Pep Boys Reports Q2 Results - Net Earnings Per Share From Continuing by rga28008

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									                      Pep Boys Reports Q2 Results
 - Net Earnings Per Share From Continuing Operations of $.03 vs. $.01 -
                   - Closes Strategic Review Process -

PHILADELPHIA – August 15, 2006 - The Pep Boys - Manny, Moe & Jack (NYSE:
"PBY"), the nation's leading automotive aftermarket retail and service chain, announced
the following results for the thirteen weeks (second quarter) and twenty-six weeks ended
July 29, 2006.

Operating Results

Second Quarter
Sales
Sales for the thirteen weeks ended July 29, 2006 were $578,565,000, 0.2% more than the
$577,418,000 recorded last year. Comparable Sales increased 0.4%, including a 0.4%
comparable merchandise sales increase and flat comparable service revenue. In
accordance with GAAP, merchandise sales includes merchandise sold through both our
retail and service center lines of business and service revenue is limited to labor sales.
Recategorizing Sales into the respective lines of business from which they are generated,
comparable Retail Sales (DIY and Commercial) decreased 0.5% and comparable Service
Center Revenue (labor plus installed merchandise and tires) increased 1.7%.

Earnings
Net Earnings from Continuing Operations Before Cumulative Effect of Change in
Accounting Principle improved from Net Earnings of $832,000 ($0.01 per share - basic
and diluted) to Net Earnings of $1,470,000 ($.03 per share - basic and diluted).

Six Months
Sales
Sales for the six months ended July 29, 2006 were $1,135,166,000, 0.6% less than the
$1,141,644,000 recorded last year. Comparable Sales decreased 0.3%, including a 0.3%
comparable merchandise sales decrease and a 0.3% comparable service revenue decrease.
Recategorizing Sales (see above), comparable Retail Sales decreased 1.7% and comparable
Service Center Revenue increased 2.0%.

Earnings
Net Earnings from Continuing Operations Before Cumulative Effect of Change in
Accounting Principle improved from a Net Loss of $1,554,000 (($0.03) per share - basic
and diluted) to Net Earnings of $603,000 ($.01 per share - basic and diluted).
Page 2




Commentary

Chairman and CEO William Leonard said, “During a time of transition and external
distraction for the Company, and in a difficult macro environment, the Company posted
flat operating results.

While we need to begin posting significant absolute improvements, I believe the resilience
of this organization reflects the talents of its store employee base and the strength of its
customer franchise.

Based on my early days here, I am encouraged by the operational opportunities that lay
before us, and my faith in the potential of this Company has been reinforced. I remain
convinced that the Company’s best days are ahead of it.”

Chief Financial Officer Harry Yanowitz said, “Despite a difficult environment, we made
progress in several significant areas. We have been restrained in our capital spend and
made notable progress in working capital management. We ended the quarter with
Merchandise Inventories down slightly from the end of the year, and down approximately
3% from last year’s second quarter.

In our Line of Business Format, as adjusted to reflect our new co-op advertising
arrangements, margins for the second quarter were down slightly from the same quarter
last year, with slightly higher retail merchandise margins offset by lower tire margins and
higher depreciation and occupancy costs. On this basis, SG&A was down approximately
$4.2 million. On an unadjusted GAAP basis, margins were up approximately 1.1% and
SG&A was up $6.3 million from the same quarter last year.

Cash flow generation was strong. During the first six months of the year, we have repaid
over $60 million in indebtedness and generated over $86 million in Net Cash Provided
from Operating Activities. We remain comfortable with our liquidity profile.

The second quarter included a few notable items. To provide additional transparency, we
have separately identified Net Gain from Sales of Assets from other operating activities.
In the second quarter, SG&A increased by approximately $1.4 million due to costs
associated with our strategic review process and approximately $1.1 million due to
executive severance, and was reduced by a $2.1 million settlement from a credit card issuer
class action suit.”
Page 3

Strategic Review Process

The Company today also announced the conclusion of its strategic review process with
Goldman Sachs & Co. While the process produced interest from a number of potential
investors, at this time the Board of Directors believes that any strategic or financial
alternatives will be more profitably revisited when the Company’s operating results have
improved. The Board will continue to review opportunities as they arise, but expects to
focus on ensuring that the Company’s operating results reflect the Company’s potential.

