PHILADELPHIA (Sept. 9, 2014) — Pep Boys – Manny, Moe & Jack fell into the red in the quarter ended Aug. 2 on lower sales and higher operating costs, prompting management to step up efforts to reduce expenses and consider closing unprofitable stores.
The automotive parts and service retailer reported a net loss of $300,000 for the second quarter on 0.3-percent lower sales of $525.8 million. Operating profit plunged 81.6 percent to $3.27 million.
The loss compares with net earnings of $5.4 million a year ago.
Pep Boys President and CEO Mike O'Dell cited lower revenue from the firm's do-it-yourself and tires categories for the reduced sales, which more than offset revenue gains in the firm's service business.
“Recognizing the challenges facing our DIY business, we have been developing plans to further reduce our expense structure by an estimated annual run rate of $25 million,” Mr. Odell said. “Similarly, we are optimizing our inventory investment and continue to evaluate the profitability of our store portfolio and close those stores that do not justify their expense burden as their leases expire or other real estate opportunities arise.”
Pep Boys' net earnings for the six months ended Aug. 2 sank 85.5 percent to $1.34 million on 0.1-percent lower sales of $1.06 billion. Operating income dropped 56.2 percent to $9.32 million, or 0.9 percent of sales.
Mr. Odell noted that Pep Boys' service maintenance and repair business, along with its digital and commercial operations, continue to be “bright spots.” The executive said the company's investment in its digital operations, Service & Tire Centers and “Road Ahead” retail store conversions continue to produce positive results.
Pep Boys has now completed conversions of stores in the Tampa, Fla., San Francisco, Boston and Charlotte, N.C., areas to its Road Ahead format and now will target the Cincinnati, Denver and Baltimore markets for conversions to be completed this year, according to the company.
Mr. Odell said Pep Boys has refined the Road Ahead conversion model to the point that it expects to cut the average per-store investment roughly 27 percent to $400,000.
Similarly, he added, “Our investments in pepboys.com digital operations are paying off. Growth in online service appointments, tire sales that are made online and installed in our stores, ship-to-home sales and products that are ordered online and picked up in our stores have each exceed our forecast.”
Pep Boys operates about 800 stores with more than 7,500 service bays in 35 states and Puerto Rico.