REX American Resources Corp (REX) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the REX Stores second-quarter results conference call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Thursday, September 2, 2004.

Your speaker for today is Doug Bruggeman, Chief Financial Officer.

I would now like to turn the conference over to Stuart Rose, Chairman and Chief Executive Officer of REX Stores.

Please go ahead, sir.

Thank you.

This conference call 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 the national or regional economies, weather, the effect of terrorism or acts of war, consumer spending patterns, the availability of certain products, technological changes, new regulatory restrictions or tax law changes related to the Company's synthetic fuel investment, fluctuating amount of quarterly payments received by the Company with respect to sales of its partnership interest in the synthetic fuel investment, and the uncertain amount of synthetic fuel production and tax credits received from time to time in the Company's synthetic fuel investment.

Again, I would like to thank everyone for listening, and we're here to talk about our second-quarter results.

Earnings per share were up 4 percent during the second quarter.

The biggest effect on earnings per share, the primary reason for the increase in earnings per share, was a decrease in our -- a lowering of our income tax line due to a favorable development from the IRS on one of our synthetic fuel lines.

We also had a slight increase in production in synthetic fuel.

On the sales line, same-store sales were roughly flat.

The increases were obtained in plasma and LCD television; it was offset by decreases in conventional television and air conditioners.

Margins were down a little bit, between 2.5 and 3 percent, and it was caused primarily by mix.

We lost a lot of high-margin air conditioner sales.

They were replaced with lower-margin television sales.

Again we are selling now very expensive TVs and the margins are a little bit lower than the air conditioners that were a seasonal item and were a little higher margin.

Interest expense this quarter was up slightly.

The biggest bulk or the bulk of the increase was caused by a prepayment of debt, about 592,000, compared to last year where we reduced our debt by approximately $45 million.

We expect interest expense on an ongoing basis to be down significantly over the next 12 months with this reduction in debt.

We also bought 420,000 shares; and again, we expect to see some benefits of that over the next 12 months.

In terms of the future we're optimistic on our synthetic fuel lines.

We have had nothing but favorable developments the last couple of quarters.

We have hopes that we can see increases in that.

We're extremely optimistic on LCD and plasma.

The price points have finally hit the area where our salesmen in our markets are comfortable selling those products.

We have salespeople that sell them.

We feel we have some advantages in buying the product.

So with that in mind, we really think those categories could be phenomenal.

The conventional television we feel is going to continue to erode away, and margin pressures could be a little tough because we are selling much higher ticket items that are shopped a little bit more.

But there appears to be a huge increase in suppliers, and if that takes place, with our opportunistic buying abilities, we hope to be able to alleviate some of the margin pressure.

In conclusion, same-store sales excluding air conditioners appear to have turned around.

Again, that is due to some products that fit beautifully into our mix, plasma and LCD television.

Synthetic fuel continues to generate huge amounts of cash, which we have been able to use to pay down debt and to buy in shares, which we hope, will increase earnings per share over the future.

We are very excited about the future of our core business, with plasma and LCD starting to take off and really fitting very well in our markets, and with our salespeople being very, very capable -- showing that they are capable of selling these products.

Now, I would like to turn it over to the operator to open the forum up for questions.

(OPERATOR INSTRUCTIONS) Bob McDermott (ph) with Investment Counselors of Merrill (ph).

Just a couple of questions.

From the latest thing in retail, it seems to be to figure out what somebody's real estate is worth.

You own, I think, most of your stores.

Is that correct?

Doug, how many stores do we currently own?

We own about two-thirds of our stores.

So you have done that exercise?

You know, Kmart.

We have never done an appraisal on all our real estate.

Although I can tell you, and I think you have followed us for a long time, when we close stores we have been fortunate to be able to make money on our real estate.

And those are the worst stores.

And I truly believe our real estate is worth a lot more than it's on the books for.

But I cannot tell you what that number was, or I have no idea what that number is.

I wasn't looking for a specific answer.

In terms of going back to the share repurchases, we have had about, what, 12 million -- a little over 12 million shares outstanding?

And then the options are almost 6 million.

Is that correct?

I believe some of that is in the 12 million.

Okay.

I think in the most recent 10-Q, it looked as though about half of the dollars that were spent on share repurchases were buying the stock from people that exercised the options.

Is that -- ?

We don't buy it directly from the people that exercise the options.

The numbers may have turned out that way.

But we don't.

The people exercising the options don't sell.

There was some where shares were traded in order to pay for the shares.

There were shares turned into the Company to pay for the shares.

That is correct.

It is just kind of unusual, because of the long period of time that you all have been repurchasing stock, that the amount of options outstanding relative to the shares that are issued is so incredibly low.

Almost 50 percent of the --.

That has been a result -- I think you just pointed out what caused that.

I just don't know whether further option, grants of options or --?

I can tell you that I haven't been granted options in -- Doug, when is the last time I was granted options?

I think it's been 3 years, Stuart.

Approximately 3 years.

For myself, I agree with you.

For the people that are under me, I think that whether we change the format of compensation, I think it has been a good thing for them.

I think we have lost very, very few people over the years, and we have very, very high-quality people.

I think it has been something that has been good.

It puts them on the same wavelength as our shareholders.

So, I would hate to just arbitrarily throw it out without having something to replace it.

We will have to -- with that said, with the new rules, we will look at other things to motivate them without issuing options; and possibly come up with something else.

I don't know, maybe you feel better today than you did some (inaudible) -- but this is kind of the first time I am getting a sense that you're starting to get excited about retail again.

Well, we are starting to feel good.

If you notice, we saw same-store sales even during what should have been a disaster of a same-store sales period, with no air-conditioning, with the weather being very cold in almost all our markets.

The worst air-conditioning season I can remember.

They were still just about flat; and excluding air-conditioning we were up a little bit.

This was not the season of plasma and LCD television.

So I do feel good, to answer your question.

I feel I am starting to get excited.

It is finally -- what we have talked about coming, coming, appears to be finally -- plasma has come down into a price point where our customers can afford it.

Flat screen or LCD television is coming on gangbusters.

A huge amount of suppliers appear to be going into this business.

And the more suppliers, the better, the more fun it is for us; because we are pretty good at being opportunistic buyers.

There will be some that do well, some that don't.

We will be there to pick up the pieces and that could help our margin.

So yes I do feel real good right now about retail.

Okay.

Thanks.

(OPERATOR INSTRUCTIONS) Mr. Rose there are no more questions at this time.

I will now turn the call back to you.

Please go ahead.

I would like to thank everyone for listening, and I appreciate your support very much.

Thank you; bye.