Midas Reports Second Quarter Earnings; Company Shops, Parts Warehouse Inc. Achieve Profitability
ITASCA, Ill.--July 31, 2002--Midas, Inc. today announced its results for the second quarter ended June 29, 2002.Net income in the second quarter was $4.1 million, or $0.27 per diluted share, compared with net income of $6.9 million, or $0.46 per share, in the second quarter of 2001. Overall sales and revenues for the second quarter were $90.4 million, up 2.7 percent from $88.0 million in the year ago period.
For the first half, net income was $5.8 million, or $0.38 per diluted share, compared with first half 2001 net income of $10.1 million or $0.67 per share. Sales and revenues for the first half this year were $171.8 million, an increase of 3.4 percent from 2001.
"The New Midas strategy continued to show solid progress in the second quarter as sales and revenues continued to grow and company-owned shops and Parts Warehouse Inc. (PWI) both achieved profitability," Wendel H. Province, Midas chairman and chief executive officer, said.
The New Midas strategy centers on increasing the products and services that Midas offers, through innovations developed and tested by company-owned shops and supported by PWI's network of just-in-time delivery sites, which serve both Midas and non-Midas customers. Midas currently owns and operates 110 Midas shops and 75 PWI sites.
"We believe these businesses will soon begin to contribute significantly to our operating income, replacing operating income that has been lost as a result of the decline in our traditional wholesale business," Province said.
"Declines in Midas' profits over the last several years have been driven exclusively by the declines in the traditional wholesale business and the start-up losses associated with our company-shop and PWI initiatives. Our core franchising and real estate businesses have remained as profitable today as they were five years ago," Province said.
"Now that company-shops and PWI have achieved profitability, our greatest challenge is to restore the traditional wholesale business to profitability," he said. "We believe we have a sound plan to accomplish this in the second half of this year."
Second Quarter Results
Sales and revenues in the second quarter increased 2.7 percent over the same period in 2001, primarily due to the increased number of company-operated shops and growth in revenues from PWI sites. These improvements were offset by the continuing decline in wholesale parts sales through Midas' traditional distribution centers.
Replacement parts sales in the second quarter were $49.9 million, down from $58.2 million in the second quarter of 2001. PWI experienced a 31 percent increase in revenues, while replacement part sales through traditional wholesale distribution centers were down 26 percent.
For the first half, replacement part sales were $93.3 million, compared with $108.9 million last year.
"Our business model has evolved to the point that revenues from company-operated shops and PWI now account for a larger portion of total sales and revenues than our traditional U.S. wholesale business," Province said.
"Midas is working diligently to implement cost-control measures in our traditional wholesale business to reduce operating costs in line with the declines in revenues," he said. "We have instituted minimum purchase requirements for free weekly deliveries to dealers, increased some product prices and we are exploring approaches to reduce warranty expenses on our core service products."
Province said that the automotive aftermarket continues to be affected by soft consumer spending in some key markets. Comparable store sales at company-owned shops increased approximately 1 percent for the quarter, while overall Midas shops in North America were down by approximately 2 percent for the second quarter. The overall comparable stores sales decline reflected weak demand in the eastern half of the United States, while major markets in the west recorded increases.
During the second quarter, gross margins were 51.2 percent, compared with 44.8 percent last year. The increase is due to the higher margins generated from company shops and approximately a 4-percentage point increase in PWI margins.
Selling, general and distribution expenses for the quarter were $37.2 million, up from $26.1 million last year. SG & D expenses for the first half were $72.3 million, compared with $55.7 million last year.
The increased SG & D expenses in the quarter and first half are the result of 93 additional company shops and 19 additional PWI sites in place this year compared to the end of the first half of 2001. These increases in year-over-year SG & D expenses will end after the third quarter because changes in the comparable number of company-shop and PWI locations will be minimal.
Aside from expenses associated with company-shops and PWI, SG & D expenses in other parts of the business in the first half of 2002 have declined because of cost-containment efforts, including a reduction in corporate employment levels.
Cash Flow and Capital Structure
In the second quarter, Midas generated $13.6 million of EBITDA to support capital investments of $2.7 million during the quarter. For the first half, EBIDTA was $23.2 million and capital expenditures were $7.1 million.
During the second quarter, Midas closed on the sale of approximately 25 percent of its real estate portfolio to Realty Income Corporation in a transaction valued at nearly $40 million. Midas is leasing the 77 properties from Realty Income and continues to lease the sites to Midas franchisees.
Midas used the net proceeds from the real estate transaction to reduce the company's borrowings under its revolving line of credit. Midas' debt at the end of the second quarter was $162.2 million. Midas is exploring replacement of the company's current $135 million bank revolving line of credit that expires Jan. 31, 2003. The company expects to complete the refinancing during the fall.
