Reddi Brake Expects Disappointing Earnings
Reddi Brake Supply Corp., a rapidly expanding Ventura firm that sells brake systems, chassis components and other auto parts mainly to mechanics, said its earnings for the current fiscal year will be disappointing.
The announcement sent Reddi Brake’s stock into a tailspin, with the shares losing one-third of their market value in a single day late last month.
The company said it overestimated the mechanics’ market for new auto parts in the Southeast and Midwest, with the result that it won’t meet analysts’ expectations that earnings will amount to 17 cents per share of stock in the fiscal year that will end June 30.
On Feb. 28, the day of the announcement, Reddi Brake’s stock plunged to a 52-week low of $3.75 on the Nasdaq market, down $1.875 for the day. According to Bloomberg Business News, a total of 2.12 million shares changed hands that day, more than 10 times the three-month daily average. Bruce Douglass, Reddi Brake’s president and chief executive, told the news service that “this is strictly a sales issue.”
He added: “The operating results in the Western and Southwestern regions where the market is familiar with the Reddi Brake concept have met our expectations. However, slower than expected sales ramp-up at stores in regions new to the Reddi Brake concept has substantially impacted our results.”
Douglass said sales for the current fiscal year “could well come in at the lower end” of analysts’ estimates ranging from $45 million to $50 million. He said he didn’t yet have a revised earnings estimate.
Brent R. Rystram, an analyst with Piper Jaffray, a Minneapolis-based brokerage, suggested that Reddi Brake misjudged regional differences in the Southeast, where mechanics tend to buy more reconditioned than new parts.
Still, Rystram told Bloomberg Business News he is maintaining a “strong buy” recommendation on Reddi Brake’s stock. He called the problem “just a glitch” in the company’s growth.
Reddi Brake entered the Southeastern market last year. It now operates 37 of its 89 outlets in that region. The network has units in 27 states.
In fiscal 1994, Reddi Brake had a loss of $16.4 million, or 71 cents a share, on sales from continuing operations of $21 million. The loss included charges for issuing new shares and for the disposal of Wesco, a money-losing division.
Several days after its recent announcement, Reddi Brake said its same-store sales last month increased 15% over February, 1994.
