REX American Resources Corp (REX) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Rex Stores fourth quarter and year end results conference call. [OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded Thursday March 31st, 2005.

I would now like to turn the conference over to Mr. Stuart Rose, Chairman and Chief Executive Officer at 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 could, among other things, the highly competitive nature of the consumer electronics industry, changes in the national or regional economies, weather, the effects of terrorism or acts of war on consumer spending patterns, availability of certain products, technological changes, new regulatory restrictions or tax law changes related to the Company's synthetic fuel investments, the price of oil, the fluctuating amount of quarterly payments received by the Company with respect to the sale of its partnership interest in the synthetic fuel investment, and the uncertain amount of synthetic fuel production and tax credits received from one time -- from time to time from the Company's synthetic fuel investments.

I'd like to thank everyone for listening.

For the fourth quarter, our earnings for the quarter were 16.8 million, versus 17.1 million, again, we would -- as in last year we received --- we did a phenomenal job, in the synthetic -- or received -- I wouldn't say we did, but we received a large amount of income due to our synthetic fuel partnerships.

Sales were down a little bit, 125.4 million, versus 130.2.

Comps were down about 2%.

Main cause for that was some bad weather that hit us during -- right before Christmas in the midwest.

We also had in transforming our Company, we now sell a lot more major items like big-screen television and a lot less commodity items.

And, so we don't have as many Christmas items as we -- or that's not as big a percent of our sales as it has been in the past, so it's hurt our -- it hurt our comps a little bit.

We did, during the quarter, have large increases in plasma, LCD product, and DLP product.

For the year our net income was up a little bit, 25 -- 27.5 million, versus 27.4 million.

Earnings per share were flat, 2.17 per share both years -- both years.

Sales for the year were down a little bit, 391 million, versus 405 million.

Some of that was caused by store closings, again, weather, got hit by a couple of things this year that -- really, three things this year that caused some decrease in sales.

First thing was the cold weather during the summer.

Second thing were the Floridas -- were the hurricanes in Florida.

The third thing were the storms during Christmas.

Also, as we move to further commoditize -- or some of our products became further commoditized, such as audio, DVD.

We've lost some sales in that area.

On the other hand, we've had huge increases in plasma, LCD, and DLP which is really the direction we're taking -- we're taking -- trying to take the Company right now.

Going forward, current comps in February and March are running in the mid-single digit figures, and that's even with the loss of two days.

We did not, we were up against a leap year this year and an early Easter.

The early Easter will be picked up in April, so we'll get one of those days back.

The increases are coming in the plasma and the LCD and the DLP area.

Again, finally, most of our markets have high-definition television sets.

Now the prices for plasma, LCD are more affordable.

It's also a product that we're confident we can outsell our competition.

We feel we buy these products right.

We feel that it takes us -- to do it right, it takes a sales person to sell it, it's not a product that can be bought off the shelf.

We feel we're perfectly positioned.

And I think our numbers for February and March, at least, are starting to show some positive benefits of repositioning our Company after a bit of pain that we've had.

In terms of the alternative energy field, e -- production seems to be steady right now.

We are a little worried about oil prices, if they go up significantly from where they are now, it could cause a slowdown.

Tax credits start to become less as prices go up.

We have another plant that we have very high hopes of getting royalties from this year, the Gillette -- and we call it the Gillette plant, which, if that goes into production, we'll get some income in addition to the income that we currently are receiving from the Florida progress plants, and the tax credits we're receiving from the Sempra plants.

One new thing to add to our Company, we're looking to repeat the success, or at least -- we may never do as well as we did in synthetic fuel, but we're looking to expand our operations and spending a fair amount of time studying a number of different alternative fuel projects.

Right now we are under agreement, subject to completing our due diligence of one -- of one ethanol project, a fairly large ethanol project.

And we're looking, like I said, at several other ones.

And we have very high hopes that we can create a division out of an alternative energy division, and basically take our success that we've enjoyed in synthetic fuel and turn that into a real business.

And we're going to work hard at doing that, and we have high hopes that we can do that.

In conclusion retail is looking brighter right now than it has in a long time.

The products that we have are coming down in price, they're coming into the price points of our markets.

We're in a little bit less affluent markets, so as plasma comes down, LCD, DLP comes down, we think it's going to be great opportunity in our market.

Also, finally, our markets are getting high-definition television.

Also, analog television will phase out eventually, and as that phases out and as those products -- and some time in the future, those products won't work.

