Pep Boys Preliminary Results Might Put Proposed Merger in Jeopardy
Worse than expected results sent stock down 20%.
According to the preliminary statement, sales are expected to be between $524 million and $526 million as compared to $513 million a year ago. That may appear positive, but when compared to operating income, it looks less favorable as expectations are between $7 million and $9 million compared to $23.6 million a year ago.
Net income, which last year Q1 was $12.4 million, is expected to be less than $2 million this year and earnings per share are expected to drop from $0.23 per share a year ago to between $0 and $0.04 during Q1.
Pep Boys believes that its preliminary results are lower than expected due to a variety of factors occurring during the normal business cycle. The company said that it is working on implementing tactics and strategies to improve bottom line results.
A proposed merger between Pep Boys and private equity company Gores Group LLC is now in jeopardy. Parental company Gores requested that Pep Boys delay its proxy statement by 30 days, as it considers that the projections included are no longer accurate and that Pep Boys may have violated covenants contained in the merger agreement. In response, Pep Boys says it has fully complied with all parental conditions for the merger and is counter-offering to extend the period of time required for the final merger to occur.
The Gores Group has said that regardless of whether or not Pep Boys delays its proxy statement filling, it will continue reviewing the Pep Boys situation to get to the root causes of the downturn and leverage its options in relation to the merger's future.
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