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Rex Reports Soft Q3

12/05/2006 02:46:00 PM Eastern

Dayton, Ohio – Plummeting sales of CRT TVs and a decline in income from its synthetic fuel investments pushed Rex Stores’ third quarter results into negative territory.

Net sales for the three months ended Oct. 31 fell 7.2 percent to $85.2 million while comparable store sales declined 5.6 percent year-over-year. Comps for the month of November were flat.

Net income fell 30.4 percent from the year-ago period to $4.8 million. Inventory, at $116.1 million, was also leaner this year than last, down 14 percent.

Impacting the results was a falloff in income from synthetic fuel plants that had temporarily ceased production, the company said. The plants have since returned to operation.

During the quarter Rex sold seven retail stores for a total of $6.8 million, recording a $2.2 million pre-tax gain and leaving the chain with 207 stores in 36 states.

In a conference call, chairman/CEO Stuart Rose attributed the poor retail results to a difficult transition to flat panel TV. “We were hurt very badly by the phase out of older products,” he said, including direct view and CRT rear projection TVs.

Specifically, sales of older technology TVs fell 71 percent during the quarter, representing a loss of $8 million in sales. By contrast, LCD dollar volume was up 222 percent and plasma sales increased 32 percent, although the gains were insufficient to offset the CRT declines. Rose said those products were still selling well last year within Rex’s trading areas, which tend to lag the greater marketplace, and that he hadn’t anticipated the “huge drop off” in demand.

In response, the company is “bulking up drastically” in flat panel displays, although significant price erosion in plasma TVs and marketplace competition has proved problematic for that category as well.

Rose said Black Friday price promotions, particularly in plasma, would likely pinch margins, and called Best Buy’s $999 special on Panasonic’s 42W-inch PDP “surprising.”

“It was an ugly day,” he said. “Retailers have to give away more and more, and the customer is getting smarter and smarter. They know we give stuff away and they wait all year for it.”

Rose said pricing has since stabilized, although Rex’s traffic has slowed following a “big” Thanksgiving weekend, and he fears that the promotions – and margin pressures – will return if the customers don’t.