Hometown Auto Reports First Quarter 2000 Results
22 May 2000
Hometown Auto Reports First Quarter 2000 Results; Revenue Increases 26.3%; Gross Profit Increases 21.1%
WATERTOWN, Conn.--May 22, 2000--HOMETOWN AUTO RETAILERS, INC. (Nasdaq NM - HCAR) today announced financial results for the quarter ended March 31, 2000.Revenue for the quarter ended March 31, 2000, increased $15.4 million, or 26.3%, to $74.0 million compared to $58.6 million in the first quarter of 1999, resulting in large part from the acquisition of Toyota of Newburgh. Same store sales increased by $3.7 million, or 6.3%, when compared to 1999 levels. Gross profit for the period increased by $1.6 million, or 21.1%, to $9.2 million compared to $7.6 million for the prior year. Same store total gross profit increased by 2.7% compared to the prior year. The increases in sales revenue and gross profit were due primarily to increased unit sales. The Company sold 1,804 new vehicles and 1,290 used vehicles at retail in the first quarter of 2000, compared to 1,361 and 1,036, respectively, for the same period in 1999. Same store unit sales increased by 155 new vehicles and 21 used vehicles at retail in the quarter ended March 31, 2000, compared to the year ago quarter.
Net income for the quarter ended March 31, 2000 was $38,000, or $0.01 per diluted share, versus $151,000, or $0.03 per diluted share, for the first quarter of 1999. Included in Hometown's expenses for the quarter was a $100,000 fee assessed by its floor plan lender for waivers of loan covenant violations. Also, Hometown did not recognize profit on the sale of approximately $800,000 of livery vehicles to a leasing company that has not made payment on the related receivable. Hometown is not able to estimate the amount of that it will ultimately collect from the leasing company, recover through repossession of the vehicles or collect from applicable insurance. Expenses relating to the development of CarDay.com during the first quarter of 2000 totaled $69,000. Without the waiver fee and CarDay expenses, net income for the year would have been $133,000, or $0.02 per diluted share. Also, the quarterly results were impacted by high inventory levels, which added approximately $150,000 to expenses, reducing per share earnings by an additional $0.02.
As a result of Hometown's earnings decline from planned levels in the fourth quarter of 1999 and the first quarter of 2000 and the excess inventory levels during that period, Hometown failed to comply with certain covenants in its loan agreement with GE Capital as of March 31, 2000. Subsequent to quarter end, a waiver was obtained from GE.
Corey Shaker, President and Chief Operating Officer of Hometown Auto commented, "We continue to implement cost saving initiatives at Hometown. At year-end, inventories were at unacceptable levels. The monitoring procedures and computerized inventory models we developed have helped us lower inventory by $10 million from the peak level of $52 million in late December, saving us approximately $70,000 monthly. By end of Q2 we fully expect to be at our optimal level of 45 days supply of cars and trucks, saving us an additional $30,000 per month. Our first quarter results include $69,000 of expenses relating to CarDay.com, costing us one penny per share in earnings. However, when CarDay received its first tier financing, they repaid the $600,000 we advanced on their behalf during 1999 and January 2000. More importantly we retained a 15% interest in CarDay, now valued on our balance sheet at $2.8 million. Frankly we were happy to give up a penny for that! Our two new Regional Vice Presidents continue to monitor dealership activities and we are converting all dealership management personnel to performance based pay plans."
Mr. Shaker added, "Our acquisitions last year increased both revenue and gross profit. Prices for profitable dealerships appear to be down from last year allowing us to renew our acquisition strategy, which was curtailed in 1999 due to high dealership prices. In addition, we intend to use Hometown stock for acquisitions to the greatest extent possible. It is attractive to owners of target dealerships due to tax considerations and the potential gain from CarDay."
Mr. Shaker concluded, "We will be vigilant in our efforts to eliminate unnecessary costs and utilize economies that arise from both the scale and scope of our operations. In addition, we are continuing our huge training initiative started mid-first quarter with Joe Verde Training and our information technology transformation with Reynolds and Reynolds. The technology that links all our dealerships together will be fully operational by the end of June, allowing us real-time information on dealership performance toward Hometown's goals. These initiatives, along with other efforts will drive the results that we know this organization is capable of. I continue to be very excited about our prospects for the future."
Hometown Auto Retailers sells new and used cars and light trucks, provides maintenance and repair services, sells replacement parts and provides related financing, insurance and service contracts through 11 franchised dealerships located in New Jersey, New York, Connecticut, Massachusetts and Vermont. The Company's dealerships offer 13 American and Asian automotive brands, including Chevrolet, Chrysler, Daewoo, Dodge, Ford, Isuzu, Jeep, Lincoln, Mazda, Mercury, Oldsmobile, Plymouth and Toyota. The Company is active in two "niche" segments of the automotive market: the sale of Lincoln Town Cars and limousines to livery car and livery fleet operators and the maintenance and repair of cars and trucks at a Ford and Lincoln Mercury factory authorized free-standing service center.
This release contains "forward-looking statements" based on current expectations but involving known and unknown risks and uncertainties. Actual results or achievements may be materially different from those expressed or implied. The Company's plans and objectives are based on assumptions involving judgments with respect to future economic, competitive and market conditions, its ability to consummate, and the timing of, acquisitions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Therefore, there can be no assurance than any forward-looking statement will prove to be accurate.
HOMETOWN AUTO RETAILERS, INC,
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
For the Three Months
Ended March 31,
2000 1999
Revenues
New vehicle sales $ 46,150 $ 35,599
Used vehicle sales 20,358 16,776
Parts and service sales 5,702 4,908
Other dealership revenues, net 1,816 1,347
Total revenues 74,026 58,630
Cost of sales
New vehicle sales 43,746 33,663
Used vehicle sales 18,604 15,270
Parts and service sales 2,463 2,091
Cost of sales 64,813 51,024
Gross profit 9,213 7,606
Amortization of goodwill 163 136
Selling, general and administrative
expenses 8,535 6,925
Income from operations 515 545
Other expense
Interest expense, net (475) (293)
Other income (expense), net 28 (1)
Income before taxes 68 251
Provision for income taxes 30 100
Net income $ 38 $ 151
Earnings per share, basic (Note 3) $ 0.01 $ 0.03
Earnings per share, diluted (Note 3) $ 0.01 $ 0.03
Weighted average shares outstanding,
basic (Note 3) 5,988,861 5,800,000
Weighted average shares outstanding,
diluted (Note 3) 6,022,194 5,800,000
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.