ITASCA, IL — Midas has reported net income of $2.1 million, or 13 cents per diluted share, for the third quarter, which ended on Oct. 2. This the company’s second consecutive quarter of positive net results.
In 2003, Midas reported a net loss of $11.8 million, or 76 cents per share, for the third quarter, after business transformation charges of $15.9 million for costs associated with outsourcing the company’s distribution business in Canada and ongoing restructuring charges in the U.S.
“Despite disappointing results in our wholesale and company shop operations, we continue to be encouraged by the progress Midas has made as we transform the company into a profitable franchise retail business,” said Alan Feldman, Midas’ president and CEO.
Midas reported comparable shop retail sales growth of 1.6 percent in the third quarter in North American shops, as the U. S. shops reported their sixth consecutive quarter of increases. Each of the company’s four geographic regions in the U. S. experienced positive comparable sales.
“These increases in comparable retail sales are the direct result of our continued focus on the brake business, as well as continuing to feature a brake offer in national television advertising throughout the summer months,” Feldman said. “Customer response to our ‘Trust the Midas Touch’ marketing campaign has been excellent.”
Feldman said that the program launched last May to add tires supplied by Bridgestone/Firestone also had a positive effect on third quarter retail sales.
“Midas dealers have responded very positively to the new tire program, with approximately 900 shops now selling tires from Bridgestone/Firestone,” he said. “Retail tire sales continue to accelerate and are currently running up about 30 percent over a year ago when we did not have a comprehensive system-wide tire program.”
Feldman said that during the quarter, development work continued to add system-wide maintenance services and a commercial fleet program to Midas shops in early 2005. Those programs will be introduced at the Midas dealers convention in early December.
Feldman also said that Midas is in advanced discussions to sell its IPC exhaust business and exit exhaust manufacturing. Feldman said it will exit the exhaust business to focus more on the company’s profitable retail and franchise businesses.
The proposed deal includes an assured source of supply of competitively priced, high-quality exhaust products to Midas shops and IPC customers in North America, and a continuation of Midas’ famous lifetime muffler warranty. Once an agreement is reached, Midas will eventually close its exhaust manufacturing plant in Hartford, Wisc., and an exhaust warehouse in Chicago.
Midas did not name any potential buyers or a timeline for the agreement.
“The exhaust manufacturing and distribution business is no longer a strategic fit for our retail-focused business model.” Feldman said. “Additionally, given rising steel prices and declining exhaust demand, this is the right time for Midas to exit this business and sharpen our focus on our retail and franchise businesses.”
Unfavorable variances at Midas’ exhaust manufacturing plant had an approximate 3 cents-per-share negative impact on Midas’ third quarter results.
2004 Third Quarter and Nine-Month Results
Royalties and license fees were $16.6 million in the third quarter and $47.9 million for the first nine months, up from $16.3 million and $46.6 million, respectively, last year. Real estate revenues were $9.2 million for the quarter and $27.3 million for the first nine months, up from $9.1 million and $27.0 million, respectively, last year.
Retail sales in Midas’ 73 company-operated shops were $9.2 million for the quarter and $27.1 million for the first nine months. In 2003, company-operated shops generated $9.6 million in third quarter revenues and $32.5 million for the first nine months.
Midas operated an average of 73 company-operated shops in 2004 versus an average of 92 in the first nine months of 2003. Comparable sales in company-operated shops increased by 1.8 percent in the third quarter this year, despite business disruptions caused by the hurricanes in Florida, where 45 of the 73 company-operated shops are located.
Replacement parts sales and product royalties were $15.7 million in the quarter and $46 million for the first nine months, compared to $41.6 million and $122 million last year. Overall sales and revenues were $51.3 million for the quarter and $150.2 million for the first nine months, compared to $77.0 million and $229.4 million, respectively, last year. Year-over year revenue comparisons are not meaningful for the replacement parts business or in total, due to Midas’ exit from the distribution business in 2003.
Selling, general and administrative (SG & A) expenses were $22.8 million for the third quarter and $68.2 million for the first nine months, down from $31.7 million and $105.5 million for the same periods last year. The declines are primarily the result of exiting the parts distribution business.
Third quarter operating income was $5.9 million. For the first nine months, operating income was $17.7 million. In 2003, Midas reported operating losses of $13.2 million for the third quarter and $65.1 million for the first nine months, after business transformation charges of $15.9 million for the quarter and $70.4 million for the first nine months related to closure of the distribution business and other corporate restructuring.
Interest expense for the third quarter was $2.6 million, down from $6.8 million last year. The company is benefiting from the $15.1 million year-to-date reduction in its bank debt level and the refinancing of debt in March 2004 at favorable interest rates.
“We continue to be encouraged by the progress we are making in our profitable franchise operations and we will improve future results in our wholesale business by exiting the unprofitable exhaust manufacturing business,” Feldman said.
For more information about Midas, go to: www.midasinc.com.
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