Midas, Inc. (NYSE: MDS):
- Earnings per share of $0.07
negatively affected by $0.05 in net foreign currency exchange
losses on arbitration settlement
- Shop traffic increases four percent
in U.S. Midas shops
- U.S. comparable shop sales up two
percent
- Company-operated shop comparable
retail sales up five percent
Midas, Inc. (NYSE: MDS) reported net earnings of $0.9 million—or
$0.07 per diluted share—for the first quarter ended April 2, 2011,
compared to $0.7 million—or $0.05 per diluted share—in the first
quarter of 2010.
First quarter results were negatively impacted by $1.3 million
of net foreign currency exchange losses—or $0.05 per diluted
share—because of the re-measurement of the Euro- denominated
arbitration settlement related to the company’s now-concluded
contractual dispute with its master European licensee, MESA S.p.A.
The arbitration ruling was announced on March 3, 2011, and the
€19.0 million award, along with a €3.4 million receivable for legal
fees and escrowed royalties, were recorded in the company’s 2010
year-end financial statements at the year-end exchange rate of 1.34
to 1.0.
Under U.S. accounting standards, the company was required to
re-measure the €19.0 million liability and the €3.4 million
receivable at the exchange rate at the end of the first quarter,
which was 1.42 to 1.0. This action resulted in the recording of a
net $1.3 million exchange loss in the first quarter.
The company paid the net settlement amount on April 7, 2011. An
additional exchange loss of approximately $0.1 million will be
recorded in the second quarter of fiscal 2011, as the exchange rate
moved further to 1.43 to 1.0 at the time the settlement was
paid.
Retail sales
“We now have reported six consecutive quarters of increases in
comparable shop retail sales at Midas shops in the United States,”
said Alan D. Feldman, Midas’ chairman and chief executive officer.
“First quarter 2011 comparable shop sales at U.S. shops were up by
two percent, despite a slow January that was affected by bad
weather in much of the country.”
“Average daily car count at U.S. Midas shops increased by four
percent during the quarter—on top of a 10 percent increase for all
of 2010, while the average ticket was stable throughout the
quarter,” Feldman said.
In U.S. Midas shops, oil changes increased by 7.2 percent and
tire sales grew by 5.2 percent in the quarter. Suspension sales
were up by 7.4 percent, while exhaust was up by one percent and
brakes declined by 4.8 percent.
Midas’ overall comparable shop sales in Canada were flat in the
first quarter, as were sales at SpeeDee shops.
“The sales gains we recorded in the first quarter have continued
into the second quarter, with preliminary reports for April showing
comparable shop sales increases of two percent for U.S. Midas shops
and one percent in Canada,” Feldman said.
In the first quarter, comparable shop sales at company-operated
Midas shops were up five percent, helped by the improved
performance at shops in Northern California acquired in January
2010. The company originally acquired 22 formerly franchised shops
in Northern California, but has since re-franchised five shops and
closed one. The remaining 16 Northern California company-operated
shops had a 7.6 percent sales increase in the first quarter.
There were 99 company-operated Midas shops at the end of the
quarter, down from 117 at the end of the first quarter of 2010.
First Quarter Results
Total sales and revenues for the quarter were $46.1 million,
compared to $47.7 million in the first quarter last year. This
anticipated decline was primarily the result of the ongoing
re-franchising program in which 18 company-operated shops have been
sold to franchisees over the past 12 months.
Midas’ franchising revenues were $13.0 million for the quarter,
up from $12.9 million in 2010. A decline in the franchised shop
count was offset by comparable franchised shop sales gains in the
U.S. Midas shops.
Real estate revenues were $7.9 million, flat with last year, as
increased retail sales offset a slight decline in rent-producing
Midas shops.
Revenues from retail sales at company shops were $18.0 million
during the quarter, down from $19.8 million last year. The decline
was the result of having 18 fewer company shops this year compared
to the first quarter of 2010 as a result of re-franchising, offset
by the five percent comparable shop sales increase.
Replacement part sales and product royalties were $5.2 million,
down from $5.4 million a year ago, primarily due to a decline in
tire sales to shops.
Revenues from the company’s R.O. Writer software business were
$1.6 million in the first quarter, compared to $1.5 million last
year.
First quarter operating income was $4.7 million, compared to
$3.5 million for the same period a year ago, reflecting a 2.9
percentage point improvement in operating margin.
Company-operated shops were breakeven in the first quarter of
2011, compared to a loss of $0.2 million in the first quarter last
year. There were also improvements of $0.3 million in operating
contributions from R.O. Writer and the real estate businesses.
Selling, general and administrative (SG&A) expenses were
$12.3 million during the first quarter of 2011, compared to $13.7
million in 2010. There were no arbitration-related SG&A
expenses recorded in the first quarter this year. Operating income
in the first quarter of last year was negatively impacted by $1.1
million—or $0.05 per diluted share—of legal and other fees incurred
in connection with the European arbitration.
Interest expense for the quarter was $2.0 million, down from
$2.5 million in 2010. The company’s bank debt was $62.0 million at
the end of the first quarter, down from $74.4 million at the end of
the first quarter last year and $62.7 million at the end of
2010.
Midas recorded income tax expense of $0.6 million during the
first quarter, compared to $0.5 million in the first quarter of
2010. The company does not pay a significant amount of income taxes
because of net operating loss carry forwards of approximately $61.3
million from previous years.
