Midas, Inc. (NYSE: MDS) reported net income of $0.3
million—or $0.02 per diluted share—for the fourth quarter ended
Jan. 1, 2011, compared to a net loss of $(0.2) million—or $(0.02)
per diluted share—in the prior year.
Fourth quarter 2010 operating income was $2.6 million, compared
to operating income of $2.0 million in 2009.
Fourth quarter 2010 operating income was negatively affected by
losses from the Northern California shops acquired from a failing
franchisee in January 2010, as well as higher pension and incentive
compensation expenses. Management earned the retail sales component
of the annual incentive program as a result of the 2.3 percent
comparable shop sales increase at Midas shops in North America.
These items had a combined negative impact of $0.06 per diluted
share.
The fourth quarter 2009 operating income included $2.9 million
of business transformation charges—or $0.12 per diluted share.
Midas did not record business transformation charges during any
quarter of 2010.
Fiscal 2010 full-year earnings were $2.6 million—or $0.18 per
diluted share—flat with 2009 results.
Full-year 2010 results were negatively affected by $2.8 million
in incremental legal and other arbitration expenses incurred in
connection with the contractual dispute with the company’s master
licensee in Europe. These arbitration costs had an after-tax impact
of $0.10 per diluted share. A ruling by the arbitral tribunal is
expected at any time.
Results were also negatively affected by the full-year operating
losses of $1.3 million at the Northern California shops—or a
negative impact of $0.05 per diluted share. The company also
recorded higher pension expense and incentive compensation expense
for full-year 2010, amounting to $0.05 per diluted share.
Full-year 2009 results were negatively affected by business
transformation charges of $3.2 million or $0.13 per diluted
share.
Retail sales
“The gains in retail sales at Midas shops in the United States
that began in the fourth quarter of 2009, continued throughout
2010,” said Alan D. Feldman, Midas’ chairman and chief executive
officer. “Comparable shop sales in U.S. Midas shops were up by 3.7
percent in the fourth quarter and by 3.3 percent for the full
year.
“These trends are continuing into 2011, which got off to a slow
start in January with bad weather affecting several regions of the
U.S.,” Feldman said. “Sales have rebounded in February and
preliminary results for the first two months of the quarter show
U.S. comparable shop sales are up nearly two percent.”
Feldman said that Midas introduced a marketing strategy in early
2009 to build shop traffic through value-priced oil changes and to
use results of courtesy checks to advise customers of additional
service needs on their vehicles.
“Traffic at U.S. Midas shops per day increased by 7.3 percent in
the fourth quarter of 2010 and by 10 percent for the full year in
2010, on top of a 14 percent increase in 2009,” Feldman said. “By
doing an effective job of inspecting the growing number of vehicles
attracted by value-priced oil changes, our shops are able to build
trusting relationships with customers while pointing out needs for
brakes, tires, exhaust and other repairs and maintenance.”
Feldman said that comparable shop oil change revenue increased
by 11 percent at U.S. shops in the fourth quarter, while tire
revenues were up by eight percent. Suspension sales were up by
seven percent in the quarter and exhaust sales increased by two
percent.
“Brake sales were negative by 1.8 percent for the quarter and by
2.4 percent for the year. Declines have slowed from the 3.6 percent
and 5.4 percent declines in the fourth quarter and full year last
year,” Feldman said. “The Midas Way operations initiative is
helping to improve sales of brakes and other services.”
Comparable shop sales for the quarter were strongest in the
South region, up by 7.7 percent. The Central region increased by
4.5 percent and the Northeast region increased by 3.0 percent for
the quarter, while the West was flat.
“Retail sales continue to be a challenge in Canada, where sales
were down by 1.4 percent for the quarter and 3.9 percent for the
year,” Feldman said.
Cash Flow
Selected Cash Flow Information ($ in
millions)
FY FY 2010 2009
Cash provided by operating activities before cash
outlays for business transformation costs
andnet changes in assets and liabilities
$ 15.5 $ 22.1 Cash outlays for business transformation costs (0.2 )
(2.0 ) Net changes in assets and liabilities 0.7
(0.7 ) Net cash provided by operating activities $
16.0 $ 19.4 Capital investments $ (4.3
) $ (3.1 ) Cash paid for acquired businesses (3.5 ) (1.3 ) Net
repayments of long-term debt and leases (10.7 ) (13.1 )
Net cash flow from operating activities was $16.0 million for
the year compared to $19.4 million in 2009. This cash flow was
primarily used to repay debt and to fund the acquisition of
company-operated shops and capital investments. The company reduced
its debt by $10.7 million in 2010, and continues to focus on
re-paying outstanding debt.
Fourth quarter and full-year 2010 results
Total sales and revenues were $46.6 million for the fourth
quarter and $192.4 million for the full year, compared to $45.7
million and $182.8 million for the same periods in 2009.