Accounting Matters

Co-op Advertising
During fiscal 2005, a portion of our vendor support funds were provided in support of
specific advertising costs or “co-op,” which, in accordance with EITF No. 02-16, we
accounted for as a reduction of SG&A. We have completed the restructuring of
substantially all of our vendor agreements to provide flexibility in how we use vendor
support funds, to eliminate the administrative burden of tracking the application of such
funds and to ensure that we are receiving the best possible pricing. In the first six months
of fiscal 2006, all of the allowances received from vendors were accounted for as a
reduction of inventories and recognized as a reduction to cost of sales as the related
inventories are sold in accordance with EITF No. 02-16. Assuming that all of our vendor
agreements had been so restructured as of May 1, 2005, both our SG&A and Gross Profit
for the second quarter of fiscal 2005 would have increased by approximately $10.6 million,
without materially impacting inventory valuation or Net Earnings from Continuing
Operations Before Cumulative Effect of Change in Accounting Principle.

                                  Pep Boys Financial Highlights

Thirteen Weeks Ended:                                        July 29, 2006            July 30, 2005

Total Revenues                                           $       578,565,000      $        577,418,000

Net Earnings From Continuing Operations Before
Cumulative Effect of Change in Accounting Principle      $          1,470,000     $            832,000

Average Shares - Diluted                                           55,190,000               56,132,000

Basic Earnings Per Share
from Continuing Operations Before Cumulative Effect of
Change in Accounting Principle                           $               0.03     $               0.01

Diluted Earnings Per Share
from Continuing Operations Before Cumulative Effect of
Change in Accounting Principle                           $               0.03     $               0.01
Page 4


Twenty Six Weeks Ended:                                                       July 29, 2006                           July 30, 2005

Total Revenues                                                          $         1,135,166,000                  $       1,141,644,000

Net Earnings (Loss) From Continuing Operations Before
Cumulative Effect of Change in Accounting Principle                     $                603,000                 $             (1,554,000)

Average Shares - Diluted                                                             55,206,000                                55,597,000

Basic Earnings (Loss) Per Share
from Continuing Operations Before Cumulative Effect of
Change in Accounting Principle                                          $                    0.01                $                  (0.03)

Diluted Earnings (Loss) Per Share
from Continuing Operations Before Cumulative Effect of
Change in Accounting Principle                                          $                    0.01                $                  (0.03)


Pep Boys has 593 stores and more than 6,000 service bays in 36 states and Puerto Rico. Along with its vehicle repair and
maintenance capabilities, the Company also serves the commercial auto parts delivery market and is one of the leading
sellers of replacement tires in the United States. Customers can find the nearest location by calling 1-800 -PEP-BOYS or
by visiting pepboys.com.

Certain statements contained herein constitute "forward-looking statements" within the meaning of The Private Securities
Litigation Reform Act of 1995. The word "guidance," "expect," "anticipate," "estimates," "forecasts" and similar
expressions are intended to identify such forward-looking statements. Forward-looking statements include management's
expectations regarding future financial performance, automotive aftermarket trends, levels of competition, business
development activities, future capital expenditures, financing sources and availability and the effects of regulation and
litigation. Although the Company believes that the expectations reflected in such forward-looking statements are based
on reasonable assumptions, it can give no assurance that its expectations will be achieved. The Company's actual results
may differ materially from the results discussed in the forward-looking statements due to factors beyond the control of
the Company, including the strength of the national and regional economies, retail and commercial consumers' ability to
spend, the health of the various sectors of the automotive aftermarket, the weather in geographical regions with a high
concentration of the Company's stores, competitive pricing, the location and number of competitors' stores, product and
labor costs and the additional factors described in the Company's filings with the SEC. The Company assumes no
obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Investors have an opportunity to listen to the Company’s quarterly conference calls discussing its results and related
matters. The call for the fourth quarter will be broadcast live on Wednesday, August 16th at 11:30 a.m. EDT over the
Internet at Broadcast Networks' Vcall website, located at http://www.vcall.com. To listen to the call live, please go to the
website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot
listen to the live broadcast, a replay will be available shortly after the call. Supplemental financial information will be
available the morning of August 16th on Pep Boys' website at www.pepboys.com.

