PHILADELPHIA—Pep Boys - Manny, Moe & Jack plans to open 30 Service & Tire Centers during fiscal 2014, predominantly in three key markets—San Francisco, Boston and Charlotte, N.C.—along with more Speed Shops store-within-a-store operations at existing outlets and convert more locations to the firm's “Road Ahead” modular design.
Pep Boys disclosed its plans together with its 2013 fiscal report, which showed a net loss of $3.3 million for the quarter ended Feb. 1 and a 46-percent drop in fiscal-year earnings to $6.9 million. Sales for the quarter and year dropped 6.6 and 1.2 percent, respectively, to $495.7 million and $2.07 billion, but the declines reflected an extra week of reporting in the fiscal 2012 results.
As many as 20 of the 30 new stores would be opened in the targeted markets during the first half of fiscal 2014, with the others to be opened in three more markets in late 2014/early 2015, according to Mike Odell, president and CEO.
Pep Boys is budgeting about $80 million this year to cover opening the Service & Tire Centers locations, relocating two Supercenters, opening one new Supercenter, adding 25 Speed Shops within existing Supercenters and converting 42 stores to the company's Road Ahead format.
Pep Boys now operates 228 Service & Tire Centers among its 800 locations in 35 states and Puerto Rico, including 19 featuring the Road Ahead format. Pep Boys invested $64.7 million in 2013 for new centers, conversions and acquisitions—including the purchase of 18 former Discount Tire Center locations in Southern California—along with upgrades to the firm's information technology infrastructure.
In a conference call with analysts April 15, Mr. Odell said 25 of the 30 new centers will be on the firm's “build-to-suit” model, which allows Pep Boys to enter “more desirable demographic trade areas.”
The company also continues to make progress on the sales mix and margin structure at these new stores, he said, helping sales grow on a per-store basis as their store portfolio matures.
“We have not been pleased with the consistency of the sales performance of the Service & Tire Centers that we opened in closed competitor facilities,” he told analysts, “and believe that the build-to-suits are a better tactic for opening new stores around our target customer groups because the key is building new stores near our target customers' neighborhoods.”
Parallel to the Road Ahead expansion, Pep Boys is moving ahead with adding performance-oriented Speed Shops at existing store locations. The company has 106 Speed Shops in operation, Mr. Odell said, and plans to open 56 more this fiscal year, including 31 in conjunction with Road Ahead conversions.
“Speed Shops support a true DIY enthusiast and also connect with our everyday DIY maintenance customers,” Mr. Odell said, noting Pep Boys is updating its assortment of DIY products to stay current with customers' desires.
Another key aspect of the Road Ahead strategy is digital operations, Mr. Odell added, noting that sales from digital—online service appointments, tire sales made online and/or products shipped to customers or picked up in Pep Boys stores—grew 152 percent in the quarter and 142 percent for the year and accounted for 3 percent of overall sales for the year.
“We have made and continue to make numerous upgrades to our digital operations systems and processes and expect to significantly increase our sales from digital operations during 2014,” Mr. Odell said. “The automotive aftermarket is accelerating in its move to the digital world and we see this area as critical to our successful Omni-channel Road Ahead strategy.”
Regarding the fiscal results, Pep Boys noted an increase in comparable service revenue of 1.4 percent in the quarter that was offset by a 3.4-percent drop in comparable merchandise sales, with tire pricing playing a measurable role.
“On a comparable store basis, customer count, maintenance and repair sales and tire units all grew quarter over quarter,” Mr. Odell said. “While retail tire pricing has recently stabilized, prices are still below last year's level, which has and is expected to continue to negatively impact top line sales results through the second quarter of 2014.”