Retail

Tires will play role in Pep Boys´ service turnaround

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Pep Boys -- Manny, Moe & Jack officials expect the company´s branded tire program to play a major role in the turnaround of its service business, which took a hit during the second quarter, ended July 31, 2004.

The tire program "will be key to the long-term growth of our service business," Pep Boys CEO Larry Stevenson told investors during a conference call this morning. The program has not yet been implemented, he says.

Once in motion, it is expected to start showing results during the fourth quarter, according to Stevenson, with "meaningful impact" emerging in spring 2005.

"During the fourth quarter, we´ll do more advertising for service and tires than (during the) fourth quarter last year."

Pep Boys officially added Continental, General, Goodyear, Michelin and Hankook brand tires to its product line-up in May. "Most SKUs will be Continental and General," said Stevenson at the time.

The availability of other brands will vary from market to market. "You have to introduce them and educate your people to sell them, (and) you have to take all the inventory on."

"We know which SKUs within what particular brand work best for us" market-to-market thanks to pilot programs the Philadelphia, Pa.-based chain ran in two test markets.

Pep Boys´ service sales (labor, plus installed merchandise and tires) fell 5.3% during Q2. Service accounts for 40% of Pep Boys´ total business.

Overall, the company posted a Q2 net loss of $13.6 million on sales of $593 million vs. a Q2 2003 net loss of $36.4 million on sales of $556 million.

The net loss -- from continuing operations before the cumulative effect of a change in accounting principals used -- is not a clear representation of the company´s operating results, according to Pep Boys officials. They say Pep Boys relies more on adjusted net earnings from continuing operations, which totaled $17.9 million for the quarter. That total excluded after-tax expenses of $3.3 million unrelated to the current quarter´s operations.

For the first six months of the fiscal year, Pep Boys posted sales of $1.16 billion, an 8.7% increase over the $1.07 billion achieved during the first half of the 2003 fiscal year.

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