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Pep Boys shares tumble on weak 3Q results

LOS ANGELES (AP) -- Shares of The Pep Boys — Manny, Moe & Jack tumbled Tuesday, a day after the auto-parts retailer reported that it slid to a loss in its fiscal third-quarter as costs increased and its sales fell sharply.

THE SPARK: Pep Boys said Monday that it lost $6.8 million, or 13 cents per share, in the quarter ended Oct. 27. That compared with net income of $7 million, or 13 cents per share, in the same quarter last year. The third quarter included an $11.2 million expense for debt refinancing and an $8.8 million impairment charge. Revenue fell 2.4 percent to $509.6 million.

The quarter missed market expectations. Analysts polled by FactSet forecast profit of 15 cents per share on revenue of $527.8 million.

THE BIG PICTURE: Pep Boys, based in Philadelphia, has about 740 stores in 35 states and Puerto Rico. The company has refinanced its debt, cutting its annual interest expense by about $11 million while also reducing the principal it owes by 495 million. To woo more customers, it has also launched an online service to expand shopper's options.

However, sales at stores open at least a year fell 2.7 percent in the third quarter, as a slight increase in service revenue was offset by a decline in merchandise sales. The metric is a key measure of a retailer's health, because it excludes revenue at stores that recently opened or closed.

THE ANALYSIS: Stifel Nicholaus analyst David Schick maintained a "Hold" rating for Pep Boys' shares. He said the decline in revenue, gross margin and selling, general and administrative expenses underscore structural issues at Pep Boys. Schick also noted that the company's service centers outperformed the retail business, and margins for Pep Boys' tire products are recovering.

THE SHARES: down $1.39, or 13 percent, to $9.29 in afternoon trading. The shares are down more than 15 percent this year.