Pep Boys - Manny, Moe & Jack Rating: Buy

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1 HARDLINE/LEISURE Jeffrey Blaeser Company Update / Estimates Change November 29, 2007 Key Metrics PBY - NYSE $11.51 Pricing Date 11/28/2007 Price Target $ Week Range $22.49-$11.50 Shares Outstanding (mm) 51.6 Market Capitalization ($mm) $ Mo Average Daily Volume 511,108 Institutional Ownership 92% Debt/Total Capital 47.2% ROE (4.0%) Book Value/Share $10.51 Price/Book 1.1x Dividend Yield 1.9% LTM EBITDA Margin 16.00% EPS($) FY: January Prior Curr. Prior Curr. 2007A 2008E 2008E 2009E 2009E 1Q-Apr (0.02) A 0.17E 0.05E 2Q-Jul A 0.22E 0.13E 3Q-Oct (0.14) 0.02E (0.01)A 0.11E 0.10E 4Q-Jan (0.02) 0.04E (0.03)E 0.12E 0.14E FY (0.16) 0.20E 0.10E 0.63E 0.43E P/E NM NM 26.8x Revenue($mm) Prior Curr. Prior Curr. 2007A 2008E 2008E 2009E 2009E 1Q-Apr A 550.8E 516.1E 2Q-Jul A 569.3E 533.1E 3Q-Oct E 535.4A 544.0E 518.5E 4Q-Jan E 515.4E 556.6E 521.2E FY 2, ,190.4E 2,155.7E 2,220.7E 2,089.0E Year Price History for PBY Q1 Q2 Q3 Created by BlueMatrix Company Description: Company Description: Pep Boys Manny, Moe & Jack ( operates as an automotive retail and service chain in the United States and Puerto Rico. PBY engages in the retail sale of automotive parts, tires, and accessories, automotive repairs and maintenance, and the installation of parts Pep Boys - Manny, Moe & Jack Rating: Buy We Believe Poorly Received Strategic Plan Presents Buying Opportunity Investment Highlights: Long-Term Plan introduced to unfriendly audience - reaction looks overdone. Pep Boys shares traded down 16% yesterday following the introduction of its new Long Term Strategic Plan. The shares currently trade near its book value of $9.70 and well below an adjusted (adjusted for estimated true value of real estate) book value of between $16 to $19 per share. Merchandising mix to be addressed - looks like the end of the scooter. A greater focus upon core parts, while eliminating underperforming merchandise, is underway. The merchandising and marketing shift should provide more product that customers require while generating higher margined sales to Pep Boys. "Hub and Spoke" expansion plan should provide efficiencies/sales growth. Finally, Pep Boys began discussing expansion plans. The plan is for a gradual roll out of smaller "spoke" stores supported by the larger Super centers. This concept should allow for added revenue growth while leveraging distribution, inventory, and marketing. Timing for the roll outs is uncertain at this point but we believe revenues from spoke stores could eventually approach $1bn. Super center floor space to be more effectively utilized. The large box format has provided merchandising and overhead headaches for the company. Pilot programs are in effect to determine the most effective utilization of the space with sublets, such as rental services, as possibilities. The store-within-a-store concept is also being tested with more expansive tire offerings apparently driving sales and profits in test sites. Excluding charges, PBY reported F3Q08 EPS of ($0.01), $0.13 better than LY. Excluding one-time charges, we estimate F3Q08 EPS were ($0.01), $0.03 below our estimate yet $0.13 better Y/Y. Sales fell Y/Y 2.8%, slightly below expectations. Lowering estimates to reflect inventory sell down and closed stores. We are lowering our estimates to reflect approximately $40mm in non-core merchandise to be sold at cost over the next three to four quarters. Sales expectations have been reduced due to the elimination of 31 underperforming units. Share price down Y/Y despite improved profitability - higher share price upside exists, in our opinion. Last year at this time, with an interim CEO, no growth plan, and negative EPS, PBY shares were trading roughly 15% higher than they are today. Even with reduced expectations for profitability, its balance sheet and cash flow has improved. The growth plan, in our opinion, increases potential upside for Pep Boys shares as physical expansion creates an opportunity for larger sales/eps growth. The Disclosure section may be found on pages 5-6 of this report.

