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Pep Boys does digital with tires under pressure

Automotive service is one thing Amazon.com can’t offer online, but Pep Boys has figured out how to digitally enable its business to drive solid growth.

The company reported relatively flat sales and a decline in profitability during its first quarter, but what stood out was the strength of the company’s digital offering that underpins a strategy called, “Road Ahead.” Commenting on the financial results, Pep Boys president and CEO Mike Odell said, “we also continued to see strong growth in pepboys.com digital operations, which includes on-line service appointments, tire sales that are made on-line and installed in our stores, ship-to-home sales and products that are ordered on-line and picked up in our stores.”

As a result, sales through digital operations accounted for 4% of first quarter sales of $539 million compared to 2.3% of sales of $536 million the prior year. The company’s total sales at its 800 stores with 7,500 service bays increased roughly half a percent. The modest top line growth was driven by the addition of new locations as same store sales decreased 1.4%, due to a 2.8% decline in product sales caused largely by tire price deflation, offset by a 3.2% comp increase in service revenue.

Profits for the first quarter declined to $1.6 million, or three cents a share, compared to profits of $3.9 million, or seven cents a share the prior year, and were negatively affecting by an asset impairment charge and litigation expense. Operating profit for the first quarter nearly doubled to $6 million from $3.5 million.

“Our first quarter operating profit improved significantly over the prior year driven primarily by higher gross margin,” CEO Odell said. “Our core service business remains solid and we expect tire sales trends to improve in the back half of the year. Through the first five weeks of the second quarter, we have seen our service business improve to a positive comp despite the continued pressure in tire pricing. Our service business footprint also continues its growth with 25 new Service & Tire Centers planned for 2014.”