Pep Boys report plan to revitalize company

PHILADELPHIA The Pep Boys - Manny, Moe & Jack today announced its new five-year strategic plan designed to refocus the company on core automotive merchandise, optimize the company’s square footage productivity and add incremental service bay density through a “hub and spoke” growth model.

The company said that as part of its plan to refocus on core automotive merchandise, Pep Boys will reallocate a larger portion of its inventory investment to core automotive merchandise, including additional tire inventory, a broader parts assortment and more car customization accessories. To rebalance the company’s inventory, an aggressive mark down and sell-through program has been launched for certain non-core and unproductive merchandise.

Pep Boys is also looking to improve both top and bottom line performance by testing several business development projects aimed at higher return utilization of the excess sales floor capacity present in its existing supercenters.

Pep Boys’ growth strategy is centered around a “hub and spoke” model, which calls for adding smaller neighborhood service shops to its existing supercenter store base in order to further leverage its existing inventories, distribution network, operations infrastructure and advertising spend. The company expects to add these new service facilities both through organic growth and opportunistic local acquisitions.

To finance its strategic plan, the company said it has moved forward with a sale leaseback process for certain existing owned real estate. The first, previously-announced sale leaseback transaction has been completed on 34 stores for gross proceeds of $166.2 million. In addition, the company today closed 31 low-return stores (approximately 5% of the store count) located in ancillary markets and locales with changed shopping patterns. The store closures will result in a reduction of approximately 550 store employees (approximately 3% of total employees).

President and ceo Jeff Rachor commented, “Since joining Pep Boys, I have spoken about the need for transformational change in our business model and a long-term strategic plan. Today is the first of several difficult, but essential steps that we will take towards revitalizing the Pep Boys brand and returning to dominance in the automotive aftermarket.”

The company reported third quarter sales of $535.4 million compared with $550.8 million for the same period last year. Comparable-store sales were down 2.9%. Net loss for the quarter increased to $21.65 million, or 42 cents per share (basic and diluted).