Hometown Auto Reports Third Quarter 2000 Results
20 November 2000
Hometown Auto Reports Third Quarter 2000 Results
WATERTOWN, Conn.--Nov. 20, 2000--Hometown Auto Retailers Inc. (Nasdaq NM: HCAR) Monday announced financial results for the period ended Sept. 30, 2000.Revenue for the nine months ended Sept. 30, 2000, increased $2.7 million, or 1.2 percent, to $218.6 million compared to $215.9 million for the same period of 1999. Same store sales declined by $5.9 million, or 3.1 percent, when compared to 1999 levels.
Gross profit for the period increased by $250,000, or 0.9 percent, to $28.3 million compared to $28.0 million for the prior year. Same store total gross profit declined by three percent compared to the prior year.
Revenue for the quarter ended Sept. 30, 2000 totaled $69.8 million, a decrease of $10.3 million, or 12.9 percent, compared to $80.1 million for the third quarter of 1999. Gross profit declined by $800,000, or 7.4 percent, to $9.4 million for the third quarter of 2000.
"Company management has taken strong steps to move the company forward," said Corey Shaker, president and chief executive officer of Hometown.
"The industry experienced a softening of demand in the third quarter, and we have intensified our cost-cutting activities, not only at the corporate level, but at each of our 11 dealerships. We talked about taking bold steps during our second quarter conference call and we have followed through on those moves by:
| -- | replacing dealership managers that were under-performing, |
| -- | continuing to support our training efforts, which have produced favorable results in several of our stores, |
| -- | improving our existing Web presence with the objective of creating one of the most effective sites in the automotive sector, |
| -- | supporting dealerships with more aggressive and effective advertising campaigns, and |
| -- | maintaining a focus on building our cash reserves to solidify our financial position and provide for future expansion." |
Sales revenue year-to-date increased primarily due to a change in the mix of vehicles sold toward new vehicles. Sales of new vehicles increased by 195 units, while sales of used vehicles at retail declined by 170 units during the nine-month period ended Sept. 30, 2000. Same store sales decreased by 15 new vehicles and 307 used vehicles at retail year-to-date.
Gross profit benefited from an increase in finance and interest charges and other dealership income, which increased to $1.5 million in the nine months ended Sept. 30, 2000 from $1.0 million in the same period of 1999. Gross profit on vehicles sold at retail declined by $104,000 year-to-date 2000 compared to 1999.
"We are in the process of identifying opportunities that can help turn our under-performing stores into profitable businesses," Shaker said. "To that end, we announced in a separate press release today the addition of a high-line, pre-owned acquisition that has been tucked into Wellesley Lincoln Mercury and could add $15 million in revenue to our operations with strong margins.
"We have also expanded into activities that should improve future operating results, including an agreement with Universal Underwriters that allows us to now provide financing for customers, on a non-recourse basis, that we typically would have had to turn away due to their credit history. We are also working diligently on other agreements that should improve dealership profitability.
"In addition, we are already seeing the benefits of our reduced inventory levels (down by about 25 percent since year-end 1999) and the installation of the new Reynolds and Reynolds information and customer service system into our dealerships," Shaker continued.
"The installation has helped us identify and eliminate pre-owned cars and trucks over 90-days-old that have previously tied-up cash availability. As a result, we have been able to sell all these cars at auction or at retail and further reduce our inventories.
"In fact, I would challenge any large dealer group to say that they have less than 20 pre-owned cars in stock over 90-days-old. This inventory reduction is now saving Hometown more than $75,000 each month.
"The improved data processing capabilities provided by Reynolds and Reynolds have allowed senior management to identify problems and opportunities at the individual store level on a real-time basis. This has led to improvements in dealership operations. Management expects that these ongoing processes will yield significant benefits that translate directly to the bottom line."
Hometown recorded a net loss of $184,000 for the third quarter of 2000 compared to net income of $507,000 for the same quarter in 1999. Hometown recorded a net loss for the nine months ended Sept. 30, 2000 of $243,000, or $0.04 per diluted share, versus net income of $1.35 million, or $0.23 per diluted share, for the same period in 1999.