                                                            ###

Contact:
Pep Boys, Philadelphia
Investor Contact: Harry Yanowitz, 215-430-9720
Media Contact: Bill Furtkevic, 215-430-9676
Internet: http://www.pepboys.com
      THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                                                                                                                  (UNAUDITED)

      CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                                   (dollar amounts in thousands, except per share amounts)


                                                                                                        Thirteen weeks ended                                                   Twenty-six weeks ended
                                                                                        July 29, 2006                       July 30, 2005                         July 29, 2006                         July 30, 2005
                                                                                                         %                                   %                                     %                                     %
                                                                                      Amount            Sales               Amount          Sales                   Amount        Sales                 Amount          Sales

      Merchandise Sales                                                          $    481,997              83.3         $   480,608          83.2         $         939,312        82.7          $      944,456          82.7
      Service Revenue                                                                  96,568              16.7              96,810          16.8                   195,854        17.3                 197,188          17.3
      Total Revenues                                                                  578,565            100.0              577,418         100.0                 1,135,166       100.0              1,141,644          100.0
      Costs of Merchandise Sales                                                      342,874              71.1             352,265          73.3                   672,422        71.6                 693,214          73.4
      Costs of Service Revenue                                                         90,589              93.8              86,792          89.7                   178,764        91.3                 170,688          86.6

      Total Costs of Revenues                                                         433,463              74.9             439,057          76.0                   851,186        75.0                 863,902          75.7

      Gross Profit from Merchandise Sales                                             139,123              28.9             128,343          26.7                   266,890        28.4                 251,242          26.6
      Gross Profit from Service Revenue                                                 5,979               6.2              10,018          10.3                    17,090          8.7                 26,500          13.4
      Total Gross Profit                                                              145,102              25.1             138,361          24.0                   283,980        25.0                 277,742          24.3

      Selling, General and
       Administrative Expenses                                                        139,544              24.1             133,201          23.1                   270,765        23.9                 268,330          23.5

      Net Gain from Sales of Assets                                                     6,431               1.1                4,499          0.8                     6,016          0.5                  3,606           0.3

      Operating Profit                                                                 11,989               2.1                9,659          1.7                    19,231          1.7                 13,018           1.1
      Non-operating Income                                                              2,018               0.3                 483           0.1                     4,277          0.4                  2,221           0.2
      Interest Expense                                                                 11,968               2.1                9,234          1.6                    22,305          2.0                 18,149           1.6

      Earnings (Loss) From Continuing Operations Before Income
       Taxes and Cumulative Effect of Change in Accounting Principle                    2,039               0.4                 908           0.2                     1,203          0.1                 (2,910)         (0.3)
                                                                                                                  (1)                               (1)                                    (1)                                   (1)
      Income Tax Expense (Benefit)                                                        569              27.9                  76           8.4                       600        49.9                  (1,356)         46.6

      Net Earnings (Loss) From Continuing Operations Before
       Cumulative Effect of Change in Accounting Principle                              1,470               0.3                 832           0.1                       603          0.1                 (1,554)         (0.1)
      Discontinued Operations, Net of Tax                                                 (30)              0.0                 210           0.0                      (133)         0.0                   (178)          0.0

      Cumulative Effect of Change in Accounting
      Principle, Net of Tax                                                               (88)              0.0                    -          0.0                       179          0.0                       -          0.0

      Net Earnings (Loss)                                                               1,352               0.2               1,042           0.2                       649          0.1                 (1,732)         (0.2)
      Retained Earnings, beginning of period                                          477,438                               529,177                                 481,926                             536,780
      Cash Dividends                                                                   (3,811)                               (3,758)                                 (7,516)                             (7,320)
      Effect of Stock Options                                                             (10)                                 (717)                                    (76)                             (1,974)
      Dividend Reinvestment Plan                                                         (111)                                  (41)                                   (125)                                (51)

      Retained Earnings, end of period                                           $    474,858                           $   525,703                       $         474,858                      $      525,703

      Basic Earnings (Loss) per Share:
       Net Earnings (Loss) From Continuing Operations Before
         Cumulative Effect of Change in Accounting Principle                     $       0.03                           $       0.01                      $            0.01                      $         (0.03)
       Discontinued Operations, Net of Tax                                                  -                                   0.01                                      -                                    -
       Cumulative Effect of Change in Accounting
         Principle, Net of Tax                                                              -                                      -                                      -                                    -
      Basic Earnings (Loss) per Share                                            $       0.03                           $       0.02                      $            0.01                      $         (0.03)
      Diluted Earnings (Loss) per Share:
       Net Earnings (Loss) From Continuing Operations Before
         Cumulative Effect of Change in Accounting Principle                     $       0.03                           $       0.01                      $            0.01                      $         (0.03)
       Discontinued Operations, Net of Tax                                                  -                                   0.01                                      -                                    -
       Cumulative Effect of Change in Accounting
         Principle, Net of Tax                                                              -                                      -                                      -                                    -
      Diluted Earnings (Loss) per Share                                          $       0.03                           $       0.02                      $            0.01                      $         (0.03)

