Troubled Pep Boys Hires Goldman Sachs as Adviser

From The Philadelphia Inquirer

PHILADELPHIA — Pep Boys — Manny, Moe & Jack, the Philadelphia-based auto parts and repair chain that has struggled with flagging sales, has hired Goldman Sachs Group Inc. “to explore strategic and financial alternatives.”

Corporate boards typically hire investment bankers to perform such a review when they are considering selling or restructuring a company. Spokesman Harry Yanowitz declined to comment on Pep Boys’ intentions.

James Mitarotonda, chairman of Barington Capital Group, a major Pep Boys shareholder, said he expected a sale or restructuring of the company. The company’s core business is “attractive,” but its recent financial “results have been terrible,” Mitarotonda added, citing a decline in the company’s stock price and recent losses.

Shares of Pep Boys fell 34 cents to $15.90 yesterday. The retailer’s shares are off 4 percent over the last year, compared to gains of 4 percent for rival Autozone Inc., 46 percent for Advance Auto Parts Inc., and 41 percent for O’Reilly Automotive Inc.

In a statement, Pep Boys also said its board had “reiterated its support” for chief executive officer Lawrence N. Stevenson and its intention to keep him in that job. However, Stevenson will no longer serve as chairman of the Pep Boys board; the title has been transferred to one of the company’s directors, William Leonard. Leonard was a longtime executive of Aramark Corp., the Philadelphia food-services company, and served for several months as Aramark’s chief executive before stepping down in 2004.

“Our positioning and operating turnaround will take time,” Stevenson said in Pep Boys’ written statement. He said that the company’s efforts to improve stores and sales have been successful, but that changes in Pep Boys’ other main business, auto service, “have required more time.” In the same statement, Leonard said the company wanted “to increase shareholder value.”

Mitarotonda said he applauded Stevenson’s departure from the chairman’s post, but he was “not pleased” that Stevenson would remain chief executive. He declined to comment on what action, if any, the dissidents may take in response.

According to a presentation Barington made to dissident Pep Boys investors in December, Stevenson’s “poorly executed” turnaround plan over the last 21/2 years has “yielded minimal sales growth,” while placing “significant stress” on the company’s service centers — 300 managers were replaced — and its cash flow.

Barington estimated Pep Boys’ value at $1.3 billion, including its “significant real estate” from its 593 stores, compared to its stock market value of $861 million. Annual sales total around $2.2 billion.

In an interview, Mitarotonda said some store locations could be more valuable for their real estate than for their sales.

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