Pep Boys 2006 Annual Report Download - page 3

THE PEP BOYS – MANNY, MOE & JACK
3111 West Allegheny Avenue
Philadelphia, PA 19132
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Letter To Our Shareholders
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To Our Shareholders:
The year 2006 was a time of change for Pep Boys. As you know, Pep Boys ended the year with
strong results and great momentum but began the year with disappointing comparable sales,
particularly on the retail side of the business. Despite an improvement in operating profit in the first
quarter and gradually improving service center revenues, the company’s overall lack of significant
financial performance since 2004 led to a leadership change and Board reconstitution last summer.
Non-executive Chairman of the Board Bill Leonard took the helm as interim CEO in July, and he and
his management team have done an outstanding job getting Pep Boys back on track and restoring the
company’s profitability by year end. As I recap the highlights of the company’s 2006 performance, I
want to take this opportunity to thank Bill for his interim leadership that was the catalyst for this
traction and I look forward to partnering with Bill, the Board of Directors, and all of our associates to
build on this momentum in the months ahead.
It is important for you to know that I am extremely proud and excited to lead Pep Boys. As you may
know, I have more than 25 years of experience in the automotive industry, including the operation of
multi-unit service centers. I spent the last ten years at Sonic Automotive, Inc., a Fortune 300 company
and the third largest auto retailer in the United States. Over 50% of Sonic’s strong profits were
derived directly from the service and parts business. I believe I can leverage my experience to bring
many proven best practices to the Pep Boys’ retailing and service model.
Reviewing our 2006 performance, I can report with confidence that Pep Boys’ operating results are
steadily improving, but we still have many challenges ahead. To the company’s credit, we are blessed
with a great brand. The Pep Boys – Manny, Moe and Jack have such a proud 86-year heritage;
however, I believe that we are not leveraging our brand to its highest return. I believe we can
reinvigorate that brand equity and leverage it to a much higher level in the future. I will look to our
leadership team and our 19,000 associates, who collectively have hundreds and hundreds of years of
legacy experience, to help us lead the renaissance of this great brand.
Opportunities in service remain significant and my first priority is to focus on rebuilding the
performance of our service center operations. The service and parts business is a great business – a
highly profitable business. It is the backbone of Pep Boys’ business model and should be a
differentiating competitive advantage for our company. Of course, tires also remain a key entry point
for our service business, as our research indicates that 60% of tire customers are also service
customers.
Another area of growth for our company is maximizing the amount of business we do with each of
our customers on both sides of the house. We plan to focus additional attention on customer
satisfaction and customer relationship management driven retention processes to maximize the
synergy of our complementary businesses.