protection measures have been declining for almost
two years.
    The company began to reposition its strategy at the beginning of 1998.
Pep Boys has reduced its exposure to the maturing "Do It Yourself" (DIY)
business with the sale of the Pep Boys Express stores.  However, the firm is
still very dependent upon this increasingly competitive segment of the
automotive aftermarket business as its new supercenter store format includes
retail sales of DIY parts and accessories in addition to automotive repairs
and service.
    The expansion of Pep Boys' service business should enable the company to
take advantage of growth in this sector.  However, this business is more
difficult to manage, primarily because its higher costs are much more
difficult to control when economic conditions decline.  The development of a
commercial parts delivery business gives Pep Boys a presence in this market
which is larger and faster growing than the DIY segment.  However, the
commercial business will be increasingly difficult to penetrate as it is
largely relationship driven and other auto parts retailers are offering
similar programs.
    Standard & Poor's intends to meet with Pep Boys' management to discuss its
operating and financial strategies in order to assess the company's ability to
restore profitability measures to the levels achieved prior to 1997.
 -- CreditWire