The Pep Boys Manny, Moe & Jack Automotive Solutions Provider of Choice. July 2012

Transcription

1 Manny, Moe & Jack Automotive Solutions Provider of Choice July 2012

2 Safe Harbor Statement This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements contained herein other than statements of historical fact are forward-looking statements for purposes of these provisions. In some cases, forward-looking statements can be identified by the use of terminology such as may, will, expects, plans, anticipates, estimates, potential or continue, or the negative thereof or other comparable terminology. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure investors that our assumptions and expectations will prove to have been correct. Actual results could differ materially from our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Manny, Moe & Jack Founders of the Automotive Aftermarket Trusted since 1921 Philadelphia based 740 Locations (as of 6/30/12) 562 Supercenters (19-20k sf) 10 New Prototypes (13-14k sf) 171 Service & Tire Centers (5-6k sf) 7 Retail Stores 35 States and Puerto Rico $2.1 Billion Revenues (1) 51% Service 57% Maintenance & Repair 43% Tires & Related Services 38% Retail 39% Appearance, Performance & Complementary 61% Light Maintenance & Parts 11% Commercial (1) Trailing 4 Quarters through Q

4 Vision and Strategy Pep Boys Vision: Pep Boys Strategy: Automotive Solutions Provider of Choice for the Value Oriented Customer Earn the TRUST of our Customers every day through: Preferred employer in the automotive aftermarket TRUST behaviors Lead with our Service business and grow through Service & Tire Centers Does Everything. For Less. Market share leader in a fragmented market Establish a differentiated Retail experience by leveraging our Automotive Superstore Broadest range of maintenance, performance and appearance products and accessories Highest level of replacement parts coverage Leading installer of automotive after-market products Leverage our Automotive Superstore to provide the most complete offering for our Commercial customers One call solution for parts, tires, equipment, and accessories 4

5 Earn The Trust Of Our Customers Every Day Preferred Employer in the automotive aftermarket Selecting the right people Training, development, and certification Equipped for success Performance-based compensation TRUST behaviors Be friendly Do it right Show compassion Keep promises TRUST measurements Customer retention On-line reputation 5

6 Lead With Service SERVICE Full service: tires, maintenance, undercar and underhood Value leader as a result of our parts pricing advantage: We buy direct from the manufacturers and pass the savings onto our customers Service & Tire Centers: Convenient for customers Local my mechanic RETAIL Provides parts for Service We install what we sell Market leader in appearance and performance products and accessories Speed Shops for automotive enthusiasts Competitive pricing Superhubs serve neighboring stores with same-day parts availability Support Service Automotive Superstore Support Parts COMMERCIAL Delivers to Service & Tire Centers One Call for parts, tires, equipment and accessories Leverages parts inventory to support competitive assortment and pricing 6

7 Lead With Service 2011 Sales = $223 billion DIY 20% Industry Characteristics Service is 4x larger than DIY Service is expected to grow slightly faster than DIY Service DIFM & Tires 80% ($179 billion) (1) Do It Yourself ($44 billion) Service is highly fragmented (268,000 Service establishments in the US) DIY had been declining prior to 2007, but has benefited from the economic slowdown Consumers continue to shift to Service Cars more complex Independents, Regionals 64% Lifestyle changes Aging of baby boomers Pep Boys Firestone Jiffy Lube TBC Midas Goodyear AAMCO Monro Meineke Sears Dealerships 30% Other 59% Pep Boys Autozone Advance O'Reilly NAPA Carquest Service consolidation continues Evolving technologies Increasingly capital-intensive High barrier to entry for new players Source: 2013 Digital Aftermarket Factbook. (1) Includes tire sales. 7

8 Lead With Service Full service provider More than 7000 service bays National scale Parts sourced directly from manufacturers Savings passed onto customers Tires Alignments Oil changes Brakes Ride control HVAC Starting and charging Tune-ups Engine performance Fuel systems Maintenance products and services Engine and transmission R&R Computer module flashing 8

9 Grow Through Service & Tire Centers Model Customer friendly: local my mechanic Higher financial return: leverage existing assets Existing facility: 4 to 8 bays Full service: tires, maintenance, undercar, underhood Stock high velocity assortment Retail that targets our service customer, when space permits Locations Convenient to where customers live and work 3 to 5 mile trade area Higher median household income 5 to 15 minutes from supporting Supercenter Build-to-suits starting in 2013 Markets Individual sites in biggest Pep Boys markets Small chains in other Pep Boys markets Consider chains in new markets opportunistically 9

10 Grow Through Service & Tire Centers New Stores 25 in in in in 2012 Projected Financials $1 million sales $150K EBITDA <$400K investment IRR of 15% or greater Targeted Maturity Curve EBITDA neutral run rate at end of year one EBIT neutral run rate at end of year two Mature at end of year three Additional upside after that 10

11 Growth Leads to Market Density Orlando / Daytona Market Pep Boys Supercenters Florida Tire Locations New Service & Tire Centers Big 10 Locations 11

