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Pep Boys Reports Second Quarter 2011 Results

Net earnings increase to 26 cents per share.

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PHILADELPHIA — Pep Boys has announced results for the second quarter (13 weeks) and first half (26 weeks), ended July 30.

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Sales for the 13 weeks ended July 30 increased by $17.7 million, or 3.5 percent, to $522.6 million from $504.9 million for the 13 weeks ended July 31, 2010. Comparable sales decreased 2 percent, including a 0.3 percent comparable service revenue increase and a 2.5 percent comparable merchandise sales decrease.

In accordance with GAAP, service revenue is limited to labor sales, while merchandise sales include merchandise sold through both our service center and retail lines of business. Re-categorizing sales into the respective lines of business from which they are generated, comparable service center revenue (labor plus installed merchandise and tires) decreased 0.7 percent, while comparable retail sales (DIY and Commercial) decreased 3.1 percent.

Net earnings for the second quarter of fiscal 2011 increased to $13.9 million (26 cents per share) from $10.6 million (20 cents per share) recorded in the same period last year. The 2011 results include, on a pre-tax basis, a $0.4 million asset impairment charge and $1 million of acquisition related expenses and benefitted from the release of $3.4 million of state tax valuation allowances. The 2010 results included, on a pre-tax basis, a $2.4 million gain from the disposition of assets and a $1 million reversal of an inventory related accrual, partially offset by a $1 million asset impairment charge.

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Sales for the 26 weeks ended July 30 increased by $21.2 million, or 2.1 percent, to $1,036.1 million from $1,014.9 million for the 26 weeks ended July 31, 2010. Comparable sales decreased 1.3 percent, consisting of a 0.9 percent comparable service revenue increase and a 1.8 percent comparable merchandise sales decrease. Re-categorizing sales, comparable service center revenue decreased 0.2 percent, while comparable retail sales decreased 2.3 percent.

Net earnings for the first half of 2011 increased to $26.3 million (49 cents per share) from the $22.5 million (43 cents per share) recorded in the same period last year. The 2011 results include, on a pre-tax basis, a $0.4 million asset impairment charge and $1.3 million of acquisition related expenses and benefitted from the release of $3.4 million of state tax valuation allowances. The 2010 results included, on a pre-tax basis, a $2.5 million gain from the disposition of assets and a $1 million reversal of an inventory related accrual, partially offset by a $1 million asset impairment charge.

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“Our profitability continues to improve as we weather the challenging macroeconomic environment of high gas prices and depressed consumer confidence,” said President and CEO Mike Odell. “Our maintenance and repair services remain stable, allowing us to mostly offset soft tire sales. Our experience has taught us that customers can only defer their tire purchases for so long, so we have continued our aggressive ‘surround sound’ promotional activity to ensure that Pep Boys remains top of mind for tire customers.

“Our strategic Service & Tire Center acquisitions are also helping the bottom line,” Odell added. “In their first full quarter of operations under Pep Boys, the 85 Big 10 stores were accretive to earnings. And our organic Service & Tire Center sales continue to ramp up along their three-year maturity curve. As they achieve this maturity, they will also begin to contribute to earnings."

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“In the second quarter, we amended and restated our revolving credit agreement to reduce its interest rate by 75 basis points and to extend its maturity to July 2016. Coupled with greater operating cash flow achieved through ever-improving vendor payables leverage, we remain well positioned to pursue our growth strategy,” said CFO Ray Arthur.

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