Franchising revenues were $12.3 million for the fourth quarter
and $53.0 million for the year, compared to $12.6 million and $53.6
million, respectively, in 2009. A $0.4 million positive impact on
royalties from the U.S. comparable shop sales increase during the
quarter was offset by a net decrease of 67 franchised shops and
lower franchise fees.
Real estate revenues were $8.0 million for the fourth quarter
and $31.8 million for all of 2010, flat for the quarter and down
from $32.6 million for the year in 2009. The primary reason for the
decline in revenues was a decrease in shop count. There were 518
rent-producing shops at the end of 2010, compared to 534 at the end
of 2009.
Revenues from retail sales at company-operated shops were $17.6
million in the fourth quarter of 2010 and $77.6 million for the
year, up from $16.0 million and $65.4 million, respectively, in the
previous year. There were 101 Midas company-operated shops in
operation at the end of 2010, compared to 100 last year.
While there was a net increase of only one shop from the end of
the prior year, the company purchased 22 shops from a troubled
franchisee in Northern California in January 2010, and refranchised
20 Midas shops in the portfolio during 2010.
Comparable shop retail sales in Midas company-operated shops
were up by 3.3 percent for the quarter and three percent for the
year.
There also were six company-operated SpeeDee shops at the end of
2010, compared to seven at the end of the prior year.
Revenues from replacement part sales and product royalties were
$6.9 million for the fourth quarter and $22.9 million for the year,
compared to $7.6 million for the fourth quarter and $25.3 million
for all of 2009. The declines were primarily the result of lower
sales of branded tires to franchisees throughout the year.
Revenues from the R.O. Writer software business were $1.5
million for the fourth quarter and $5.9 million for the year,
compared to $1.3 million and $5.4 million, respectively, in
2009.
Selling, general and administrative (SG&A) expenses were
$12.7 million for the quarter and $53.0 million for the year,
compared to $11.6 million in the quarter and $51.2 million for all
of 2009. Reductions in operating expenses were offset by the $2.8
million in incremental expenses related to the European
arbitration.
For the full-year 2010, the company reported net income of $2.6
million—or $0.18—per diluted share—compared to $2.6 million—or
$0.19 per diluted share—in 2009. The diluted per share results were
based on 14.1 million shares in 2010 and 13.8 million share in
2009.
SpeeDee Co-Brand Update
At the end of 2010, there were 46 co-branded shops, including 16
SpeeDee shops that have added Midas repairs and services and 29
Midas shops that have added SpeeDee oil change services. A
brand-new franchised Midas-SpeeDee shop opened as a co-brand in
Texas in late 2009.
There are 14 company-operated Midas shops in the Chicago and San
Diego areas that added SpeeDee services in 2009. These shops
reported comparable shop sales increases of 6.6 percent in the
fourth quarter and 7.7 percent for the year.
An additional 12 Midas company-operated shops—four in
California, two in Illinois, one in Indiana and five in
Florida—added SpeeDee in 2010. Sales at these shops were up by 10.7
percent in the fourth quarter and 14.2 percent for the year, during
the portion of the year they were co-branded.
Two Midas franchisees added SpeeDee services to their Midas
shops in New York and Texas in late 2009. A third Midas dealer in
Hawaii added SpeeDee the third quarter of 2010. Comparable shop
retail sales at these franchised locations increased by 24.6
percent in fourth quarter and 17.5 percent for the year, during the
portion of the year they were co-branded.
Feldman said the company expects to co-brand between 25 and 50
additional shops in 2011.
2011 growth opportunities
“We will continue marketing and operations programs in 2011 that
support growth in the company’s revenues and profitability by
building retail sales at Midas and SpeeDee shops,” Feldman said.
“By attracting customers to Midas shops through value-priced oil
changes, we are building traffic and enabling our shops to inspect
these vehicles to discuss service needs with our customers.”
He said the company will also continue its efforts in 2011 to
co-brand Midas and SpeeDee repairs and services to as many as 50
additional locations, to transition at least 100 Midas shops to new
owners and to efficiently manage its corporate expenses.
Midas is one of the world’s largest providers of automotive
service, offering brake, maintenance, tires, exhaust, steering and
suspension services at more than 2,300 franchised, licensed and
company-owned Midas shops in 15 countries, including more than
1,500 in the United States and Canada. Midas also owns the SpeeDee
Oil Change business, with 171 auto service centers in the United
States and Mexico.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This news release contains certain forward-looking statements
that are based on management’s beliefs as well as assumptions made
by and information currently available to management. Such
statements are subject to risks and uncertainties, both known and
unknown, that could cause actual results, performance or
achievement to vary materially from those expressed or implied in
the forward-looking statements. The company may experience
significant fluctuations in future results, performance or
achievements due to a number of economic, competitive,
governmental, technological or other factors. Additional
information with respect to these and other factors, which could
materially affect the company and its operations, is included in
the company’s filings with the Securities and Exchange Commission,
including the company’s 2009 annual report on Form 10-K and
subsequent filings.
