http://biz.yahoo.com/ap/040902/on_the_ticker_pep_boys_1.html?printer=1

Pep Boys Hit Speed Bump on Auto-Service
Thursday September 2, 12:06 am ET
Pep Boys Hit Speed Bump on Auto-Service; 2Q Shortfall in Division's Revenue Dents Stock Price

PHILADELPHIA (AP) -- They still come to get car batteries, pocket bikes and DVD players. But when it comes to getting their cars fixed, it seems fewer customers are turning to The Pep Boys -- Manny Moe & Jack Inc.
A second-quarter shortfall in Pep Boys' auto-service revenue has put a big dent in its stock price. Trading recently around $15.75, the shares have fallen about 16 percent since Aug. 11, when the Philadelphia-based company reported lower-than-expected earnings for the three months ended July 31. So far this year, the stock is off about 31 percent.

To some investors, Pep Boys shares look attractive following the sell-off. They say the company's long-term prospects are still good. But a rebound in the shares will depend upon whether the company can fix the problems that led to the service weakness, including poor staffing, advertising and tepid market conditions.

"I'm looking at it right now as a potential buy at these levels again," said Rodney Hathaway, co-manager of the Heartland Value Plus fund in Milwaukee, which sold its Pep Boys stake in April after getting a hefty return on the stock in the previous year.

But for the stock to recover, Hathaway said: "It's going to be a question of execution now by the management, whether or not they can get that service side of the business back on track."

Pep Boys has faced some challenges in recent years, including sagging sales growth and intense competition from Autozone Inc. and Advance Auto Parts Inc. The company brought in Lawrence Stevenson as chief executive in May 2003 to help turn things around.

Stevenson decided to close 33 stores and lay off about 860 employees in a restructuring designed to save $11 million a year.

The company now has about 595 stores in 36 states and Puerto Rico, and 22,000 employees. Also, Pep Boys began looking for ways to maximize the use of floor space in its stores, which are generally larger than rivals.

Pep Boys began to stock stores with nontraditional products such as pocket bikes, which are miniature motorcycles and are the fad of the summer. These non-automotive products have been a solid source of Pep Boys' retail sales growth. Pep Boys has begun remodeling stores, too.

Pep Boys says its retail initiatives are working. In the second quarter, retail sales at stores open at least a year, or same-store sales, rose 16.7 percent.

"It's a retail renewal strategy," said Advest analyst Derrick Irwin. "They're thinking very hard on what they're selling on the retail side of the box, how they're selling it, and dramatically remodeling stores."

But in focusing on products, Pep Boys may have neglected its service business, which contributes about 40 percent of overall revenue, including merchandise installed during service visits.

In the second quarter, same-store service sales fell 5.3 percent. Service sales include labor plus installed merchandise and tires.

Overall, Pep Boys' second-quarter sales rose to $593.4 million from $556 million a year earlier. Earnings were $14.6 million, or 23 cents a share, reversing a year-earlier loss of $13.6 million, or 26 cents a share.

Excluding one-time items, the latest quarterly earnings of 29 cents a share fell short of analysts expectations of 37 cents a share, according to Thomson First Call.

President George Babich told analysts in August that some stores were understaffed, causing prospective customers to take their cars elsewhere. Also, Pep Boys has shifted its advertising campaign to focus more on retail sales.

Finally, weak market conditions have hurt not only Pep Boys, but also other auto service firms.

Pep Boys said mild weather has been a factor, as cars don't need as much service during such conditions.

Pep Boys is taking steps to fix the service business. It has begun selling brand-name tires, in addition to its store brand, which it hopes will bring in more customers.

Also, the company shuffled management, assigning direct responsibility for operations to Babich, who remains president but is no longer chief financial officer.

Stevenson said he wanted Babich to focus on jump-starting the service business.

Pep Boys will also try to hire better-qualified service technicians and improve training, and speed up plans to expand advertising.

Irwin of Advest believes Pep Boys' long-term growth prospects are "very much intact." He said the company stumbled in trying to execute a complex turnaround.

He rates the stock at "buy," though he did lower his price target to $20 from $32 after the second-quarter earnings report.

I would never let Pep Boys work on my car. They limit their warranty of their work to the cost of the job. So (and this is a real case) if they put on the wrong timing belt which in turn destroys the engine, they will only refund the 200 bucks they charged for the timing belt. Sorry about your engine pal.

Some eBay car listings have a 'Pep Boys certified' flag. I'd give as much credence to an 'owner certified' flag.

Sixto
95 S420
87 300SDL

I've never used these guys, but I have been to their store and observed their operations. Everything I have ever heard about their car service has been negative. They charge way too much and their mechanics don't know what they are doing seems to be the common experince. I've found for my business vehicles, when I have to use a national chain, Firestone has consistently given me excellant mechanical service. Their prices aren't too bad and they have the service level ratings of their mechanics posted on the premises, and in general do excellent work. I have never had an experience like some of the things I hear about from these Pep Boy guys, like oil pan drain plugs popping out after an oil change, etc. I can't help but feel it is because Pep Boys uses a lot of lower paid guys who claim to be mechanics - I like the fact that at Firestone I can usually look out in the bay and see a few grey haired guys who look to be on top of things.