And when that happens, we'll get a huge boom in our -- everyone will have to replace the analog television sets or do without.

And then, finally, synthetic fuel is going -- the numbers speak for themselves -- it's going extremely well.

We're looking to expand our presence in the alternative energy field, and have high hopes to do a project -- or to turn that to some sort of recurring gain for our Company as if -- in addition to the synthetic fuel that continues for a couple, about 2.75 more years.

I'd now like to open everything up to questions.

I'm here with Bruggeman, and we'll take questions.

Go ahead.

Thank you. [OPERATOR INSTRUCTIONS].

Our first question comes from the line of Mr. Rick Weinhart with Harris Nesbitt.

Please proceed with your question.

Hi.

Good morning, Stuart, good morning Doug.

Hi, Rick.

I had a couple questions on the business and kind of another one on just theoretically where you're going.

But on the TV business for the quarter, can you -- can you give me any more detail in terms of how much a percentage of mix it was, how much growth you saw year-over-year, or any kind of color on that?

Doug, do you want to answer that question?

Yes, that's fine.

Rick, that was definitely the area with the biggest growth.

Probably about 60% of our business in the fourth quarter.

He's talking about television.

Right, right, yes.

Okay.

And any estimate on terms of what the -- kind of what the growth was, or don't you have that available?

It increased probably close to -- just in that product category about a 10% increase.

For the category.

Okay.

And, obviously, the hotter selling products more than the older sets that you had.

Correct.

Okay.

And on the some of the commodity products, which have become a smaller part of your business, have you been -- have you been -- given any thought or have you been doing any adding new products to the mix to replace those products, or are relying more and more just on the TV part of your business?

We're looking at the moment.

We are -- there are some little things like grills and air purifiers that we're going to have.

But the main thing we're going to add in a serious way is a much larger selection in the product that we're doing so well in, the plasma, the DLP, and the LCD.

And we're already doing -- we're in the process of doing that and you're seeing some gains from that right now.

Okay.

On the --

That's where real growth potential comes from.

And again, we just -- prices were so high we were afraid to jump with two feet in.

But now that prices -- now that we've proven we can sell the products, we're ready to jump in with both feet.

Okay.

So you -- a larger selection of those products, anyway.

Yes.

On the -- on the ethanol project you mentioned, can you just give me a little more color as to -- I mean, is this another kind of limited partnership that you're looking at?

And is there any kind of details in terms of what capital you'll be putting there or anything like that?

We're not ready to announce anything that detailed yet, except to say that we're in agreement.

At this point in time, I think it's premature to go any further than that.

Okay.

On the real estate.

Now, you had one sale, I believe, during the quarter, was that just one property where the gain was?

That's correct, Rick.

One property.

We sold -- well, I guess we had a couple things.

I mean, we sold a property that we had previously closed, so that's down on gain of a disposal continued operations.

And then up on gain of sale real estate, we had, I think it was just one sale during the fourth quarter selling land from an existing site.

Okay.

Great.

And just -- and this is more theoretically on where you're going with the business.

You have a lot of property on the books, which, at least we're assuming is undervalued versus your -- at least market value to book value.

Have you given any thought to getting that property appraised or doing anything strategic with that property?

I know there's some other real -- retail companies that have done that recently and they've been able to show significant gains as a result.

To answer your question, Rick, we evaluate property by property, store by store.

And there's no doubt in my mind we have properties that more valuable than they're presently doing as retail stores.

And that continues, if they don't turn around, then we look to sell the properties.

We have to look at it property by property, whether we're making the best use of -- our property, in my opinion, has gone up significantly.

And we have to evaluate whether -- whether that property -- those stores are earning their keep, basically.

And if -- and I'm not talking about one quarter or a short period of time, but if that continued and stores don't make money and the property continues to go up, I think it's easy to figure out that we should be doing something -- either doing something else with that property or selling that piece of property.

Okay.

All right, great.

On the other hand, like I mentioned, our retail is looking, for the first time in a while it's -- we have a lot of things going for us.

We had a -- we had a cold summer last summer.

We have, in my opinion, great buys on air-conditioning, a chance to make some money there.

Plasma, LCD, as I said is coming down, and looks really -- looks really, really -- looks great right now for our stores.

And we've been working hard to set our stores up, the place to go for those type products, so we're optimistic.

Okay.

Thanks, very much.

Thanks, Rick.

[OPERATOR INSTRUCTIONS].

