PHILADELPHIA—Pep Boys—Manny, Moe & Jack posted a net loss of $27.3 million for the fiscal year ended Jan. 31 as the company took millions in goodwill and asset impairment charges in the fourth quarter.
The net loss contrasted with net income of $6.9 million in fiscal 2013. The operating result also was negative, Pep Boys said, dropping $18.9 million into the red vs. an operating profit of $22.3 million last year.
Sales for the year edged up 0.9 percent to $2.08 billion, with service center revenue up slightly and retail revenue down slightly.
The net loss included a $23.9 million goodwill impairment charge, a $7.5 million asset impairment charge, $4 million in litigation expense and $2.9 million in severance, partially offset by a $13.8 million gain from the disposition of certain properties, Pep Boys said.
Philadelphia-based Pep Boys did not explain in its financial release what the charges related to.
The revenue from asset disposal related to three properties Pep Boys sold on the East and West coasts. These disposals represented opportunities to benefit from rising real estate values in the respective markets, CFO David Stern said.
Pep Boys' capital expenditures rose nearly 25 percent to $67.3 million to cover the addition of 19 service and tire centers and two supercenter relocations, the installation of 47 speed shops within existing supercenters, and the conversion of 28 supercenters and two service and tire centers to the firm's “Road Ahead” customer-centric store format.
Pep Boys has now converted 97 stores to the Road Ahead format. Conversions are complete in the Tampa, San Francisco, Boston and Charlotte, N.C., markets, according to Mr. Stern. Conversions will roll out to the public in Denver in April and Cincinnati in May.
Stores in the Baltimore area are being converted according to the firm's “reduced capital” schedule, Mr. Stern added, and further conversions are scheduled throughout 2015 in as-yet undisclosed markets.
Interim CEO John Sweetwood called the fourth quarter—net loss of $26.7 million on 1.3-percent higher sales—”a time of transition” for the tire and auto service company.
“We continued to increase our sales in the growing service segment,” he said. “Our investments in the high-growth areas of our business—commercial, tires, fleet and digital—increased revenue, but temporarily depressed margins.”
To date in the first quarter, he said Pep Boys has generated higher sales and experienced recovering margins.
“At this point (in the quarter), comparable store sales are up with double-digit growth in commercial, fleet and digital,” he said. “With margins recovering, combined with improved expense and inventory management, to date we are seeing an improvement in operating profit and cash flow.”
Pep Boys' commercial business represents a growing wholesale parts delivery service that does business as Pep Express Parts.
Mr. Sweetwood noted that Pep Boys is now offering tires to its wholesale customer base; a recent flyer shows BFGoodrich, Continental, Cooper, Falken, General, Hankook and Michelin brand tires.
Pep Boys operates 806 stores in the U.S. and Puerto Rico with more than 7,500 service bays combined.