Scheib Putting a New Coat of Paint on Its Operations

Earl Scheib Inc., the Beverly Hills-based operator of auto paint and body shops, is attempting to repair its own badly damaged business.

Scheib, famous for the television commercials in which its late founder touted rock-bottom prices, is steering beyond its core business of painting late-model cars in an effort to boost its lackluster stock.

Three weeks ago, the company opened its first shop for painting large trucks, tractors and buses. In March, it began marketing a brand of polyurethane paint.

The expansion comes as Scheib watches its traditional market rapidly disappear: Fewer consumers are repainting their cars, because auto makers’ paint jobs now last 10 years or more.

“To have a growth potential, we have to get into these two other lines of business,” said Chris Bement, Scheib’s president and chief executive.

Scheib shares have languished near $4 for the last year--the lowest they’ve traded since the early 1980s. Scheib shares closed unchanged Thursday at $3.25 on the American Stock Exchange. They peaked at about $19 in 1987.

The company, which a gravel-voiced Earl A. Scheib once trumpeted on late-night television with the line “I’ll paint any car, any color, for $29.95,” has had trouble distinguishing itself in the highly fragmented auto aftermarket, despite its familiar name. Industry sales were about $32 billion in 1999, according to the Automotive Aftermarket Industry Assn. in Bethesda, Md.

Scheib offers a basic paint job for $159.95. But many consumers today are willing to spend more money for better-quality paint jobs than what Scheib offers, said Sue Elliot-Sink of the trade group Specialty Equipment Marketing Assn. in Diamond Bar.

Scheib’s most recent quarterly earnings report painted a less-than-rosy picture for the 64-year-old business.

For its fiscal fourth quarter ended April 30, Scheib had an operating loss of $907,000, or 21 cents per share, compared with an operating loss of $427,000, or 8 cents per share, in the year-earlier period.

Sales at Scheib’s shops open at least a year--the industry’s best measure of performance--fell 2.2% in fiscal 2000. Total revenue was $56.4 million, up 2.5% from fiscal 1999.

Bement is betting that Scheib’s new 20,000-square-foot shop for repainting big vehicles used by companies and state and local governments will boost revenue and paint the company back into the black.

The first of these shops, called Quality Fleet & Truck Centers, is located in Los Angeles. Two more are planned for the L.A. area within six months.

Bement said Scheib found that many companies either paint their oversize vehicles illegally, breaking environmental laws that protect against harmful emissions, or have them painted in rural areas, where overhead is cheaper.

“It takes two weeks to get the vehicle back [from outlying areas]. We’re offering about a three-day turnaround,” said Bement, who estimates that customers will save $800 a day by using his shops.

Analyst George Peterson of AutoPacific Group in Tustin said Scheib’s move into the commercial market makes sense. “They just need more painting business, and big trucks will do it for them,” he said.

The larger shops also will do spot painting for collision damage--work Scheib has farmed out through the years.

Meanwhile, Scheib recently began selling EuroPaint, a product known for its durability, through a subsidiary, Precision Coatings Inc. The company is marketing the 100% polyurethane paint, made in Springfield, Mo., to companies ranging from bed-frame makers to amusement parks, as well as to body and paint shops that aren’t direct competitors.

At least one investor is applauding Scheib’s revised strategy.

“This couldn’t [happen] too soon,” said Andrew Shapiro, head of Lawndale Capital Management, a San Francisco investment firm that owns more than 5% of Scheib. “These new moves have a very good chance of improving what has previously been an unacceptably low return on assets.”

Shapiro, an activist investor known for scooping up bargain stocks, has encouraged Scheib to explore options for unlocking the value of its real estate assets. The company owns the land and buildings occupied by about 65 of its 169 shops nationwide. In federal filings, it says those sites are not environmentally contaminated.

In addition to closing or selling unprofitable outlets, Scheib should consider selling properties and leasing them back, with the proceeds used to enlarge the fleet and truck business, Shapiro said.

At the moment, Scheib doesn’t see a need for sale lease-backs, said Charles Barrantes, its chief financial officer.

“It’s certainly an option if we need the cash, [but] we feel the cash we get from operations with the facilities should meet our needs for the next 12 months,” he said.

Scheib has owned the roughly 65 properties an average of 15 to 20 years each. They are mainly located in high-traffic retail zones and have the potential to generate high returns.

Bement, who has headed Scheib since January 1999, is already selling underperforming outlets, particularly in the Midwest and on the East Coast, where they lack the marketing heft of the 52 shops clustered in Southern California.

Scheib closed 12 shops in fiscal 2000 and plans to close 10 more in the Midwest and East this year, Bement said.

He projects sales at the truck and bus centers to hit $2 million annually, compared with average sales of $335,000 at its retail shops--that works out to a little over $1,100 per day per shop.

Bement said Scheib’s new strategy is a significant departure from its storied past. “We’ll still have a lot of cars 10 or 12 years old or older that need paint jobs. That won’t go away,” he said. “But we’re looking at Scheib becoming a growth company again.”