Business Context and Reporting Period
Company: REX American Resources Corp (REX Stores Corporation)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended October 31, 2001
Business Overview: A leading specialty retailer in the consumer electronics and appliance industry, operating 264 stores in 37 states as of October 31, 2001.
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 2001 | Nine Months Ended Oct 31, 2001 | Nine Months Ended Oct 31, 2000 |
|---|---|---|---|
| Net Sales | $106.6 million | $310.6 million | $313.9 million |
| Gross Profit Margin | 28.5% | 28.3% | 27.4% |
| Income from Operations | $3.9 million | $9.4 million | $11.4 million |
| Net Income | $4.4 million | $11.4 million | $10.1 million |
| Diluted EPS | $0.50 | $1.29 | $0.94 |
| Cash and Equivalents | $2.4 million (Oct 31, 2001) | N/A | |
| Working Capital | $91.0 million (Oct 31, 2001) | N/A | |
| Current Ratio | 2.1 to 1 (Oct 31, 2001) | N/A | |
| Total Debt (Notes + Current LT) | $17.4 million (Oct 31, 2001) | N/A |
Material Changes vs. Prior Period
- Revenue: Net sales increased 1.4% in the third quarter compared to the prior year, driven by a net increase of 13 stores, partially offset by a 3.4% decline in comparable store sales. For the nine-month period, sales decreased 1.1% due to an 8.4% decline in comparable store sales.
- Profitability: Net income increased 55.1% in the third quarter and 13.2% for the nine-month period. This growth was significantly aided by income from limited partnerships ($4.2 million for the quarter; $12.1 million for nine months).
- Margins: Gross profit margins improved to 28.5% (quarter) and 28.3% (nine months) from 27.1% and 27.4% respectively, attributed to a shift toward higher-margin products and better vendor buying opportunities.
- Expenses: Selling, general, and administrative (SG&A) expenses increased 5.5% in the quarter and 5.2% for the nine months, primarily due to advertising and store expenses associated with new store openings.
- Store Count: Total stores increased to 264 from 251 in the prior year. Six stores were opened and four closed in the first nine months of fiscal 2001.
Guidance, Outlook, and Risks
- Partnership Income: The company sold its remaining 8% interest in a synthetic fuel limited partnership effective May 31, 2001. It expects to receive cash payments quarterly through 2007, ranging from 74.25% to 82.5% of federal income tax credits attributable to the interest sold.
- Liquidity: The company maintains a strong liquidity position with $87.4 million available on its line of credit as of October 31, 2001. Capital expenditures for the period totaled $3.7 million, primarily for store construction.
- Accounting Standards: The company will adopt SFAS No. 142 (Goodwill) and SFAS No. 144 (Impairment) on February 1, 2002. Management does not expect these standards to have a significant effect on results of operations.
- Risks: Forward-looking statements are subject to risks and uncertainties detailed in the company's Form 10-K. Comparable store sales declined across all product categories for the nine-month period, with the television category contributing the most to the decline.
Investor Verification Checklist
- Comparable Store Sales: Verify the sustainability of the 8.4% decline in comparable store sales for the nine-month period and the specific drivers in the television and video categories.
- Partnership Income Reliance: Assess the impact of the $12.1 million income from limited partnerships on net income and determine the core operating profitability excluding this non-recurring or installment-based income.
- Inventory Levels: Review the $12.0 million increase in merchandise inventory and its impact on cash flow and potential future markdowns.
- Debt Structure: Confirm the terms of the $8.2 million in new long-term mortgage debt and the utilization of the $11.4 million line of credit borrowing.
- Stock Repurchases: Note the $9.0 million used to acquire treasury stock and the remaining authorization of 772,200 shares.