SHERMAN OAKS, Calif. — Earl Scheib Inc. reported its results for the fourth quarter and fiscal year ended April 30.

Net sales for the fiscal year ended April 30 were $43 million compared to $46.2 million in the fiscal year ended April 30, 2007, a decrease of 6.9 percent, resulting primarily from a decrease in car volume. There was one additional sales day in fiscal 2008 and two fewer retail paint shops in operation. On a same-day basis, same-shop sales decreased by 6.2 percent. Combined sales in the company’s fleet and truck center and commercial coatings operations decreased by $140,000 or 4.5 percent in fiscal 2008 from fiscal 2007.

The operating loss for fiscal 2008 was $2.85 million, compared to an operating loss of $1.7 million in fiscal 2007. Gross margins decreased by 1.6 percent in fiscal 2008 compared to fiscal 2007, while selling, general and administrative expenses increased by 1.2 percent of sales in fiscal 2008. The decrease in profit resulted primarily from lower car volume, and not being able to reduce costs and expenses proportionally to the decrease in sales. In fiscal 2008, selling, general and administrative expense included a $138,000 non-cash charge for impairment of fixed assets in five shops compared to $29,000 in fiscal 2007.

Interest expense decreased by $146,000 in fiscal 2008 compared to fiscal 2007 due primarily to a reduction in financing costs for the company’s credit facility. The company recorded a gain of $275,000 from proceeds of life insurance in fiscal 2008 resulting from the death of a former retired company executive upon whose life the company held an insurance policy, originally purchased in conjunction with the company’s deferred compensation plan.

In accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” the company recorded a non-cash charge of $530,000 to adjust the valuation allowance against its deferred income tax assets, which is included under provision for income taxes. The establishment of a valuation allowance does not have any impact on cash, nor does an allowance preclude use of loss carry forwards or other deferred tax assets in the future.

Overall, the net loss for fiscal 2008 was $3.24 million, or 81 cents per diluted share, compared to a net loss of $2 million, or 46 cents per diluted share for fiscal 2007. In fiscal 2008, the company changed its method of accounting for inventories from the LIFO to the FIFO method. The company believes this change is preferable as the FIFO method better reflects the current value of inventories on the consolidated balance sheet, provides uniformity across the company’s operations with respect to the method of inventory accounting, and reduces the complexity and costs in accounting for inventories. In accordance with Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections,” the company applied the change by retrospectively restating prior years’ financial statements. The effect was to increase beginning retained earnings, as of May 1, 2006, by $632,000 and to decrease cost of goods sold by $44,000 in fiscal 2007.

Net sales in the fourth quarter of fiscal 2008 were $10.8 million, a decrease of 10.4 percent from the fourth quarter of fiscal 2007, due primarily to a decrease in car volume. There was one additional selling day in the 2008 fourth quarter and three fewer retail paint shops in operation. On a same day basis, same shop sales were down by 10.1 percent in the fourth quarter of fiscal 2008.

Operating income for the fourth quarter of fiscal 2008 was $319,000 compared with an operating loss of $633,000 in the 2007 quarter. While fourth quarter 2008 sales declined by $1.3 million the company was able to reduce cost of sales by $1.6 million with gross margins increasing by 5.3 percent of sales over the 2007 quarter. The cost savings were reflected in materials, direct labor, indirect labor and decreases in workers compensation and medical insurance expense. Selling, general and administrative expenses in the fourth quarter 2008 were reduced by $628,000 from the 2007 quarter; primarily a reduction in salaries and advertising expense. The company determined that in the current economic climate, it was unable to recoup advertising costs.

Chris Bement, chief executive officer and president, stated: “Our industry is challenged as never before as consumers respond to the unrelenting increase in the price of gasoline, the weak economy, the sub-prime housing loan melt down, higher consumer interest rates and the escalating loss of jobs, especially in California, which is our major market. Since the company is a low-cost provider of auto paint services, a large segment of our customers tend to be in the lower economic income group and, we believe, have been disproportionately affected, which is a major cause of our decrease in car volume.

“We have increased our price points, since we believe that the middle to upper economic income market can absorb measured price increases for our services, and we continue to expand our spot painting and minor collision repair services. It should be noted that even with the aforementioned price increases we are still the low-price leader in our market.

“In March 2008, we announced that the board of directors retained the investment banking firm of Wedbush Morgan Securities Inc. to begin a process to explore strategic alternatives to enhance stockholder value and to act as our exclusive financial adviser in assisting management and the board of directors in this process. That process is continuing.

“Subsequent to April 30, our bank amended the company’s credit facility line. The $2.65 million letter of credit facility, secured by certain company-owned real estate, remains in place and the net worth covenant was eliminated in its entirety.

“It has been a difficult year for our company and challenges remain, but we believe that the expense reductions we initiated in the fourth quarter of fiscal 2008 will continue and will position us on a profitable path once the economy turns around. We will continue to make investments in our core business and improve execution at the shop level.”

For more information about Earl Scheib, visit: www.earlscheib.com.