REX American Resources Corp (REX) 2005 Q2 法說會逐字稿

Welcome to the Rex Stores second quarter financial results conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Wednesday, August 31, 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.

I'd like to thank everyone for listening.

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 the use of foreign looking -- looking test 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 regional economies, weather, the effects of terrorism or acts of war and consumer spending patterns, the availability of certain products, technological changes, new regulatory restrictions, or tax law changes related 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 its synthetic fuel investment, and the uncertain amount of synthetic fuel investment and tax credits received from time to time from the Company's synthetic fuel investments.

During the quarter, we were fortunate enough to have net income rise 166% from 8.7 million this year versus 3.3 million last year.

Earnings per shares rose to $0.70 from $0.26.

That's up about 169%.

Comp stores during the quarter fell 1%.

Helping us during the quarter were big increases in synthetic fuel, huge increases there, also increases in air conditioning, plasma and light engine television sets.

Hurting us were sales in tube television and regular high-definition television sets.

During the quarter we bought approximately 989,600 shares as part of our repurchase program.

The Board has recently authorized another million share repurchase.

Going forward, we expect strong synthetic fuel income through this year.

We also expect to continue increases in our light engine television set and plasma business.

On the other hand, we are -- we've had a fairly large decline in CRT big screen business and the tube television business.

Again, we expect that to be a problem over the coming months, although it was a problem last Christmas.

Hopefully we'll be up against a little easier comps in those categories.

During August comps are running in the low single -- are running up in the low single digits.

That's despite 12 stores currently closed due to the hurricane and also we're running up even the last year the Olympics took place during this month.

So with those things taking place we're optimistic for the fall quarter.

For next year we have a couple of worries.

Price of oil could be a problem.

Synthetic fuel -- synthetic fuel profits, I guess, are tied to the price -- or synthetic fuel production -- or tax credits, I should say, are tied to the price of oil, and there's a potential phase-out, depending on where oil is, something we're not capable of projecting at this time.

At this point I think that pretty well covers the quarter.

I'll leave it up to people to ask questions and give me their insights.

Or Doug and I will be here to answer any questions they might have.

Thank you.

Operator, we'll leave it open for questions now.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Rick Weinhart with Harris Nesbitt.

Please proceed with your question.

Couple questions.

You mentioned the hurricane impacting 12 stores, and -- or I should say 12 stores were closed currently.

Is there any impact on your distribution center as well, which I believe is in Pensacola?

No, we believe that everything is fine in the distribution center.

Great.

Typically we hope to get these stores open, not just -- we have products, refrigerators, things like that, that people need replacing, not just for the profitability involved in opening the stores, but just the general need for our product, especially the appliances.

I'm assuming -- well, I don't know if you have any information regarding the stores specifically, but I know there was some significant damage certainly around the Gulf area.

Are there -- are you expecting any -- you don't know yet, okay?

We don't have the answer.

We can't say now.

Okay.

We believe -- I guess you never know for sure, but we are insured, and that's what we pay our insurance for.

We'll find out shortly if there is major damage how good our insurance is.

Last year, it was the same company and we had this same story and they did our distribution center last year but the impact wasn't -- it was bad but not catastrophic on the financials.

Okay.

And looking at the current sales trends, you said slightly positive, or modestly positive comps, I believe, currently in August.

Now, that includes air conditioner sales, correct?

We are getting still some benefit from air conditioners in August.

Okay.

Do you happen to have or can you estimate, are comps running positive without the air conditioners?

They're running slightly negative without the air conditioners.

Okay.

They're only slightly positive with air conditioners.

Like I said, low single digits.

Great.

On the TV business, now, you mentioned plasma and light engine doing well and some of the older technologies falling off, net though--.

Going back on your previous question, Rick, real quick.

We were up against the Olympics last year, so being slightly negative, we don't see that -- we're very optimistic about the fall right now based on what we're seeing in August just because we knew we'd have tough comparisons.

You don't happen to have what the comp was last August?

I don't know if you disclosed that.

I don't know if we dis -- we certainly, I don't know--.

We don't disclose it by month, Rick.

But it was a good comp, it sounds like, anyway.

Correct.

Okay.

Then back to my other question, on the TV business, can you say, was that business positive this quarter?

Overall?

No, it was probably down for the quarter I think.

I'm not sure exactly how much, but we -- light engine and the plasma were up well in excess of 50% but it didn't make up for the decline in the tube business and the CRT big screen business.

But sounds like you're expecting that to change when we get into the fall.

I hope -- I expect -- I think there's a very good chance that the momentum of plasma and light engine will make up.

Those other categories will continue to decline but again, like I said, they declined last year, started to decline, especially in the fourth quarter on the tube business, so I think, again, we have hopes that we can show improvement in the television category.

Okay.

Last question on the core business, are you making any changes -- any other changes to products or pricing, or have you done any and are expecting to do any in the near term?

We just put on -- in terms of pricing, we're very aggressive.

That's what it takes today to do business, is to be aggressive.

We are continuing to try and be the lowest price in our market.

I won't say we're the lowest price every day, and we're not every day, be the lowest price, but overall we've taken aggressive stand in terms of trying to help our light engine business.

Looks like we will probably take on Mitsubishi during this quarter, which is a new product -- a new manufacturer -- or I shouldn't say new, it's a manufacturer we haven't carried in years, which hopefully will be add on business.

If it's just replacement business, it won't have been worth it.

But if it's add-on business, that helps.

Plasma, Panasonic is far and away the leader in that category.