Our next question comes from the line of Mr. Bob McDorman of Investment Counselors.

Please proceed with your question.

Hi, Stuart.

How are you?

Great.

And you?

Pretty good, thanks.

Just a couple little things.

The inventories came down to about, what, 125 million?

That's right.

Are you satisfied there?

Sounds like you're buying, getting into TV, so that's probably explains -- increasing your exposure there, so that's explains why that's where they are?

Correct.

That's 100%.

That explains it.

Okay.

And we're not -- we're -- in terms of, we're not cash-strapped in any way.

And to be honest, sometimes if we can make a good buy on inventory, we're better off doing that.

Right.

Making the 1 or 2% than we can make in overnights.

The -- this is the first call, I think, that we've heard about this idea setting up a separate business or a business line in alternative energy, which -- my recollection is that you all got into the synfuel partnership kind of serendipitously.

Someone came along and needed to get out, and you got an excellent buy.

That -- that might -- the first one was true, but since then, we've done the Gillette one, which, again, we hope to -- that one will also be successful.

And we feel we have some skills and some knowledge now in the alternative -- and some contacts -- in the alternative energy field that can make us a serious business in that.

And we make serious money in it now.

And we think we know what -- again, we think we -- because of what we've done in this area, we think that we can possibly do well in this field.

And we're going to at least look at it, and seriously look at it.

And like I said, we're in agreement in one plant and possibly -- subject to our due diligence -- possibly set up a business in this area.

You've been using the excess cash flow to buy back stock and to pay down mortgages on the property.

Yes.

So I think we bought back over 700,000 shares in the last 12 months.

Correct.

And the share count stays static because of the options.

The -- so it does provide a way for people exercising options to get out of the stock.

One thing that we have ended this year, and I won't say permanently, but at this point in time, we have ended our option -- we have ended our option -- issuance of options.

Now, there's still, there's some that have to vest.

And there's a lot out there.

But in recognition of exactly what you're talking about, and because we bought back so many shares, it seems like we issued a lot.

At the time, we might not have, but we continue to buy back.

There won't be any more, at least -- I won't say permanently -- but at least, as of right now, we have ended plans -- we have ended our plan -- any issuing of new options.

Will the -- ?

Now, there still are the ones that have to vest and work our way through that.

Will the new initiative, if it comes to pass, of expanding your alternative energy involvement, will that use up the cash flow?

Is that how that would be financed?

It'll use -- we have so much cash flow right now until we -- it might -- yes, it will take some cash, there's no question.

Will it use up the cash flow?

Absolutely.

The one project, absolutely not.

If we're successful, then it -- and we see that we can make a lot of money in this field, and it's a business, then it -- there's many options there.

We can sell -- we can look for financing just for that division.

We can -- anyway, there's many options.

I wouldn't want to tie our hands at this point in time.

But the first --

Well all this kind of -- yes --

-- will certainly use up a little of our cash flow.

This comes -- what I'm leading to is the idea of distributing some of this excess cash flow to shareholders in another form, in the form of a dividend.

The synfuel -- the synfuel cash eventually runs out in a couple years.

That assumes if oil doesn't -- oil doesn't go much above where it is today and average that for a long period of time.

Our choice of distribution, Bob, has always been, as you know, to buy back stock.

Dividends is another -- in my opinion, buying back stock isn't a whole lot within -- for the people that wanted a liquid stock, especially a large shareholder like yourself, sometimes -- with the float, it's not that liquid.

So we've been available -- we had a very active buyback program, which, is in essence, distributing the stock.

That is not, by any means, ending and we're -- we're -- and I -- we do look at dividends and we look at buyback.

The problem -- the problem with -- or the advantage of buyback, theoretically, is that we reduce the number of shares for the people who still have it.

And, especially, with the option program ending, if we can -- our -- my feeling is, at least my personal feeling is, we have a chance then to show nice increases in our earnings per share.

If we do that on a -- sooner or later the stock should react to that.

At least, typically, that's what stocks do.

One last question.

The income from the retail business has been sort of in decline for a while, and you're talking about how it's getting -- you're getting more excited, and you think that --

I will very be disappointed if, based at least on January, February, if we stay in decline on the retail side.

I can't -- I don't have a crystal ball to look out forever, but I can look back from February and March and I can say that things, as I said earlier, nice, nice.

Even with two less days, mid-single digit, same store increases for the first two months.

And so far, so good.

One last question.

The markets that you're in, sort of -- and I don't know all the stores -- they're not high-growth areas, in terms of population.

