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Sears, Conn’s, Rex Report Mixed Results

New York — Sears Holdings, Conn’s and Rex Stores reported mixed results this morning in varying degrees for their most recent quarters.

Sears reported net income of only $2 million for its third quarter, ended Nov. 3, vs. the previous year’s $196 million, and the primary reason for the decline is a result of a $223 million decline in gross margin, reflecting both sales declines, as well as an overall decline in gross margin rate for the quarter, the chain said.

For the quarter, total revenues declined $400 million to $11.5 billion in fiscal 2007, as compared with $11.9 billion for the third quarter of fiscal 2006.

“We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so,” said Aylwin Lewis, Sears Holdings’ CEO/president. “Nevertheless, the company continues to generate cash, and we continue to invest in our customer relationships, our multichannel experience, and our information technology systems.”

Sears’ comp-store sales declined 4.2 percent for the quarter, while Kmart’s comp-store sales declined 5.0 percent. Total domestic comparable store sales declined 4.6 percent. Both Kmart and Sears Domestic experienced declines in most merchandise categories which was “partially offset by increased sales within home electronics, notably at Sears Domestic,” the chain said.

Overall comp-store sales results reflect increased competition, the negative impact of unfavorable economic conditions, such as a weak housing market and growing consumer credit concerns, as well as the unfavorable impact of unseasonably warm weather, prevalent during much of the third quarter, on sales of apparel and other seasonal merchandise, the company noted.

Beaumont, Tex.-based Conn’s, the specialty electronics/appliance retailer, reported lower net income but higher net revenue for its fiscal third quarter that ended Oct. 31.

Net income for the third fiscal quarter was $4 million, compared with $7.2 million for the third quarter of last year, a decline of 43.8 percent, due to a non-cash decrease in the fair value of the chain’s interests in securitized assets.

Total revenues for the quarter increased 9 percent to $189.4 million compared with $173.7 million for the quarter, ended Oct. 31. This increase in revenues included increases in net sales of $17.7 million, or 11.6 percent, and a decrease in “finance charges and other” of $2 million, or 9.3 percent. Same-store sales (revenues earned in stores operated for the entirety of both periods) increased 6.8 percent for the fiscal third quarter.

The credit portfolio experienced rising delinquencies during the third quarter, though at a slightly slower pace than in the prior year quarter.

“While we enjoyed solid growth at the top line, we were not satisfied with our bottom-line performance this quarter, even after excluding the impact of the fair value adjustment,” said Thomas J. Frank, Sr., the company’s chairman and CEO. “Since we anticipate the retail environment continuing to be very competitive, we must improve our execution to achieve the gross profit and operating margins we expect.”

Conn’s currently has 65 stores in operation. Additionally, the company has under development and expects to open 11 stores by July 31, 2008, including two replacement stores and one new store in Oklahoma City. The chain plans to continue its expansion by opening an additional two to five stores in the last half of next year.

Rex Stores, based in Dayton, Ohio, with investments in ethanol production, reported higher net income but slightly lower net sales and revenue for its fiscal third quarter, ended Oct. 31. Net income in the fiscal third quarter was $14.7 million vs. net income of $4.8 million for the same time last year.

Income from continuing operations, net of taxes was $11.7 million, compared with income from continuing operations, net of taxes of $3.8 million in the same period a year ago.

Net sales and revenue in the quarter was $58.8 million compared with $61.1 million in the previous year. Comp-store sales for the quarter declined 8 percent. The company reports sales performance quarterly and considers a store to be comparable after it has been open six full fiscal quarters. Comp-store sales figures do not include sales of extended service contracts.

As previously disclosed, during the fiscal 2007 third quarter, Rex received 3,693,858 shares of US BioEnergy common stock and approximately $4.8 million of cash as total consideration for its interest in Millennium Ethanol, LLC (acquired by US BioEnergy), based upon the conversion of Rex’s $14 Million Convertible Secured Promissory Note, accrued interest and exercise of its Related Purchase Rights.

Rex has interests in ethanol entities and has been active in synthetic fuel investments. As of October 31, 2007, Rex also operates 124 retail stores in 34 states.