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Americans have cut back on new-car purchases, and the economically squeezed among us are putting off repairs on the ones we own. But unless there's a mass migration to bicycles or (gasp) public transportation, we're eventually going to have to plunk down some cash to keep our heaps road-worthy. That makes for a bullish outlook for Midas (symbol MDS), the repair-shop chain.
My memories of Midas are not exactly pleasant. I naively used to think that my new Midas muffler, together with a lifetime guarantee (for the muffler's life, not mine) meant I'd never again have to visit my Midas man -- at least as long as I didn't change cars. Then that mild growl would turn into a humiliating rumble, and I'd be back at Midas, hoping that the warranty spared me any more expense for the muffler. But I never seemed to get off that easy because, although the warranty covered my exhaust pipe, it didn't apply to my intake flange or my extractor widget or my whatever, and there would go another 300 bucks.
Why couldn't car makers just build mufflers out of something stronger than tinfoil? It turns out they could, and that spelled trouble for Midas. But the chain, which has more than 2,500 shops (both company-owned and franchised) in 17 countries, has adapted.
The stores started expanding their business by adding brake services. Now, they'll fix your air conditioning, steering, belts and hoses, and a variety of other parts. George Putnam, publisher of the Turnaround Letter, writes that Midas has "developed a valuable niche between the expensive, car-dealer service operations and the inexpensive, single-service shops [such as oil-change outfits]."
Putnam says that Midas is expanding intelligently. It recently bought the nationwide SpeeDee chain of oil-change and tune-up shops and plans to re-brand it with the Midas name and add other products and services.
But Midas's touch certainly hasn't been golden lately. On July 31, the Itasca, Ill.-based company trimmed 2008 guidance for sales and operating income a bit. It forecast this year's revenues at $192 million, down by $1 million, and says it expects operating income of $25.5 million to $26.5 million, down from a previous forecast of $28.5 million to $30.5 million (the forecast excludes $1.5 million in costs associated with turning some shops over to new franchisees). Analysts, on average, expect Midas to earn 71 cents a share this year and 85 cents in '09.
Putnam is bullish on Midas because he expects acquisitions and a broadening product line to boost both sales and profits. He also suggests that Midas's strategy of focusing on franchises enables the company to expand without having to make big capital outlays.
An equally compelling argument is made by a Midas competitor. Robert Gross, chief executive of Monro Muffler Brake, says drivers can put off maintenance only for so long. And from my days covering Monro as a reporter in Rochester, N.Y., where the company is based, I remember an axiom of the car-repair business: The older the fleet, the bigger the profits. The U.S. auto fleet will age as new-car sales plummet, forcing people to spend more on maintenance.
Before buying Midas, understand that this stock has been in a trading range that seems chiseled in stone. The stock closed at $15.20 on August 6, down from its 52-week high of $21. About five years ago, it traded at about $12. It meandered up to about $25 in 2005, and then meandered back down to a bit less than $13 in June.
If and when Americans start heading to repair shops in droves, the stock could quickly race past $20. But don't expect lavish gains -- auto repair is a gritty, slow-growth business.
POSTED BY: bill williams (August 09, 2008 06:48 AM)
Belts and hoses last a lot longer than in the past and qualified techs are hard to find. Their reputation is not spotless and new car dealers are getting more competitive. This spells trouble for Midas.
POSTED BY: Derf (August 13, 2008 11:41 AM)
RU you sure about things lasting longer? Design margins are being shaved closer to the bone than ever, cheap and light are today's iron rules in the car biz.
As for car dealer service departments getting better -- you have got to be kidding...All they are getting better at is upselling based on FUD, recommending new rotors when pads are worn, flushes when only an oil change is needed, etc. And besides, if new cars are getting so good, when was the last time anyone heard of a car dealer closing its service dept? Their service depts are typically quite busy fixing quality problems in new cars. They throw tons of $$$ parts at sensor/electrical problems. Recommend work on all four wheels when only one needs it, etc.
POSTED BY: Mark Smith (September 25, 2008 11:24 AM)
My name is Mark Smith. I own 6 Midas locations in Central Virginia and am the current President of the International Midas Dealer's Association. Yes, the automotove aftermarket has had challenges and will, undoubtedly, have more -- supply chain issues, staffing and retention programs, effective marketing platforms and programs in an increasingly diverse portfolio of marketing options are all issues we must choose from and between every day. That being said the synergy between Midas' Senior management team and the franchisees is increasingly evident and productive. The synergy of a national brand and the efforts behind that in conjunction with committed and passionate local ownership and operation is the key that will see Midas weather the current economic turbulence, emerging, as we have been and will continue to be, a leader in automotive maintenance, service and repair.
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