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Letter to the Editor

Earl Scheib Announces Slightly Improved Q3 Fiscal 2002 Results

SHERMAN OAKS, Calif. -- Earl Scheib, Inc. reported its results for the third quarter and nine months of the fiscal year ending April 30, 2002. Historically, the third quarter has been the most difficult quarter of the company's industry because of adverse winter weather and the holiday season.

Net sales for the third quarter of fiscal 2002 were $10,202,000, a decrease of 1.5 percent from the third quarter of fiscal 2001 net sales of $10,359,000. This resulted primarily from the company operating 26 less retail paint and body shops at January 31, 2002, as compared to January 31, 2001, but was substantially offset by a same shop sales increase of 7.7 percent during the third quarter of fiscal 2002 from the third quarter of fiscal 2001. For the nine months ended January 31, 2002, net sales were $38,752,000, as compared to $40,683,000 during the same period in the prior fiscal year, a decrease of 4.8 percent, with same shop sales slightly increasing.

The operating loss for the third quarter of fiscal 2002 was $1,571,000, as compared to an operating loss of $2,231,000 in the third quarter of fiscal 2001. The improved operating results were primarily attributable to the same shop sales increase and reduced administrative costs, partially offset by increased insurance costs and operating losses at the Company's two fleet and truck centers. The operating loss for the nine months ended January 31, 2002 and 2001 was $2,089,000 and $1,873,000, respectively. Insurance costs for the nine months ended January 31, 2002 increased by $909,000 from the same period in the prior fiscal year. During the first nine months of fiscal 2002, Earl Scheib sold 12 parcels of real estate and its corporate office building, as part of its restructuring plan, for a pretax gain of $3,626,000. During the first nine months of fiscal 2001, the Company sold five parcels of real estate for a pretax gain of $233,000.

The net loss for the third quarter of fiscal 2002 was $778,000, or $0.18 loss per diluted share, as compared to a net loss of $2,316,000 during the third quarter of fiscal 2001, or $0.53 loss per diluted share. For the nine months ended January 31, 2002, net income was $734,000, or earnings of $0.17 per diluted share, as compared to a net loss of $2,027,000, or $0.47 per diluted share, for the nine months ended January 31, 2001. The Company did not recognize any federal or state income tax benefit for the operating losses in fiscal year 2001.

Chris Bement, Chief Executive Officer and President, stated, "The improved operating results for the third quarter, though far from satisfactory, do demonstrate the soundness behind the restructuring of our retail paint and body business. We have seen same shop sales increase in three out of the last four months and, other than the industry-wide problem of higher insurance costs, have reduced administrative expenses. Our restructuring plan, which primarily addresses the closing of retail shops in single-shop areas and markets where seasonal weather adversely impacts operating results, should continue to show improvement in the retail paint and body business through a leaner infrastructure and greater focus in those geographic areas, primarily the Southwest, where we have historically been profitable. As of January 31, 2002, we have closed 24 shops during the current fiscal year and expect to close at least seven more by the end of the next fiscal year.

"The commercial coatings business has been growing slowly, but not significantly, and while we have not yet attained profitability at the fleet and trucks centers, we are working hard to improve these results and have engaged an outside consulting firm to assist us in determining the right business model."

Earl Scheib, Inc., founded in 1937, is a nationwide operator of 135 auto paint and body shops located in more than 100 cities throughout the United States.

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