Earl Scheib Announces Operating Results in the Second Quarter of Fiscal 2007

SHERMAN OAKS, Calif.--Earl Scheib, Inc. (Pink Sheets:ESHB) reported its results for the second quarter and six months ended October 31, 2006 of the fiscal year ending April 30, 2007.

Net sales for the second quarter of fiscal 2007 were $12,041,000, a decrease of 5.4% from the second quarter of fiscal 2006 net sales of $12,727,000. The Company had the same number of sales days in the second quarter of fiscal 2007 and 2006, and operated a weighted average two fewer retail paint shops at October 31, 2006 compared to 2005. On a same-day basis, same-shop (shops open one year or more) sales decreased by 4.3%; while combined sales in the fleet and truck center and commercial coatings operations increased by $73,000 in the second quarter of fiscal 2007 compared to the second quarter of fiscal 2006. The decrease in same shop, same day sales is primarily due to a reduction in car volume.

Net sales for the six months ended October 31, 2006 were $24,693,000, as compared to $25,741,000 for the six months ended October 31, 2005, a decrease of 4.1%. The Company had one additional sales day in the six months ended October 31, 2006, and operated a weighted average four fewer retail paint shops during the six months ended October 31, 2006 compared to 2005. On a same-day basis, same-shop sales decreased by 2.2%; while combined sales in the fleet and truck center and commercial coatings operations remained relatively flat in the first six months of fiscal 2007 from the first six months of fiscal 2006.

Operating income for the second quarter of fiscal 2007 was $93,000 compared to operating income of $425,000 in the second quarter of fiscal 2006. Gross margins decreased in dollars and decreased by 1.9% of sales in the second quarter of fiscal 2007 compared to fiscal 2006 due primarily to the decrease in sales exceeding the decrease in direct material, direct labor and overhead expense in the quarter. Selling, general and administrative expenses decreased in dollars but increased by 0.7% of sales, as expense reductions were outpaced by the decrease in sales

Operating income for the six months ended October 31, 2006 was $334,000 compared to $661,000 in the six months ended October 31, 2005. The decrease in operating income was primarily attributable to the decrease in sales.

Interest expense decreased by $57,000 in the second quarter and decreased by $82,000 for the six month period of fiscal 2007 from fiscal 2006 due primarily to elimination of the Company’s prior credit facility financing costs. Interest income, from investment of cash in short term certificates of deposit, increased by $44,000 and $55,000 in the second quarter and six month period, respectively.

For the six month period ended October 31, 2005, the Company sold two previously closed auto paint shops for a net gain of $124,000. There were no sales of real property in the six month period ended October 31, 2006.

Overall, net income for the second quarter of fiscal 2007 was $100,000, or $0.02 per diluted share; compared to $315,000, or $0.07 per diluted share, for the second quarter of fiscal 2006. For the six months ended October 31, 2006, net income was $157,000, or $0.04 per diluted share, compared to $451,000, or $0.10 per diluted share, for the six months ended October 31, 2005.

Chris Bement, Chief Executive Officer and President, stated that, “Our results in the second quarter and six month period of fiscal 2007 decreased as a result of the loss of car volume which started in March 2006, and was discussed in our 2006 Annual Report to Shareholders. The impact of high gasoline prices and other general, economic and market forces continue to negatively affect our retail paint shop sales. We were able to increase certain of our paint service prices while still continuing to remain the low price leader. We continue to review our sales price points and are reviewing alternative forms of advertising media to reverse the drop in car volume and expand our target customer base.”

Earl Scheib, Inc., founded in 1937, is a nationwide operator of 102 auto paint and body shops located in approximately 92 cities throughout the United States. In addition, through a wholly-owned subsidiary, Earl Scheib, Inc. manufactures paint coating systems that are used not only by its paint and body shops, but are also sold to original equipment manufacturers and used by architectural construction firms. For more information, visit Earl Scheib on the web at www.earlscheib.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995

Written and oral statements made by the Company that are not historic in nature are "forward looking statements" as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this document and in filings with the Securities and Exchange Commission. Generally, the words "believe," "expect," "hope," "intend," "estimate," "anticipate," "plan," "will," "project," and similar expressions identify forward-looking statements. All statements which address operating performance, events, developments or strategies that the Company expects or anticipates in the future are forward-looking statements.

Forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the Company's past experience or current expectations. The following are some of the risks and uncertainties that may impact the forward-looking statements: the previous trend in quarterly increases in the Company's same-shop sales may not be sustainable, the impact of the Company’s reallocation of management resources, the impact of the point-of-sale computer system, the effect of weather, the effect of economic conditions, the impact of competitive products, services, pricing, capacity and supply constraints or difficulties, changes in laws and regulations applicable to the Company, the impact of advertising and promotional activities, the impact of the Company's expansion of its fleet services, new product rollout, Quality Fleet & Truck Centers and commercial coatings business, the potential adverse effects of certain litigation, financing, insurance or lending constraints, and the impact of various tax positions taken by the Company. The Company undertakes no obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise.

Earl Scheib, Inc.
Consolidated Statements of Operations
(thousand of dollars, except per share data)
Unaudited
				Three Months ended				Six Months ended
				October 31,				October 31,
				2006		2005		2006		2005
Net Sales				$ 12,041		$ 12,727		$ 24,693		$ 25,741
Cost of Sales				9,183		9,468		18,515		19,267
Gross Margin				2,858		3,259		6,178		6,474
Selling, General & Administrative Expense				2,765		2,834		5,844		5,813
Operating Income				93		425		334		661
Gain (loss) on Sales of Real Property				0		(6)		0		124
Interest Income (Expense), net				22		(79)		(147)		(284)
Income Before Income Tax				115		340		187		501
Income Tax Provision				15		25		30		50
Net Income				$ 100		$ 315		$ 157		$ 451
Income Per Share
Basic				$ 0.02		$ 0.07		$ 0.04		$ 0.10
Diluted				0.02		0.07		0.04		0.10
Average Shares Outstanding
Basic				4,396		4,393		4,396		4,393
Diluted				4,422		4,417		4,436		4,415

Earl Scheib, Inc.
Consolidated Balance Sheets
(thousands of dollars, except share data)
					Unaudited
					October 31,		April 30,
Assets					2006		2006
Current assets:
Cash and cash equivalents					$ 5,055		$ 5,603
Accounts receivable, less allowances of $91 at October 31, and $74 at April 30, 2006					460		786
Inventories					2,113		1,757
Prepaid expenses, including advertising costs of $302 at October 31, and $326 at April 30, 2006					1,845		1,599
Deferred income taxes					1,367		1,367
Other current assets					80		209
Total current assets					10,920		11,321
Property, plant and equipment					8,055		8,200
Deferred income taxes					574		574
Other, including cash surrender value of life insurance of $2,899 at October 31, and $2,885 at April 30, 2006					3,099		3,200
					$ 22,648		$ 23,295
Liabilities
Current liabilities:
Accounts payable					$ 964		$ 1,183
Accrued expenses:
Payroll and related taxes					1,220		1,332
Insurance					2,736		2,603
Interest					46		107
Advertising					216		398
Legal and professional					84		410
Other					1,140		1,053
Income taxes payable					-		98
Total current liabilities					6,406		7,184
Deferred management compensation					2,560		2,616
Long-term debt and obligations					1,683		1,683
Shareholders' Equity
Capital stock $1 par - 12,000,000 shares authorized; 4,808,000 issued and 4,396,000 outstanding
					4,808		4,808
Additional paid-in capital					6,796		6,766
Retained earnings					3,272		3,115
Treasury stock, at cost (412,000 shares)					(2,877)		(2,877)
Total shareholders' equity					11,999		11,812
					$ 22,648		$ 23,295

Earl Scheib, Inc.
Condensed Consolidated Statements of Cash Flows
(thousands of dollars)
Unaudited
					Six Months Ended
					October 31,
					2006		2005
Net Cash Provided By (Used in) Operating Activities					$ (159)		$ 850
Cash Flows From Investing Activities:
Capital expenditures					(389)		(829)
Proceeds from sale of property and equipment					-		431
Net cash used in investing activities					(389)		(398)
Cash Flows Used In financing Activities
Credit facility financing costs					-		(18)
Net increase in cash and cash equivalents					(548)		434
Cash and cash equivalents, at beginning of the period					5,603		3,024
Cash and cash equivalents, at end of the period					$ 5,055		$ 3,458