Cash Flow
Selected Cash Flow Information ($ in millions)
Q1
Q1 2011 2010 Cash provided by operating
activities before net changes in assets and liabilities $ 4.4 $ 3.8
Net changes in assets and liabilities (1.8 )
(1.2 ) Net cash provided by operating activities $ 2.6
$ 2.6 Capital investments $ (0.5 ) $ (0.5 )
Cash paid for acquired businesses - (3.5 ) Net borrowings
(repayments) of long-term debt and leases $ (1.1 ) $ 2.1
Net cash flow provided by operating activities was $2.6 million
for the first quarter, even with the first quarter of 2010. This
cash flow was primarily used for capital investments and to re-pay
debt.
SpeeDee Co-Brand Update
There are currently 49 co-branded shops, including the
conversions during the first quarter of one franchised SpeeDee shop
that added Midas services, and one franchised Midas shop and one
company-operated Midas shop that added SpeeDee oil changes.
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 6.2 percent in the
first quarter of 2011, on top of an increase of 11 percent in the
first quarter of 2010.
An additional 12 company-operated Midas shops—four in
California, two in Illinois, one in Indiana and five in
Florida—added SpeeDee in 2010. Comparable shop sales at these shops
were up by eight percent in the first quarter of 2011.
A total of three franchised Midas shops in New York, Texas and
Hawaii added SpeeDee in 2009 and 2010. Comparable shop retail sales
at these franchised locations increased by 22 percent in the first
quarter of 2011.
Feldman said the company expects to co-brand up to 50 additional
shops in 2011.
2011 growth opportunities
“We will continue our proven strategy of growing shop traffic
and retail sales with value-added oil changes and through programs
that enhance the in-shop operations and customer experience,”
Feldman said.
“That said, we are keenly aware of the potential impact on our
business by rising prices for gas, food and other staples,” he
said. “Our shops must continue to deliver value to our customers
through oil changes, brakes and other services to keep their cars
operating efficiently and safely.”
Feldman said the company is in various stages of discussions
with franchisees at more than 20 locations to co-brand Midas and
SpeeDee repairs and services over the next two quarters.
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 2010 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
Ended fiscal
March
2011
2010
(13 weeks) (13 weeks) Sales and revenues: Franchise
royalties and license fees $ 13.0 $ 12.9 Real estate revenues from
franchised shops 7.9 7.9 Company-operated shop retail sales 18.0
19.8 Replacement part sales and product royalties 5.2 5.4 Warranty
fee revenue 0.4 0.2 Software sales and maintenance revenue
1.6 1.5 Total sales
and revenues
46.1
47.7 Operating costs and expenses: Franchised
shops – occupancy expenses 5.7 5.5 Company-operated shop parts cost
of sales 4.8 5.5 Company-operated shop payroll and employee
benefits 7.5 8.1 Company-operated shop occupancy and other
operating expenses 5.7 6.4 Replacement part cost of sales 4.8 4.9
Warranty expense 0.4 0.2 Selling, general, and administrative
expenses 12.3 13.7 (Gain) loss on sale of assets, net
0.2 (0.1 )
Total operating costs and expenses 41.4 44.2 Operating income 4.7
3.5 Interest expense (2.0 ) (2.5 ) Other income (expense), net
(1.2 ) 0.2
Income before income taxes 1.5 1.2 Income tax expense
0.6 0.5 Net income
$ 0.9 $
0.7 Earnings per share: Basic
$ 0.07 $
0.05 Diluted
$ 0.07
$ 0.05
Average number of shares: Common shares outstanding 13.8
13.8 Common stock warrants
0.1
0.1 Shares applicable to basic earnings 13.9
13.9 Equivalent shares on outstanding stock awards
0.2 — Shares
applicable to diluted earnings
14.1
13.9 MIDAS,
INC.
CONDENSED BALANCE SHEETS
(In millions, except per share data) Fiscal
Fiscal March December
2011
2010
(Unaudited)
Assets: Current assets: Cash and cash
equivalents $ 1.0 $ 0.6 Receivables, net 29.4 29.5 Inventories 5.5
5.0 Deferred income taxes 16.6 18.0 Prepaid assets 4.1 4.1 Other
current assets
2.1 3.0
Total current assets 58.7 60.2 Property and equipment, net 78.9
81.1 Goodwill and other intangible assets, net 40.8 41.0 Deferred
income taxes 44.7 43.9 Other assets
3.4
3.5 Total assets
$ 226.5
$ 229.7 Liabilities and
equity: Current liabilities: Current portion of long-term
obligations $ 1.7 $ 1.7 Current portion of accrued warranty 1.7 1.7
Accounts payable 16.4 21.1 Accrued expenses 19.8 20.5 Accrued
European arbitration settlement
27.1
25.5 Total current liabilities 66.7 70.5 Long-term
debt 62.0 62.7 Obligations under capital leases 1.3 1.3 Finance
lease obligation 28.7 29.1 Pension liability 22.3 22.5 Accrued
warranty 8.8 9.1 Deferred warranty obligation 7.1 6.8 Other
liabilities
6.5 6.7 Total
liabilities
203.4 208.7
Temporary equity: Non-vested restricted stock subject to
redemption 4.2 3.8 Shareholders’ equity: Common stock ($.001
par value, 100 million shares authorized, 17.7 million shares
issued) and paid-in capital 9.1 8.9 Treasury stock, at cost (3.5
million shares) (71.8 ) (71.8 ) Retained income 98.5 97.6
Accumulated other comprehensive loss
(16.9 )
(17.5 ) Total shareholders’ equity
18.9 17.2 Total liabilities and
shareholders’ equity
$ 226.5
$ 229.7
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