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REX Stores Reports Fiscal Third Quarter Diluted Earnings Per Share of $0.42

Posted on: Tuesday, 5 December 2006, 09:01 CST

REX Stores Corporation (NYSE:RSC) today announced financial results and comparable store sales for the three- and nine-month periods ended October 31, 2006 (the Company's 2006 fiscal year).

Net sales in the fiscal 2006 third quarter were $85.2 million compared with $91.8 million in the fiscal 2005 third quarter. Comparable store sales for the three months ended October 31, 2006 declined 5.6%. The Company reports sales performance quarterly and considers a store to be comparable after it has been open six full fiscal quarters. Comparable store sales figures do not include sales of extended service contracts.

For the quarter ended October 31, 2006, income from synthetic fuel limited partnership investments was $5.9 million compared with $8.4 million in the comparable year-ago period which included a $1.2 million gain related to the sale by the Company of its interest in a synthetic fuel limited partnership. Earlier in fiscal 2006 some of the synthetic fuel plants for which REX receives income had temporarily ceased production as higher oil prices increased the likelihood that Section 29/45K tax credits would be reduced or phased out. As of the end of the fiscal third quarter of 2006, all synthetic fuel plants for which REX receives income had returned to operation. Based upon recent oil price reductions, the Company has reduced its estimate of Section 29/45K phase out from 75% at the end of the second quarter to 40% at the end of the third quarter.

During the fiscal 2006 third quarter, REX completed the sale of seven retail store locations for a total of $6.8 million and recorded a $2.2 million pre-tax gain related to the real estate sale of which $0.5 million was related to continuing operations and $1.7 million ($1.1 million after-tax) was classified as discontinued operations. Net income in the three months ended October 31, 2006 was $4.8 million, or $0.42 per diluted share, compared to net income of $6.9 million, or $0.58 per diluted share, in the three months ended October 31, 2005. Per share results are based on 11,517,000 and 11,865,000 diluted weighted average shares outstanding for the three-month periods ended October 31, 2006 and 2005, respectively.

Net income in the nine-month period ended October 31, 2006 was $7.8 million, or $0.67 per diluted share, compared with net income of $21.7 million, or $1.76 per diluted share, in the nine-month period ended October 31, 2005. Per share results are based on 11,608,000 and 12,353,000 diluted weighted average shares outstanding for the nine-month periods ended October 31, 2006 and October 31, 2005, respectively. Net sales in the 2006 nine-month period were $251.5 million compared to $259.6 million in the nine months ended October 31, 2005. Comparable store sales in the first nine months of fiscal 2006 declined 0.7% compared to the same year-ago period.

Ethanol Update

REX recently received notification that all conditions had been met for the Company to fund its $16.0 million equity interest in Patriot Renewable Fuels LLC ("Patriot"). REX provided its funding on December 4, 2006. With funding obtained Patriot has commenced construction of a 100 million gallon per year ethanol production facility in Illinois.

As previously announced, during the third fiscal quarter REX funded $11.5 million for Levelland/Hockley County Ethanol, LLC ("Levelland/Hockley"), a 40 million gallon per year ethanol production facility in Texas. The $11.5 million funding, along with REX's previously announced $5 million convertible secured promissory note commitment (expected to be funded by December 31, 2006), enables REX to secure a majority equity interest in the LLC that controls the facility. REX has an agreement, subject to certain conditions, to fund up to an additional $6.5 million in Levelland/Hockley to further increase its ownership. Effective in the fiscal 2006 third quarter REX has consolidated Levelland/Hockley with its financial statements.

REX also funded $5 million during the fiscal third quarter in Big River Resources, LLC ("Big River") and has entered into an agreement to fund an additional $15 million in exchange for a minority equity interest in the entity. Through a holding company structure, Big River presently operates a 52 million gallon dry-mill ethanol manufacturing facility in Iowa. Big River intends to expand the plant to produce 80 million gallons per year and, through interests in other entities, intends to develop additional ethanol production plants.

REX intends to fund $14 million in Millennium Ethanol, LLC ("Millennium") on or before April 1, 2007, for a convertible note that provides the Company rights to convert the note, with additional funds, into a minority ownership interest. Millennium has commenced construction of a 100 million gallon per year ethanol production facility in South Dakota.

In addition to the four ethanol commitments described above, REX has entered into a contingent agreement to fund $24.9 million for One Earth Energy LLC, that intends to construct a 100 million gallon per year ethanol production facility in Illinois.

The Company will host a conference call and webcast today at 11:00 a.m. EST, which are open to the general public. The conference call dial-in number is 212/346-6584; please call ten minutes in advance to ensure that you are connected prior to the presentation. Interested parties may also access the call live via the Investor Relations page of the Company's website, www.rextv.com, or at www.earnings.com; please allow 15 minutes to register, download and install any necessary software.

Following its completion, a telephonic replay of the call can be accessed through 12:30 p.m. EST on December 12, 2006 by dialing 800/633-8284 or 402/977-9140 (international callers). The access code for the audio replay is 21310853. Alternatively, a replay will be available on the Internet for 30 days at www.rextv.com or www.earnings.com.

REX Stores Corporation is a leading specialty retailer of consumer electronic products and appliances. As of October 31, 2006, the Company operated 207 retail stores in 36 states under the trade name "REX." Over the past eight years, REX has also been active in several synthetic fuel investments and the Company currently has plans to participate in five proposed ethanol producing plants.

