The Pep Boys—Manny, Moe & Jack and subsidiaries fiscal year ends on the Saturday nearest to January 31. Fiscal year 2008, which ended January 31, 2009, was comprised of 52 weeks; fiscal year 2007, which ended February 2, 2008, was comprised of 52 weeks; and fiscal year 2006, which ended February 3, 2007, was comprised of 53 weeks.
The Company is a leading automotive service and retail chain. The Company operates in one industry, the automotive aftermarket. The Company is engaged principally in automotive repair and maintenance and the sale of automotive tires, parts and accessories. The Company's primary operating unit is its SUPERCENTER format. As of January 31, 2009, the Company operated 562 stores consisting of 552 SUPERCENTERS and 1 SERVICE & TIRE CENTER, having an aggregate of 5,845 service bays, as well as 9 non-service/non-tire format PEP BOYS EXPRESS stores. The Company operates approximately 11,514,000 gross square feet of retail space, including service bays. The SUPERCENTERS average approximately 20,700 square feet and the PEP BOYS EXPRESS stores average approximately 9,500 square feet. The Company believes that its unique SUPERCENTER format offers the broadest capabilities in the industry and positions the Company to gain market share and increase its profitability by serving "do-it-for-me" DIFM (service labor, installed merchandise and tires) and "do-it-yourself" DIY (retail) customers with the highest quality service offerings and merchandise. In most of our stores we also have a commercial sales program that provides commercial credit and prompt delivery of tires, parts and other products to local, regional and national repair garages and dealers.
BUSINESS STRATEGY
Our vision for Pep Boys is to take what we believe to be our industry-leading position in automotive services and accessories and become the automotive solutions provider of choice for the value-oriented customer. Our brand positioning—"Pep Boys Does Everything. For Less." is designed to convey to the consumer the breadth of the automotive services and merchandise that we offer and our value proposition. We will lead with our service business and grow through service spokes. We will create a differentiated retail experience by creating the automotive superstore. We will leverage our supercenters and service spokes to provide a complete offering for our commercial customers.
To achieve this vision, our business strategy focuses on four key areas; operational execution, merchandise assortment, marketing programs and store growth.
Operational Execution. In a highly competitive marketplace, we strive for operational excellence in order to provide a differentiated customer experience. We are investing in our associates through the development of incentive-based compensation programs, "best-in-class" store operating standards and procedures and sales training programs, all of which are designed to improve customer service and sales.
Merchandise Assortment. We spent much of 2008 clearing non-core inventory, updating our hard parts assortments and re-merchandising our stores as evidence of our commitment to carry the broadest assortment of automotive aftermarket merchandise available for service, retail and commercial consumers.
Marketing Programs. Taking our learnings from extensive testing conducted in 2008, we have developed a specific tailored marketing plan for each of our markets to maximize our reach and efficiencies. The cornerstone of our 2009 marketing program is TV and radio promotions, scheduled around traditional shopping holidays, that focus on the most frequently needed services—tires, oil changes and brakes. These promotions will be supplemented by extensive direct marketing and grass-roots campaigns and occasional print campaigns.
Store Growth. Our store plans are centered on a "hub and spoke" model, which calls for adding smaller neighborhood service shops to our existing SUPERCENTER store base in order to further leverage our existing inventories, distribution network, operations infrastructure and advertising spend. We are targeting 30 new spokes per year with a range of 20 to 40.
STORE IMPROVEMENTS
In fiscal year 2008, the Company's capital expenditures totaled $151,883,000. Of this amount, $117,121,000 was used to purchase 29 properties that were previously leased under a master operating lease. The balance of the capital expenditures of $34,762,000 was used for remodeling stores and for other store and corporate improvements. During fiscal year 2008, the Company did not open or close any stores. Our fiscal year 2009 capital expenditures are expected to be approximately $50,000,000 which includes the addition of 20 to 40 service only "spoke" shops and the general improvement of our existing stores. These expenditures are expected to be funded from net cash generated from operating activities and the Company's existing line of credit.
SERVICES AND PRODUCTS
The Company operates 5,845 service bays in 553 of its 562 locations. Each service location performs a full range of automotive repair and maintenance service (except body work) and installs tires, hard parts and accessories.
Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries a similar product line, with variations based on the number and type of cars in the markets where the store is located. A full complement of inventory at a typical SUPERCENTER includes an average of approximately 23,000 items (approximately 21,000 items at a PEP BOYS EXPRESS store). The Company's product lines include: tires (not stocked at PEP BOYS EXPRESS stores); batteries; new and remanufactured parts for domestic and import vehicles; chemicals and maintenance items; fashion, electronic, and performance accessories; and a limited amount of select non-automotive merchandise that appeals to automotive "Do-It-Yourself" customers, such as generators, power tools, personal transportation products, and canopies.
In addition to offering a wide variety of high quality name brand products, the Company sells an array of high quality products under various private label names. The Company sells tires under the names CORNELL®, FUTURA® and DEFINITY; and batteries under the name PROSTART®. The Company also sells wheel covers under the name FUTURA®; water pumps and cooling system parts under the name PROCOOL®; air filters, anti-freeze, chemicals, cv axles, lubricants, oil, oil filters, oil treatments, transmission fluids and wiper blades under the name PROLINE®; power tools under the name ALLEGHENY; alternators, battery booster packs, alkaline type batteries and starters under the name PROSTART®; power steering hoses and power steering pumps under the name PROSTEER®; brakes under the name PROSTOP® and brakes, starters and ignition under the name VALUEGRADE. All products sold by the Company under various private label names were approximately 28%, 27% and 24% of the Company's merchandise sales in fiscal years 2008, 2007 and 2006, respectively.
The Company's commercial automotive parts delivery program, branded PEP EXPRESS PARTS®, is designed to increase the Company's market share with the professional installer and to leverage its inventory investment. The program satisfies the installed merchandise customer by taking advantage of the breadth and quality of the Company's parts inventory as well as its experience supplying its own service bays and mechanics. As of January 31, 2009, approximately 76% or 425 of the Company's stores provided commercial parts delivery.
The Company has a point-of-sale system in all of its stores, which gathers sales and inventory data by stock-keeping unit from each store on a daily basis. This information is then used by the Company to help formulate its pricing, inventory, marketing and merchandising strategies. The Company has an electronic parts catalog and an electronic commercial invoicing system in all of its stores. The Company has an electronic work order system in all of its service centers. This system creates a service history for each vehicle, provides customers with a comprehensive sales document and enables the Company to maintain a service customer database.
The Company primarily uses an "Everyday Low Price" (EDLP) strategy in establishing its selling prices. Management believes that EDLP provides better value to its customers on a day-to-day basis, helps level customer demand and allows more efficient management of inventories. On a periodic basis, the Company employs a promotional pricing strategy on select items to drive increased customer traffic.
The Company uses various forms of advertising to promote its service and merchandise offerings, its service and repair capabilities and its commitment to customer service and satisfaction. The Company is committed to an effective promotional schedule with TV and radio promotions, scheduled around traditional shopping holidays throughout the year that focus on the most frequently needed services—tires, oil changes and brakes. These promotions will be supplemented by extensive direct marketing and grass-roots campaigns and occasional print campaigns. The Company is also piloting and expects to roll out in fiscal year 2009, a loyalty program designed to reward these customers who make Pep Boys their first choice for all of their automotive aftermarket purchases.
The Company maintains and is constantly upgrading a website located at www.pepboys.com. Pepboys.com is a multifaceted tool for connecting with existing and potential customers. It serves as an important portal to our Company, allowing consumers the freedom and convenience to access more information about the organization, our stores and our service, tires, parts and accessories offerings online. The site helps to establish Pep Boys as an automotive authority by providing consumers with general and seasonal car care tips, do-it-yourself vehicle maintenance and light repair guidance and safe driving pointers. Exclusive online coupons give site visitors who share with us their e-mail addresses access to special discounts on services and products at their local Pep Boys.
In fiscal year 2008, approximately 37% of the Company's total revenues were cash transactions with the remainder being co-branded credit card, other credit and debit card transactions and commercial credit accounts.
The Company does not experience significant seasonal fluctuation in the generation of its revenues.