Outlook for 2002
"While we are pleased with the progress of the New Midas strategy, we continue to address the challenges facing our traditional wholesale business, which is declining faster than we had anticipated" Province said. "We are taking the necessary steps to return our traditional wholesale business to profitability and to move towards supporting just-in-time delivery through PWI. In the interim, Midas' full-year 2002 earnings will be less than last year's results.
"We believe that profitability of company-owned shops and our network of PWI quick-delivery sites will continue to improve as we expand service offerings under the powerful Midas brand," Province said. "We are accelerating the rollout of new products and are working together with our franchisees to improve the competitiveness of the Midas system."
Midas is one of the world's largest providers of automotive service, offering exhaust, brake, steering and suspension services, as well as batteries, climate control and maintenance services at 2,700 franchised, licensed and company-owned Midas shops in 19 countries, including nearly 2,000 in the United States and Canada.
NOTE: This news release contains certain forward-looking statements that are based on management's beliefs as well as assumptions made by and information currently available to management. Such statements are subject to risks and uncertainties, both known and unknown, that could cause actual results, performance or achievement to vary materially from those expressed or implied in the forward-looking statements. The company may experience significant fluctuations in future results, performance or achievements due to a number of economic, competitive, governmental, technological or other factors. Additional information with respect to these and other factors, which could materially affect the company and its operations, is included in the company's filings with the Securities and Exchange Commission, including the company's 2001 annual report on Form 10-K.
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In millions, except for earnings and dividends per share)
(Unaudited)
For the For the
quarter Ended six months Ended
fiscal June fiscal June
--------------- ----------------
2002 2001 2002 2001
------ ------ ------ ------
(13 Weeks) (26 Weeks)
Sales and revenues $ 90.4 $ 88.0 $171.8 $166.2
Cost of sales and revenues 44.1 48.6 85.0 89.9
Selling, general, and distribution
expenses 37.2 26.1 72.3 55.7
------ ------ ------ ------
Operating income 9.1 13.3 14.5 20.6
Interest expense ( 2.7) ( 2.2) ( 5.3) ( 4.5)
Other income, net 0.3 0.2 0.3 0.4
------ ------ ------ ------
Income before taxes 6.7 11.3 9.5 16.5
Income taxes 2.6 4.4 3.7 6.4
------ ------ ------ ------
Net income $ 4.1 $ 6.9 $ 5.8 $ 10.1
====== ====== ====== ======
Earnings per share:
Basic $ .27 $ .46 $ .39 $ .67
====== ====== ====== ======
Diluted $ .27 $ .46 $ .38 $ .67
====== ====== ====== ======
Dividends per common share $ .00 $ .00 $ .00 $ .08
====== ====== ====== ======
Average number of shares
Common shares outstanding 15.0 14.9 15.0 14.9
Equivalent shares on outstanding
stock options .1 .0 .0 .0
------ ------ ------ ------
Shares applicable to diluted
earnings 15.1 14.9 15.0 14.9
====== ====== ====== ======
EBITDA
Operating income 9.1 13.3 14.5 20.6
Other income, net 0.3 0.2 0.3 0.4
Depreciation and amortization 4.2 3.6 8.4 7.4
------ ------ ------ ------
$ 13.6 $ 17.1 $ 23.2 $ 28.4
====== ====== ====== ======
Capital expenditures $ 2.7 $ 5.2 $ 7.1 $ 17.3
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MIDAS, INC.
RESULTS OF OPERATIONS
Second Quarter 2002 Compared with Second Quarter 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for the
second quarter of fiscal 2002 and 2001, respectively: ($ Millions)
Percent Percent
To To
2002 Total 2001 Total
------------------------------
Replacement parts sales $ 49.9 55.3% $ 58.2 66.1%
Company-operated shop retail sales 14.0 15.5 2.4 2.7
Royalties and license fees 16.5 18.2 17.5 19.9
Real estate rental revenues 9.5 10.5 9.6 10.9
Other 0.5 0.5 0.3 0.4
------------------------------
Sales and revenues $ 90.4 100.0% $ 88.0 100.0%
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Six Months Ended Fiscal June 2002 Compared with the Six Months Ended
Fiscal June 2001 (Unaudited)
The following is a summary of the Company's sales and revenues for the
six months ended fiscal June 2002 and 2001, respectively: ($ Millions)
Percent Percent
To To
2002 Total 2001 Total
--------------------------------
Replacement parts sales $ 93.3 54.3% $ 108.9 65.5%
Company-operated shop retail sales 27.8 16.2 4.1 2.5
Royalties and license fees 30.9 18.0 33.3 20.1
Real estate rental revenues 18.9 11.0 19.2 11.5
Other 0.9 0.5 0.7 0.4
--------------------------------
Sales and revenues $ 171.8 100.0% $ 166.2 100.0%
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