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September 14, 2015 02:00 AM

Pep Boys triples Q2 operating income

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    PHILADELPLHIA—Pep Boys-Manny, Moe & Jack reported a tripling of operating income and a return to the black on a net basis for the quarter ended Aug. 1 on 0.1-percent higher sales of $526.5 million.

    Quarterly operating income jumped 222.9 percent to $10.6 million, an increase that CEO Scott Sider attributed to the firm's ability to control costs and increase gross profit margins.

    Net earnings for the second quarter of fiscal 2015 were $4.8 million, compared with a net loss of $273,000 in the second quarter of fiscal 2014, Pep Boys said.

    Mr. Sider noted that while Pep Boys' second quarter was its fourth consecutive quarter of positive comparable store sales, “I believe our biggest opportunity is to grow top-line revenue.

    “We are laying the groundwork to create a sales and service culture focused on maximizing the value of each transaction and building customer loyalty. We expect service, including tires, commercial and digital sales, to lead the way.”

    Comparable sales for the quarter increased 0.3 percent, Pep Boys said, consisting of an increase of 0.5 percent in comparable merchandise sales and a decrease of 0.4 percent in comparable service revenue.

    The 2015 results included, on a pre-tax basis, a $1.7 million asset impairment charge, $1.1 million in expenses related to our annual meeting and strategic alternatives review and a $300,000 severance charge.

    Operating income for the six months ended Aug. 1 were up 261.7 percent to $33.7 million, or 3.2 percent of sales. Net income of $16.7 million was a 12-fold increase over the 2014 period.

    Sales rose 0.4 percent to $1.07 billion, with comparable service and merchandise sales revenue up 0.5 and 0.6 percent, respectively.

    During an investor conference call discussing the results, Mr. Sider told investors that Pep Boys' key current and “go forward” initiatives include achieving growth in national accounts, implementing e-commerce enhancements, developing a commercial specific loyalty program, optimizing the firm's inventory assortment planning and expanding the number of commercial sales markets.

    He noted that comparable tire sales for Pep Boys climbed 3.3 percent during the second quarter of 2015 over the same period last year. The firm is looking to expand that segment of its business by increasing the number of brands it sells and improving on-site availability, he added.

    In addition, the company is making changes to its in-store organizational structure, combining management of retail and service segments into a single general manager role across its stores.

    “This change is reducing our labor costs, as well as improving our customer satisfaction by (allowing us) to cross-utilize our employees,” he said.

    During the call, David Stern, executive vice president and CFO for Pep Boys, also discussed the progress of the company's “Road Ahead” customer-centric store format. As of April, the company had converted 97 stores to the format in various markets and is in the process of converting an undisclosed number of Baltimore area outlets to a “reduced capital” version of the concept.

    “We've completed a number of stores in aggregate,” Mr. Stern told investors. “They're achieving what we want, and while they may be acceptable I'm not sure that they are optimal, and that's the logic of going in and having the reduced cost model.

    “However, since we're under the strategic review process that we talked about previously, we're limiting our capital expenditures, and for the rest of the year we want to limit the cap ex and also get the learnings from the Baltimore market to make sure that what we thought was going to be the outcome is in line with what we actually see. That will influence any decisions going forward.”

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