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Letter to the Editor

Keystone Automotive Industries Reports Record Net Sales, Income Down for Fiscal 2005 Q1

Net sales for the first quarter increased 19.5 percent to a record $141.1 million from $118.1 million a year earlier. Net income for the quarter was $4.1 million, or $0.26 per diluted share, compared with $4.2 million, or $0.28 per diluted share, for the quarter a year ago.

"`Net sales for the quarter were in line with expectations, as our core aftermarket collision parts business remains robust. Using weekly averaging, same store sales for the fourteen-week first quarter increased approximately six percent over the thirteen-week first quarter a year ago. Net income, however, was impacted by higher than anticipated costs in several categories," said Charles J. Hogarty, president and chief executive officer.

Hogarty noted that overall costs for the quarter were higher than anticipated by about $1,525,000. Margins were negatively impacted by inventory adjustments as a result of the conversion to the new Prelude management information system ($625,000). Selling expenses were higher than anticipated primarily as a result of increased fuel costs ($250,000) and lease termination costs ($150,000), and administrative expenses were negatively impacted as a result of the retirement of Mr. Hogarty and the hiring of Mr. Richard L. Keister ($500,000).

While the majority of these expenses ($1,275,000) are non-recurring in nature, Hogarty stated that management will be focusing on reducing expenses as a percentage of sales and increasing margins to more recent levels during the remainder of fiscal 2005.

"While we are obviously disappointed in our bottom-line performance for the quarter, our top-line results demonstrate the ongoing opportunities as a result of the continued acceptance of aftermarket parts in the repair of vehicles. The company continues to generate strong cash flow, which will enable Keystone to further expand through acquisitions and internal growth, while keeping borrowings low," Hogarty said.

Since fiscal year end in March, the company has converted an additional 22 distribution facilities to its new management information system. The total number of facilities converted is now approximately 80 percent. The company noted that its Drummondville facility located outside Montreal, Canada, was destroyed by a fire in late January. Management does not anticipate any material impact on the company's overall operations.

Hogarty added that Keystone remains focused on a strategy of further expanding its distribution capabilities, with two small acquisitions completed during the quarter.

"Keystone has a very solid business model. I am confident we will leverage future sales growth into real earnings growth," said Keister, the incoming chief executive officer.

Keystone Automotive Industries, Inc. distributes its products primarily to collision repair shops through its 125 distribution facilities, of which 22 serve as regional hubs, located in 38 states and Canada.

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