If you're looking for another retailer with the latest electronics gadgetry or flat-panel televisions, look no further than Ohio-based REX Stores (NYSE:RSC). Unfortunately, considering its track record and other energy investing activities, I'm not so sure REX is your best bet.
REX's second-quarter results reveal that net sales fell about 0.5% to $82.1 million, but same-store sales advanced 3.5% compared to the same quarter last year. Net income dove to $0.13 from $0.70 last year, a fall attributed to significant income from a synthetic fuel limited partnership in last year's quarter. The company doesn't expect this to continue, however, as high oil prices have caused a shutdown of the related fuel facility. Thankfully, management appears to have found a way to offset the lost financial benefits from the synthetic fuel investments.
The quarterly press release also announced that REX had invested in an ethanol facility and could invest in up to three other plants going forward. So if you're looking for exposure to retail and alternative energy in one fell swoop, this is the stock for you.
In terms of core operations, retail sales growth over the past five years has been uneven, averaging -3.6% per year. And while earnings have, on average, grown in the double digits over this time frame, operating income has fallen nearly 19% per year, primarily because store performance has struggled. But energy investments have paid off well in recent years -- it's just hard to tell how they will perform going forward.
Because of REX's outside investments, it's difficult to isolate the cash flow generation capabilities of the retail stores. Looking at REX's statement of cash flows over the past three years, it seems that negative income from limited partnerships in operating cash flow is almost completely offset by the sale of related interests in the investing section. In any case, operating cash flow from the retail operations has been erratic, although annual capex needs don't seem very high.
The last investment consideration relates to REX's real estate. There could be real estate being valued at outdated, historical cost on the balance sheet, since the company owns about 70% of its stores. Indeed, REX made a couple of million from the sale of real estate this quarter.
For more consistent retail growth, Fools may want to consider sticking with larger electronics retailers such as Best Buy (NYSE:BBY), CircuitCity (NYSE:CC), or regionally based Conns (NASDAQ:CONN). On average, they have better track records and more compelling expansion opportunities. Best Buy in particular has a solid long-term track record, and Circuit City has done a good job of revitalizing its operations, with further improvements yet to come.
For related Foolishness:
Best Buy is a recommendation of Motley Fool Stock Advisor , where Tom and David Gardner are always on the lookout for the market's best investments. Try it out for yourself -- it's free for 30 days .
Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has an ironclad disclosure policy .
