The Pep Boys – Manny, Moe & Jack announced the financial results for the second quarter and six months ending Aug. 2, 2014.
Second quarter
Sales for the quarter decreased by $1.8 million, or 0.3%, to $525.8 million from $527.6 million for the same period ended Aug. 3, 2013. Comparable sales decreased 1.8%, consisting of an increase of 5.4% in comparable service revenue and a decrease of 3.8% in comparable merchandise sales.
In accordance with GAAP, service revenue is limited to labor sales, while merchandise sales include merchandise sold through both its service center and retail lines of business. Re-categorizing sales into the respective lines of business from which they are generated, comparable service center revenue decreased 0.2%, while comparable retail sales decreased 3.6%.
Earnings: Net loss for the second quarter of fiscal 2014 was $0.3 million ($0.00 per share) as compared to net earnings of $5.4 million ($0.10 per share) recorded in the second quarter of fiscal 2013. The 2014 results included, on a pre-tax basis, a $2.7 million asset impairment charge and a $0.8 million severance charge.
The 2013 results included, on a pre-tax basis, a $1.7 million asset impairment charge and a $0.7 million severance charge. In addition, 2014 results included a $0.9 million tax charge related to state valuation allowances while the 2013 results included a $2.5 million income tax burden due to state tax law changes.
Six months
Sales for the twenty-six weeks ended Aug. 2, 2014 increased by $0.8 million, or 0.1%, to $1,064.6 million from $1,063.8 million for the twenty-six weeks ended Aug. 3, 2013. Comparable sales decreased 1.6%, consisting of a 4.3% comparable service revenue increase and a 3.3% comparable merchandise sales decrease. Re-categorizing sales (see above), comparable service center revenue decreased 0.6%, while comparable retail sales decreased 2.7%.
Net earnings for the first six months of 2014 were $1.3 million ($0.03 per share) as compared to $9.2 million ($0.17 per share) for the first six months of fiscal 2013. The 2014 results included, on a pre-tax basis, a $3.8 million asset impairment charge, a $4.0 million charge for litigation and a $1.1 million severance charge. The 2013 results included, on a pre-tax basis, a $2.8 million asset impairment charge and a $0.7 million severance charge. In addition, the 2014 results included a $0.9 million tax expense related to valuation allowances.
“Our service maintenance and repair business, as well as our digital and commercial operations, continue to be bright spots,” said President & CEO Mike Odell. “However, these gains were outpaced in the second quarter by declines in DIY and tires. During the first five weeks of the third quarter, our performance has improved to a small overall comp sales increase.”
Odell continued, “In an effort to grow our top line, we have been investing in our business. Our investments in the Road Ahead, Digital Operations and Service & Tire Centers continue to produce positive results. With four markets – Tampa, San Francisco, Boston and now Charlotte – grand re-opened in our Road Ahead format, we are growing market share with our target customer groups and, in turn, our sales. As we convert the next three markets – Cincinnati, Denver and Baltimore – in 2014 and plan for 50 additional stores in 2015, we have refined our model and expect to reduce the average per-store investment from $550,000 to $400,000.”
“Our investments in pepboys.com digital operations are similarly paying off,” he added. “Growth in online service appointments, tire sales that are made online and installed in our stores, ship-to-home sales and products that are ordered online and picked up in our stores have each exceed our forecast.”
Odell concluded, “Recognizing the challenges facing our DIY business, we have been developing plans to further reduce our expense structure by an estimated annual run rate of $25.0 million. Similarly, we are optimizing our inventory investment and continue to evaluate the profitability of our store portfolio and close those stores that do not justify their expense burden as their leases expire or other real estate opportunities arise.”
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