MIDAS, INC. CONDENSED STATEMENTS OF
OPERATIONS (Unaudited) (In millions, except for earnings per
share) For the quarter For the twelve months ended
fiscal December ended fiscal December
2010
2009
2010
2009
(13 weeks) (13 weeks) (52 weeks) (52 weeks) Sales and
revenues: Franchise royalties and license fees $ 12.3 $ 12.6 $ 53.0
$ 53.6 Real estate revenues from franchised shops 8.0 8.0 31.8 32.6
Company-operated shop retail sales 17.6 16.0 77.6 65.4 Replacement
part sales and product royalties 6.9 7.6 22.9 25.3 Warranty fee
revenue 0.3 0.2 1.2 0.5 Software sales and maintenance revenue
1.5 1.3
5.9 5.4 Total
sales and revenues
46.6
45.7 192.4
182.8 Operating costs and expenses: Franchised
shops – occupancy expenses 5.9 5.6 22.5 22.7 Company-operated shop
parts cost of sales 5.2 4.5 22.3 18.2 Company-operated shop payroll
and employee benefits 7.9 7.0 33.2 28.1 Company-operated shop
occupancy and other operating expenses 6.0 5.4 25.5 22.0
Replacement part cost of sales 6.4 7.1 21.0 22.9 Warranty expense —
(0.4 ) 0.9 0.1 Selling, general, and administrative expenses 12.7
11.6 53.0 51.2 (Gain) loss on sale of assets, net (0.1 ) — — 0.2
Business transformation charges
—
2.9 —
3.2 Total operating costs and expenses 44.0
43.7 178.4 168.6 Operating income 2.6 2.0 14.0 14.2
Interest expense (2.0 ) (2.2 ) (9.3 ) (8.3 ) Other income, net
(0.1 ) —
0.2 0.4
Income (loss) before income taxes 0.5 (0.2 ) 4.9 6.3
Income tax expense
0.2
— 2.3
3.7 Net income (loss)
$
0.3 $ (0.2
) $ 2.6
$ 2.6 Earnings (loss)
per share: Basic
$ 0.02
$ (0.02 ) $
0.19 $ 0.19
Diluted
$ 0.02 $
(0.02 ) $ 0.18
$ 0.19
Average number of shares: Common shares outstanding 13.8
13.8 13.8 13.7 Common stock warrants
0.1
0.1 0.1
0.1 Shares applicable to basic earnings
13.9 13.9 13.9 13.8 Equivalent shares on outstanding stock awards
0.2 —
0.2 — Shares
applicable to diluted earnings
14.1
13.9 14.1
13.8 MIDAS, INC.
CONDENSED BALANCE SHEETS (In millions, except per share
data) Fiscal Fiscal December
December
2010
2009
(Unaudited)
Assets: Current assets: Cash and cash
equivalents $ 0.6 $ 0.9 Receivables, net 27.0 31.2 Inventories 5.0
5.6 Deferred income taxes 9.1 9.5 Prepaid assets 4.1 4.4 Other
current assets
2.9 3.0
Total current assets 48.7 54.6 Property and equipment, net 81.1
86.4 Goodwill and other intangible assets, net 41.0 36.8 Deferred
income taxes 45.9 46.1 Other assets
3.5
4.7 Total assets
$ 220.2
$ 228.6 Liabilities and
equity: Current liabilities: Current portion of long-term
obligations $ 1.7 $ 1.5 Current portion of accrued warranty 1.7 2.0
Accounts payable 21.1 22.8 Accrued expenses
20.5 24.0 Total current
liabilities 45.0 50.3 Long-term debt 62.7 71.9 Obligations under
capital leases 1.3 1.6 Finance lease obligation 29.1 30.5 Pension
liability 22.5 20.1 Accrued warranty 9.1 11.3 Deferred warranty
obligation 6.8 5.3 Other liabilities
6.7
4.6 Total liabilities
183.2
195.6 Temporary equity: Non-vested restricted
stock subject to redemption 3.8 3.7 Shareholders’ equity:
Common stock ($.001 par value, 100 million shares authorized, 17.7
million shares issued) and paid-in capital 8.9 6.3 Treasury stock,
at cost (3.5 million shares) (71.8 ) (71.5 ) Retained income 113.6
111.0 Accumulated other comprehensive loss
(17.5 )
(16.5 ) Total
shareholders’ equity
33.2
29.3 Total liabilities and shareholders’ equity
$ 220.2 $ 228.6
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