ITASCA, Ill. — Midas has reported net earnings of $0.4 million, or 3 cents per diluted share, for the second quarter ended July 4, compared to $2.2 million, or 16 cents per diluted share, in the second quarter of 2008. The second quarter 2009 results include 9 cents of non-cash special items, primarily related to the vesting of restricted stock issued in 2005 and 2006. These non-cash special items resulted in approximately $0.7 million of administrative expense and $0.8 million of additional income tax expense, which drove the effective tax rate to 78.6 percent for the quarter.

Midas also reported that marketing efforts to grow its U.S. customer base with oil change promotions successfully resulted in an 11 percent increase in traffic during the quarter following a 6 percent gain last quarter. However, these gains in customer count were offset by a 12 percent decrease in the average ticket. As a result, comparable shop retail sales declined by 3.5 percent in U.S. Midas shops. Comparable shop sales at Midas shops in Canada were down by 2.6 percent.

“Consumers are looking for value and high-quality service now more than ever,” said Alan Feldman, Midas’ chairman and chief executive officer. “Our marketing efforts are aimed at getting consumers to give us a chance to earn their trust by experiencing an oil change at Midas. If we do a good job, many of these oil change customers will return to Midas for brakes, tires and other higher-dollar services.”

Feldman said that comparable shop sales in U.S. company-operated shops increased by 1.9 percent in the second quarter.

System comparable sales at franchised shops in the Southeast region were flat and were down by less than 1 percent in the Northeast. The West region declined by 5 percent. Overall system customer satisfaction scores in the U.S. improved by nearly 2 percentage points over second quarter 2008.

“Second quarter increases of 25 percent in oil changes and 7 percent in tires in U.S. shops were offset by continuing weakness in U.S. brake sales, which declined by six percent,” Feldman said. “We are encouraged by the increase in traffic, in retail sales at company-operated shops, continued improvement in customer satisfaction and by trends showing some improvement in sales in the Southeast and West regions, the areas which had been weakest over the past 18 months.”

“These trends indicate that while we have not turned the corner yet, we can at least see it,” he said.

Total sales and revenues for the second quarter were $46.4 million, compared to $48.8 million in 2008. Sales were $90.7 million for the first six months, down from $93.6 million for the same period a year ago.

Total franchising revenues from both Midas and SpeeDee were $14 million for the quarter compared to $15.7 million last year. This $1.7 million decrease included a $0.4 million reduction in revenue due to the impact of the stronger U.S. dollar on revenues collected in Canada and Europe and a $0.4 million decrease due to fewer shops in operation. The comparable shop sales decline had a $0.4 million impact on revenues. Total franchising revenues were $27 million for the first half compared to $29 million last year.

Midas acquired the SpeeDee Oil Change business in April 2008. SpeeDee contributed franchising revenues of $1.1 million in the second quarters of both 2009 and 2008, and contributed revenues of $2.1 million in the first six months of 2009.

Real estate revenues were $8.1 million for the second quarter and $16.4 million for the first six months of 2009, compared to $8.7 million in the quarter and $17.4 million in the first half last year. The decline in revenues was the result of fewer rent producing shops and the stronger U.S. dollar which affects rental income collected in Canada. There were 558 rent producing Midas shops in the U.S. and Canada at the end of the second quarter this year, down from 585 in 2008.

Retail sales at company-operated shops were $16.8 million in the second quarter and $32.4 million for the first half, compared to $16.2 million in the quarter and $31.1 million in the first six months in 2008. There were 98 company-operated Midas shops in the second quarter this year, compared to 95 last year. There were also four company-operated SpeeDee shops in the second quarter this year compared to one last year.

Replacement part sales and product royalties were $6 million in the quarter and $12.1 million in the first six months, compared to $6.9 million and $13.6 million, respectively, in 2008. The declines are primarily the result of lower sales of Bridgestone/Firestone tires to Midas shops in the U.S. While U.S. tire sales at retail continue to grow, Midas shops are developing relationships with local tire suppliers to help diversify their tire offerings.

Revenues from the R.O. Writer software business were $1.5 million for the quarter and $2.8 million for the first six months, up from $1.3 million and $2.5 million for the same periods last year. Stronger software sales and increased renewals of software maintenance contracts drove the increases.

Operating income was $3.9 million in the second quarter and $7.6 million for the first six months, compared to $5.8 million in the quarter and $9.8 million in the first six months of 2008. The $1.9 million decline for the second quarter is the result of a $1.4 million decline in Midas franchising profitability primarily due to the $1.7 million revenue decline noted earlier, and a $0.5 million decrease in company-operated shop profitability. The decline in company-operated shop profitability was the result of a 160 basis point decrease in gross margin due to a higher level of discounting and higher labor costs.

Selling, general and administrative (SG&A) expenses were $13.9 million in the second quarter and $27.1 million for the first half, down from $14.1 million and $27.4 million in the same periods last year. The SG&A for 2009 includes SpeeDee-related expenses of $0.5 million for the quarter and $0.9 million for the first six months of 2009, compared to $0.5 million for the second quarter and first six months of 2008.

Interest expense was $2.1 million for the second quarter and $4.1 million for the first six months, down from $2.3 million and $4.5 million, respectively, last year, due to lower levels of debt and lower interest rates.

Midas recorded income tax expense of $1.6 million in the second quarter and $2.4 million in the first six months, although the company does not pay a significant amount of income taxes because of net operating loss carry forwards of approximately $71 million from previous years.

The company’s effective tax rate for the second quarter was 78.6 percent compared to the statutory rate of 39.2 percent and a prior year rate of 39.7 percent. Second quarter tax expense was negatively affected by an approximate $0.8 million adjustment of the deferred tax asset due to certain discreet events. A portion of this adjustment was required because the restricted stock that vested in the second quarter was at a value that was less than the value of the shares on the day they were granted. The remainder of the adjustment was the result of a statutory income tax rate reduction in Ontario, Canada, enacted during the quarter.

Net cash provided by operating activities was $5.9 million in the first six months of 2009, compared to $12.2 million last year.

Net changes in assets and liabilities used $4.3 million of cash in the first six months of 2009 compared to $1.6 million in 2008. The $4.3 million use of cash in 2009 resulted from a corresponding decrease in accrued expenses due to the change in the company’s advertising media. The move from national television to radio and print has caused an acceleration in the company’s media payment schedule.

The company spent $2.4 million in capital expenditures in the first six months of 2009, primarily for equipment at company-owned Midas shops being renovated for SpeeDee co-branding.

“We remain encouraged by the double-digit increases in traffic at Midas shops and are optimistic that these new customers will return for their future maintenance and repair needs,” Feldman said. “We believe the Midas and SpeeDee businesses, both separately and as co-branded outlets, are well-positioned for retail growth as consumer confidence and the economy improves.”