ITASCA, IL — Midas has reported net income of $2.6 million — or 16 cents per diluted share — for the second quarter, which ended on July 3. This marks company’s first quarterly net income since the third quarter of 2002.
Last year, Midas reported a second quarter loss of $32.7 million — or $2.10 per diluted share — after business transformation charges of $50.8 million — or $1.99 per share — for establishment of an accrual for warranty obligations, asset write-downs and employee severance costs related to the company’s shutdown of its wholesale distribution system.
“The significant progress Midas has made over the past 18 months and these positive results demonstrate that our plan to transform Midas into a profitable franchise retail business is working,” said Alan Feldman, Midas’ president and CEO.
Midas reported a comparable shop sales increase of 1.4 percent in the second quarter in its North American shops, as the U. S. shops reported their fifth consecutive quarter of increases.
“These positive trends in retail sales are the result of our continued focus on our core brake business, resulting in an increase in brake sales of five percent for both the second quarter and first half,” Feldman said. “Additionally, we are making excellent progress on programs we are developing with our dealers to add maintenance, tires and commercial fleet to our service mix.”
During the quarter, Midas officially launched its new Bridgestone/Firestone tire program in local market meetings with dealers and in training sessions for shop employees. More than 750 Midas shops are now selling Bridgestone/Firestone tires.
“The net income during the second quarter is the result of the company’s comprehensive efforts to eliminate unprofitable operations, to increase revenues in the profitable components of our business and to reduce the company’s operating expenses,” Feldman said. “Importantly, because of our reduced debt level and our first quarter refinancing at significantly lower interest rates, our interest expense for the second quarter was $2.5 million, down more than 65 percent from $7.3 million last year.”
Retail sales at Midas’ 73 company-operated shops were $9.3 million for the quarter and $17.9 million for the first half, down from $11.2 million and $22.9 million, respectively, last year when Midas operated an average of 94 shops during the first half. On a comparable shop basis, retail sales at company-operated shops increased 1.6 percent in the second quarter.
Replacement part sales and product royalties were $16.2 million for the quarter and $30.3 million for the first half, down from $40.8 million and $80.4 million in the same periods last year. Because of the significant changes in the supply chain during the past year, year-over-year revenue comparisons are not meaningful for the replacement parts business.
Overall sales and revenues for the second quarter of 2004 were $52.0 million and $98.9 million for the six months, compared to $77.9 million and $152.4 million for the same periods in 2003. Last year’s revenues included wholesale sales from Midas’ regional distribution centers and Parts Warehouse, Inc. (PWI) quick-delivery sites, all of which are now closed.
Selling, general and administrative (SG & A) expenses were $23.4 million for the quarter and $45.4 million for the first six months, down from $36.5 million and $73.8 million, respectively, last year. The declines are primarily the result of exiting the parts distribution business.
Second quarter operating income was $6.5 million and $11.8 million for the first half, compared to operating losses of $46.7 million in the quarter and $51.9 million in the first half of last year. The 2003 operating results were negatively affected by significant business transformation charges.
Operating margin for the second quarter of 2004 was 12.5 percent, up from 11.3 percent in the first quarter.
“We are encouraged by the trends we are experiencing in operating results,” Feldman said. “Midas shops in North America are seeing positive momentum in retail sales and profitability as we continue to grow our brake business and enhance our service offering to include tires, maintenance and fleet.”
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