2/4/00

COMPARISONS

* All figures should be considered approximate as of 2/3/00.

• Company Profile

Rex Stores is a leader in the consumer electronics/appliance retailing industry, locating its stores in small to medium sized markets. Since 1980, when its first four stores were acquired, the Company has expanded into a national chain operating 228 stores in 35 states under the trade name "REX." The Company's stores average approximately 10,900 square feet and offer a broad selection of brand name products within selected major product categories including televisions, video and audio equipment and appliances. The Company's business strategy emphasizes depth of selection within its key product categories. Brand name products are offered at everyday low prices combined with frequent special sales and promotions. The Company concentrates its stores in small and medium sized markets where it believes that by introducing a high volume, low price merchandising concept, it can become a dominant retailer. The Company supports its merchandising strategy with extensive newspaper advertising in each of its local markets and maintains a knowledgeable sales force which focuses on customer service. The Company believes its low price policy, attention to customer satisfaction and deep product selection provide customers with superior value. The Company's expansion strategy is to continue to open stores in small to medium sized markets. The Company will focus on markets with a newspaper circulation which can efficiently and cost-effectively utilize the Company's print advertising materials and where the Company believes it can become a dominant retailer. The Company was incorporated in Delaware in 1984 under the name Audio/Video Affiliates, Inc. as a holding company to succeed to the entire ownership of three affiliated corporations, Rex Radio and Television, Inc. ("Rex Radio & TV"), Stereo Town, Inc. ("Stereo Town") and Kelly & Cohen Appliances, Inc. ("Kelly & Cohen"), which were formed in 1980, 1981, and 1983, respectively. Effective August 2, 1993, the Company's name was changed to REX Stores Corporation to enable the investing and consuming public to identify the Company more closely with its retail business. Unless the context otherwise requires, the term "Company" as used in this report refers to REX Stores Corporation and its three operating subsidiaries, and all references in this report to fiscal years are to the Company's fiscal year ended January 31 of each year. The Company's principal offices are located at 2875 Needmore Road, Dayton, Ohio 45414. Its telephone number is (937) 276-3931.

• Management

EXECUTIVE OFFICERS OF THE COMPANY

Stuart Rose.  Chairman of the Board and Chief Executive Officer*

Stuart Rose has been the Chairman of the Board and Chief Executive Officer of the Company since its incorporation in 1984 as a holding company to succeed to the ownership of Rex Radio & TV, Kelly & Cohen and Stereo Town. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive Officer of Rex Radio & TV, which he founded in 1980 to acquire the stock of a corporation which operated four retail stores.

 Lawrence Tomchin  President and Chief Operating Officer*

Lawrence Tomchin has been the President and Chief Operating Officer of the Company since 1990. From 1984 to 1990, he was the Executive Vice President and Chief Operating Officer of the Company. Mr. Tomchin has been a director of the Company since 1984. Mr. Tomchin was Vice President and General Manager of the corporation which was acquired by Rex Radio & TV in 1980 and served as Executive Vice President of Rex Radio & TV after the acquisition.

Douglas Bruggerman Vice President-Finance and Treasurer

Douglas Bruggeman has been Vice President - Finance and Treasurer of the Company since 1989. From 1987 to 1989, Mr. Bruggeman was the Manager of Corporate Accounting for the Company. Mr. Bruggeman was employed with the accounting firm of Ernst & Young prior to joining the Company in 1986.

Edward Kress Secretary* *Also serves as a director of the Company.

Edward Kress has been the Secretary of the Company since 1984 and a director of the Company since 1985. Mr. Kress has been a partner of the law firm of Chernesky, Heyman & Kress P.L.L., counsel for the Company, since 1988. From 1985 to 1988, Mr. Kress was a member of the law firm of Smith & Schnacke. Mr. Kress has practiced law in Dayton, Ohio since 1974.

