Pep Boys 2012 Annual Report Download - page 63

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Fiscal 2011 vs. Fiscal 2010
Total revenue for fiscal 2011 increased by 3.8%, or $75.0 million, to $2,063.6 million from
$1,988.6 million in fiscal 2010, while comparable store sales for fiscal 2011 decreased 0.6% as compared
to the prior year. This decrease in comparable store sales consisted of an increase of 0.6% in
comparable store service revenue offset by a decrease of 0.9% in comparable store merchandise sales.
Total comparable store sales decreased due to lower customer counts in all three lines of business
partially offset by an increase in the average transaction amount per customer. While our total revenue
figures were favorably impacted by the opening or acquisition of new stores, a new store is not added
to our comparable store sales until it reaches its 13th month of operation. Non-comparable stores
contributed an additional $86.6 million of total revenue in fiscal 2011 as compared to the prior year.
Total merchandise sales increased 2.8%, or $44.6 million, to $1,642.8 million in fiscal 2011,
compared to $1,598.2 million in fiscal 2010. The increase in merchandise sales was due to our
non-comparable stores which contributed an additional $58.4 million of sales during the year, partially
offset by a decline in comparable store merchandise sales of 0.9%, or $13.8 million. The decrease in
comparable store merchandise sales was comprised of a 2.3% decline in our retail business which was
mostly offset by a 1.9% increase in merchandise sold through our service business as a result of
increased tire and installed part sales. Total service revenue increased 7.8%, or $30.4 million, to
$420.9 million in fiscal 2011 from $390.5 million in the prior year. The increase in service revenue was
comprised of a $2.2 million, or 0.6%, increase in comparable store service revenue and $28.2 million of
service revenue from our new non-comparable stores.
We believe that comparable store customer counts decreased due to macroeconomic conditions,
while the average transaction amount per customer increased due to selling price increases
implemented to reflect the inflation in product acquisition costs. We believe the significant increase in
gasoline prices led to a decline in miles driven, which combined with the financial burden of higher
gasoline prices, continued high unemployment and negative consumer confidence in the overall U.S.
economy depressed our fiscal 2011 sales. These negative economic conditions were somewhat mitigated
by the continued aging of the U.S. light vehicle fleet as consumers spent more money on maintaining
their vehicles as opposed to buying new vehicles. Over the long-term, we believe utilizing innovative
marketing programs to communicate our value-priced, differentiated service and merchandise
assortment will drive increased customer counts and 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.
Total gross profit decreased by $12.8 million, or 2.5%, to $509.5 million in fiscal 2011 from
$522.4 million in fiscal 2010. Total gross profit margin decreased to 24.7% for fiscal 2011 from 26.3%
for fiscal 2010. The decrease in total gross profit margin was primarily due to the opening or
acquisition of new Service & Tire Centers. The 85 Big 10 locations acquired in the second quarter of
2011 lowered total gross profit margin for fiscal 2011 by 50 basis points. The Big 10 locations were
dilutive to total gross profit margin primarily due to mix of sales being more highly concentrated in
tires which have lower product margins combined with higher rent and payroll costs as a percent of
total sales. The organic new stores opened by the Company, which are in their ramp up stage for sales
while incurring their full amount of fixed expenses, including payroll and occupancy costs (rent, utilities
and building maintenance), negatively affected total gross profit margin by 81 basis points and 42 basis
points for fiscal 2011 and 2010, respectively. The current year also included a net charge of $0.5 million
comprised of a $1.6 million asset impairment charge which was mostly offset by a $1.1 million
reduction in the reserve for excess inventory. The prior year included a net benefit of $5.9 million
comprised of a reduction in the reserve for excess inventory of $5.9 million and a $1.0 million reversal
of an inventory accrual partially offset by an asset impairment charge of $1.0 million. Excluding the
impact of both the acquired and the new organic Service & Tire Centers and the unusual items noted
above, the total gross profit margin declined by 33 basis points to 26.1% from 26.4% in the prior year.
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