      Cash Dividends per Share                                                   $     0.0675                           $    0.0675                       $          0.1350                      $       0.1350

(1)
      As a percentage of earnings (loss) from continuing operations before income taxes and cumulative effect of
      change in accounting principle.
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                              (UNAUDITED)

CONSOLIDATED BALANCE SHEETS                                     (dollar amounts in thousands, except per share amounts)

                                                                 July 29, 2006         January 28, 2006             July 30, 2005

Assets
Current Assets:
    Cash and cash equivalents                                   $        55,295         $         48,281        $           41,670
    Accounts receivable, net                                             33,821                   36,434                    35,093
    Merchandise inventories                                             612,681                  616,292                   634,352
    Prepaid expenses                                                     32,770                   40,952                    34,250
    Other                                                                64,346                   85,446                    77,893
    Assets held for disposal                                                881                      652                         -
         Total Current Assets                                           799,794                  828,057                   823,258
Property and Equipment - at cost:
    Land                                                                256,717                  257,802                    259,239
    Buildings and improvements                                          918,266                  916,580                    913,324
    Furniture, fixtures and equipment                                   658,765                  671,189                    644,224
    Construction in progress                                             18,225                   15,858                     20,712
                                                                      1,851,973                1,861,429                  1,837,499
    Less accumulated depreciation and amortization                      932,217                  914,040                    890,859
        Property and Equipment - net                                    919,756                  947,389                    946,640
Other                                                                    50,094                   46,307                    66,663
         Total Assets                                           $     1,769,644         $      1,821,753        $         1,836,561

Liabilities and Stockholders' Equity
Current Liabilities:
    Accounts payable                                            $       295,041         $        261,940        $          333,303
    Trade payable program liability                                       7,223                   11,156                    12,071
    Accrued expenses                                                    275,879                  290,761                   263,610
    Deferred income taxes                                                17,780                   15,417                    18,383
    Current maturities of long-term debt and obligations
      under capital leases                                                2,258                    1,257                   144,461
    Convertible short-term debt                                         119,000                        -                         -
          Total Current Liabilities                                     717,181                  580,531                   771,828

Long-term debt and obligations under capital leases,
 less current maturities                                                404,884                  467,239                   215,534
Convertible long-term debt                                                    -                  119,000                   119,000
Other long-term liabilities                                              59,168                   57,481                    52,172
Deferred income taxes                                                         -                    2,937                    27,333
Commitments and Contingencies
Stockholders' Equity:
     Common Stock, par value $1 per share:
      Authorized 500,000,000 shares; Issued 68,557,041 shares            68,557                   68,557                    68,557
     Additional paid-in capital                                         287,583                  288,098                   286,617
     Retained earnings                                                  474,858                  481,926                   525,703
     Accumulated other comprehensive loss                                (3,441)                  (3,565)                   (3,524)

    Less cost of shares in treasury - 12,060,582 shares
        12,152,968 shares and 10,981,577 shares                        (179,882)                (181,187)                 (167,395)
    Less cost of shares in benefits trust - 2,195,270 shares            (59,264)                 (59,264)                  (59,264)
        Total Stockholders' Equity                                      588,411                  594,565                   650,694
         Total Liabilities and Stockholders' Equity             $     1,769,644         $      1,821,753        $         1,836,561
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                         (UNAUDITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS                                                      (dollar amounts in thousands)




Twenty-six Weeks Ended                                                   July 29, 2006                        July 30, 2005

