Editor's Note: Following the statement yesterday from Pep Boys that its top executive had resigned, more details have emerged today from AFX News Limited.

From AFX News Limited

PHILADELPHIA -- The chief executive of Pep Boys resigned Tuesday after its two largest shareholders stepped up pressure on the auto parts retailer to turn around the business and prop up a share price that has fallen 24 percent this year.

Larry Stevenson, the 50-year-old CEO who joined the automotive parts and service chain in 2003, will be replaced temporarily by company Chairman Bill Leonard as the company looks for a successor. Stevenson will get one year's pay of about $1 million as part of his severance package.

Shares of Pep Boys rose 9 cents to close at $11.46 on the New York Stock Exchange. The stock had risen by as much as 12.3 percent during the day, to $12.77, from yesterday's closing price of $11.37.

Stevenson's departure marks Pep Boys' capitulation to investment groups Barington Cos. Equity Partners LP in New York and Pirate Capital LLC in Norwalk, CT.

Barington, led by corporate raider James Mitarotonda, first led the call for Stevenson to leave.

"Mr. Stevenson agreed that a change is due," Leonard told The Associated Press. "We both realized that tendering his resignation is in the best interest of the company at this time."

Stevenson "went in and tried to make a number of changes," said R. Scot Ciccarelli, an analyst at RBC Capital Markets in New York. "It's hard to argue the performance has been solid. Results have been soft and you've got a bunch of shareholders starting to get impatient."

In 2005, Philadelphia-based Pep Boys reported a net loss of $37.5 million, or 69 cents a share, compared with profits of $23.6 million, or 41 cents. Revenue fell by 1.5 percent to $2.24 billion. Service revenue at stores over a year old dipped by 6 percent, dragging down overall performance.

Leonard said the company will continue to work with Goldman Sachs to seek out strategic options, including the sale of the company. He declined to say whether Pep Boys has received any offers since it tapped the investment banker in February. However, Leonard said outsourcing or selling its service business is out of the question because it's an "integral part of the company."

He said having service centers isn't the problem. Rather, the issue is poor execution. "The number one goal is to get the company performing better than it has performed in the last couple of years," Leonard said.

He said Pep Boys is more than half done with refurbishing its stores and will continue the project albeit on a smaller budget. Business improved at refurbished stores, Leonard said.

Pep Boys operates 593 stores and more than 6,000 service bays in 36 states and Puerto Rico.

Barington had called for Pep Boys to divest, outsource or franchise its service business, according to a May filing with the Securities and Exchange Commission. Last week, Barington stepped up its pressure on the company and reiterated that a CEO change is not the only shift needed but directors might have to go as well.

"We believe that change is needed now at Pep Boys -- not just at the CEO level but at the board level as well," Mitarotonda wrote in a letter to Leonard. "The company has an extremely valuable asset base that stockholders have entrusted to the board to protect and grow. The performance of the Pep Boys board to date has convinced us that it is no longer worthy of this trust."

In March, Barington told Pep Boys it will seek to have representatives on the board and will nominate a slate of directors at the next annual meeting. But the meeting hasn't yet been scheduled, which further upset Barington and Pirate Capital.

Barington said the shareholders' meeting typically is held in late May or early June, according to an SEC filing.

Leonard said Pep Boys will be scheduling its annual shareholders meeting soon. Barington also took issue with the board's decision to extend Stevenson's employment contract, which would have expired in April, amid the shareholder's calls for his resignation after implementing a "disastrous" operating plan.

Leonard said it didn't seem sensible to get a new CEO while Pep Boys' future was in flux.

"We were in the process of working with Goldman Sachs," he said. "It made no sense at that point to change the CEO."

Barington said in an SEC filing that it disagreed with such an approach. Instead, it believes that changing leadership would boost company performance and hence attract better buyout bids. The investment group said it intends to make its plans evident at the next shareholders meeting.

"It is time to let the owners decide who they want to lead Pep Boys and what direction the company should pursue," wrote Mitarotonda in a letter to the board.

Copyright 2006 AFX News Limited. All Rights Reserved.

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