12 Atlanta Market Pep Boys Supercenters New Service & Tire Centers Big 10 Locations 12

13 Los Angeles Market Pep Boys Supercenters New Service & Tire Centers 13

14 Philadelphia Market Pep Boys Supercenters New Service & Tire Centers New Supercenters 14

15 Chicago Market Pep Boys Supercenters New Service & Tire Centers New Supercenters 15

16 Service & Tire Center Sales Continue to Build Organic Service & Tire Centers Acquisition Service & Tire Centers $30,000 $27.7 $27.8 * Year 1 Year 2 Year $25,000 $25.4 Average Weekly Sales # Locations in Operation Average Weekly Sales Per Store $20,000 $15,000 $10,000 $12.2 $12.2 * $18.1 $19.6 * $14.0 $15.6 * $5, Weeks of Operation (beginning with first full month) 1 0 $0 Florida Tire Davco Big 10 My Mechanic * Represents year-to-date sales since acquisition anniversary date Sales at both organic and acquisition Service & Tire Centers continue to mature 16

17 Automotive Superstore Automotive Superstore means more than just a parts store Starts with parts (knowledgeable people, parts availability, competitive pricing) We are the market leader in appearance and performance products and accessories Wash and wax dominance Interior accessories Exterior accessories Performance / speed shops Automotive electronics Light maintenance Fluids Parts, especially late model coverage Tools for DIY customers 17

18 New Supercenter Prototype Customer Perception Benefits Showcases service center Dominant parts presentation Easy to navigate Customer lounge Customer Service Benefits One customer advisor team Greeted at the entrance Performance based pay Financial Benefits 13-14,000 square feet versus 19-20,000 square feet Consolidated payroll model Lower operating cost New Store Plans Hubs for Service & Tire Center growth Relocation opportunities Will open 8 in FY

19 New Supercenter Prototype 19

20 Speed Shop Remodel existing Supercenters to accommodate Speed Shops 20 open in California, New York, Florida, Pennsylvania, Maryland, New Jersey, Nevada, Arizona, and Texas Targeting a total of 100. Attracts Automotive Enthusiasts Muscle car; import tuner; sport truck, Jeep, diesel Highlights our competitive point of differentiation Staffed with dedicated enthusiasts Sales and installation of our products Creates destination store in key markets Expands 3-5 mile trade area Draws car shows and other enthusiast activities Serves surrounding stores 20

21 Distribution Network Indianapolis Distribution Center # Locations 1 Plainfield, IN # SKUs ~100,000 Regional Distribution Centers 4 San Bernardino, CA McDonough, GA Mesquite, TX Chester, NY ~45,000 Superhub Locations 44 Servicing 410 stores ~40,000 Supercenter & Retail Locations 569 ~23,000 Service & Tire Centers 171 ~3,000 21

22 Superhubs Remodel existing Supercenters to accommodate Superhub inventory Currently supporting 410 stores with 44 Superhubs / WDs Adding 4 more Superhubs in 2012 to support an additional 20 stores Superhub objectives: Increase sales in host and satellite stores through improved inventory availability Increase margins by reducing the need for outside purchases Allow for consolidation of inventory from satellite stores Typical Parts Lifecycle Ahead of the Curve Mainstream Behind the Curve 22

23 The Pep Boys e-serve Appointment Scheduling 23

24 e-serve TreadSmart 24

25 e-serve Buy Online Pick Up in Store (rolled out in Q2 2012) Ship to Home planned Q Shopping Experience Payment and Shipping Fulfillment Excellent web experience - Discover - Research - Purchase Store Indianapolis DC Online Service Selection Parts and Accessories Tires and Installation My Home Pick up in Store Installed on My Car 25

26 19 Million Rewards Members How it works Members get FREE Services Tire rotation and air pressure check Flat repair Brake evaluation Check engine light evaluation Discounted towing to a Pep Boys location Members earn a point for every dollar they spend in service and retail Rewards are equivalent to 5% of their total purchases ($200 spend = $10 reward) Reward vouchers are sent to members once they are earned 26

27 Improving Financial Performance Total Revenue (Billions) Earnings Per Share $2.21 $2.24 $2.14 $1.93 $1.91 $1.99 $2.06 $0.38 $0.60 $0.49 ($0.13) ($0.69) ($0.46) ($0.66) FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 Operating Margin (target: mid-single-digit) After-Tax ROIC (target: high-single-digit) 0.9% 0.4% 3.1% 3.8% 3.3% -0.4% 1.8% 0.7% -1.1% 5.0% 6.8% 5.9% -0.6% -0.8% FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 Notes: Results adjusted to exclude certain one time non-recurring charges and gains. After-Tax ROIC = EBIT * ( tax rate) / (Average Debt + Average Equity Average Cash) Earnings Per Share is Diluted EPS See next slide for unadjusted financial metrics and list of one-time non-recurring charges and gains. 27

