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Letter to the Editor

Earl Scheib Announces Significantly Improved Financial Results for Q1 of Fiscal Year 2005

Net sales for the first quarter of fiscal 2005 were $12,691,000, a decrease of 4.2 percent from the first quarter of fiscal 2004 net sales of $13,254,000 due primarily to the company operating nine fewer retail paint and body shops since July 31, 2003. However, as noted in a company press release, despite having one less sales day in the first quarter of fiscal 2005 versus fiscal 2004, same-shop retail sales in the first quarter of fiscal 2005 increased by 0.4 percent.

Operating income for the first quarter of fiscal 2005 was $772,000, as compared to $274,000 in the first quarter of fiscal 2004. The significant improvement in the company's operating results was primarily attributable to the increased same-shop sales and to overall reductions in operating expenses.

During the first quarter of fiscal 2005, the company sold one parcel of real estate for a pretax gain of $15,000. There were no sales of real estate in fiscal 2004. In addition, net interest expense increased by $85,000 in the first quarter of fiscal 2005 from fiscal 2004 due primarily to financing costs of the Company's secured $10,000,000 credit facility, which was established in August 2003.

Overall, net income for the first quarter of fiscal 2005 was $594,000, or $0.13 per diluted share, compared to net income of $118,000, or $0.03 per diluted share, for the first quarter of fiscal 2004.

Chris Bement, Chief Executive Officer and President, stated, "The positive business trends developed last fiscal year continued in the first quarter of our current fiscal year, including increases in same-shop, same-day sales in our retail shops in the first quarter. This made it the fifth consecutive quarter of such sales increases. Furthermore, we continued to improve operating efficiency and, once again, showed a small profit in our commercial coatings business. Additionally, despite not yet attaining viable commercial operations, the fleet and truck center operating results did improve slightly from the prior year and its future business prospects appear brighter.

"Last week, we announced the termination of the Letter of Intent with Elden Holding Group, LLC. While disappointed that the parties were not able to complete the proposed transaction, we are hopeful that the company's improved financial performance will continue, which should assist us in our continuing mission to maximize shareholder value."

Earl Scheib, Inc., founded in 1937, is a nationwide operator of 113 auto paint and body shops located in approximately 100 cities throughout the United States.

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