Midas Reports First Quarter Earnings of $0.09 Per Diluted Share and Net Cash Provided by Operating Activities of $0.50 Per Share; Raises 2008 Guidance to Reflect SpeeDee Acquisition

Business Wire, May 1, 2008

ITASCA, Ill. -- Midas, Inc. (NYSE: MDS) reported net earnings of $1.3 million--or $0.09 per diluted share--for the first quarter ended March 29, 2008, compared to $2.2 million--or $0.14 per diluted share--in the first quarter of 2007. Both the 2008 and 2007 results include $0.02 per diluted share for special items.

Revenues for the quarter increased 8.5 percent to $44.8 million. Operating income declined $1.7 million to $4.1 million in 2008 from $5.8 million last year.

"The $1.7 million decline in operating income primarily resulted from the expected $1.1 million reduction in European royalties, increased spending to accelerate the transition of shops to new franchisees, a shortfall in U.S. franchising income and the timing of real estate sales gains," Alan D. Feldman, Midas' chairman and chief executive officer, said. "These declines were partially offset by significant reductions in corporate expenses and strong retail performance in Canada."

The company said that its increased emphasis on transitioning shops to new franchisees led to a 50 percent increase in shop transitions to 38 during the first quarter of 2008 from 25 a year ago.

"New franchisees continue to drive outstanding sales growth, with comparable shop retail sales at the 57 shops sold to new franchisees over the past year up 18.5 percent in the first quarter and up 14.7 percent over the past 12 months," Feldman said. "We believe accelerating franchisee transitions where appropriate is a wise investment for the long-term health of the Midas system."

To support this increase in transition activity, the company spent an incremental $400,000 for short-term lease costs to preserve shop sites, $300,000 to prepare shops for re-franchising and $100,000 to increase franchisee recruitment. The company also incurred $300,000 in operating losses and additional overhead to oversee the company-operated shops purchased from franchisees in the past six months. These increased costs related to transitions should result in improved profitability in the future as these shops are re-franchised.

"The challenging retail sales and economic environment in the U.S. had a negative effect on our results that was partially offset by strong performance in Canada, resulting in a $300,000 reduction in the year-over-year operating income in our North American franchise business," Feldman said.

"Importantly, we were able to completely offset the entire $1.1 million decline in European royalties that resulted from the scheduled change in the license agreement from a fixed fee to a variable payment based on a percentage of sales," said Feldman. "We accomplished this through our planned reductions in corporate expenses and improved profitability of our R.O. Writer software and wholesale businesses."

In addition, gains from the sale of real estate were $200,000 lower in the first quarter this year than in 2007. The 2008 gains are not expected until later this year.

Retail Sales Results Mixed

System-wide comparable shop retail sales in the United States were down 1.6 percent. The decline in retail sales was caused by significant declines in the Southeast and the West, the same regions hit hardest by the current weak real estate and consumer credit markets. The remaining U.S. regions had positive comparable shop sales, including the Northeast and the North Central which were both up more than three percent.

Retail sales at Midas shops in Canada, which has not experienced similar major housing and credit issues, were positive in all geographic regions. Overall comparable shop sales in Canada were up 7.8 percent.

"We continue to see strong sales increases in our new categories of tires and maintenance, which are helping to offset the decline in brakes" Feldman said.

"Comparable shop tire sales increased by 18 percent in the U.S., while oil changes were up 10 percent and brake sales were down nine percent. The launch of our new SecureStop brake service did not occur until late February and, therefore, had limited effect on our first quarter results. Preliminary results show positive U.S. comparable shop sales in April and improved fundamental brand measures in the first quarter," he said.

Strong Cash Flow Continues

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Net cash provided by operating activities was $6.9 million--or $0.50 per diluted share-- in the first quarter, compared to $3.3 million--or $0.22 per diluted share-- in the first quarter of last year. Lower cash outlays for business transformation costs, combined with positive cash flow from changes in assets and liabilities, more than offset the decline in net income.

The company spent $1.9 million on capital investments during the quarter, including $0.8 million for real estate and $0.5 million for company shop equipment. No shares were repurchased during the quarter in anticipation of the $20.8 million acquisition of SpeeDee Oil Change on March 30.

SpeeDee Update

As previously announced, the company completed the acquisition of the assets of G.C. & K.B. Investments, Inc., and its affiliated entities that franchise or sub-franchise 181 SpeeDee quick-lube and automotive maintenance shops in the United States and Mexico on March 30, 2008. Midas and SpeeDee management have spent the subsequent weeks meeting with most SpeeDee franchisees across the U.S. to explain the benefits of the acquisition and to outline the company's co-branding vision. At the same time company management met with Midas franchisees in areas where SpeeDee has a presence.