Cash Flows from Operating Activities:
 Net earnings (loss)                                                     $          649                   $           (1,732)
 Adjustments to reconcile net earnings (loss) to net cash
   provided by continuing operations:
       Net loss from discontinued operations                                        133                                  178
       Depreciation and amortization                                             41,419                               38,655
       Cumulative effect of change in accounting principle, net of tax             (179)                                   -
       Accretion of asset disposal obligation                                       135                                   56
       Stock compensation expense                                                 1,718                                1,403
       Deferred income taxes                                                     (5,252)                                (239)
       Gain from sales of assets                                                 (6,016)                              (3,606)
       Loss from asset impairment                                                   550                                    -
       Excess tax benefits from stock based awards                                  (33)                                   -
       Increase in cash surrender value of life insurance policies               (1,167)                              (1,684)
 Changes in Operating Assets and Liabilities:
       Decrease in accounts receivable, prepaid expenses and other               34,084                               26,593
       Decrease (increase) in merchandise inventories                             3,611                              (31,592)
       Increase in accounts payable                                              33,101                               22,322
       Decrease in accrued expenses                                             (18,136)                             (45,090)
       Increase in other long-term liabilities                                    1,687                               14,195
 Net cash provided by continuing operations                                      86,304                               19,459
 Net cash used in discontinued operations                                          (245)                                (704)
Net Cash Provided by Operating Activities                                        86,059                               18,755

Cash Flows from Investing Activities:
       Cash paid for property and equipment                                     (14,364)                             (42,463)
       Proceeds from sales of assets                                                687                                1,262
       Proceeds from sales of assets held for disposal                            6,981                                7,844
       Premiums paid on life insurance policies                                       -                                 (488)
Net Cash Used in Investing Activities                                            (6,696)                             (33,845)

Cash Flows from Financing Activities:
       Net (payments) borrowings under line of credit agreements                (60,266)                               6,815
       Excess tax benefits from stock based awards                                   33                                    -
       Net (payments) borrowings on trade payable program liability              (3,933)                              12,071
       Reduction of long-term debt                                               (1,041)                             (40,452)
       Payments on capital lease obligations                                       (131)                                 (53)
       Dividends paid                                                            (7,516)                              (7,320)
       Proceeds from exercise of stock options                                       56                                2,451
       Proceeds from dividend reinvestment plan                                     449                                  490
Net Cash Used in Financing Activities                                           (72,349)                             (25,998)
Net Increase (Decrease) in Cash                                                   7,014                              (41,088)
Cash and Cash Equivalents at Beginning of Period                                 48,281                               82,758
Cash and Cash Equivalents at End of Period                               $       55,295                   $           41,670

Supplemental Disclosure of Cash Flow Information:
Non-cash operating activities:
     Accrued payment of stock option settlement                          $        1,056                   $              -
Non-cash investing activities:
     Accrued purchases of property and equipment                         $        1,759                   $            2,148
Non-cash financing activities:
     Equipment capital leases                                            $           84                   $              121
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                                                          (UNAUDITED)

COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE                                                          (in thousands, except per share data)

                                                                                Thirteen weeks ended                   Twenty-six weeks ended

                                                                         July 29, 2006          July 30, 2005   July 29, 2006                 July 30, 2005

(a)    Net Earnings (Loss) From Continuing Operations Before
       Net earnings (loss) from continuing operations
         Cumulative Effect of Change in Accounting Principle              $    1,470             $       832    $         603             $            (1,554)

(b) Average number of common shares outstanding
      during period                                                           54,254                   55,683          54,239                          55,597

      Common shares assumed issued upon exercise
        of dilutive stock options, net of assumed
        repurchase, at the average market price                                 936                      449              967                                 -

(c) Average number of common shares assumed
      outstanding during period                                               55,190                   56,132          55,206                          55,597


      Basic Loss per Share:
        Net Earnings (Loss) From Continuing Operations Before
           Cumulative Effect of Change in Accounting Principle            $     0.03             $       0.01   $        0.01             $             (0.03)
       Discontinued Operations, Net of Tax                                         -                     0.01               -                               -
       Cumulative Effect of Change in Accounting Principle, Net of Tax             -                        -               -                               -
      Basic Earnings (Loss) per Share                                     $     0.03             $       0.02   $        0.01             $             (0.03)
      Diluted Loss per Share:
        Net Earnings (Loss) From Continuing Operations Before
          Cumulative Effect of Change in Accounting Principle             $     0.03             $       0.01   $        0.01             $             (0.03)
       Discontinued Operations, Net of Tax                                         -                     0.01               -                               -
       Cumulative Effect of Change in Accounting Principle, Net of Tax             -                        -               -                               -
      Diluted Earnings (Loss) per Share                                   $     0.03             $       0.02   $        0.01             $             (0.03)
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                                                                                            (UNAUDITED)