I won't set foot in a Pep Boys since the Petersburg, VA location really screwed up a brake job back in 1994 or 1995, and when I nicely asked them to please look at the car and tell me what was wrong, well, they were too busy to look at it any time soon, and the shop manager was personally extremely insulting to me. I was kind of young (just out of college), kind of poor (OK, very poor, flight instructors don't make much money), and it must have been obvious to the shop manager that he could blow me off without any consequences to him or his shop. I had to drive a car in which the brake pedal sank nearly to the floor before getting any braking at all to another shop, which you can be sure I did very slowly.

When the second mechanics called Pep Boys (of their own volition) to tell them how badly they'd screwed up the job, costing me over a hundred extra to fix at their shop, Pep Boys agreed to refund what I had paid for the original brake job. When I showed up to collect my refund, they refunded me the $10 or so that the brake pads they had used for the job cost. Possibly the only time I ever considered vandalizing a business.

I live across the street from a location in Atlanta, and I won't buy so much as a wiper blade there. I'll drive past ten Pep Boys to get to an Auto Zone or a real mechanic.

Well, I have only used them once and they were extremely accomodating. I was changing the driver's side half shaft on my 1986 190E 2.3-16 (217,000 miles) while my son had the car at college. I could not budge the nut holding the spline in the wheel hub, and had purchased a 6 foot cheater bar from Home Depot and rented an electric impact tool. It was Saturday, and at about 5 pm, I began to worry I would have to buy a compressor and a pneumatic tool. I called around and the only place open on Sunday was PepBoys. I had the car towed there that night after making arrangements with the shop manager, and the next morning at the moment the store opened, they assigned a mechanic. I told him all I wanted him to do was remove the nut, which I had to reuse so I was not interested in cutting it off, and then go get a coffee. He agreed and after setting the compressor pressure to its high end of the band, the nut came off. He left, got a coffee and my son and I finished the installation. The mechanic looked things over and set the car back down. We paid for the time it took for us to finish the job, but overall, I was very happy with the experience.

I would never take the car there to have a job I could do performed by PepBoys, the dealer or anyone else, unless it required a tool I did not have. In this case the shop manager was a good guy (it was in Albany, NY) and things worked out fine.

I also make a point of checking any work someone else does for me on my cars, and I never let anyone else work on brakes. At the moment, I see the new MB brakes as a problem. They are controlled by a computer that I am not going to be able to access, and the mechanics are not familiar with the whole concept. For me, that could be enough to avoid buying the car.

Anyway, I am not in the crowd of people who have had bad experiences at PepBoys. I also like the fact that they carry a lot of RedLine products, and Lexol interior care stuff. Jim

__________________
Own:
1986 Euro 190E 2.3-16 (291,000 miles),
1998 E300D TurboDiesel, 231,000 miles -purchased with 45,000,
1988 300E 5-speed 252,000 miles,
1983 240D 4-speed, purchased w/136,000, now with 222,000 miles.
2009 ML320CDI Bluetec, 89,000 miles

Owned:
1971 220D (250,000 miles plus, sold to father-in-law),
1975 240D (245,000 miles - died of body rot),
1991 350SD (176,560 miles, weakest Benz I have owned),
1999 C230 Sport (45,400 miles),
1982 240D (321,000 miles, put to sleep)

I was having some back problems once so instead of doing the work myself, I took my car to Pep Boys, just down the street to install front shocks. When I got it back, it was obvious that one shock was very loose. I checked the other and it was overtorqued. I couldn't figure out how this happened until I looked at the installation instructions that came with the shocks. It had a picture of an overtorqued bolt and and undertorqued bolt. The 'mechanic' who installed the shocks apparently mistook these pictures to mean install one shock this way (overtorqued) and the other this way (undertorqued). I'm assuming the mechanic couldn't read.

__________________
1977 300d 70k--sold 08
1985 300TD 185k+
1984 307d 126k--sold 8/03
1985 409d 65k--sold 06
1984 300SD 315k--daughter's car
1979 300SD 122k--sold 2/11
1999 Fuso FG Expedition Camper
1993 GMC Sierra 6.5 TD 4x4
1982 Bluebird Wanderlodge CAT 3208--Sold 2/13

On the plus side Pep Boys doesn't have shelf upon shelf of Fram filters.

Sixto
95 S420
87 300SDL

Pep Boys does have some good deals on cleaning products. I don't even like parking my MB in their lot, what if people start to think that I actually buy parts from them?!!

I do have an Autozone ac condensor in the SDL.

__________________
1999 SL500
1969 280SE
2023 Ram 1500
2007 Tiara 3200

They have a good selection of fluids, lubricants and as Sixto mentioned, no Fram filters. The Purolator line they carry is actually not too bad.

They also have a good selection of hardware - nuts, bolts, etc., but as mentioned before, the worst technicians money can buy.

Their hoses, belts, etc. are very poor quality.

In my opinion, they are the worst of the large national chains as far as repairs go.

__________________
Mike Murrell
1991 300-SEL - Model 126
M103 - SOHC
"Fräulein"

pepboys... what a joke!!! I bought a alt from them, went back to get the core charge, the staff had to go threw there pockets to get enough money to cover my refund.... gssssss. But then, a month later they closed the doors and left town. They couldn't even compete with schucks now that is sad I think.