Pep Boys-Manny, Moe & Jack (The) (PBY)

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The Pep Boys – Manny, Moe & Jack (PBY)

F4Q09 Earnings Call

April 8, 2010 8:30 am ET


Ray Arthur - Chief Financial Officer

Mike Odell - Chief Executive Officer

Scott A. Webb - Sr. VP of Merchandising & Marketing


Anthony Cristello - BB&T Capital Markets

Jeff Blaeser - Morgan Joseph & Co.

Ronald Bookbinder – Global Hunter

Bret Jordan - Avondale Partners



Welcome to The Pep Boys - Manny, Moe, and Jack fourth quarter 2009 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. Ray Arthur, Executive Vice President and Chief Financial Officer of Pep Boys. Thank you. Mr. Arthur you may begin.

Ray Arthur

Good morning and thank you for participating in Pep Boys’ fourth quarter and fiscal year 2009 conference call. On the call with me today are Mike Odell, Chief Executive Officer of the company and Vice President and Controller, Sanjay Sood.

The format of the call is similar to our previous calls. First Mike will provide opening comments regarding our results and strategic priorities, then I will review the financial performance, balance sheet, and cash flows for the fourth fiscal quarter of 2009. We will then turn the call over to the operator to moderate a question and answer session and the call will end at 9:30 Eastern Time.

Before we begin, I would like to remind everyone that this conference call is governed by the language at the bottom of our press release concerning forward-looking statements, as well as SEC Regulation FD. In compliance with these regulations, we are webcasting the conference call on For anyone on the webcast who does not have the financial statements, you can access them on our website,

I will now turn the call over to Mike Odell, our Chief Executive Officer. Mike.

Mike Odell

Thanks, Ray. Good morning, everyone and thank you for joining us today. Our commitment at the start of 2009 as you will remember is to be what we refer to as back in black. That is to return the Pep Boys – Manny, Moe & Jack to profitability.

All year long we actually wore back in black wristbands as a symbol of our commitment and we are pleased to have achieved this milestone not only for the full-year but for each quarter within the year including the fourth quarter.

At this time I do want to recognize our team for their passionate commitment to our customers and for making more money in 2009 than the company had over the previous 12 years combined. While we did not enjoy comparable store sales increases in the fourth quarter like we did in the third quarter of 2009 we did still produce a customer count increase in both our service and our commercial businesses to accompany our significant improvements in profitability.

The foundation for our turnaround has been our focus on our customers and on core automotive and we are now nearly complete with the unwinding of past practices of growth in sales but not necessarily profitability. This has touched nearly every facet of our business from merchandising to marketing, supply chain to operations.

Another key to our improved profitability both in the fourth quarter and the full-year has been our improved discipline. Category management is our disciplined process for looking at each category separately for each business and using marketing and customer data to make strategic and operational decisions. This process is important because it helps us to provide the best coverage for service, commercial and retail customers in each store in our chain.

It is also important because the process provides us with the data we need to make sound decisions about price, product and promotions. Expense disciplines were good all year long as we reduced SG&A by $20 million for the quarter and $55 million for the year. Margin and safety disciplines which are more challenging to control than expense disciplines have also started to kick in.

There are many contributors to these improved disciplines but they primarily have their roots in our operational turnaround. Keeping the business simple and focused and building and developing our teams to execute it. We expect these margin and safety disciplines to continue to contribute to improved profitability in 2010 as we progress to competitive operating margin levels.

These disciplines include inventory shrink, returns and discounts, back end inventory disposition, associate safety and customer claims. It is hard work but we continue to make progress on all fronts.

Because of our planned cost savings and these disciplines we delivered a $2 million profit for the fourth quarter against a loss of $33 million last year. For the full-year we delivered a $23 million net profit against a loss of $30 million last year. Ray will walk you through the unusual items when he reviews our financial statements but in summary the fourth quarter operating profit was $7 million as compared to a loss of $31 million in Q4 2008, representing a $38 million improvement year-over-year.

For the full-year operating profit was $57 million in 2009 as compared to a loss of $10 million in 2008. 2009 and 2008 operating profit included gains from asset sales of $1 million and $10 million respectively so that represents a $76 million improvement in operating profit before any gains on asset sales.

Our full-year operating margin is now 3% as compared to our long-term goal of mid and then high single digit operating margins but the gap being closed equally through both continuing operational improvements and also growth through our service and tire centers. Our vision is to be the automotive solutions provider of choice for the value oriented customer and I thank the Pep Boy teams in our stores, distribution centers and support center for the sustainable progress we have made in earning our customers’ trust on a more consistent basis, returning us to profitability and establishing the foundation for our growth.

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