Current year operating results include a $345,000 provision for potentially uncollectable receivables. Year-to-date 2000 results also include a $100,000 fee assessed by Hometown's floor plan lender, an $82,000 increase in investor relations costs, and a $90,000 accrual for the company's 401K plan, which was adopted in October 1999.
Interest expense increased $241,000, mostly due to the purchase of real estate at two of Hometown's store locations.
At Sept. 30, 2000, Hometown was not in compliance with the debt service, interest coverage and leverage ratio covenants of its floor plan lending and acquisition line of credit agreement with GE Capital Corp. Hometown's ratios were .83 to 1, 1.01 to 1 and 2.58 to 1, respectively, instead of the required 1.1 to 1, 1.3 to 1 and a maximum of 2.0 to 1.
As a result of covenant non-compliance, Hometown and GE have entered into an amendment to the credit agreement in which GE has agreed that it will not take any action on these covenant violations through March 31, 2001 and its commitment to make floor plan advances for Hometown will end on that date.
Additionally, the acquisition line of credit has been terminated, the floor plan line has been reduced to $50 million and the interest rate has been increased by 75 basis points on advances through Dec. 31, 2000 and an additional 75 basis points on advances thereafter. GE has charged a fee of $60,000 for granting the forbearance, but has agreed to waive any prepayment penalties.
Hometown is seeking to refinance its floor plan line of credit and believes that alternate sources will be available. Two institutions have expressed preliminary interest in providing funds for this purpose. However, no assurances can be given that financing will be available or that terms will be as favorable to Hometown as under its existing credit agreement.
In addition, Hometown has eliminated several positions inside the company and reduced reliance on professional service providers, cutting corporate and dealership overhead by approximately $1 million annually from its fourth quarter 1999 run rate.
"However, we need to do more," Shaker said. "To that end, we are expanding our cost-cutting efforts throughout the organization. These steps include identifying potential scale economies and reducing personnel costs by improving efficiency and reducing staffing levels where possible.
"Specifically, we are consolidating dealership office support operations on a regional basis. We feel the company has taken positive steps in the right direction and we look forward to the near future."
Hometown Auto Retailers Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share data)
For the Three Months
Ended Sept. 30,
2000 1999
Revenues
New vehicle sales $ 44,422 $ 48,184
Used vehicle sales 17,430 23,828
Parts and service sales 6,092 6,267
Other dealership revenues, net 1,899 1,875
Total revenues 69,843 80,154
Cost of sales
New vehicle sales 42,102 45,375
Used vehicle sales 15,661 21,929
Parts and service sales 2,657 2,676
Cost of sales 60,420 69,980
Gross profit 9,423 10,174
Amortization of goodwill 163 150
Selling, general and administrative
expenses 8,857 8,562
Income from operations 403 1,462
Other income (expense)
Interest expense, net (553) (574)
Other income (expense), net 3 (5)
Income (loss) before taxes (147) 883
Provision (benefit) for income taxes 37 376
Net income (loss) $ (184) $ 507
Earnings (loss) per share, basic $ (0.03) $ 0.09
Earnings (loss) per share, diluted $ (0.03) $ 0.08
Weighted average shares, basic 5,998,529 5,900,000
Weighted average shares, diluted 6,740,634 6,066,667
For the Nine Months
Ended Sept. 30,
2000 1999
Revenues
New vehicle sales $ 137,706 $ 129,485
Used vehicle sales 57,605 64,134
Parts and service sales 17,827 17,301
Other dealership revenues, net 5,500 5,024
Total revenues 218,638 215,944
Cost of sales
New vehicle sales 130,512 122,043
Used vehicle sales 52,070 58,537
Parts and service sales 7,802 7,360
Cost of sales 190,384 187,940
Gross profit 28,254 28,004
Amortization of goodwill 490 436
Selling, general and administrative
expenses 26,355 23,830
Income from operations 1,409 3,738
Other income (expense)
Interest expense, net (1,590) (1,349)
Other income (expense), net (81) (48)
Income (loss) before taxes (262) 2,341
Provision (benefit) for income taxes (19) 995
Net income (loss) $ (243) $ 1,346
Earnings (loss) per share, basic $ (0.04) $ 0.23
Earnings (loss) per share, diluted $ (0.04) $ 0.23
Weighted average shares, basic 5,994,816 5,867,033
Weighted average shares, diluted 6,334,689 5,978,755