Business Context and Reporting Period
Company: REX Stores Corporation (REX American Resources Corp)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended July 31, 1998
Business Overview: A leader in consumer electronics and appliance retailing with 220 stores in 35 states, operating primarily in small to medium-sized markets.
Key Financial Metrics
| Metric | Three Months Ended July 31, 1998 | Six Months Ended July 31, 1998 |
|---|---|---|
| Net Sales | $92.4 million | $180.4 million |
| Gross Profit | $26.0 million (28.2% margin) | $50.0 million (27.7% margin) |
| Operating Income | $4.2 million | $7.0 million |
| Net Income | $1.6 million | $2.6 million |
| Diluted EPS | $0.20 | $0.32 |
| Cash and Equivalents | $6.0 million (Balance Sheet) | N/A |
| Working Capital | $71.0 million | N/A |
| Debt (Notes Payable) | $13.6 million | N/A |
| Long-Term Debt | $53.1 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 2.8% ($2.5 million) for the quarter and 1.3% ($2.2 million) for the six-month period compared to the prior year. The quarterly increase was driven by a 2.0% rise in comparable store sales, while the six-month increase was driven by non-comparable store sales as comparable sales remained flat.
- Profitability: Net income rose 16.2% for the quarter and 20.5% for the six-month period. This improvement was aided by a reduction in interest expense due to lower borrowings on the line of credit.
- Margins: Gross profit margin decreased slightly for the six-month period (27.7% vs. 28.2% prior year) due to merchandise mix changes, partially offset by higher extended service contract revenues. SG&A expenses as a percentage of sales decreased for the six-month period (23.8% vs. 24.3%) due to lower advertising expenditures.
- Liquidity: Cash and cash equivalents decreased from $16.9 million to $6.0 million. Net cash used in operating activities was $13.4 million, primarily driven by an $18.0 million increase in inventory for seasonal fluctuations.
Outlook, Risks, and Management Commentary
- Store Count: The company operates 220 stores, an increase of one from the prior year (two opened, four closed in the first half of fiscal 1999).
- Capital Resources: The company maintains a revolving line of credit with approximately $76.7 million in borrowing availability. Outstanding borrowings were $13.6 million at an average interest rate of 7.75%.
- Forward-Looking Statements: The filing contains forward-looking statements subject to risks and uncertainties. Actual results may differ materially due to factors outlined in previous filings (Exhibit 99 to Form 10-Q for the quarter ended October 31, 1997).
- Market Risk: The filing states "None" for quantitative and qualitative disclosure about market risk.
Investor Verification Checklist
- Inventory Levels: Verify the necessity of the $18.0 million increase in inventory and its impact on future cash flow.
- Comparable Store Sales: Confirm the sustainability of the 2.0% comparable store sales growth in the second quarter versus the flat performance for the first half.
- Debt Covenants: Review the terms of the revolving line of credit to ensure compliance with covenants given the reduction in working capital.
- Store Performance: Monitor the performance of the two new stores opened in the first half of fiscal 1999 to ensure they contribute to profitability.