• Competition

The Company's business is characterized by substantial competition. The Company's competitors include other specialty electronics retailers, department stores, discount stores, furniture stores, warehouse clubs and catalog showrooms. Some of these competitors have greater financial and other resources than the Company. Competition within the Company's industry is based upon price, breadth of product selection, product quality and customer service.

•     Operations

The Company designs its stores to be "destination stores," generating their own traffic, but in the general vicinity of major retail shopping. Currently, approximately 150 stores are located in free-standing buildings, with the balance situated in strip shopping centers and malls. In fiscal 1998 and 1999, eight of the Company's ten new leased stores were in mall locations that provide exterior access and signage rights. The Company will select locations for future stores based on its evaluation of individual site economic and market conditions. The Company's stores average approximately 10,900 square feet including storage space, not including the two stores located in the Company's regional distribution centers. Stores typically have, on average, approximately 7,600 square feet of selling space and approximately 3,300 square feet of storage. Stores are open seven days and six nights per week, except for certain holidays.

STORE LOCATIONS Alabama: (12) ,Idaho: (5) Massachusetts: (2) North Carolina: (5) South Carolina: (10), Iowa: (12), North Dakota: (3), Minnesota: (1),South Dakota: (3), Ohio: (17), Colorado: (3), Tennessee: (6), Mississippi: (11), Illinois: (10), Florida: (28), Texas: (10)  Oklahoma: (2)  Montana: (2), Indiana: (3), Pennsylvania: (18), Nebraska: (3), Kansas: (2), Virginia: (1),New York: (20), Washington: (2) Kentucky: (3) West Virginia: (5) Georgia: (8), Louisiana: (6)  Wisconsin: (4), Maryland: (2),  Wyoming: (2).

 In fiscal 1999 the Company opened 12 new stores, with three stores each in Idaho and New York, two stores in Pennsylvania and one store each in Alabama, Florida, Ohio and South Carolina. The Company's operations are divided into regional districts, containing from two to 12 stores whose managers report to a district manager. The Company's 38 district managers report to one of four regional vice presidents. Each store is staffed with a full-time manager and assistant manager, commissioned sales personnel and, in higher-traffic stores, seasonal support personnel. Store managers are paid on a commission basis and have the opportunity to earn bonuses based upon their store's sales and gross margins. Sales personnel work on a commission basis, or a combination of commissions and hourly wages. The Company evaluates the performance of its stores on a continuous basis and, based on an assessment of factors it deems relevant, will close any store which is not adequately contributing to Company profitability. The Company closed 12, eight and six stores during fiscal 1997, 1998 and 1999, respectively.

Personnel The Company trains its employees to explain and demonstrate to customers the use and operation of the Company's merchandise and to develop good salesmanship practices. The Company's in-house training program for new employees combines on-the-job training with use of a detailed Company-developed manual entitled "The REX Way." Sales personnel attend in-house training sessions conducted by experienced salespeople or manufacturers' representatives and receive sales, product and other information in meetings with managers. The Company also has a manager-in-training program that consists of on-the-job training of the assistant manager at the store. The Company's policy is to staff store management positions with personnel promoted from within the Company and to staff new stores with existing managers or assistant managers. Services Virtually all of the products sold by the Company carry manufacturers' warranties and, except for its least expensive items, the Company offers extended service contracts to customers usually for an additional charge which typically provide one to five years of extended warranty coverage. The Company offers maintenance and repair services for most of the products which it sells. These services are generally subcontracted to independent repair firms. The Company's return policy provides that any merchandise may be returned for exchange or refund within seven days of purchase if accompanied by original packaging material.  The Company accepts MasterCard, Visa and Discover. The Company estimates that, during fiscal 1999, approximately 31% of its total sales were made on these credit cards, and approximately 11% were made on installment credit contracts arranged through banks or independent finance companies which bear the credit risk of these contracts.

