It's been a big year for Midas Inc.

In the past six months, the Itasca-based automotive supplier has made its president chairman, launched a new television ad campaign, seen its profits rise 46 percent, bought back $4 million of its shares and shed its exhaust distribution business.

But with half a year to go before Dec. 31, the former operator of muffler shops may want to hold off on the champagne.

For Midas, which has 1,788 shops in the United States and Canada and 2,610 worldwide, 2006 also has packed some punches, including a 7 percent dip in sales in the first quarter, its shares trading on the lower end of its 52-week high, and less-than-expected comparable-store sales.

But equipped with a sweeping growth strategy that includes a goal of improving store sales by 40 percent by 2010, restarting store expansion in North America, and repurchasing $50 million in stock, the company remains optimistic about the future, even as clouds gather over the automotive service industry.

Traffic in shops has been "less than we hoped for," said spokesman Bob Troyer. But he added, "we're focused on executing all initiatives to keep sales at levels they should be".

In the first quarter ended April 1, the company saw growth of just 1.3 percent, with similar preliminary results for May. Midas attributed the softness in retail sales growth to consumer reaction to higher gas prices.

"We continue to think that consumers are delaying big-ticket repair and maintenance work while they adjust to higher gas prices," said Chairman and CEO Alan Feldman ahead of the company's presentation at Sidoti & Co. LLC's Emerging Growth Conference in Boston on Monday.

Jim Barrett of C.L. King & Associates in New York said Midas's woes aren't surprising at a time when crude oil is hovering above $70 a barrel.

"They aren't the first automotive service company to indicate that high gas prices prompted consumers to defer spending on auto repair," Barrett said, who adjusted his rating from "strong buy" to "accumulate".

Competitors Munro Muffer Brakes Inc. for example, reported weaker same-store sales, as did Pep Boys?Manny, Moe and Jack, which posted a decrease of 0.9 percent.

Barrett joined two other analysts in downgrading the company. But six others initiated evaluations, a positive sign. In all the company now gets four "buys," two "holds," two "sector-outperforms," one "accumulate," and an "in-line" rating.

But Feldman contends that concerns about safety and reliability will eventually drive motorists back to professionals for repair and maintenance work.

Reaffirming its 2006 net income guidance of $12.8 million, Midas said its prospects for growth are bright, singling out its exit from the exhaust business earlier this year as a move that will allow the company to focus on the profitability of its franchise system.

At the Sidoti conference, Midas reassured that the company was back on track for stronger growth, emphasizing its plan to dramatically increase sales through its stronger brake and tire sales and ramping up its fleet management business on a national level.

Anthony Cristello of BB&T Corp., who rate Midas a buy, said that under current market conditions, with high gas prices discouraging driving, the company is "faring just like everyone else." But he said the recent move to buy back an additional $25 million in company shares?on top of an original authorization of $25 million?means shareholders are going to start to like what they see. The number of shares outstanding on a fully diluted basis was 15.8 million at the end of the first quarter. The stock sells around $19.

But to increase sales, the company should look to items that have shown strong growth recently, such as tires and brakes, Cristello added.

"They have to continue to gain traction in selling tires and emphasize the focus on brakes".



Posted by: Jim    Source