REX American Resources Corp (REX) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you

for standing by. Welcome to the REX Stores

first-quarter results conference call. During the

presentation, all participants will be in a

listen-only mode. Afterwards, you will be invited

to participate in the question and answer session.

At that time, if you have a question, please press

the 1, followed by the 4, on your telephone. As a

reminder, this conference is being recorded

Thursday, May 30th, 2002. I would now like to

turn the conference over to Mr. Stuart Rose, CEO,

and Mr. Doug Bruggeman, vice president of finance.

Please go ahead.

Thank you. This

announcement contains 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. Listeners 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, among other things, the highly

competitive nature of the consumer electronics

industry, changes in national or regional

economies, weather, the effects of terrorism or

acts of war on consumer spending patterns, the

availability - and the availability of certain

products and technological changes.

I'd like to welcome everyone to our first-quarter

conference call and again, we're happy to report

very nice numbers. I think it's our ninth quarter

in a row of double-digit earnings increases. This

time, we were up 35%, which again in a tough

retail economy, we're very proud of. Earnings per

share increased from 28 cents versus 24 cents. We

did all this during a very tough retail

environment, like I mentioned. Our same-store

sales actually declined roughly 9%. The earnings

increase was caused through a couple of things.

Mostly - first of all, the synthetic fuel

partnership that we're invested in. Secondly,

we've been able to lower our interest - our

inventory levels, and therewith, our interest

expense. We've also worked real hard at

increasing our high-definition big-screen

television sales, which are a little bit

higher-margin, which caused our overall business

to have a little bit higher margin.

In terms of negatives, we're sort of in the limbo

period in our small markets where high-definition

is just starting to be broadcast and we expect in

the next year all our markets to start getting

high-definition TV broadcasts in, or hope that

that will happen. Again, it's hard, because of

the limbo effect, where we're losing a little bit

in our smaller television, on monaural television

sales. In fact, that would also have been hit by

drastic deflation in items such as DVDs and VCRs,

that type of product. That's become commoditized

very, very quickly and has hurt our sales.

On the other hand, we've replaced some of that

business with much higher-margin big-screen

business, and our profits have been doing very

well.

At this time, I'd like to leave the conference

open to questions.

Thank you. Ladies and

gentlemen, if you wish to register a question for

today's question and answer session, you will need

to press the 1, followed by the 4, on your

telephone. You will hear a three-tone prompt to

acknowledge your request. If your question has

been answered and you wish to withdraw your

polling request, you may do so by pressing the 1

followed by the 3. If you are on a speakerphone,

please lift your handset before entering your

request. One moment, please, for the first

question.

Scott [Cicarelli] with Girard [Clower] Madison.

Please go ahead.

Hey, guys, Scott [Cicarelli].

How are you?

Good.

Good. Couple questions here.

The first is, you know, when do you think we might

see maybe a little bit more momentum on the top

line, or are you just kind of in limbo until HD

takes over? Is there something else that might be

able to jump-start that? That's one.

We have very high hopes.

We have not seen it yet, but last year was a very

cool summer, so we - if the weather heats up a

little bit, we are very, very big in our markets

in room air conditioner sales. That's probably

our best appliance category. And if that takes

off, we've bought in that product. We feel very,

very - we're well priced in what we paid for the

goods and that should add both to our margins and

our sales, if there is some real hot weather. And

again, we were up against - last year, we didn't

have a lot of hot weather. So far, it's actually

been worse than last year, so - at least in May.

So again, that could happen anytime.

Then in the fall, I expect people - that's when

big screen season hits, and if a fairly decent

number of markets actually finish - finish the

construction and actually start broadcasting in

high definition, that's going to stimulate a lot

of excitement in our markets, as we've seen in

other bigger markets, and we have high hopes.

On the other hand, we have to still make money one

way or another and so we've trimmed our

inventories, cut our interest expense, and worked

real hard at making money through controlling

expenses.

Okay. Thanks.

Thanks, Scott.

Just a quick follow-up here.