Distribution: The Company's stores are supplied by regional distribution centers which consist of a 315,000 square foot leased facility in Dayton, Ohio and a 180,000 square foot owned facility in Pensacola, Florida, of which the Company leases 90,000 square feet to an outside company. The Company also leases a 67,000 square foot auxiliary warehouse in Pensacola, Florida. The Company purchased land and during fiscal 1998 built a 145,000 square foot distribution center in Cheyenne, Wyoming at a total cost of approximately $3.0 million. The Cheyenne distribution center began operations in March 1998. The regional distribution centers reduce inventory requirements at individual stores, while preserving the benefits of volume purchasing and facilitating centralized inventory and accounting controls. Virtually all of the Company's merchandise is distributed through its distribution centers, with the exception of major appliances which are often shipped directly by the vendor to the retail location. All deliveries to stores are made by independent contract carriers. Management Information Systems The Company has developed a computerized management information system which operates an internally developed software package. The Company's computer system provides management with the information necessary to manage inventory by stock keeping unit ("SKU"), monitor sales and store activity on a daily basis, capture marketing and customer information, track productivity by salesperson and control the Company's accounting operations. The host computer is integrated with the Company's point-of-sale system which serves as the collection mechanism for all sales activity. The combined system provides for next-day review of inventory levels, sales by store and by SKU and commissions earned, assists in cash management and enables management to track merchandise from receipt at the distribution center until time of sale.

 

• Facilities

One hundred and ten of the Company's stores are located in buildings owned by the Company. The remaining 118 stores operate on leased premises, with the unexpired terms of the leases ranging from one year to 26 years, inclusive of options to renew, except for four month to month leases. For fiscal 1999, the total net rent expense for the Company's leased facilities was approximately $6,932,000. To date, the Company has not experienced difficulty in securing leases or purchasing sites for suitable locations for its stores. The Company continues to remodel and upgrade existing stores as appropriate. In addition, to minimize construction costs, the Company has developed prototype formats for new store construction.

• Company Products

 The Company offers a broad selection of brand name consumer electronics and home appliance products at a range of price points. The Company emphasizes depth of product selection within selected key product categories, with the greatest depth in televisions, VCRs, camcorders and audio equipment. The Company sells approximately 1,000 products produced by approximately 50 manufacturers. The inventory line consists of among other items: TVs, VCRs, Stereo Systems, Air Conditioners, Radar Detectors, TV/VCR, Camcorders, Receivers, Dehumidifiers, Tapes, Combos, Digital Satellite System, Compact Disc Players, Microwave Ovens, Ready to Assemble (RTA) Digital Video Disc Turntables, Washers, Furniture, (DVD) Players, Tape Decks, Dryers, Telephones, Speakers, Ranges, CB Radios, Car Stereos, Dishwashers, Fax Machines, Portable Radios, Refrigerators, Extended Service Contracts, Freezers Vacuum Cleaners, The leading brands sold by the Company during fiscal 1999 (in alphabetical order) were General Electric, Hitachi, Hotpoint, JVC, Magnavox, Panasonic, Pioneer, RCA, Sharp, Whirlpool and Zenith. All REX stores carry a full range of the Company's televisions, video and audio products, microwave ovens and air conditioners and a limited line of home office products, and 223 stores carry major appliances.

 Pricing: The Company's policy is to offer its products at everyday low prices combined with frequent special sales and promotions. The Company's retail prices are established by its merchandising department, but each district manager is responsible for monitoring the prices offered by competitors and has authority to adjust prices to meet local market conditions. The Company's commitment to offer guaranteed lowest prices is supported by the Company's guarantee to refund 125% of the difference in price if, within 30 days of purchase, a customer can locate the same item offered by a local competitor at a lower price.

