Cluster Insider Buying at Retailer The Pep Boys - Manny, Moe & Jack

| About: Pep Boys (PBY)
This article is now exclusive for PRO subscribers.

Insider Score LogoFrom InsiderScore: After Barington Capital successfully forced out the CEO of The Pep Boys - Manny, Moe & Jack (NYSE:PBY) and installed new directors at the auto parts retailer and service provider, a slew of insiders - old and new - stepped up with stock purchases. Here is a look at the activity, all of which took place on August 17th/18th, unless otherwise noted:

Chairman & Interim CEO William Leonard purchased 40K shares at $10.92, increasing his holdings to 62K shares. Leonard was named interim CEO on July 18th, replacing Larry Stevenson, who resigned. While he is interim CEO, Leonard will take home a salary of $83.33K per month. Leonard has been on PBY's board since 2002 and was named chairman in February. He was formerly the president & CEO of Aramark (RMK). In April 2005, he exercised options on 12K shares at $15.91.

Director Max Lukens made his first buy, picking up 50K shares at $10.97. Formerly the CEO, president, and chairman of both Stewart & Stevenson Services and Baker Hughes (BHI), Lukens joined the board three weeks ago after PBY agreed to appoint four new board members chosen by Barington Capital, thus avoiding a proxy fight. Lukens also holds 522 shares of restricted stock.

Director Robert Hotz also made his first purchase, taking down 9K shares at $10.89. Hotz is senior managing director, head of investment banking, and a director of Houlihan Lokey Howard & Zukin, and he was formerly the senior vice chairman of UBS Warburg. He joined the board in February 2005, replacing a retiring director. He currently holds options for 7.5K shares at $17.54.

Director Jane Scaccetti acquired 2.8K shares at $10.97, upping her holdings to 10.7K shares. A director since 2002, Scaccetti is principal at Drucker & Scaccetti PC, a private accounting firm. Previously, she bought 1K shares at $13.68 in September 2004; exercised options on 4K shares at $16.45 in December 2003; and purchased 2.2K shares at $10.88 in November 2002. Scaccetti currently holds options for 12K shares at $16.45.

Barington Capital bought 89.7K shares at $10.95, increasing its holdings to 2.854M shares, or 5.26%. The purchases were filed under the name of Director James Mitarotonda, Barington's principal. Mitarotonda, who holds 522 shares of restricted stock, joined the board three weeks ago after PBY agreed to put him and three other Barington proxies on its board.

Hedge fund Pirate Capital disclosed that it now holds 5.3M shares of PBY, or a 9.8% stake, up from 3.567M shares, or the 6.7% stake it disclosed on June 29th. Pirate most recently bought on August 16th/17th, when the firm took down 504.7K shares at $10.87 to $10.98. The firm had been rattling PBY's cage, demanding an annual meeting be called by mid-September. Pirate has been quiet since Barington won its battle, though the two firms never disclosed that they were working together.

Barington had been rattling the cage at PBY since November 2005 when it joined with Ramius Capital, D.B. Zwirn & Co., and Highbridge Capital Management to suggest the company find a new CEO and pursue strategic alternatives. In February, PBY hired Goldman Sachs (NYSE:GS) to explore alternatives, including a possible sale, but the company re-upped CEO Larry Stevenson's contract, angering Barington's investment group, and causing the firm to threaten a proxy fight and demand an annual meeting. Acting separately, Pirate had joined the fray in April.

PBY finally cracked in mid-July when Stevenson resigned, and on August 3rd, the company and Barington came to an agreement. Earlier this week, PBY amended its shareholder rights plan, again capitulating to Barington's will.

Last week, PBY reported second-quarter results, disclosing at the same time that it could find no buyer for its entire business, and that it was taking itself off the block.

For Q2, PBY reported net income of $1.35M, or 3 cents per share, up from $1.04M, or 2 cents per share, a year ago, and ahead of analyst estimates that called for earnings to remain flat. Sales ticked up just 0.2% to $578.6M, slightly off of what Wall Street expected, as same-store retail sales fell -0.5%, offsetting a 1.7% rise in same-store service center sales. More positively, PBY's net cash from operations leapt from $18.7M for the first six months of 2005 to $86.1M for the same period this year, as the company paid off debt and cut down on costs associated with store remodelings.

"The cash flow was much better than people expected," Cid Wilson, an analyst with Kevin Dann & Partners, told the Associated Press. "They were able to pay off some debt and there's a greater level of confidence that things are not that bad at Pep Boys."

Worth Noting: It's no surprise that the auto parts retail sector is experiencing a down cycle these days. Strauss Discount Auto filed for bankruptcy two weeks ago, and shares of Advance Auto Parts (NYSE:AAP) and CSK Auto (CAO) are coming off of 52-week lows. At CAO, Blue Harbour Group, a hedge fund run by former KKR partner Clifton Robbins, recently increased its stake from 6.1% to 7.65%. One industry watcher we spoke to recently suggested that a CAO-PBY "match-up might help add scale to both."