ADDITIONAL INFORMATION                                                                                                                                       (dollar amounts in thousands)


                                                                                     Thirteen weeks ended                                         Twenty-six weeks ended
                                                                         July 29, 2006                       July 30, 2005                 July 29, 2006                    July 30, 2005

        Capital expenditures                                         $            9,823                  $         22,119              $           16,123              $         44,611

        Depreciation and amortization                                $           20,696                  $         19,870              $           41,419              $         38,655

        Non-operating income:
             Net rental revenue                                      $              497                  $            349              $            1,170              $            714
             Investment income                                                    1,572                               210                           3,279                           505
             Other (expense) income                                                 (51)                              (76)                           (172)                        1,002
                           Total                                     $            2,018                  $            483              $            4,277              $          2,221


        Comparable sales percentages:
            Merchandise                                                              0.4 %                             -1.5 %                          -0.3 %                        -0.4     %
            Service                                                                  0.0 %                             -7.4 %                          -0.3 %                        -6.0     %
            Total                                                                    0.4 %                             -2.5 %                          -0.3 %                        -1.4     %

Total square feet of retail space (including service centers)                                                                                  12,167,089                    12,167,089

Total Store Count                                                                                                                                     593                           593


Sales and Gross Profit by Line of Business (A):

        Retail Sales                                                 $          353,554                  $        355,656              $          681,511              $        695,010
        Service Center Revenue                                                  225,011                           221,762                         453,655                       446,634
               Total Revenues                                        $          578,565                  $        577,418              $        1,135,166              $      1,141,644

        Gross Profit from Retail Sales                               $          100,179                  $         93,809              $          189,768              $        179,606
        Gross Profit from Service Center Revenue                                 44,923                            44,552                          94,212                        98,136
              Total Gross Profit                                     $          145,102                  $        138,361              $          283,980              $        277,742



Comparable Sales Percentages (A):

Retail Sales                                                                         -0.5 %                             0.1 %                          -1.7 %                         0.7 %
Service Center Revenue                                                                1.7 %                            -6.4 %                           2.0 %                        -4.5 %
Total Revenues                                                                        0.4 %                            -2.5 %                          -0.3 %                        -1.4 %

Gross Profit Percentage by Line of Business (A):

Gross Profit Percentage from Retail Sales                                          28.3 %                             26.4 %                          27.8 %                        25.8 %
Gross Profit Percentage from Service Center Revenue                                20.0 %                             20.1 %                          20.8 %                        22.0 %
Total Gross Profit Percentage                                                      25.1 %                             24.0 %                          25.0 %                        24.3 %




(A) Retail Sales include DIY and Commercial sales. Service Center Revenue includes revenue from labor and installed parts and tires.
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES                                                                                                                                          (UNAUDITED)

ADDITIONAL INFORMATION (continued)                                                                                                                                     (dollar amounts in thousands)

Adjustments

In the fourth quarter of 2005 we completed the restructuring of substantially all of our vendor agreements to provide flexibility in how we use vendor
support funds. Previously, the vendor agreements required us to use certain vendor support funds exclusively for promotions and to partially offset
certain other direct expenses. Under EITF No. 02-16, these types of allowances are to be netted against the appropriate expenses they offset, once
it is determined that the allowances are for specific, identifiable and incremental expenses. Under the restructured contracts it is not possible to make
this determination. Therefore, all vendor support funds are now treated as a reduction of inventories and are recognized as a reduction to Costs of
Merchandise Sales as the inventories are sold, in accordance with EITF No. 02-16. For the periods below, all previously identified costs which had been
netted against Selling, General and Administrative Expenses have been reclassified to Gross Profit from Merchandise Sales as if the vendor
agreements had been restructured as of January 30, 2005.

Please see the table below illustrating the effect of this adjustment on the thirteen and twenty-six week periods ended July 30, 2005 (presented in both
GAAP and Line of Business formats), assuming that such change had been in effect during such periods.