28 Unadjusted Financial Metrics Total Revenue (Billions) Earnings Per Share $2.21 $2.24 $2.14 $1.93 $1.91 $1.99 $2.06 $0.44 $0.69 $0.54 ($0.05) FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 ($0.69) ($0.58) ($0.79) FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 Operating Margin After-Tax ROIC 1.3% 3.0% 4.2% 3.2% -0.4% 2.3% 4.8% 7.4% 5.8% -1.1% -0.8% -0.6% -0.8% -0.5% FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 FY-2005 FY-2006 FY-2007 FY-2008 FY-2009 FY-2010 FY-2011 List of one-time non-recurring charges and gains: 2005: Includes a $4.2 million pre-tax asset impairment charge. 2006: Includes a pre-tax gain of $8.968 million from disposition of assets. 2007: Includes an aggregate pre-tax charge of $ million related to the closure of 31 stores ($7.199 million cost of sales and $3.764 million discontinued operations). Includes a pre-tax inventory impairment charge of $ million (cost of sales) for the discontinuance of certain product offerings. Also includes a pre-tax gain of $ million from disposition of assets. 2008: Includes an aggregate pre-tax charge of $5.353 million ($3.427 million cost of sales and $1.926 million discontinued operations) for asset impairment. Includes a pre-tax gain from debt retirement of $3.46 million partially offset by a $1.172 million pre-tax charge for deferred financing costs. Also includes a pre-tax gain of $9.716 million from disposition of assets. 2009: Includes a pre-tax charge of $3.11 million ($2.884 million cost of sales and $0.226 million discontinued operations) for asset impairment. Includes a pre-tax gain from debt retirement of $6.248 million. In addition, includes a net pre-tax gain of $1.213 million from disposition of assets. 2010: Includes a pretax benefit of $5.9 million due to the reduction in reserve for excess inventory which reduced merchandise cost of sales and an aggregate pretax charge of $1.0 million for asset impairment ($0.8 million was charged to merchandise cost of sales and $0.2 million was charged to service cost of sales). Also includes a pre-tax gain of $2.467 million from disposition of assets. 2011: Includes an aggregate pre-tax charge of $1.6 million for asset impairment ($0.6 million was charged to merchandise cost of sales and $1.0 million was charged to service cost of sales). Also includes a tax benefit of $3.6 million due to release of valuation allowances on state net operating loss carry forwards and credits. 28

29 Macro-environment Primary external drivers for Pep Boys are: Miles driven for tires, maintenance and repairs GDP for discretionary purchases Other factors include: Gas prices Age of vehicles Car sales (new and used) Shift to smaller / lighter vehicles New technologies Our plans assume that the macroenvironment continues to stabilize Vehicle Miles Traveled (Annual - Trailing 4 Quarters) 3,100 3,000 2,900 2,800 2,700 VMT (Billions) GDP (Billions) 2000_Q1 2000_Q2 2000_Q3 2000_Q4 2001_Q1 2001_Q2 2001_Q3 2001_Q4 2002_Q1 2002_Q2 2002_Q3 2002_Q4 2003_Q1 2003_Q2 2003_Q3 2003_Q4 2004_Q1 2004_Q2 2004_Q3 2004_Q4 2005_Q1 2005_Q2 2005_Q3 2005_Q4 2006_Q1 2006_Q2 2006_Q3 2006_Q4 2007_Q1 2007_Q2 2007_Q3 2007_Q4 2008_Q1 2008_Q2 2008_Q3 2008_Q4 2009_Q1 2009_Q2 2009_Q3 2009_Q4 2010_Q1 2010_Q2 2010_Q3 2010_Q4 2011_Q1 2011_Q2 2011_Q3 2011_Q4 2012_Q1 14,000 13,000 12,000 11,000 10,000 Notes: US Real GDP in billions of chained 2005 dollars (trailing 4 quarters expressed at annual rates). Vehicle Miles Traveled in billions trailing 4 quarters (all roads and streets). Q1 data estimated based on run rate thru January 2012 Source: US Bureau of Economic Analysis US Department of Transportation (Federal Highway Administration) New Car Sales Year # Units (millions) GDP Source: Bureau of Transportation Statistics, U.S. Department of Transportation 29

30 Improving Financial Performance Low single digit comparable store sales growth 4% - 5% service bay growth per annum Gross margins are still an opportunity Recover lost tire margins Gross margin leaks Cost of goods sold Pricing and mix Sales growth leverages expense base Productivity and cost reductions Safety and claims reductions Outlier management One Team store structure Execution Customer experience Selling excellence 30

31 Solid Financial Position Financial flexibility $155m cash (as of July 2012) $295m debt at favorable rates ½ due 2013; ½ due 2014 Currently evaluating refinancing alternatives Dry powder 232 owned stores Appraised value $670m 1Q 2011 Net book value $449m 4Q 2011 Net tax value $331m 4Q ground leased stores 346 leased stores 4 owned distribution centers 1 leased distribution center 2 owned office buildings Sales growth leverages asset base Investing in new parts while improving inventory productivity Expanding vendor financing programs to improve payables leverage Maintenance capital expenditures of $40 million per year 31

32 Investment Story We have turned around the company We still have opportunity for improvement in our base business We have a solid foundation for growth for years to come 32