SEC Filing Summary: REX Stores Corporation (10-Q)
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the three-month period ended April 30, 2009. REX Stores Corporation is in the process of winding down its consumer electronics and appliance retail business, having reduced store count from 111 to 19 during the quarter. The company is pivoting its focus toward alternative energy investments, specifically ethanol production facilities (Levelland Hockley and One Earth Energy), which are now the primary drivers of revenue and capital expenditure.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Sales and Revenue | $29.7 million | $26.8 million |
| Gross Profit | $4.7 million (15.9% margin) | $8.1 million (30.3% margin) |
| Net Loss (Attributable to REX) | $(1.7) million | $1.5 million (Income) |
| Diluted EPS | $(0.19) | $0.13 |
| Cash from Operating Activities | $10.4 million | $(5.2) million |
| Cash and Equivalents (End of Period) | $85.9 million | $106.3 million |
| Total Debt (Current + Long-term) | $118.0 million | $39.6 million |
| Working Capital | $67.5 million | $112.3 million |
Material Changes vs. Prior Period
- Revenue Composition: Total revenue increased 10.8% year-over-year, driven entirely by the Alternative Energy segment ($14.1M vs $1.2M), which offset a 39% decline in Retail sales ($15.6M vs $25.6M) due to store closures.
- Profitability: The company swung from a net income of $1.5 million to a net loss of $1.7 million. This was caused by a $2.4 million decline in Alternative Energy segment profit (due to plant inefficiencies and lower ethanol/grain spreads) and a $1.2 million decline in Retail segment profit.
- Debt Levels: Total debt increased significantly to $118.0 million from $39.6 million, primarily due to construction loans drawn for the One Earth ethanol plant ($71.4M outstanding) and the Levelland Hockley term loan ($40.4M outstanding).
- Cash Flow: Operating cash flow turned positive ($10.4M) compared to a use of cash ($5.2M) in the prior year, largely due to a $17.9 million reduction in retail inventory as the company liquidated stock during the wind-down.
Outlook, Risks, and Unusual Items
- Debt Covenant Forbearance: The Levelland Hockley subsidiary was not in compliance with its EBITDAR coverage ratio covenant as of April 30, 2009. A forbearance agreement was entered into with GE on April 13, 2009, extending through August 30, 2009. Management believes the covenant will be cured by the end of this period.
- Derivative Losses: The company recorded a $0.6 million loss on interest rate swap agreements, compared to a $0.5 million gain in the prior year, due to changes in fair value.
- Restructuring: Additional restructuring charges of $1.5 million were recorded, primarily for lease termination costs associated with closing retail stores. Total restructuring accruals stand at $4.8 million.
- Future Operations: The company expects to complete the wind-down of its retail business by July 31, 2009. The One Earth ethanol plant is expected to begin operations in the second quarter of fiscal 2009.
- Real Estate: The company is transitioning from a retailer to a landlord, with 45 properties leased or committed to be leased to third parties (including Appliance Direct).
Investor Verification Checklist
- Covenant Compliance: Verify if Levelland Hockley successfully cured the EBITDAR covenant violation by the August 30, 2009 forbearance deadline.
- One Earth Construction: Confirm the timeline and budget adherence for the One Earth ethanol plant, which has $109.2 million spent of a $120.2 million contract price.
- Retail Wind-Down: Monitor the completion of the retail exit strategy and the leasing status of the 31 remaining owned stores to Appliance Direct.
- Commodity Spreads: Assess the impact of fluctuating ethanol, grain, and natural gas prices on the Alternative Energy segment's gross margins.
- Liquidity: Review the sufficiency of working capital to fund the final stages of the One Earth plant startup and ongoing debt service obligations.