PHILADELPHIA -- Pep Boys today announced results for the thirteen weeks (third quarter) and thirty-nine weeks ending October 29.

Sales for the thirteen weeks were $545,206,000, 2.4 percent less than the $558,465,000 recorded last year. Comparable merchandise sales decreased 0.6 percent and comparable service revenue decreased 8.2 percent. In accordance with GAAP, merchandise sales includes merchandise sold through both Pep Boys’ retail and service center lines of business and service revenue is limited to labor sales. Re-categorizing sales into the respective lines of business from which they are generated, comparable retail sales (DIY and commercial) increased 2.1 percent and comparable service center revenue (labor plus installed merchandise and tires) decreased 7.6 percent.

Net Earnings (Loss) from Continuing Operations decreased from net earnings of $6,669,000 (12 cents per share - basic and 11 cents per share -diluted) to a net loss of $11,410,000 (21 cents) per share - basic and diluted).

Sales for the nine months were $1,685,409,000, 1.8 percent lower than the $1,716,534,000 recorded last year. Comparable sales decreased 1.6 percent, including a decrease in comparable merchandise sales of 0.5 percent and a decrease of 6.7 percent in comparable service revenue. Re-categorizing sales, comparable retail sales increased 0.6 percent and comparable service center revenue decreased 4.8 percent.

Earnings Net (Loss) Earnings from Continuing Operations decreased from net earnings of $35,155,000(62 cents per share - basic and 59 cents per share - diluted) to a net loss of $13,070,000(24 cents) per share - basic and diluted).

"In our retail operations, we continued the process of managing our product mix and price points to improve our margin rate. In this quarter, while gross profit from retail sales continued to be adversely affected by the increased occupancy expense associated with our store refurbishment and systems investments, merchandise margins improved for the first time on a year-on-year basis," said Pep Boys Chairman and CEO Larry Stevenson. "As we enter the fourth quarter, we expect retail sales comps to be modest, but continued improvements in merchandise margins should allow us to surpass the gross profit from retail sales that we generated in fiscal 2004 fourth quarter.

Stevenson continued, "It was again a very difficult quarter for our service center operations, with comparable sales down 7.6 percent, which includes a 11.6 percent decrease in tire sales. Adjusting for the effect of the non-cash increase to the tire warranty reserve discussed below, service center operations comparable sales were down 6.7 percent, which includes an 8.9 percent decrease in tire sales. While the disruption caused by our recent field restructuring is not yet behind us and the spike in energy prices has disproportionately affected our lower income customer base, the recently announced addition of Joe Cirelli to the service and tires team has helped to re-energize our field leadership. Revenues were soft for the entire quarter, but were particularly soft during the immediate aftermath of Hurricane Katrina, and subsequent increase in fuel prices."

"During the quarter, we had a few notable items that are incorporated in our results. We recognized a $1 million expense for the self-insured costs related to hurricane damage claims," said CFO Harry Yanowitz. "In addition, we increased our road hazard tire warranty reserve, resulting in a non-cash charge that reduced service center sales and gross profits by approximately $1.9 million. We did not sell any stores in either this quarter or the same quarter last year. As noted as a subsequent event in our last 10-Q, we also re-purchased 1,283,000 shares during the third quarter for approximately $15.5 million ($12.10 per share)."

Pep Boys grand re-opened six stores in the Harrisburg market during the quarter and an additional 31 in the Las Vegas, Phoenix and Tucson markets last weekend as part of its store refurbishment program. Yanowitz said the remodeled stores continue to yield increased customer count and incremental sales and the company expects approximately 200 of its 593 stores to be grand re-opened by the end of this fiscal year.

Yanowitz commented, "Even though our year-to-date cash flows from operating activities are only $4.3 million less than last year, we have reduced our investment rate to reflect this more challenging operating environment by stretching out the completion of our store refurbishment program to the end of 2008. We now expect $80 to $85 million of capital expenditures in fiscal 2005, rather than the previously forecasted $110 million."

On Jan. 1, Pep Boys also restructured its field operations into separate retail and service teams. In connection with this restructuring, certain retail personnel, who were previously utilized in merchandising roles supporting the service business, were reassigned to purely service-related responsibilities. The labor and benefits costs related to these associates, approximately $5.4 million in this quarter, which were previously recognized in SG&A, are now recognized in costs of service revenue, the company said.

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