This news announcement contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by use of forward-looking terminology such as "may,""expect,""believe,""estimate,""anticipate" or "continue" or the negative thereof or other variations thereon or comparable terminology. Readers are cautioned that there are risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. These risks and uncertainties include the risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission and among other things: the highly competitive nature of the consumer electronics retailing industry, changes in the national or regional economies, weather, the effects of terrorism or acts of war on consumer spending patterns, the availability of certain products, technological changes, changes in real estate market conditions, new regulatory restrictions or tax law changes relating to the Company's synthetic fuel investments, the fluctuating amount of quarterly payments received by the Company with respect to sales of its partnership interest in a synthetic fuel investment, the potential for Section 29/45K tax credits to phase out based on the price of crude oil adjusted for inflation, and the uncertain amount of synthetic fuel production and resulting income received from time to time from the Company's synthetic fuel investments. As it relates to ethanol investments, risks and uncertainties include among other things: the uncertainty of constructing plants on time and on budget and the price volatility of corn, dried distiller grains, ethanol, gasoline and natural gas.

REX STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

October 31

October 31

2006 

2005 

2006 

2005 

NET SALES AND REVENUE

$

85,215 

$

91,759 

$

251,495 

$

259,553 

Cost of sales

62,702 

66,380 

182,722 

186,132 

Gross profit

22,513 

25,379 

68,773 

73,421 

Selling, general and administrative expenses

23,284 

24,102 

68,485 

69,578 

OPERATING (LOSS) INCOME

(771)

1,277 

288 

3,843 

INVESTMENT INCOME

341 

23 

920 

155 

INTEREST EXPENSE

(562)

(664)

(1,549)

(1,946)

GAIN ON SALE OF REAL ESTATE

462 

253 

2,197 

253 

INCOME FROM SYNTHETIC FUEL INVESTMENTS

5,865 

8,433 

8,650 

24,813 

Income from continuing operations before provision for income taxes and discontinued operations

5,335 

9,322 

10,506 

27,118 

PROVISION FOR INCOME TAXES

1,713 

2,251 

3,627 

4,992 

Income from continuing operations

3,622 

7,071 

6,879 

22,126 

Income (loss) from discontinued operations, net of tax

103 

(189)

(168)

(548)

Gain on disposal of discontinued operations, net of tax

1,090 

- 

1,090 

125 

NET INCOME

$

4,815 

$

6,882 

$

7,801 

$

21,703 

WEIGHTED AVERAGE SHARES

OUTSTANDING -- BASIC

10,333 

10,532 

10,268 

10,850 

Basic income per share from continuing operations

$

0.35 

$

0.67 

$

0.67 

$

2.04 

Basic income (loss) per share from discontinued operations

0.01 

(0.02)

(0.02)

(0.05)

Basic income per share on disposal of discontinued operations

0.11 

- 

0.11 

0.01 

BASIC NET INCOME PER SHARE

$

0.47 

$

0.65 

$

0.76 

$

2.00 

WEIGHTED AVERAGE SHARES

OUTSTANDING -- DILUTED

11,517 

11,865 

11,608 

12,353 

Diluted income per share from continuing operations

$

0.31 

$

0.60 

$

0.59 

$

1.79 

Diluted income (loss) per share from discontinued operations

0.01 

(0.02)

(0.01)

(0.04)

Diluted income per share on disposal of discontinued operations

0.10 

- 

0.09 

0.01 

DILUTED NET INCOME PER SHARE

$

0.42 

$

0.58 

$

0.67 

$

1.76 

REX STORES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

October 31

January 31

October 31

2006 

2006 

2005 

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

15,923 

$

21,363 

$

1,254 

Accounts receivable, net

3,757 

3,457 

4,460 

Synthetic fuel receivable

7,592 

1,680 

2,930 

Merchandise inventory

116,065 

97,371 

135,220 

Prepaid expenses and other

1,655 

2,052 

1,555 

Future income tax benefits

9,588 

9,361 

10,929 

Total current assets

154,580 

135,284 

156,348 

PROPERTY AND EQUIPMENT, NET

121,846 

125,245 

127,626 

ASSETS HELD FOR SALE

1,497 

1,497 

1,669 

OTHER ASSETS

7,919 

760 

823 

FUTURE INCOME TAX BENEFITS

28,397 

30,031 

27,978 

INVESTMENTS

5,000 

- 

- 

RESTRICTED INVESTMENTS

2,384 

2,318 

2,300 

Total assets

$

321,623 

$

295,135 

$

316,744 

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt

$

2,354 

$

2,389 

$

2,958 

Current portion of deferred income and deferred gain on sale and leaseback

11,176 

10,883 

10,609 

Accounts payable, trade

23,153 

20,396 

38,919 

Accrued income taxes

1,587 

541 

418 

Accrued payroll and related items

4,302 

7,183 

5,777 

Other current liabilities

6,300 

5,863 

6,596 

Total current liabilities

48,872 

47,255 

65,277 

LONG-TERM LIABILITIES:

Long-term mortgage debt

21,454 

21,462 

27,774 

Deferred income and deferred gain on sale and leaseback

13,106 

12,213 

11,349 

Total long-term liabilities

34,560 

33,675 

39,123 

MINORITY INTEREST

12,119 

- 

- 

SHAREHOLDERS' EQUITY:

Common stock

295 

294 

293 

Paid-in capital

138,700 

135,775 

134,985 

Retained earnings

248,699 

240,898 

234,332 

Treasury stock

(161,622)

(162,762)

(157,266)

Total shareholders' equity

226,072 

214,205 

212,344 

Total liabilities and shareholders' equity

$

321,623 

$

295,135 

$

316,744 

Source: Business Wire

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