Less Lost at Midas is Still a Loss

Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Midas, Inc. (NYSE: MDS) lost money again this past quarter, but it lost less money than last year. And crazy as it may sound, that is a sign that the auto repair and automotive aftermarket parts industries are doing well. Unfortunately for Midas, it is still a bad sign overall.

During the fourth quarter of last year, Midas suffered a net loss of $15.7 million ($1.14 a share), which makes the 2011 fourth quarter loss of a mere $400,000 (4 cents a share) good news in comparison! Considering revenue for the quarter was down 6.6%, a loss of $3.2 million, to $43.6 million, again, a loss of $400,000 is hardly painful. After all, Midas lost less while making less and that's almost like making money, except for the part where no one makes money.

In August, Midas began an evaluation of various strategic and financial alternatives to boost shareholder value, including a possible sale or merger of the company. It also said it would appraise the value of the 208 properties in its real estate portfolio that are company-owned Midas shops or are leased to franchisees. The company owns 75 co-branded Midas auto service and SpeeDee oil change shops, and it expects to co-brand another 100 shops in 2012.

However, other retailers, such as AutoZone (NYSE: AZO) reported increases and profits during the same season. AutoZone reported a 24% increase in profit to $4.15 per share in the second quarter of fiscal 2012 (up from $3.34 per share in 2011). And not to make Midas feel bad, but AutoZone also saw profits go up 13% to $166.9 million during the quarter from $148.1 million in the second quarter of prior fiscal year. Needless to say, Midas' smaller losses are still losses next to AutoZone's profits.

The Pep Boys - Manny, Moe & Jack (NYSE: PBY) are also making Midas look bad. The company saw shares skyrocket just a few weeks ago after private equity firm Gores Group announced acquisition plans of the retailer for about $1 billion. The deal is expected to close in the second quarter, and values Pep Boys at $15 per share (stock value $15.01 today). 

Overall, the aftermarket parts industry is doing well, and looks promising. However, as the economy continues to improve many consumers will turn away from driving their older model cars and look to buying newer ones. Rising fuel prices will also encourage people to trade in their older cars as well in search of greater fuel efficiency. These are very bad signs for ailing Midas. If the new strategies and alternatives don't produce quickly the company may return to the bigger losses.

American car makers have already begun to see improvements in sales, as a result of the improving economy. But if the economy is slow(er) to turn around, many consumers will continue to fix their own vehicles and keep aftermarket parts retailers and repair shops doing well. But the sooner the economy overall does well, the sooner things will not be as bright for aftermarket parts and repair retailers.

In the meantime, things do not look golden for Midas, less losses or not. The company still managed to lose revenue and profit in a season where the competition saw great improvements. All things considered, this is a "stop and really think this through" before investing. Current owners will want to really evaluate further loss potential and expectations. This is one stock where an improving economy may not benefit the ailing company.


The Motley Fool has no positions in the stocks mentioned above. ErinAnnie has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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