ITASCA, Ill. — Midas Inc. has reported net earnings of $1.4 million, or 10 cents per diluted share, for the third quarter ended Oct. 3. The 2009 results compare to net earnings of $1.7 million, or 12 cents per diluted share, in 2008.
Operating income was $4.6 million during the quarter, compared to $5.3 million in the prior year. This $0.7 million decline was the result of fewer franchised shops in operation, start-up losses at co-branded company-operated shops and a 1.4 percent decline in comparable shop sales at Midas shops in North America. The comparable shop sales decline had a $0.2 million negative impact on operating income.
Operating income benefited from lower selling, general and administrative (SG&A) expenses and a reduction in business transformation charges. Earnings in the SpeeDee, R.O. Writer and wholesale businesses were all consistent with the prior year, the company said.
Midas said it continued to build customer traffic at its U.S. shops by promoting value-priced oil changes. Customer car count increased by 18 percent during the third quarter. However, a double-digit decline in the average repair order resulted in a comparable shop sales decline of 1.2 percent in U.S. Midas shops. Comparable shop sales in Canada declined by three percent.
Retail sales trends at U.S. shops improved throughout the quarter and comparable shop sales were virtually flat in September.
“Our marketing strategy throughout 2009 has been to grow our customer base by promoting oil changes to encourage new customers to try Midas,” said Alan Feldman, Midas’ chairman and chief executive officer. “Our local market offers supported by network radio and targeted print advertising are working well to attract new and returning customers to visit Midas.”
Feldman added that oil change revenues increased by 30 percent and tires were up by 7 percent during the third quarter, but that brake sales declined by 5 percent in U.S. shops. Overall comparable retail sales were up 2.9 percent in the Northeast region and 1.2 percent in the Southeast region. These comparable shop sales gains were offset by declines of 5.3 percent in the North Central region, 2.8 percent in the South Central region and 2.6 percent in the West region.
“While we have done a good job growing daily car count at all shops this year, our shops have not been consistent in using these oil change opportunities to sell brakes, tires and other needed services,” Feldman said.
Comparable shop retail sales at SpeeDee shops were down about one percent for the quarter while sales at co-branded SpeeDee-Midas shops were up 11.2 percent.
Total sales and revenues for the third quarter were $46.4 million, compared to $47.1 million in 2008. Sales were $137.1 million for the first nine months, down from $140.7 million last year.
The company has continued to test the co-branding of the SpeeDee Oil Change business, which Midas acquired in the second quarter of 2008. SpeeDee has 113 free-standing shops in 13 states in the U.S. and 57 shops in Mexico.
In an initial co-branding test that began in July 2008, the company added Midas repairs and services to three franchised SpeeDee shops in Central California. A fourth franchised co-branded SpeeDee-Midas shop opened in California in the third quarter of 2008.
Comparable shop retail sales at these co-branded sites in California increased by 11.2 percent in the third quarter, on top of an 8.3 percent increase in the third quarter of 2008. These increases are the result of increases in both car counts and average tickets.
The company is also testing the addition of SpeeDee at Midas shops. In the second quarter of 2009, Midas completed the addition of SpeeDee services at four company-owned Midas shops in the Chicago area. Comparable shop sales at these Chicago co-branded shops increased by a combined 4.7 percent in the third quarter. This increase compares to a 6.9 percent decline at non-co-branded shops in Chicago. After initial start-up losses, these Chicago co-branded shops operated at break-even during the third quarter.
In late August, the company completed the addition of SpeeDee services at 11 company-owned Midas shops in the San Diego market. Traffic at these 11 Midas-SpeeDee shops was up 112 percent and comparable sales increased by 6.5 percent after the grand opening. These shops had previously experienced negative comparable shop sales during every quarter since they were acquired by the company in 2007. Start-up costs, including repairs, maintenance and re-imaging of the facilities, grand opening advertising and discounting caused an increased operating loss at these shops.
The company expects to have 25 co-branded locations in place by the end of the year.
“We are encouraged by the double-digit growth in car count and improving comparable sales trends at U.S. Midas shops, as well as the solid sales increases at the co-branded Midas-SpeeDee shops,” Feldman said.
“We are working with our franchisees to institute numerous “back to basics” operational initiatives with a focus on improving in-shop execution of service delivery and customer follow-up procedures. These changes will help turn customers coming to Midas for oil changes into customers for all their service needs, including brakes and tires,” Feldman said.
“Our initial testing of these procedures in the Northeast region has already produced solid sales increases,” he said. “Additionally, in the fourth quarter, we will overlap the sharp decline in average ticket we have been reporting all year.”
Feldman said the company is also continuing efforts to reduce corporate expenses.
“On Oct. 23, the company announced the elimination of 16 corporate jobs in North America,” Feldman said. “These reductions of nearly 10 percent of our headquarters staff should result in annual savings of approximately $1 million.”