Advertising: The Company uses a "price and item" approach in its advertising, stressing the offering of nationally recognized brands at significant savings. The emphasis of the Company's advertising is its "Guaranteed Lowest Price," which states "Our prices are guaranteed in writing. If you find any other local store stocking and offering to sell for less the identical item in a factory sealed box within 30 days after your REX purchase, we'll refund the difference plus an additional 25% of the difference." Advertisements are concentrated principally in newspapers and preprinted newspaper inserts, which are produced for the Company by an outside advertising agency and are supplemented by television and radio in certain markets. Advertisements are also complemented by in-store signage highlighting special values, including "Value Every Day," "Best Value," and "Top of the Line." The Company's advertising strategy includes preferred customer private mailers, special events such as "Midnight Madness Sales" and coupon sales to provide shopping excitement and generate traffic.

• Business Strategy

The Company's objective is to be a dominant consumer electronics and home appliance retailer in each of its markets. The key elements of its business strategy include: Focus on Small and Medium Sized Markets. The Company concentrates its stores in small and medium sized markets (generally with populations of 30,000 to 300,000) which enables it to operate on a low overhead basis and enhances its ability to become a dominant retailer in an area.

Depth of Product Selection: The Company sells brand name products and emphasizes depth of product selection within its key product categories. The Company offers merchandise at a range of price points in each product category and generally maintains sufficient product stock for immediate delivery to customers. Everyday Low Prices. The Company offers its products at everyday low prices combined with frequent special sales and promotions.  The Company's information systems allow management to monitor its merchandising programs, store operations and expenses. The Company's operational controls provide it with cost efficiencies which reduce overhead while allowing the Company to provide high levels of service. Value Oriented Sales Format. The Company's knowledgeable sales force is trained to provide professional, courteous service to all customers. The Company believes its low price policy, attention to customer satisfaction and deep product selection provide customers with superior value.

• Expansion Strategy

When deciding whether to enter a new market or open another store in an existing market, the Company evaluates a number of criteria, including: size and growth pattern of the population, sales volume potential, and competition within the market area, including size, strength and merchandising philosophy of former, existing and potential competitors. In choosing specific sites, the Company applies standardized site selection criteria taking into account numerous factors, including: local demographics, real estate occupancy expense based upon ownership and/or leasing, cost of advertising, traffic patterns and overall retail activity. Stores typically are located on high traffic arteries, adjacent to or in major shopping malls, with adequate and safe lighted parking to support high sales volume. The Company will either lease or purchase new store sites depending upon opportunities available to it and relative costs. Of the 20 new stores opened in fiscal 1999 and 1998, ten were leased sites and ten were Company purchased sites. For leased stores, the Company anticipates per store capital expenditures of approximately $75,000 to $250,000. This amount may increase significantly to the extent the Company is responsible for the remodeling or renovation of the new leased site. The Company anticipates expenditures of approximately $800,000 to $1,200,000 when it purchases real estate, which include the cost of the land purchased, building construction and fixtures. The purchase amount varies depending upon the size and location of the store. Historically, the Company has obtained long-term mortgage financing of approximately 75% of the cost of opening owned stores. Mortgage financing is generally obtained after a store is opened, either on a site by site or multiple store basis. The extent to which the Company will seek mortgage financing for owned stores will be dependent upon mortgage rates, terms and availability. The inventory requirements for new stores are estimated at $350,000 to $500,000 per store depending upon the season and store size. A portion of this inventory is financed through trade credit.

• Summary

 RSC was unfairly beaten down after they announced NOV-DEC sales were not going to meet analysts estimates. The stock lost over 45% of it's value. We think Wall Street overreacted as same store sales did increase over the period. RSC fills a niche as an electronic retailer in small and medium sized markets. A similar strategy to that used by Wal-Mart during their expansion. We feel RSC will rebound to a more accurate reflection of its' true value. Their policy of matching or beating the price on any advertised products by the competition, should ensure their place in the multi billion dollar electronics industry. In addition Rex Stores is building a presence on the internet through their e-commerce website http://www.rexstores.com.

RSC announced a 1 million share repurchase program on Jan. 12, 2000. This share repurchase program was completed by Jan. 25, 2000. On Jan. 25, 2000, they announced an additional 1.5 million share repurchase program. The determination demonstrated by management to increase shareholder value coupled with a line of higher margin products should propel the stock price of RSC we feel.

