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Pep Boys suffers earnings, sales decreases in 2Q

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Pep Boys -- Manny, Moe & Jack posted net earnings from continuing operations of $832,000 on sales of $577.4 million for the second quarter ended July 30, 2005. That compares to earnings of $13.5 million on sales of $593.4 million for the same period a year ago.

Comparable merchandise sales decreased 1.5% and comparable service

revenue decreased 7.4%. (Merchandise sales includes merchandise sold through both its retail and service center lines of business; service revenue is limited to labor sales.)

Comparable service center revenue (labor plus installed merchandise and tires) decreased 6.4%.

Pep Boys executives commented on the company's 94% drop in earnings and 2.7% drop in sales for the quarter.

Chairman and CEO Larry Stevenson: "In our retail operations, we have made changes to our product mix and price points to improve our margins. This quarter, against a very difficult comparison last year, we made progress in bringing our gross profit margins back in line with historical results, diminishing the margin erosion we experienced last quarter and in Q4 last year.

"Progress will continue to be slow, but steady, as our refurbishment program gains critical mass, our merchandising program continues to improve realized margins, and our operational execution improves.

"We had a challenging quarter in our service center operations, with comparable sales down 6.4%. Tire sales were down 6.0%, as we found significant customer resistance to the tire price increases we have received -- in particular with our entry-level opening price point touring tires, a historical focus for our private label program.

"However, we are starting to see substantial incremental sales from our investment in branded tires launched a year ago. While the disruption caused by our recent field restructuring is not yet behind us, we remain confident that a more qualified, focused and better trained field organization will ultimately improve overall profitability."

CFO Harry Yanowitz: "During the quarter, our gross profit

margins were supported by a net pre-tax gain of $4,675,000 from the

sale of two closed stores, as we ensure that our capital is carefully

allocated to its most productive use.

"We grand re-opened our Philadelphia and Chicago markets during the

quarter bringing the total number of refurbished and grand re-opened

stores to 162. The remodeled stores continue to yield increased

customer count and incremental sales, with an additional 35-40

stores scheduled to be grand re-opened this fiscal year."

For the first six months of fiscal 2005, Pep Boys recorded a net loss of $1.5 million on sales of $1.14 billion. In the first six months of fiscal 2004, Pep Boys recorded net earnings of $28.6 million on sales of $1.16 billion.

Comparable sales for the six-month period decreased 1.4%, which included a decrease in comparable merchandise sales of 0.4% and a decrease of 6.0% in comparable service revenue. Comparable retail sales increased 0.7% and comparable service center revenue decreased 4.5%.

Effective the first day of this year, Pep Boys restructured its field operations into separate retail and service teams. In connection with this restructuring, certain retail personnel, who were previously utilized in merchandising roles supporting the service business, were reassigned to purely service-related responsibilities.

The labor and benefits costs related to these associates, approximately $5.2 million in the second quarter, which

were previously recognized in SG&A, are now recognized in "Costs of

Service Revenue."

Pep Boys stock on the New York Stock Exchange closed at $12.85 a share on Thursday, Aug. 11. That compares to a 52-week high and low of $18.80 and $11.83, respectively.

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