Can you also - you guys have been able to

generate some pretty good gross margins, going -

so far. You know, are we able to - do you think

we're going to see, you know, similar types of

increases in the back half of the year? And then

the last part is, store openings, closings. Are

you going to close some stores this quarter? You

know, what does the balance of the year look like?

Thanks.

Okay. In terms of gross

margins, again if we get air conditioning, they'll

be great for the second quarter. If we don't -

that's really a key product. During the third

quarter and fourth quarter, we could start running

up against these higher margins that you're seeing

now. A lot will depend if we can keep selling -

if high-definition takes off, that's a

higher-margin product. Things will look real

good. So again, we're pretty much dependent on

doing well in that cat - in that product

category.

What was the other part of your question, Scott?

Oh, store openings? Right now, we're - right

now, we've put - right now, our plans are to work

on turning around same-store sales. In my

opinion, it's silly to throw a lot of stores out

into the market when same-store sales are not

increasing. We cannot further dilute management.

The way we take our managers is from our existing

stores, so our focus right now and our plans are

to limit the same-store openings and - or the new

store openings, I should say, and concentrate on

same-store sales. When you see that turn around,

then we'll be ready to announce our next wave of

store expansion.

But is it fair to say that

we're not going to see any new stores to offset,

you know, what's been closed, or should we be

looking at kind of a net zero or net minus

something?

At this point in time, I

would not - we may end up opening one or two, but

I wouldn't put that in your numbers, Scott.

Okay. And should we see more

closings, then.

We're not planning any

more closings through Christmas. Again, that

could change, too, depending - depending if a bad

store starts losing people and starts eating up

management's team and we have a short-term lease.

That could change. But at the moment, we have no

more store planning - store closings planned

through Christmas.

Great. That's helpful.

Thanks Stu.

Okay. Thanks Scott,

appreciate it.

the next question comes from

David Berman with Berman Capital. Please proceed.

Stuart, how are you doing.

Good. How are you, David?

Good. Thank you. Can you

just give us a a flavor for the sales, during the

quarter? You know, like how did the sales do by

month? And also, if you can comment on the - you

know, how they did in different locations in

different cities.

Doug, do you want to

answer that question?

Yeah. The sales were

better in April than what they were in February,

so to answer that question, they got better toward

the end of the quarter.

There really isn't any geographic -

How different? I mean how

much better? How -

Marginally better.

Okay.

So . . .

and as far as geographical area, there's no

geographical area that's performing, you know,

significantly better or worse than another. It's

pretty much consistent. You know, you've got

individual stores within a market that may perform

with respect than another one, but there's not, as

I said, any geographical area that we can pinpoint

as to -

Can you break out the sales in

the quarter by, you know, product category? Like

which products were up a percentage, which ones

are down a percentage? If you don't have the

exact numbers, just roughly?

Well, consistent with

what we've been saying, high-definition and

projection TVs are clearly our strongest product

category. We continue to position ourselves to

take advantage of those categories. Ready to

assemble furniture also performed very well for

the company. That's been another good category.

Beyond that, you know, every category probably had

negative comp store sales and it was probably

pretty consistent amongst all the other

categories.

All right. Okay. Thanks,

guys.

Okay. Thanks, David.

Ladies and gentlemen, as a

reminder, to register a question, please press the

1, followed by the 4.

[Megan] [Rudicil] from Cane Capital Management,

please go ahead.

Hey, guys, how are you doing.

Good. How are you.

Good. I got on the call a

little bit late. I guess I was - I was going to

ask you, you were talking about weather and that

you're set up well for - to benefit if we start

to see some trends in weather.

Correct.

As far as your store - what's

the total store count now?

255.

255. And what is the majority

of that geographic location? Northeast?

The place where we do the

strongest air conditioning sales is in the

northeast, but we're spread out probably -

between the south and the northeast, are our two

biggest areas of concentration.