Total merchandise sales for fiscal 2000 rose 12% to $447,613,000 from $400,104,000 in fiscal 1999. Comparable store sales for fiscal 2000 rose 8%. The Company considers a store to be comparable after it has been open six full fiscal quarters. Comparable store sales figures do not include sales of extended service contracts.

Total merchandise sales for the fourth quarter of fiscal 2000 rose 8% to $149,592,000 from $138,174,000 in the fourth quarter of fiscal 1999. Comparable store sales for the quarter rose 3%.

Less than 2 months ago Individual Investor was calling for $56 a share for RSC. Robinson Humphry and others issued a Short-Term/Long Term Buy. Take a close look at the comparable chart at the top of this profile and RSC begins to look very attractive. For all the right reasons, we think the recent collapse in RSC stock price was a knee-jerk reaction by Wall Street and was overdone.

• Corporate Contacts

Rex Stores Corporation

2875 Needmore Rd

Dayton, OH 45414 

PH :(937) 276-3931

Fax: (937) 276-8643

 2/4/00

(This report was written by SmallCapReview.com and has not been paid for or approved by Rex Stores Corporation, (RSC). SmallCapReview.com feature stock reports are intended to be stock ideas, NOT recommendations. Please do your own research before investing. It is crucial that you at least look at current SEC filings and read the latest press releases. More information can be found by reading our disclaimer page.) For continuing coverage of RSC, please sign up for our free newsletter, SmallCapReview News. Information contained in this report was extracted from current SEC documents, particularly the Annual Report filed by RSC and from other sources deemed reliable. This information was not supplied to SmallCapReview.com by the company and SmallCapReview.com has received no compensation from the company for this article. RSC has not assisted in any form or manner in the gathering of information presented herein. For more information see our disclaimer section, a link of which can be found on the home page of this site. This document contains forward-looking statements, particularly as related to the business plans of the Company, within the meaning of Section 27A of the Securities Act of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to the safe harbor created by these sections. Actual results may differ materially from the Company's expectations and estimates.

 

© 1999-2000 SmallCapReview.com. All rights reserved. SmallCapReview.com is not a Registered Broker/Dealer or Financial Advisor, nor do we hold ourselves out to be. All materials presented on our web site and individual reports released to the public through this website, e-mail or any other means of transmission are not to be regarded as investment advice and are only for informative purposes. Before making a purchase or sale of any securities featured on our web site or mentioned in our reports, we strongly encourage and recommend consultation with a registered securities representative. This is not to be construed as a solicitation or recommendation to buy or sell securities. As with any stock, companies we select to profile involve a degree of investment risk and volatility. Particularly Small-Caps and OTC-BB stocks. All investors are cautioned that they may lose all or a portion of their investment if they decide to make a purchase in any of our profiled companies. Past performance of our profiled stocks is not indicative of future results. The accuracy or completeness of the information on our web site or within our reports is only as reliable as the sources they were obtained from. SmallCapReview.com may hold positions in securities mentioned herein, and may make purchases or sales in such securities featured on our web site or within our reports. In order to be in full compliance with the Securities Act  of 1933, Section 17(b), SmallCapReview.com will disclose in it's disclaimer what, if any compensation was received for our efforts in researching, presenting and disseminating this information to our subscriber database and featuring the report on SmallCapReview.com website. SmallCapReview.com may decide to purchase or sell shares on a voluntary basis in the open market before, during or after the profiling period of this report. Information presented on our web site and within our reports contain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact and may be "forward looking statements." Forward looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through the use of words such as “expects’”, “will,” “anticipates,” “estimates, “believes,” or that by statements indicating certain actions “may,” “could,” or “might” occur.

THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SMALL CAP SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK.

We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission (SEC) and/or the National Association of Securities Dealers (NASD). Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its website.