An automotive paradise for do-it-yourselfers, The Pep Boys - Manny, Moe & Jack hears the cries of "Do it for me!", too. The company sells brand name and private label auto parts, and provides select services through 730-plus stores in 35 states and Puerto Rico. Pep Boys stock about 25,000 car parts and accessories, including tires, and combined, operate more than 7,200 service bays for vehicle repairs, inspections, and parts installations. It also offers credit and parts delivery to commercial customers, such as repair shops, fleet operators, schools, and municipalities. It agreed to a takeover by The Gores Group in 2012, but was left at the alter several months later when Gores Group rescinded its proposal.
The private equity firm paid a breakup fee of some $50 million to Pep Boys to walk away from the deal. Pep Boys plans to use the proceeds to pay down debt due in 2013 and 2014.
Adding to its car care capabilities, in fiscal 2012 (ends January) Pep Boys opened about 120 Service & Tire Centers, including approximately 100 locations acquired in three separate transactions, bringing the total of Service & Tire Centers to more than 147. Of Pep Boys's $2 billion in total sales, merchandise sales accounts for about 80%, while service accounts for 20%.
The company's fiscal 2012 (ends January) sales increased nearly 4% vs. the prior year, while net income fell by 21% over the same period. The sales gain was driven by an 8% increase in service revenue and nearly a 3% gain in merchandise sales. Net income was negatively impacted by the expenses incurred acquiring the new Service & Tire centers. The modest uptick in 2012 sales came on the heels of a 4% improvement in the previous annual comparison. Still, the company's $2 billion in sales in fiscal 2012 was below fiscal 2008 when the firm brought in more than $2.1 billion. Pep Boys' recent sales gains, while modest, reflect a three-year turnaround plan, spurred by two unprofitable years in 2008 and 2009. Both controlled spending and lowered inventory levels have supported its goals for bottom line growth. Leading the plan, CEO Mike Odell was promoted to the top job in 2008. Odell's appointment marked the end of a tumultuous period for the firm, which rattled investors and led to changes in board and top leadership.
To revive revenue at the retail chain, Pep Boys has put more emphasis on customer service and spent heavily to improve its stores. It has added new locations, including more than 100 Service & Tire Centers. Pep Boys's footprint expanded with about 55 stores through its acquisition of Big 10 Tires and Automotive (made up of 85 stores in Florida, Georgia, and Alabama) in mid-2011. Shortly after the deal's completion, Pep Boys purchased half-a-dozen My Mechanic shops in the Houston area.
Auto repair and maintenance services have increased as a proportion of the company's total revenue. That's because cars have become more complex, thereby limiting the growth of the do-it-yourself customer, the company's traditional core market. As a result, Pep Boys has been catering to do-it-for-me (DIFM) customers. During fiscal 2010 the company launched a pilot program in about 20 stores, offering mobile electronics and installation services. The program, which sells and installs radios, speakers, amplifiers, remote starters, and alarm systems, was expanded to 110 stores the following year. Pep Boys aims to extend its mobile electronics and services to more than 200 locations by 2013.
Meanwhile, Pep Boys is working to attract more commercial customers. Besides providing automotive parts, liquids, and equipment, the company provides parts delivery service, called Pep Express Parts, through more than 450 stores. Pep Boys hopes to further expand its commercial business by widening its selection of products and services.