So you'd have to really see a

heat wave in the -

Yeah. The thing to look

for is a heat - if it's hot in New York City,

then we're doing - real, real hot in New York

City, you can bet we're doing real well, because

usually when it gets hot there, it's hot in the

northeast.

Okay. And then typically

speaking -

The south, a lot of it has

central air conditioning. There is some air

conditioning sold there, but not near - it

doesn't have the big spurts like the northeast

does.

Okay. I just have - and in

air conditioning as a - inventories are clean

there?

More than clean. We

have - we bought extremely well there.

And inventories are pretty

clean on the HD side, on the TV side.

Very much so. Very much

so. There was a big shortage in the industry.

We - except for Sony - pretty well cleaned -

Sony was really the only one that had good product

through the first few months of the year.

Uh-huh.

It's - since then, it's

loosened up significantly. Everyone has good

product. But our inventory got extremely clean

because of the shortages.

And the consumer, will they -

are they - did they back off on the HD? Did

they - have they cooled off a little bit.

They kept buying and we -

as soon as the broadcast comes - eventually, and

it's still set for 2007, I expect they'll extend

that, but eventually, I don't know, I'm sure most

people on the call know it, but the televisions

that - the analog televisions that are out there

today will no longer work on the -

By 2007?

By 2007, the way it is

today. And so that's a huge replacement market,

200 million sets, roughly, give or take a little

bit. So -

So that's the longer term play

here.

Right.

Is this recycling. But

there's no short-term catalyst or -

There's almost a

short-term, in some of power markets, negative,

because why buy - why spend all that money for a

high-definition TV today when you can't even get

the signal. But we expect that to be taken care

of very shortly, simultaneous with prices coming

into a very affordable level of high-definition

big screen -

High definition ready big screen today doesn't

cost much more than a nonhigh-definition ready big

screen.

The channels just aren't

turned on.

Correct.

And is there a time on when

that - on average -

We hear a fair amount of

our markets claim they're going to do it this

year. I'll believe it when I see it. They are

not - in no hurry, the broadcasters, in our

markets, to do this and they're stalling as

best - to the best of their abilities because

it's double expense without double income to

broadcast two different signals.

Okay. And then just two other

quick questions.

Sure.

On the air conditioning front,

what is that as a percentage of your overall

market, of your overall revenue?

Doug, do you have that

number? We may have to get back to you on that.

Yeah. I don't have it

readily available, but it - for the second

quarter, it can run as high as about 20%.

And that's - and the margins

there are - what's the margin differential there

between TV.

They're the best of

anything we sell.

Especially with the good

buying.

Yeah.

Okay. And did you guys - did

y'all - did you give guidance at the beginning of

the call, to reiterate, or -

We don't really give

guidance. A couple analysts out them, Scott

[Cicarelli], who asked the first question, and

David [Shick] is the other one, that do have

shipments out there.

Okay. So you're just

comfortable with those street estimates?

Yeah. Well, what - what

I've seen of those. Especially the first quarter,

I think we're right on target.

Okay. Great. All right.

Thank you very much for your questions - for your

full-time.

Sure.

the next question comes from

John Lewis with Gardner Lewis asset management.

Please proceed.

hi, John. John?

Mr. Lewis, your line is open.

Sorry, guys. I had my mute

button on. I apologize.

That's all right.

I hope you're doing well.

Congratulations on another good quarter.

Thanks, John.

You guys are doing well in a

tough environment.

Stuart, just a question. It's been probably 12

years, maybe even 15 years, since I've done a lot

of work on air conditioners. I remember there

being sort of a long-term replacement cycle in

that business. I also remember that if it was hot

in the first three weeks of June, it could be

particularly good. It looks like a long summer at

that point to last through. But you kind of need

the heat early. Do you have any idea what the

replacement cycle looks like?

No, I - we go more by,

John, the bottom line is if it's hot, there's more

homes than - with the amount of people selling

homes and with new - when people leave a home,

they generally take the air conditioner with them

and they haven't had a lot of - a lot of ability

to re- - or a lot of need recently, anyway, to

replace them. So if it's hot, I would - if it's

hot for an extended two-week period of time, I

would expect to sell through our air conditioners.

