PHILADELPHIA—Pep Boys-Manny, Moe & Jack has acquired 17 Discount Tire Centers stores in Southern California from AKH Co. Inc. and planned to reopen them under Pep Boys Service & Tire Center store identification starting the week of Sept. 9.
Pep Boys paid $10 million for the 17 stores in the greater Los Angeles market, stretching from Bakersfield in the north to Orange County in the south, the company said.
Based on Discount Tire Centers' online store locator, Anaheim, Calif.-based AKH Co. Inc. will have 32 stores left following this divestiture. The dealership did not comment on the deal or its plans following the divestiture as of the print deadline for this issue.
Adding these 17 stores will bring to nearly 150 the number of Pep Boys locations in California and more than 750 nationwide, the Philadelphia-based tire retailer and auto service provider said.
Pep Boys did not comment on the revenue scale of the acquired stores or on the number of employees affected, but it did say it intends to remodel these locations using its “Road Ahead” retail format, which Pep Boys President and CEO Mike Odell described as having a “more welcoming curb appeal and a comfortable and appealing customer lounge.”
Pep Boys did not disclose a timetable or budget for these conversions.
“We are excited to add these convenient service locations for customers and welcome new associates to the Pep Boys family,” Mr. Odell said. “We aim to grow in the neighborhoods where our customers live and work through the acquisition and development of Service & Tire Centers.”
“With this acquisition, 75 percent of Los Angeles-area residents live within three miles of a Pep Boys location,” noted Joe Cirelli, senior vice president for business development.
The stores acquired are in Bakersfield (two locations); Costa Mesa; Downey; Hollywood; Lakewood; Orange; Rancho Cucamonga; Rialto; San Clemente: Santa Ana; Studio City; Temecula; Torrance; Tujunga; West Los Angeles; and Whittier.
AKH, founded in 1976 by the Andonian family, controls the Discount Tire name in California.
The purchase enlarges Pep Boys' expansion strategy for the current fiscal year, which previously called for the spending of $65 million to open 31 Service & Tire Centers and seven supercenters.
Separately Pep Boys reported 25-percent higher operating income of $19.4 million for the quarter ended Aug. 3 as gross margins improved on most products and services. Revenue grew 0.4 percent to $527.6 million and net earnings sank 83.6 percent to $5.4 million.
Mr. Odell attributed the income rise to improved product gross margins, including those for tires, sales of which were down in both dollar and unit terms.
“Our strategically important maintenance and repair services remain steady and grew in customer count, sales and margin rate,” he said.
Pep Boys is “cautiously optimistic” that tire demand will improve yet this year, he added.
For the six months ended Aug. 3, Pep Boys' operating income fell 3.6 percent to $24.1 million, while sales increased 1.3 percent to $1.06 billion as improved service center revenue offset lower retail sales.
Net earnings fell 73 percent to $9.2 million.
Mr. Odell also said Pep Boys has now added Speed Shops—a store within a store designed to attract auto enthusiasts seeking performance products and accessories—at 99 of its 750 stores nationwide and will continue to expand this concept in fiscal 2014.
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