PhillyInc: Pep Boys' growth plans are idling

CEO Mike Odell said Pep Boys thrives on cars 5 to 13 years old.
CEO Mike Odell said Pep Boys thrives on cars 5 to 13 years old.
Posted: June 14, 2013

It was one year ago that the CEO of Pep Boys - Manny, Moe & Jack told analysts that his intent was to grow the auto-parts retailer, not sell it.

Mike Odell's comments came shortly after a Los Angeles-based private-equity firm had dropped plans to take Philadelphia-based Pep Boys private in a deal worth $15 per share.

But there have been scant signs of growth in the last three years, even as the company has spent an average of $66 million annually on capital expenditures, including the conversion of stores to new formats. The 763-store retailer generated total revenues of $2.09 billion in its fiscal year ended Feb. 2, compared with $2.06 billion in the previous year and $1.99 billion the year before that.

Still, sales for the 13 weeks ended May 4 did increase by 2.2 percent, or $11.6 million, to $536.2 million from $524.6 million for the same period in 2012. Comparable-store sales, which count only locations open during the same period a year earlier, were up 1.0 percent.

Pep Boys, which has been testing a new store format in the Tampa, Fla., region to appeal to female customers, has spent much of the last five years under Odell's leadership trying to grow its automotive service business, which accounts for about 52 percent of revenue.

Unfortunately for Odell, the start of his tenure coincided with the 2008 decline in new-car sales in the wake of the financial crisis and federal rescues of General Motors and Chrysler. "Our sweet spot is vehicles between five and 13 years old," he told equity analysts on a conference call Tuesday.

The disruption in the upward trend for new-car sales dinged the normal maintenance cycle that Pep Boys counts on, causing a "trough" in oil changes first, then tires and brakes, and soon batteries, according to Odell.

With new-car sales having recovered to an estimated 15 million-unit level in 2013, Pep Boys' sweet spot could look a lot better starting in 2015, when those 2011 models begin to need more maintenance.

For now, Pep Boys' shares remain below the $15-per-share offer made and then withdrawn by Gores Group L.L.C. in January 2012. On Wednesday, Pep Boys closed at $12.05, down 30 cents. Certainly not a trough, but far from peppy.


Contact Mike Armstrong

at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.inquirer.com/phillyinc.

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