Right. That's usually the way

it goes. So I - it's been a few years since -

But I'd say the

replacement cycle from when you studied it has

changed a lot because of all the home resales,

with the mortgage rates coming down.

Right. I understand. Has

there been - has there been a blockbuster years

in air conditioners in the last three or four that

you know of?

There wasn't last year or

the year before. Maybe three years ago.

Okay. Yeah, that sounds kind

of right.

and then on big screens and high-definition, is

there anything going on with integrating set-top

boxes? Is that a potential, and does it matter to

you whether people are signing up for satellite or

cable? And I guess in the -

We'd much prefer

satellite. One, because we sell it, so we make

money, not just on the sale, but on residuals.

And more than that, satellite now broadcasts in

high-definition. Cable is one of those foot -

the cable companies are one of the biggest

foot-draggers on broadcasting in high definition.

They're - they yell and scream digital, but

digital is not high definition, and that

aggravates me a lot that they sort of trick people

into thinking they're going to get high

definition, when, in fact, they're just splitting

that signal off when they get digital television.

The numbers I'm looking at are

saying pretty positive things about the satellite,

guys. I have recently switched myself and the

picture is unreal on satellite.

Yeah. And they do

broadcast a couple of stations in high definition,

and we can upgrade the receivers to high

definition receivers, that type of thing, so . . .

Okay. All right. Well,

congratulations. Any comments you want to make on

the energy plays, what you guys have done there,

and how maybe that can continue or what your plans

are?

Sure. What we've done,

we've been fortunate enough to - we've bought

into them a few years ago to generate tax credits,

and we generated tax credits that the income now

is - that we have plenty to sell off and the

income for the first quarter was $4.6 million, and

that's just pure income. There's - the

investment has already been written off, and that

should - should go on to 2007, barring anything

bad happening like the law changing or something

like that.

in terms of what we plan to do forward, we - we

have one other partnership that isn't generating

income. I expect and hope that to generate - or

tax credits, I should say. I expect that to start

generating tax credits in a bigger amount sometime

this year, and we're working on other - it's a

hugely profitable business, and we're working on

at least one other investment. If that comes to

fruition, these numbers are going to jump up any

higher.

That's fabulous.

Congratulations.

Thanks, John.

Your next question comes from

Jack O'Hara with CWH associates. Please go ahead.

Hi. A couple questions. One

is, how are the stores doing in terms of stock

out, in the sense that you've done such a good job

with the inventories? Is the same store being

affected by increased - or on an increased basis

being out of stock?

Well, there were a few

shortages in the industry, and I - I - not

everyone wanted - there might have been some lost

business, but, you know, it was an industry-wide

problem, which has since been taken care of.

Generally, we have a - I think we have as good an

open to buy system as anyone in the country. It's

an automatic replenishment system, and our stock

outs, our inventory levels, if you look at us

versus some of the others, are - we don't shoot

for the turns that they do. We shoot - we buy

more on a return on investment basis, so our stock

outs tend to be less than other people in the

industry.

Okay. And on the limited

partnership, the synthetic fuel, is there any way

that that's predictable? In other words, like in

the fourth quarter, I think on a year-over-year

basis, it was up 20%. This quarter, it's up 50.

Is that because there's more throughput or

price -

I think more throughput.

It's not price of the

commodity or expense control or whatever they're

doing at these plants in Florida.

Unfortunately, we're

limited partnerships and can only - but there's

no logical reason why production on these won't go

up, which then will increase our income. They -

the more - the more that our - our biggest

partner is North Carolina Power and Light. The more

they produce, the more they make. It's as simple

as that. And they had a very good first quarter,

producing syn fuels, so - but we don't - we

can't tell them to go produce more or anything

like that. We're strictly a limited partner. We

would like to tell them, but they don't have to

listen to us. We always tell them to produce

more, but they don't always listen.

Yeah. What's the end market

for those syn fuels?

