Pep Boys eyeing 'Road Ahead'

PHILADELPHIA—Pep Boys - Manny, Moe & Jack plans to convert 20 of its Supercenter sites in three markets to its “Road Ahead” format in the first half of 2014, following the success of stores converted last year to the open-plan store format. Pep Boys did not identify the markets it's targeting for the conversions. In a Dec. 10 conference call with analysts, Pep Boys President and CEO Mike Odell said Pep Boys budgets $525,000 per store to convert a Supercenter to the Road Ahead format and $75,000 for a Service & Tire Center. This level of investment, he said, means a converted Supercenter needs to raise revenue the following year by 13 percent in order to yield a 15-percent after-tax rate of return. For the Service & Tire Center location, the targeted revenue increase is about 6 percent. Pep Boys in 2013 converted six Supercenters and five Service & Tire Centers in the Tampa, Fla., area to the Road Ahead format and is converting the 18 former AKH Co. Inc. retail locations in Southern California that Philadelphia-based Pep Boys acquired in early September. “The performance out of the gate of the nine new Service & Tire Centers previously opened (last year) in the Road Ahead format has been ahead of original projections,” Mr. Odell said. “And while it has only been a few weeks, we are very encouraged by Tampa's results.” By the end of the fiscal year, Pep Boys expects to have 40 Service & Tire Centers and seven Supercenters converted to the new format. For the year, Pep Boys anticipates capital spending of $65 million to cover the conversions, opening 47 stores—including acquired locations and stores to be opened in the fourth quarter—and adding Speed Shops at 63 existing store locations. Pep Boys disclosed its expansion plans as part of its fiscal third quarter financial results, which showed the Philadelphia-based retailer reporting net income for the period of $1 million, which contrasts with a loss of $6.8 million in the year-ago period, and a doubling of operating income to $7.64 million. Sales fell 2.6 percent to $507 million on 3.6-percent lower merchandise sales and 0.5-percent higher service revenue. For the nine months, Pep Boys' net income of $10.2 million was 62.7 percent below the 2012 income, while operating earnings of $28.9 million were 0.3 percent ahead of last year. Sales increased 0.7 percent to $1.57 billion.