We have a very, very strong relationship with Panasonic, and Sony is the leader in the light engine category, which we also have a strong relationship with Sony but that together we think we're very well positioned.

Then on the SynFuel business, synthetic fuels, can you, perhaps, give us a little more detail on what the components were of the 10.5?

I know there was a 3.5 one-time gain, but I'm hoping that you can break out what the difference was between the new Gillette -- the income coming from Gillette versus the income coming from your partnership you had last year, or partnerships.

Doug, do you want to go over that?

Yes.

Progress, the partnership with Progress contributed about 6.1 million to the quarter.

We had the one-time payment of about 3.5 million, and then additional production from the old Gillette facility.

We got paid about -- recognized about 0.8 million on that for the second quarter.

So as far as you know, the forecast -- you don't really provide a forecast, but your expectations for the Gillette facility, and Progress, no change other than the impact possibly from higher oil?

Is that kind of the way to think of it?

Then obviously backing out the 3.5 one time payment.

Right, exactly, take out 3.5.

Right.

That's correct.

Okay.

Well, thank you very much.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question is from the line of Mike Nery with Nery Asset Management.

Please proceed with your question.

Hi, a couple of quick questions.

The shares you bought in the quarter what did you pay for them?

Doug, do you know that number?

The average price for the quarter was about 14.70.

Okay.

And shares today, then, are somewhere around, what, 11.8 or 11.5?

You mean the shares outstanding?

Yes.

I don't have that at my fingertips.

I'll try to come up with that and give it to you on the call.

If we don't, if you want to call Doug back it will probably be--.

Okay.

I mean, it looked like you had 12.8 at the end of the first quarter, and you bought a million in the second quarter, so--.

Depends when we buy them.

Yes, exactly.

Did you sell a store in the quarter?

It looked like you had one less store this quarter.

We didn't sell a store.

We did close a store.

It was a leased location.

Okay.

All right.

And the Gillette -- you got a 3.5 million payment this quarter.

Could you just review what that is?

If I am correct from my notes, it was, what, $1.50 a ton, and you're expecting a million tons a year or something like that?

Well, we got the $3.5 million due to the plant coming back into production.

Based upon whatever they produce we get $1.50 per ton of production, so it's just a matter of whatever there production is.

They said earlier it's hard to guess what production will be for next year.

Right.

How do the phase-outs work with oil prices?

I mean, oil prices right now are $70 a barrel.

Do they produce anything?

Very complicated formula based not on that $70 but the price of domestic wellhead oil, and it's -- and then it does -- it phases out in stages, so it's really difficult.

And it will be difficult -- the way the law is currently written, it's not -- it's based on the average price of the current year's oil, which means -- and we don't -- we are -- we have sold our interest in these partnerships and basically received, except for one of them, we've sold our interest in these partnerships.

We are totally -- what we receive are installment payments based on the tax credits, except -- and Gillette we get it on production, but again, it's very hard to project what next year's revenue will be.

You don't have any control over what the production is going to be is what you're saying?

Exactly,

Right.

Do you also get a payment from Gillette?

I thought I had something where you get an additional payment in future years on top of the production amounts.

I think -- no, I think the additional payment, that was the 3.5 million that we just got.

Am I right about that, Doug?

Is there anything else?

I believe that's correct.

It's just the 3.5 million once that slowly got back into production, then, it's $1.50 per ton of production which we receive each month based upon the production levels.

Okay.

The outstanding shares at the end of the quarter, by the way, was about 10,650,000.

Those are the--?

Outstanding.

Doesn't take into account dilution.

Thank you very much.

Our next question is from the line of Jim Harvey with Royce & Associates.

Please proceed with your question.

Hi.

So just to clarify, on these phase-out rules, do they put the current future income tax benefits in jeopardy?

In other words, would there be--?

I don't -- this years -- are they in jeopardy?

Potentially, yes.

The current ones, if oil were to go through the roof, again, we won't hear our final tax credit numbers until -- I think the true-up is sometime next spring, so potentially, yes, although it's the average for the year, so we feel pretty good about this year's tax credits.

Next year it's way up in the air.

What's the best way to think about the realization, the ultimate realization of these tax benefits?

Best way to look at it is, if oil -- depending on the price -- if things were not to spike up like they have been, income wouldn't -- there's two years left on these, and income would be -- would be significant next year and the year after, but there is risk right now based on oil price, and we're having almost -- considering we don't have any way to control production, we've sold these partnerships, except for one where we're a minority owner, where we have no control over production.

It's really hard to tell at what level.

And, again, it's a phase-out of tax credits based on oil prices.

Really hard to project what they're going to do for next year.

I'm not comfortable giving anyone any guidance on next year.

Do you have a price for domestic wellhead oil today versus what we see on the streets?

I always use in my head about $10, roughly $10 less, but that's just a number that I use in my head.

Domestic wellhead price changes all the time.

So with the hurricane, who knows what domestic.

I don't even think the oil experts who trade in the business every day know what the domestic wellhead price is.

Right.

It's really impossible.

Okay.

Thank you.

With uncertainties going on.

Any other questions?

That's it for me.

Thank you.

Okay.

Thank you.

There are no further questions at this time.

I will now turn the conference back to you to continue with your presentation or closing remarks.

Okay.

I'd just like to thank everyone for listening, and happy to report a strong income quarter for the last quarter and we look forward to doing good things, hopefully doing good things in the fall and in the Christmas selling season.

Thank you.

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 hang up your line.