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Letter to the Editor
Friday March 12
FinishMaster 2003 Net Income Down
FinishMaster, Inc. has reported that net income for the year ended December 31, 2003 was $11,852,000, or $1.52 per share, compared with net income of $12,897,000, or $1.64 per share, in the prior year period. For the three months ended December 31, 2003, net income was $2,494,000, or $0.32 per share, compared with net income of $2,965,000, or $0.38 per share, in the prior year period.According to a company press release, the decline in net income for the quarter and year compared to the prior year periods was a result of a decrease in the gross margin rates on sales and an increase in the effective income tax rates.
Partially offsetting these items were higher net sales, lower operating and selling, general and administrative expenses, and decreased interest expense.
The increase in net sales for the quarter and year was due to acquisitions. Three acquisitions were completed during 2003. Same stores sales were down for the full year as compared to 2002 due to continued weakness in demand for automotive paint and accessories throughout our distribution network.
Lower gross margin dollars for the quarter and year resulted from a decline in the margin rates. The deterioration in margin rates was due to inventory reserve adjustments for excess and obsolete inventory, higher shipping and handling costs as a percentage of net sales, and a reduction in incentive programs offered by vendors.
Operating and selling, general and administrative expenses as a percentage of net sales decreased 230 basis points to 23.4 percent and 60 basis points to 23.2 percent for the quarter and year, respectively. Lower wages and benefits, bad debt expense, and information technology expenditures related to communications, consulting and hardware were the primary factors responsible for the decrease in expenses.
"We take solace that our operating expense ratios have improved," stated J. A. Lacy, President and Chief Operating Officer, "and intend to work hard for more improvement in cost control. However, our main focus is sales growth, and we are executing plans to achieve this objective."
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