Midas Reports 2008 Third Quarter Earnings of $0.12 Per Diluted Share after $0.04 of Special Items
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ITASCA, Ill. October, 30, 2008: Midas, Inc. (NYSE: MDS) reported net earnings of $1.7 million—or $0.12 per diluted share—for the third quarter ended Sept. 27, 2008, compared to $3.0 million—or $0.21 per diluted share—in 2007. The 2008 results include $0.04 per share of special items relating to business transformation activities, while the 2007 quarter included $0.02 per share of special items.
Revenues for the third quarter were up $1.4 million to $47.1 million. An increase of one percent in comparable shop sales at company shops combined with a higher shop count drove a $2.3 million increase in company-owned shop retail sales. This increase was partially offset by a $0.9 million decrease in U.S. Midas franchise royalties due to a five percent decline in comparable sales at franchise shops and a net reduction in the number of franchised locations in the U.S.
Operating income for the quarter was $5.4 million, down from $7.5 million in 2007. This decline in operating income resulted from the expected $1.0 million reduction in European royalties and the $0.9 million decrease in U.S. franchise royalties, both of which have an approximate one-for-one impact on operating income. These declines were partially offset by $0.5 million of operating income generated during the quarter by the new SpeeDee Oil Change business, which Midas acquired in late March.
Decreased real estate profits and an operating loss in company-operated shops were largely offset by increased profits from the company’s wholesale and R.O. Writer software businesses, and lower administrative expenses.
“Midas’ U.S. retail sales in the third quarter were extremely challenging,” said Alan D. Feldman, Midas’ chairman and chief executive officer. “Same store sales declined in each region of the United States, led by significant weakness in the Southeast and West where the current economic crisis is hitting the hardest.”
Feldman said the company is re-focusing its marketing promotional efforts to strengthen its value appeal.
“We have been promoting brand awareness and quality services, while our competitors have been promoting extreme value,” Feldman said. “We believe that automotive repair is a good business in tough economic times and we are revamping our marketing plans to promote value on a local level.”
Feldman said the company is also continuing its efforts to transition Midas shops to new owners, resulting in 16 transitions in the third quarter and 78 for the first nine months of this year.
“Retail sales in shops sold to franchisees new to Midas are growing, while the overall system was down during the first three quarters of this year,” Feldman said. “Because of the enthusiasm these new owners bring to the business, sales in shops sold to new owners are up 5.5 percent year-to-date, compared to the overall system, which is down 2.3 percent year-to-date.”
Feldman said that sales of Midas shops to new owners have slowed because of the current credit issues, which will make it difficult to achieve the company’s previous target of 125 shop transitions this year.
“Unfortunately, the pace of shop sales is being affected by the tightening availability of credit,” he said. “Potential buyers are facing increased scrutiny from lenders and the timeline to complete financing has been extended considerably.”
In the third quarter, comparable Midas shop retail sales were down 0.7 percent in the North Central region, 4.8 percent in the hurricane-affected South Central region and 1.1 percent in the Northeast region. In the economically struggling areas of the West and Southeast regions, comparable shop sales were down 11.9 percent and 7.3 percent, respectively.
Overall in the U.S., Midas comparable shop sales were down 4.7 percent for the third quarter, while comparable shop sales in Canada decreased by 1.1 percent.
For the third quarter, Midas comparable shop tire sales were up 11.2 percent in the U.S. and oil changes increased 4.1 percent, while brake sales declined by 8.8 percent.