That's for sure.

And do you think that we'll get a replacement cycle that will last a relatively short period of time and then everybody's that's -- ?

Depends how the --

The marketplace will have done their thing and then -- ?

Well, there better be new products coming along.

We'll get a replacement cycle that'll last -- I don't know what relevance -- I can't say how long it'll last, but eventually, the replacement cycle in our industry always -- we've seen -- we are projecting -- we've seen the screens in big screens, where it just projects on the screen and rear projection, LCD, plasma, it keeps moving and moving.

I don't know what the next product will be, but our industry, historically, has come up -- our industry's not going to just let everyone have a television set, not come up with something -- something bigger, better, nicer, whatever.

I just don't know what that product is right now.

We're -- in our markets, we're just at the beginning of the cycle with the plasma and the LCD.

The penetration is very, very low.

Could I -- just one more quick question.

On the -- I guess, it's not far enough along, but the new potential synfuel investments, would they be income or tax credit type of things, or like a -- or a combination of both, like the current one?

They would be mostly income.

Well, there is a little bit of tax credit.

Again, I -- until we put out something on that, that would -- but the tax credits on that particular -- on ethanol are not huge like they are in synfuel.

There are some, though.

And how many -- or whether we'll receive them or not, I don't want to talk about at this point in time.

It's way premature.

And the big -- the bigger part is we expect to make money in it.

Okay.

Thank you.

Thanks, Bob.

Thank you.

Our next question comes from the line of Ali Motamed with Boston Partners.

Please proceed with your question.

Hi.

Can you talk a little bit more specifically and quantitatively about the -- about the synfuel credits and how much longer they're going to last?

Because my understanding is, based on where oil prices are right now, that at least a third of those probably go away on a pro rata basis going into next year.

And I was hoping you could just, sort of, add a little bit more color on that.

Where the -- where the band is, because I know it's inflation adjusted.

Where the band is at which these disappear?

And where that's going to be next year?

That's a very, very good question, and they haven't published the current inflation adjusted number.

One thing that we do have going for us right now is it's on an annual basis, it's not on a monthly basis or anything like that.

And prices weren't, at the beginning of the year, were not where they are today.

So, I --

It's an average of the year?

I can't -- it's an average for the year, that's correct.

Okay.

I have to look.

It's some type of average.

Also, you can't just go by the published -- it's a combination of different -- from what I understand, and I'm -- at least from what I have been told, it's a combination of different oil prices, not just -- not just the one that's reported on the tape every day.

Right.

And so, then over -- okay.

So that -- that price, and it sort of disappears, I guess, at some point going into that price?

Everything -- everything we have about -- everything -- it's either December 31, 2001 or January 1, 2008 is when the program ends.

It ends.

Okay.

Thank you, very much.

December 31 -- December 31, 2007.

I mean, in -- the industry believes that the tax credits from 2004 will not be affected by the price of oil, although that -- even 2004's price has not been published yet.

That will be published here very shortly.

And then the 2005 price won't be published until about a year from now.

So it's difficult to answer these questions.

It's kind of a wait and see type thing.

But you certainly do need to keep an eye on the price of crude oil.

And then the one other thing I was wondering, when you look at your partners, since it's your partner who's actually going to be going through the production, and production does have a cost, without, necessarily, an economic benefit immediately without the tax credit, have you gotten a feeling whether they -- because, like, we went through a period where they were unable to use them.

Have you gotten a feeling from them if they're going to sort of hold up on production to at least try and get a feeling for where this -- where this price is going to set in or is that impossible?

Do you understand what I'm asking?

Yes, to the best of our knowledge, they're producing full steam ahead.

They are.

So just an issue if we can get credit.

From the last numbers we've gotten, they're producing full steam ahead, which could stop if -- as any time.

But from the best of our knowledge, the price of oil has not slowed down production.

Okay.

Thank you.

Sure.

Thank you.

There are no further questions at this time, Mr. Rose.

I will now turn the call back to you, so you may continue with your presentation or closing remarks.

Well, I just want to thank everyone for listening.

And, just in conclusion, retail is looking brighter right now.

And synthetic fuel still going -- is still strong, and to the best of our knowledge continues to go strong, and we have high hopes to do better in both the alternative energy division and retail division.

Thank you, very much, for listening.

Bye.

Ladies and gentlemen, that does conclude the conference call for today.

We would like to thank you for your participation and ask that you please disconnect your lines.