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

F2Q08 Earnings Call

September 9, 2008 8:30 am ET


Ray Arthur - Chief Financial Officer

Mike Odell - Interim Chief Executive Officer

Scott Webb - SVP Merchandising and Marketing

Sanjay Sood – Controller


Tony Cristello - BB&T Capital Markets

Emily Shanks – Lehman Brothers

Jeff Blaeser - Morgan Joseph

Peter Benedict - Wachovia

William Keller - FTN Midwest



Welcome to The Pep Boys second quarter 2008 conference call. (Operator Instructions) It is now my pleasure to introduce your host Ray Arthur, Chief Financial Officer for Pep Boys.

Ray Arthur

On the call with me today are Mike Odell, Interim Chief Executive Officer of the company, Scott Webb, SVP Merchandising and Marketing, and our Controller, Sanjay Sood.

The format of the call is similar to those done by Pep Boys in the past. First Mike will provide opening comments regarding our results and priorities then I will review the second quarter and first half 2008 financial performance, balance sheet and cash flows. We’ll then turn the call over to the Operator to moderate a question and answer session. The call will end at 9:30 Eastern Time.

Before we begin, I’d 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 web casting the conference call on For anyone on the webcast who does not have the financial statements, you can access them on our website at

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

Mike Odell

As you’ve seen we reported net income of $5.4 million for the second quarter 2008 and $10.1 million year to date as compared to $4.2 million and $7.4 million for the same periods last year. We are pleased with our progress on our strategic priorities but we are disappointed with our sales. In service, tires and maintenance have been stable categories for us but repair work has been challenging. We have seen customers repair only what is necessary to safely operate their vehicles rather than to improve its performance or to restore their vehicles to new like condition.

Execution of drive up service continues to improve as have our customer service scores but we know that we are not yet the customer focus company that we aspire to be. We also feel the effects of fewer miles driven. In commercial we have experienced a saleable shift in profitability due to our focus on parts in addition to tires, commodities, and equipment sales.

We added four commercial operations in the second quarter and we’ll add 15 more in the second half of 2008 to end the year with commercial operations in 428 of our 562 stores. We have improved both or staffing and in stock to drive this business segment.

In retail our updated DIY parts categories have been fairly stable but accessories and personalization categories sales have been much softer than we planned and updates of these categories are still in progress.

Our biggest declines have been in the categories that we de-emphasized which are largely discretionary big ticket categories that are most susceptible to the effects of current economic conditions. Ray will walk you through the financial details including unusual items in a few minutes but first I’d like to share with you our progress on our strategic priorities.

We are in the midst of our business transformation to become a profitable customer focused automotive business. I’ll organize my comments today around leadership, merchandise mix, marketing mix and store operation.

Regarding leadership, most recently we announced the addition of Bill Shull as our Senior Vice President of store operations. Bill assumes the majority of my former Chief Operating Officer responsibilities, most importantly daily leadership of our store team. Bill will spend most of his time in our stores leading our service, retail, and commercial team members in their role to make Pep Boys the automotive solutions provider of choice for value oriented customers.

Bill’s deep automotive experience, passion and energy, coupled with his senior operating roles in other consultative retail environments make him especially qualified to lead our stores. Bill is a motivator and a store operator and his charge is to continue to drive the development of a store culture that develops our people, focuses on our customers and drives sales with intensity.

The other officer change this quarter is the addition of Bryan Hoppe, Vice President of Loss Prevention. Bryan also has deep automotive experience and brings a fresh store oriented perspective to help us improve our gross margin controls relative to shrink, point of sale activity and reverse logistics.

Regarding merchandising mix, this year we have devoted significant store labor to our sales floor transformation without incremental expense. This has been a huge undertaking and we remain on track to complete the sales floor moves by the start of the fourth quarter. Our stores now look like tires, parts and full service automotive centers consistent with our customers expectations. I want to personally thank each and every associate that continues to assist in this effort.

While this work needs to be done for the long term we recognize that it may have impacted our recent performance. Now our store team focus is on serving customers and selling complete solutions. In fact, we launch our Do It Right sales program in our stores this quarter to drive that focus.

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