A leaner Midas Inc. is hoping a tighter focus on brake-repair services and tire sales will bring profits soon.
Alan D. Feldman, a former McDonald's Corp. executive who joined Itasca-based Midas in January 2003 as president and CEO, shed the company's wholesale parts-distribution business, directing the 750 Midas franchisees to buy parts from third-party distributors.
``Our wholesale distribution had been declining for five years and it had been unprofitable for 24 months when we decided to exit that business. There was no way to reverse the trend,'' Mr. Feldman said after the company's recent annual meeting.
Why the decline? When the advent of stainless steel exhaust systems cut into Midas's muffler-replacement business starting in the early 1990s, former management turned to a host of other parts, ranging from light bulbs to wiper blades, to pick up the slack. But the company's warehouses couldn't cope with the additional flood of items.
Also last year, Midas sold one-third of its company-operated repair shops to franchisees, leaving 73 locations owned by Midas. Mr. Feldman insisted he is chiefly dedicated now to boosting sales at the 1,900 Midas shops owned by his 750 franchisees. He's encouraging dealers to market their brake-repair business more aggressively-brakes represent 45 percent of company sales, compared with 20 percent for exhausts-and he entered into a deal recently to sell tires from Bridgestone/Firestone nationwide. Midas had never sold tires before.
The initiatives may be starting to have an effect. Same-store sales rose 1.5 percent in the first quarter, compared with the year-earlier period. They had been flat in 2003 and down 2 percent in 2002. ``We're in the process of reversing two and a half years of declining sales,'' Mr. Feldman said.
In 2003, revenues declined 7 percent to $311 million, while $102.6 million in non-cash charges for the restructuring contributed to a loss of $76.2 million, or $4.93 per diluted share, compared with a year-earlier loss of $33.6 million, or $2.25 per share.
In the first quarter of this year, revenues slid 37 percent to $46.9 million. The company lost $2.6 million, or 16 cents per share, compared with a year-earlier loss of $6.4 million, or 43 cents per share. However, a one-time charge of $4.7 million for penalties on the early extinguishment of debt accounted for the red ink. Otherwise, Midas would have posted a profit of 2 cents a share.
Scott Stember, an analyst at Sidoti & Co. in New York, predicted Midas will earn 49 cents a share this year. He said he likes the tire-selling strategy: ``Tires are a lower-margin business than brakes or mufflers, but they can open the doors to a lot of other services for customers. It's one more way for Midas to diversify its business.''