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Pep Boys: What we need from our next CEO

Chain's stores worth more than its business

Shares of Pep Boys fell around 9% in trading this morning after the Philadelphia-based, $2 billion (yearly sales) auto-service and parts-store chain last night reported a small loss on slightly higher sales. Earnings report here.

CFO/EVP David Ross Stern and acting CEO/director John Sweetwood updated investors on the company's search for a new CEO to replace Mike Odell, who stepped down in September after disappointing profits. "We view this as a pretty plum job, actually," Stern said in the quarterly conference call: Auto parts and service "has a tremendous amount of potential," Pep Boys has about 1% of a national $200 billion market, and it's deep into a national auto-service market that is "very very fragmented."

Investors at the moment aren't acting as if they see Pep Boys in a position to gain market share. The company's stores and other real estate "has a fair market value just north of $720 million," Stern said. That's more than the company's stock market value this morning, which totalled only around $454 million. Added Stern: "Over the next few quarters, you'll probably see some asset sales."

So who's ready to step into the driver's seat and upshift? Three months into the search, "we are still at the top of the funnel," talking to lots of candidates, Stern said.

Analyst James J. Albertine, from Stifel & Co., noted that the outgoing CEO, Odell, had a "pretty strong background in service and retail." What more does the new CEO need to do?

Pep Boys wants to "simplify the way our stores are run," Stern said. "We've got a lot of complexity in it now, a lot of procedures that we are trying to eliminate." The idea is to give staff "more time with the customer."

Though parts sales is still a big part of the company, "we are moving towards service, which is the growing end of the business and the biggest end of the business," and the most profitable, Sweetwood  added. The broad goals are familiar -- increased online sales, more emphasis on tires (new U.S. tariffs on China-built tires won't affect Pep Boys as much as some of its competitors, the company says), and commercial fleet servicing.

How to concentrate on those areas while regaining profitability is not so clear. Said Sweetwood: "We welcome new and fresh thinking."