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Midas Inc. Reports Operating Results (10-Q)

August 13, 2009 | About:

Midas Inc. (MDS) filed Quarterly Report for the period ended 2009-07-04.

Midas Inc. provides services in the U.S. Canada France and other locations in Europe Australia the Middle East Latin America and the Caribbean. Midas shops offer exhaust brake suspension air conditioning and maintenance services. Midas brand products are sold at wholesale to franchised Midas shops and at retail by company-operated shops. IPC brand exhaust products are sold to distributors. Midas also manufactures and sells shop equipment under the Huth trademark. Midas Realty Corp. a Midas subsidiary selects leases acquires and constructs sites for Midas shops. Midas Inc. has a market cap of $130.7 million; its shares were traded at around $9.33 with a P/E ratio of 16.9 and P/S ratio of 0.7.

Highlight of Business Operations:

Total operating costs and expenses declined $0.5 million, or 1.2%, in the second quarter of fiscal 2009 to $42.5 million. Occupancy expenses for franchised shops declined $0.1 million, or 1.8%, reflecting a reduction in Canadian rent expense due to the much weaker Canadian dollar and a small decrease in shops under lease, partially offset by scheduled increases in rent expense for shops leased by the Company. Company-operated shop costs and expenses rose to $17.2 million from $16.1 million in the second quarter of fiscal 2009. The increase in operating expenses was driven by higher sales, as well as additional shops and incremental overhead required to support the higher shop count compared to the same period one year ago. The Company also incurred certain one-time costs by converting 11 company-operated shops in San Diego to the Co-Brand business model during the quarter. Payroll and employee benefit costs increased to 42.3% of company-operated shop sales in the second quarter of fiscal 2009 compared to 40.7% in the same period of the prior year. Company-operated shop occupancy and other expenses as a percentage of company-operated shop sales were approximately flat to the prior year at 32.7% for the second quarter of fiscal 2009. Company-operated shop cost of sales increased from 25.9% of company-operated shop sales in the second quarter of fiscal 2008 to 27.4% in the second quarter of fiscal 2009, primarily as a result of an increase in the proportion of sales of oil and tires and higher discounts that helped to drive customer traffic.

Total operating costs and expenses declined $0.7 million, or 0.8%, in the first six months of fiscal 2009 to $83.1 million. Occupancy expenses for franchised shops declined $0.2 million, or 1.7%, reflecting a reduction in Canadian rent expense due to the much weaker Canadian dollar and a small decrease in shops under lease, partially offset by scheduled increases in rent expense for shops leased by the Company. Company-operated shop costs and expenses rose to $33.4 million from $31.1 million in the first six months of fiscal 2009. The increase in operating expenses was driven by higher sales, as well as additional shops and incremental overhead required to support the higher shop count compared to the same period one year ago. Payroll and employee benefit costs increased to 42.3% of company-operated shop sales in the first six months of fiscal 2009 compared to 41.2% in the same period of the prior year. Company-operated shop occupancy and other expenses as a percentage of company-operated shop sales were 33.3% for the first six months of fiscal 2009 compared to 33.1% for the prior year. Company-operated shop cost of sales increased from 25.7% of company-operated shop sales in the first six months of fiscal 2008 to 27.5% in the first six months of fiscal 2009, primarily as a result of an increase in the proportion of sales of oil and tires and higher discounts that helped to drive customer traffic.

The Companys operating activities provided net cash of $6.6 million during the first six months of fiscal 2009 compared to $12.2 million of cash provided by operations in the first six months of fiscal 2008. Excluding cash outlays for business transformation costs and changes in assets and liabilities, cash provided by operating activities decreased from $14.5 million in the first six months of fiscal 2008 to $10.3 million in the first six months of fiscal 2009, due to the decrease in net income, lower utilization of deferred tax assets, reduced business transformation charges, a decrease in the loss on sale of assets and lower depreciation and amortization. Cash outlays for business transformation costs declined from $0.7 million in the first six months of fiscal 2008 to $0.1 million in the first six months of fiscal 2009. Cash outlays for business transformation costs in the first six months of fiscal 2009 and the first six months of fiscal 2008 were primarily related to the Companys update of its retail shop image.

Changes in assets and liabilities changed from a $1.6 million use of cash in the first six months of fiscal 2008 to a $3.6 million use of cash in the first six months of fiscal 2009. The $3.6 million use of cash in the first six months of fiscal 2009 was driven by a decline in accrued advertising due to the timing of payments. The $1.6 million use of cash in 2008 was primarily due to a decline in accrued expenses due to the timing of payments.

Investing activities used $2.5 million of cash in the first six months of fiscal 2009 compared to $24.8 million of cash used in first six months of fiscal 2008. Fiscal 2009 investing activities consisted of $2.4 million in capital expenditures and $0.1 million paid in conjunction with the acquisition of a shop and other assets from a Midas franchisee. The $2.4 million in capital expenditures included $1.4 million in Co-Branding spending on Midas company-operated shops, $0.3 million for systems development projects, $0.5 million for company-operated shop equipment additions and $0.2 million of other capital expenditures. Fiscal 2008 investing activities consisted of $21.8 million paid in conjunction with the acquisition of SpeeDee in April 2008 and the acquisition of 11 company-operated shops, $3.4 million in capital expenditures and $0.4 million in cash generated as the result of the sale of eight company-operated shops. The $3.4 million in capital expenditures included $0.6 million in office renovation costs, $1.3 million for real estate purchases, $0.4 million for systems development projects and $1.1 million for company-operated shop equipment additions and other capital expenditures.

Net cash used in financing activities was $4.3 million in the first six months of fiscal 2009, compared to net cash provided of $14.1 million in first six months of fiscal 2008. During fiscal 2009, MDS decreased total debt by $2.4 million, decreased outstanding checks by $1.2 million and paid $0.7 million to repurchase shares of the Companys common stock from employees to satisfy tax obligations upon vesting of restricted stock awards. During fiscal 2008, the Company increased total debt by $15.0 million due primarily to the purchase of the SpeeDee franchise business in April 2008, decreased outstanding checks by $0.9 million, paid $0.2 million to repurchase shares of the Companys common stock and received $0.2 million in cash from the exercise of outstanding stock options.

Read the The complete ReportMDS is in the portfolios of John Keeley of Keeley Fund Management.

Rating: 4.5/5 (2 votes)

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