Usually utility. Usually

a burn plant, a coal plant. It replaces coal.

It replaces coal?

Yeah.

Okay.

The main ingredient is

coal.

Okay. Last question. What

percentage - like you say you got - you're

dealing with some deflation or pretty stiff

deflation in VCRs, DVDs.

Audio..

Audio, basically. What

percentage of your business is that?

Doug, do you have that

number?

Which percentages?

DVD and VCRs, roughly.

It's - it's about

eight or nine percent for VC R and D VD.

Okay. So what you'd say,

though, is that your unit sales are up but the

deflation is just -

Unit sales in DVD are up.

Everything is down in VCRs, both price and unit

sales.

Yeah. Okay. Thank you,

Stuart.

Appreciate your listening.

Okay.

Next question comes from

Campbell Gibson with TGT capital. Please proceed.

Hi. It's Todd Turketta,

actually. I had two questions.

First, on the buyback, I know that it doesn't like

we bought any stock back this quarter. I was

wondering if - I know there's been typically no

magic level, but now that the stock is back up

25%, is there any more plans to get more

aggressive on that front going forward?

The program is out there

and as we've shown when the stock - the stock has

come down a little bit, and again, we - we earn a

good cash position to exercise a buyback, and

depending on stock price, we don't obviously

announce what price that is, but - but depending

on stock price, we - we are in that - we are in

the market using the authorized shares that we

have.

How many is left?

Over a million shares

available in the buy back.

You still have a million left.

Correct.

And the second question, you

said, Stuart, the tax credits will be generated.

Is that that lawsuit? You expect that second syn

fuel partnership to be up and running by the end

of the year and get some tax credits from that or

what -

We have high hopes of

that, yes.

So you're speaking

specifically of that one, that law - the lawsuit

we just filed?

Correct.

So what - anything happening

specifically to make us think that we'd have

something -

They have every incentive,

even though we didn't - even though there's a

lawsuit filed that's in their best interests to

get - it's in everyone best interests to get the

plant up and running, and I know they're working

very hard -

Why have they dragged their

feet up to this point.

- to get it up and

running. The lawsuit would then just relate to -

it mitigates - if we do win the claim, it would

mitigate our claim, the quicker we get this thing

up and running, and so hopefully we can have -

hopefully things will work out where it does get

up and running. We are led to believe that this

could happen.

Is there a reason they give

you why they're dragging their feet on the second

one?

Again, basically that

they - well, there was a good reason. It was

in - the Enron was their operator, and -

Oh.

- that didn't quite work

out. So now they have to go find another

operator.

Oh, all right. Thanks.

Yeah.

the next question comes from

[Megan] [Redicil] with Cane Capital Management.

Please proceed with your follow-up.

Yeah. I was just going to ask

a yes, you mentioned the VCRs deflation. I mean

this is - and that's probably on an obvious trend

as far as displacement is concerned. Are there -

are you seeing any kind of brand weakness, in

particular, in your electronic group? You know,

is any -

No, I think all the

brands - none of them are doing any worse than

any of the others. Sony is still the big demand

brand, but other than that, they're all doing very

well, I think.

So no real noticeable gain or

loss of market share in those?

No, not - about the

exception of Sony, which seems to always gain

market share.

Uh-huh. And just one other

question, just a last question. On the air

conditioning side, do you guys - could you kind

of paint a little picture about the offerings

there? I mean, is it more like a window - you

know, how many different types do you have? Is it

a high or low margin?

It's very high margin and

we carry sharp, carrier, and Bryant, are our -

and GE.

And they're all mostly the

window units.

Window units strictly.

Okay, okay. All right.

Fantastic. Have a nice day.

Sure.

Gentlemen, there are no further

questions at this time. Please proceed with your

presentation or any closing remarks.

I'd just like to thank

everyone for listening and appreciate very much

your being on the call. Thank you.

Ladies and gentlemen, that does

conclude your conference call for today. We thank

you for your participation and ask that you please

disconnect your line.