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Pep Boys posts relatively flat 1Q results

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Pep Boys -- Manny, Moe & Jack recorded net earnings of $12.4 million on net sales of $513.5 million for its 13-week first quarter ended April 30, 2011. That compares to income of $12 million on sales of $510 million for the same period a year ago.

Comparable store sales for the quarter decreased 0.6%, broken down as follows:

* a 1.6% comparable service revenue (labor sales) increase and

* a 1.2% comparable merchandise (including service center revenue) sales decrease.

Service center revenue (labor plus installed merchandise and tires) alone increased 0.3%.

"We recognize that our customers’ spending is constrained due to gas prices, and that the rainy spring reduced demand for appearance products, but this does not alter our long-term strategy to be the automotive solutions provider of choice for the value-oriented customer,” says CEO and President Mike Odell.

“In the face of these macroeconomic trends, we continued to improve our operational disciplines and achieved our ninth consecutive quarter of improved profitability (period-over-period). Our service business, which is the lead business in our transformation, continued its positive sales comp trend and continues to grow through the addition of Service & Tire Centers.

"During the first quarter, we opened nine new locations, including the acquisition of seven locations in Seattle-Tacoma," says Odell. "In May, we acquired 85 Big 10 locations in Florida, Georgia and Alabama. This brings the total number of Service & Tire Centers currently in operation to 147.

“After funding all of our Service & Tire Center acquisitions to date with cash on hand, we currently have approximately $50 million in cash and remain undrawn on our revolver,” says CFO Ray Arthur. “In addition, we recently had our owned store real estate reappraised at a value of approximately $690 million, of which half is unencumbered. All of which translates into a balance sheet that is well positioned to continue our aggressive growth.”

Tony Cristello, managing director of BB&T Capital Markets Equity Research, says Pep Boys' results were much weaker than expected.

He says a "cautious stance towards the stock is warranted," and rates it "Hold (2)," the same as it was following the company's fiscal 2011 results (for BB&T's previous evaluation, click on "Pep in this step is on 'Hold' for Pep Boys").

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