2 Pep Boys reported a fiscal year 2008 third quarter EPS loss of $0.42. Included within those results were approximately $38.3mm in pre-tax charges associated with an inventory write down ($32.8mm), executive severance ($3.1mm), legal settlements ($6.2mm), and a benefit from company owned life insurance policy on a former employee. Excluding these charges, we estimate that third quarter results were a loss of $0.01, $0.13 better than last year's results, yet $0.03 below our and the Street consensus estimate. Sales down 2.8% Y/Y - slightly below expectations - closure of 31 underperforming units expected to lower FY09 revenues F3Q08 sales fell Y/Y 2.8% to $535.4mm with a comparable store sales decline of 2.9%. The results were slightly below our expectation for $539mm with a comparable store sales decline of 2%. Service sales continued to improve with a 2.6% comparable revenue increase but were offset by a 4.1% decrease in comparable merchandise sales. Geographically, Southern California and Florida were weak with strength experienced in the Northeast. Next year's sales results are expected to be negatively impacted by the closure of 31 underperforming units. While sales should fall Y/Y, the combination of inventory reductions and store closures should generate $65mm in additional working capital for the company. Gross margin improvement slightly below expectations yet SG&A reduction strong and cost reductions of $90mm by FY09 end appear on track EBIT margins in the quarter improved 120 basis points Y/Y to 1.8%. While 60 basis points below our expectations, SG&A fell Y/Y $7.6mm in dollars and 80 basis points as a percentage of sales. Operating costs appear on track for an annual Y/Y decline of roughly $40mm and the company's previously released target to eliminate $90mm in costs by 2009 fiscal year end appears on track. Gross margins improved Y/Y 70 basis points but fell below our expectations as we believe the company got a head start on non-core inventory reduction with more promotional activities in the latter part of the quarter. While we expect near-term core gross margins to continue improving Y/Y, overall margins should decline over the next two quarters as the company sells roughly $40mm in non-core merchandise at cost. Once this unwanted inventory is eradicated, overall gross margin expansion should resume with expectations for FY09 gross margins to surpass that of FY08. Long Term Strategic Plan - Increase store base, improve merchandising mix and create more efficient utilization of space The company's long term strategic plan consists of a renewed commitment to core automotive merchandising and hard parts availability, an improved and more efficient Super center footprint, and greater store density created by the addition of a hub-and-spoke network focused upon generating improved sales and operating and marketing efficiencies. Hub-and Spoke expansion plan looking to eliminate two common concerns for Pep Boys in future Two key areas for concern have been the lack of top-line growth and a national, yet dispersed, store base that limits operating and marketing efficiencies.while visibility on the timing of new smaller store additions is somewhat limited at this point, management believes spoke stores could eventually match current service revenues. Assuming spoke stores that average between between $600,000 and $1mm in annual revenue per store and TTM service revenues of roughly $900mm, that equates to between 900 and 1,500 potential spoke store openings. If successful, Pep Boys could improve top-line growth while leveraging marketing, sourcing, and operational efficiencies. Furthermore, the close proximity to the larger Super center would allow for the larger stores to act as a distribution center; therefore, improving inventory turns. Management envisions six to 2 MORGAN JOSEPH & CO. INC.

3 eight bays per store with a focus upon light and medium repair and maintenance, tire service, and select DIY (do-it-yourself) product availability. We expect the company to eventually expand through strategic smaller acquisitions coupled with company led store openings. Looking for a Scooter, check out Pep Boys. Company returning to its roots and core auto parts Currently, approximately 30% of Pep Boys' hard parts business serves its own service base and the company is looking for more DIY sales. In an attempt to fill its larger stores, Pep Boys has attempted to sell non-core aftermarket parts within personal transportation, power tools, power equipment, and others. While somewhat creative, these categories failed to live up to expectations as the company is writing down over $30mm in inventories and selling through at roughly cost another $40mm. The end result should be a more robust and extensive parts display that allows key products to be on the shelves when the customer wants them, and with larger brand and product choices. Additionally, while the higher priced non-core merchandise aided sales growth, we believe it was at lower margins, and a more profitable product mix should expand future earnings. More efficient square footage utilization through "store-within-a-store" and/or sub-leasing opportunities In an attempt to maximize square footage productivity, Pep Boys has been testing sub-leases, which should lower fixed overhead, and "store-within-a-store" merchandising opportunities. Things on the table appear to include ownership segments like rental services and used car services. Other services under consideration appear to be window tinting, dent removal, windshield repair, used car reconditioning services, and car wash services. We believe a promising "store-within-a-store" concept is a more prominent tire display that highlights the company's service aspect and is bound to increase add-on services and purchases. Tire sales typically promote a greater chance for repeat business, as the chance for failure is remote and satisfaction high, and the likelihood for additional sales increases as the mechanic looks under the car. New plan provides added risk, yet higher potential reward, in our opinion While organizational changes, as expected, certainly increase potential risks as the company and its employees enter into somewhat uncharted waters, we believe the plan can be effective and increases the potential upside for share price expansion. Additionally, with the shares trading roughly $2 below the company's current book value and significantly below our adjusted per share book value of between $16 to $19 (adjusted book value takes into consideration real estate valued at an estimated $1bn to $1.3bn with only $500mm estimated on the books), PBY's current valuation appears extremely compelling and we reiterate our Buy rating and $24 price target. 3 MORGAN JOSEPH & CO. INC.

