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Rex Q4 Sales, Earnings Slide

3/28/2007 11:53:00 AM Eastern

Dayton, Ohio — Store closings and a dramatic decline in sales of CRT and rear-projection TVs sent Rex Stores’ sales and earnings sliding during its fiscal fourth quarter and 2006 fiscal year.

Sales for the three months, ended Jan. 31, fell 15.5 percent to $104.4 million and comp-store sales fell 13.7 percent. Net earnings for the period fell 45 percent to $3.6 million, representing a $500,000 loss on Rex’s retail operation and $4.1 million in income from the company’s synthetic fuel business.

For the full year, sales slipped 7.3 percent to $347.3 million, comp-store sales declined 5 percent, and net earnings fell 59.7 percent.

In a conference call, chairman/CEO Stuart Rose said the chain was unprepared for the “steep, steep declines” in sales of tube and rear-projection TVs during the quarter, which together represented 11.2 percent of the 13.7 percent drop in comp sales. “The tube and big screen business just fell off a cliff,” Rose said, and even a 42 percent pop in plasma sales and a 106 percent increase in LCD volume were unable to compensate for the comp declines.

Specifically, sales of CRT sets fell from $13 million to $3.5 million year-over-year, and sales of rear-projection DLP sets dropped from $25 million, to $14.4 million, for the quarter. By contrast, sales of plasma TVs increased from $12.9 million, to $18.3 million, year-over-year, and LCD revenue rose from $9.4 million, to $19.4 million, for the period.

In other categories, Rose said iPod, which Rex doesn’t carry, siphoned off traditional audio sales, leading to a 1.6 percent decline for the quarter, while non-TV video sales slipped 2.7 percent due to low DVD prices and the displacement of camcorder sales by digital cameras. Rose described Rex’s major appliance business as “good” and “stable,” and partly attributed the category’s 3 percent comp increase to manufacturer price increases that were passed along to consumers.

Rex closed 25 stores during the just-ended fiscal year and 29 locations during the current quarter as part of a real estate sale and leaseback deal with Coventry Real Estate Investments. Under terms of the arrangement, which is expected to close on April 30, the regional white- and brown-goods discounter will sell 94 current and closed stores to Coventry and will lease back at least 40 of the locations through 2010, with an option to renew the leases for another 15 years after that.

Either party may terminate leases on as many as 30 stores after the first six months, which would allow Rex to shutter a maximum of 84 locations. Rex operates an additional 113 stores that are not affected by the sale and leaseback plan.

Rose said the deal will give Rex “great flexibility” to close underperforming stores, although he described the process as “gut wrenching.”

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