Pep Boys 2010 Annual Report Download - page 82

2010, a new store is not added to our comparable store sales base until it reaches its 13th month of
operation. Non-comparable store sales contributed an additional $25.9 million of total revenues in fiscal
2010 as compared to fiscal 2009. Total comparable store sales increased due to growth in customer
counts in all three lines of business combined with an increase in the total average transaction amount
per customer.
Total merchandise sales increased 4.2%, or $64.5 million, to $1,598.2 million in fiscal 2010 as
compared to $1,533.6 million in fiscal 2009. Comparable store merchandise sales increased 3.1%, or
$47.7 million, as compared to the prior year, driven primarily by increased customer counts across all
lines of business as well as an increase in the average transaction amount per customer. The balance of
the increase in merchandise sales was due to the contribution from our non-comparable stores. Total
service revenue increased 3.5%, or $13.2 million, to $390.5 million in fiscal 2010 compared to
$377.3 million in fiscal 2009. Comparable store service revenue increased 1.1%, or $4.2 million, as
compared to the prior year, due to higher customer counts partially offset by a decrease in average
transaction amount per customer. The balance of the increase in service revenue was primarily due to
the contribution from our non-comparable store base which accounted for an additional $9.0 million of
service revenue.
In fiscal 2010, comparable customer count increased versus fiscal 2009 in all lines of business due
to our traffic-driving promotional events and rewards program and our improved customer experience
resulting from better store execution. Our core automotive parts and tires categories, which make up
approximately 79% of our merchandise sales, experienced a 3.6% increase in comparable store sales.
We believe that utilizing innovative marketing programs to communicate our value-priced,
differentiated merchandise assortment will continue to drive increased customer counts and that our
continued focus on delivering a better customer experience than our competitors will convert those
increased customer counts into sales improvements consistently over all lines of business.
Gross profit from merchandise sales increased by $39.0 million, or 8.7%, to $487.8 million in fiscal
2010 from $448.8 million in fiscal 2009. Gross profit margin from merchandise sales increased to 30.5%
for fiscal 2010 from 29.3% for fiscal 2009. Gross profit from merchandise sales for fiscal 2010 included
a net benefit of $6.2 million comprised of a $5.9 million reduction in our reserve for excess inventory
(see below) and the reversal of an inventory related accrual of approximately $1.0 million partially
offset by an $0.8 million asset impairment charge. Gross profit from merchandise sales for fiscal 2009
included a net benefit of $0.4 million comprised of the reversal of inventory related accruals of
approximately $2.0 million and a $0.6 million gain from an insurance settlement, largely offset by a
$2.2 million asset impairment charge. Excluding these items from both years, gross profit margin from
merchandise sales improved by 90 basis points to 30.1% in fiscal 2010 from 29.2% in the prior year.
This improvement was primarily due to less inventory shrinkage, lower defective product expense and
increased merchandise sales, which better leveraged fixed store occupancy costs such as rent and
utilities and warehousing costs such as payroll and out bound freight-costs.
In fiscal 2010 we reduced our reserve for excess inventory by $5.9 million, of which $4.6 million
was recorded in the fourth quarter, as a result of significant improvements in the quality of our
inventory, including: (i) improving inventory management, including timely return of excess product to
vendors for full credit; (ii) maintaining relatively flat inventory levels despite the investment in new
stores; (iii) reducing inventory lead times and safety stock requirements, including consolidating
slow-moving hard parts inventory into one centrally located warehouse, which led to significant
reductions in slower moving parts inventory at our distribution centers; and (iv) increasing our
inventory turnover ratio, which is reflected in our increased comparable store sales.
Gross profit from service revenue decreased by $2.7 million, or 7.3%, to $34.6 million in fiscal
2010 from $37.3 million in the prior year. Gross profit margin from service revenue decreased to 8.9%
for fiscal 2010 from 9.9% for fiscal 2009. Gross profit from service revenue for fiscal 2010 included a
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