4 Pep Boys - Manny, Moe & Jack Quarterly Earnings Model (In millions, except per share data) FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4E FYE Q1E Q2E Q3E Q4E FYE 2006 Apr-06 Jul-06 Oct-06 Feb May-07 Aug-07 Nov-07 Feb May-08 Aug-08 Nov-08 Jan Total Revenues $2,237.3 $556.6 $578.6 $550.8 $586.1 $2,272.2 $546.0 $558.9 $535.4 $515.4 $2,155.7 $516.1 $533.1 $518.5 $521.2 $2,089.0 % Increase -1.5% -1.2% 0.2% 0.9% 6.5% 1.6% -1.9% -3.4% -2.8% -12.1% -5.1% -5.5% -4.6% -3.1% 1.1% -3.1% Cost of Goods Sold As % Sales 76.2% 75.0% 74.9% 75.0% 74.4% 74.8% 74.0% 73.1% 74.3% 75.2% 74.1% 74.5% 72.9% 73.1% 72.9% 73.4% Gross Profit Margin 23.8% 25.0% 25.1% 25.0% 25.6% 25.2% 26.0% 26.9% 25.7% 24.8% 25.9% 25.5% 27.1% 26.9% 27.1% 26.6% % Increase -14.5% 0.4% -2.6% 8.7% 25.9% 7.2% 2.1% 3.5% -0.2% -14.7% -2.5% -7.2% -3.9% 1.6% 10.3% -0.1% Operating/SG&A Expense As % Sales 23.4% 23.6% 24.1% 24.5% 24.1% 24.1% 23.5% 23.8% 23.7% 23.5% 23.6% 23.0% 23.5% 23.7% 23.2% 23.4% Unusual Items (benefit) Total Operating Expense As % Sales 100.4% 98.7% 97.9% 99.4% 98.5% 98.6% 97.1% 96.9% 98.2% 98.7% 97.7% 97.5% 96.4% 96.8% 96.1% 96.7% Operating Profit Margin -0.4% 1.3% 2.1% 0.6% 1.5% 1.4% 2.9% 3.1% 1.8% 1.3% 2.3% 2.5% 3.6% 3.2% 3.9% 3.3% % Increase NA NA 24.1% 140.4% NA NA NA NA NA NA NA -19.5% 10.0% 69.5% 194.2% 37.4% Interest Exp./(Inc.) Other Exp./(Inc.) Non-Operating Exp./(Inc.) Pretax Profit Margin -2.0% -0.2% 0.4% -2.1% -0.4% -0.5% 1.0% 1.2% -0.1% -0.5% 0.4% 0.9% 2.0% 1.6% 2.2% 1.7% % Increase NA 78.8% NA 31.5% 91.1% 72.0% NA NA NA NA NA -16.6% 56.4% NA NA NA Taxes(benefit) Rate 36.9% -3.7% 27.9% 32.1% 36.9% 31.2% 39.6% 37.5% 44.4% 36.0% 38.7% 36.0% 36.0% 36.0% 36.0% 36.0% Net Income--Operations Margin -1.2% -0.2% 0.3% -1.4% -0.2% -0.4% 0.6% 0.8% -0.1% -0.3% 0.2% 0.6% 1.3% 1.0% 1.4% 1.1% % Increase NA 64.9% 76.7% 28.1% 91.1% 69.4% NA NA NA NA NA -11.7% 60.1% NA NA NA EPS--Operations (0.51) (0.02) 0.03 (0.14) (0.02) (0.16) (0.01) (0.03) % Increase NA 64.2% 79.7% 27.5% 91.2% 69.1% NA NA NA NA NA -9.5% 60.0% NA NA NA Shares Outstanding (mm) Extraordinary Item Net Income EPS (0.68) (0.01) 0.02 (0.20) 0.14 (0.05) (0.42) (0.25) (0.52) Source: Company reports and Morgan Joseph Estimates 4 MORGAN JOSEPH & CO. INC.

5 Required Disclosures Rating and Price Target History for: Pep Boys - Manny, Moe & Jack (PBY) as of /17/06 I:Buy:$17 03/16/07 Hold:NA 05/24/07 Buy:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q Created by BlueMatrix Price Target Our price target is $24. Valuation Methodology Our price target is $24, which is derived from an 11x multiple of FY2009 TEV/EBITDA, in line with the five year historical multiple. Risk Factors High fixed cost structure and expensive labor force. The aftermarket is susceptible to seasonality and unpredictable weather. The automotive aftermarket is highly competitive and dominated by a few retailers that control roughly 35% of the market. PBY commercial business can provide conflicts of interest. I, Jeffrey Blaeser, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. intends to seek or expects to receive compensation for investment banking services from the subject company within the next three months. Investment Banking Services/Past 12 Mos. Rating Percent Percent BUY [B] HOLD [H] SELL [S] Meaning of Ratings A) Buy means reasonable outperformance relative to the market over months. 5 MORGAN JOSEPH & CO. INC.

6 B) Hold means market-type risk adjusted performance; potential source of funds. C) Sell means expected to underperform the market. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2007 by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. 600 Fifth Avenue, 19th Fl New York, NY Tel Fax Sales and Trading New York Tel Fax Pittsford Tel Fax MORGAN JOSEPH & CO. INC.