STATEMENTS OF OPERATIONS



GAAP Format
                                                          Thirteen weeks ended                                                   Thirteen weeks ended              Thirteen weeks ended
                                                             July 30, 2005                                                          July 30, 2005                     July 29, 2006
                                                              ACTUAL                          ADJUSTMENTS                         AS ADJUSTED                           ACTUAL
                                                                          %                                    %                                     %                             %
                                                           Amount        Sales                  Amount       Sales                Amount            Sales         Amount          Sales


Gross Profit from Merchandise Sales                $      128,343            26.7       $       10,593           2.2     $       138,936               28.9   $   139,123                  28.9
Gross Profit from Service Revenue                          10,018            10.3                    -             -              10,018               16.4         5,979                   6.2
Total Gross Profit                                        138,361            24.0               10,593           1.8             148,954               25.8       145,102                  25.1
Selling, General and Administrative Expenses              133,201            23.1               10,593           1.8             143,794               24.9       139,544                  24.1
Net Gain on Sales of Assets                                 4,499             0.8                    -               -             4,499                0.8         6,431                   1.1
Operating Profit                                   $        9,659             1.7       $            -               -   $         9,659                1.7   $    11,989                   2.1




                                                         Twenty-six weeks ended                                                Twenty-six weeks ended             Twenty-six weeks ended
                                                            July 30, 2005                                                         July 30, 2005                      July 29, 2006
                                                              ACTUAL                          ADJUSTMENTS                         AS ADJUSTED                           ACTUAL
                                                                          %                                    %                                     %                             %
                                                           Amount        Sales                  Amount       Sales                Amount            Sales         Amount          Sales


Gross Profit from Merchandise Sales                $      251,242            26.6       $       19,419           2.1     $       270,661               28.7   $   266,890                  28.4
Gross Profit from Service Revenue                          26,500            13.4                    -             -              26,500               13.4        17,090                   8.7
Total Gross Profit                                        277,742            24.3               19,419           1.7             297,161               26.0       283,980                  25.0
Selling, General and Administrative Expenses              268,330            23.5               19,419           1.7             287,749               25.2       270,765                  23.9
Net Gain on Sales of Assets                                 3,606             0.3                    -             -               3,606                0.3         6,016                   0.5
Operating Profit                                   $       13,018             1.1       $            -             -     $        13,018                1.1   $    19,231                   1.7



Line of Business Format
                                                          Thirteen weeks ended                                                   Thirteen weeks ended              Thirteen weeks ended
                                                             July 30, 2005                                                          July 30, 2005                     July 29, 2006
                                                               ACTUAL                         ADJUSTMENTS                         AS ADJUSTED                           ACTUAL
                                                                           %                                   %                                   %                                %
                                                           Amount         Sales                 Amount       Sales                Amount          Sales           Amount           Sales

Gross Profit from Retail Sales                     $       93,809            26.4      $         7,468           2.1     $       101,277               28.5   $   100,179                  28.3
Gross Profit from Service Center Revenue                   44,552            20.1                3,125           1.4              47,677               21.5        44,923                  20.0
Total Gross Profit                                        138,361            24.0               10,593           1.8             148,954               25.9       145,102                  25.1
Selling, General and Administrative Expenses              133,201            23.1               10,593           1.8             143,794               24.9       139,544                  24.1
Net Gain on Sales of Assets                                 4,499             0.8                    -            -                4,499                0.4         6,431                   1.1
Operating Profit                                   $        9,659             1.7      $             -            -      $         9,659                1.7   $    11,989                   2.1



                                                         Twenty-six weeks ended                                                Twenty-six weeks ended             Twenty-six weeks ended
                                                            July 30, 2005                                                         July 30, 2005                      July 29, 2006
                                                              ACTUAL                          ADJUSTMENTS                        AS ADJUSTED                           ACTUAL
                                                                           %                                   %                                  %                                 %
                                                          Amount         Sales                  Amount       Sales               Amount         Sales             Amount          Sales

Gross Profit from Retail Sales                     $      179,606            25.8      $        13,815           2.0     $       193,421               27.8   $   189,768                  27.8
Gross Profit from Service Center Revenue                   98,136            22.0                5,604           1.3             103,740               23.2        94,212                  20.8
Total Gross Profit                                        277,742            24.3               19,419           1.7             297,161               26.0       283,980                  25.0
Selling, General and Administrative Expenses              268,330            23.5               19,419           1.7             287,749               25.2       270,765                  23.9
Net Gain on Sales of Assets                                 3,606             0.3                    -            -                3,606                0.3         6,016                   0.5
Operating Profit                                   $       13,018             1.1      $             -            -      $        13,018                1.1   $    19,231                   1.2

								
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