Douglas Bruggeman - Chief Financial Officer, Vice President - Finance, Treasurer Stuart A. Rose - Chairman of the Board, Chief Executive Officer

[Arnold Brief - Goldsmith & Harrison] [Mike Nary]

Welcome to the Rex Stores third quarter conference call. During the presentation all participants will be in a listen-only mode. Afterwards we’ll conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, December 9, 2008. I would like now to turn the conference over to Mr. Doug Bruggeman, Chief Financial Officer.

Thank you for joining the Rex Stores fiscal 2008 third quarter conference call. We’ll get to our presentation and comments momentarily as well as your questions. But first I’ll review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions today’s conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company’s current expectations and beliefs but are not guarantees of future performance. As such actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today’s news announcement and the company’s filings with the Securities and Exchange Commission including the company’s report on Forms 10K and 10Q. Rex Stores assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to Stuart Rose, Chairman of the Board. Stuart A. Rose: I’d like to thank everyone for listening. In talking about our company we like to divide it into retail and alternative energy. The first part of the company I’ll talk about is retail. Sales were $41.2 million versus $53.4 million in the comparable quarter last year. Income was $2.8 million this year versus $2.5 million last year. Comps were down 13.6%. The biggest reason for the gain in the retail income was the sale of our Cheyenne warehouse which contributed approximately $2.3 million to that number. Going forward we have hired BGL to examine restructuring proposals and restructuring opportunities. In retail we’ve received to date three proposals, two of which we’re still evaluating. We also are a little more optimistic about retail in that Circuit City and Tweeters bankruptcies in a very soft market across the board, not just at our company but everywhere, has created some buying opportunities that is something in the past we have taken advantage of and possibly will have the chance to take advantage of that in the future should we not do any restructuring. In terms of ethanol we had a loss of roughly $4.96 million. The biggest part of that loss or a large part of it was $2.4 million related to negative gross profit in Loveland, Texas. That was a plant where we started late in the first quarter and have not had a chance to take advantage of the relatively low prices of sorghum. Now we’re starting to take advantage of those prices of sorghum and I’ll talk about that a little bit later. We also had two noncash charge-offs: $0.9 million related to derivative swaps and $1.3 million write-off of goodwill. There’s obviously no goodwill in any ethanol plant today and we chose to write that off. We also had a $1 million increase in interest expense which again we expected as we’re now paying interest on that plant. During the quarter we saw corn at a very high price; ethanol at a high price but low price relative to the corn; and that goes for sorghum also during that quarter. Now with the harvest in we’ve been able to buy sorghum better. Even though ethanol prices have come down, our spreads have gone up and at least based on November margins have improved. Now the outlook is a little bit better. So we’ll see what happens. In terms of our cash position we had roughly $66 million of unrestricted cash on the books. We expect that to go up by year end as we liquidate some of our inventory to get it more seasonally in line. We’ve used some of that for the buy-backs. Every time we buy a share we’re increasing our equity per share. The cash will also help us weather the recession that we’re in and it is a very tough recession. Business continues to be like I said earlier fairly tough. We look at sometimes the recession as a place for someone with cash to find opportunistic opportunities and we continue to look for those. We continue like I said earlier to work on restructuring retail which may or may not happen. Again although we are in very tough times and although retail is very, very tough, we feel with the balance sheet that we’ve built up over the years we’re in a better position than most to withstand this. As companies fall off by the wayside, which has happened with [Barris Son] in ethanol, it’s happened with Circuit City in retail, we think that when the recession ends we should be able to [inaudible].

(Operator Instructions) Our first question comes from [Arnold Brief - Goldsmith & Harrison]. [Arnold Brief - Goldsmith & Harrison]: You highlighted the cash position of the company and indicated of course that it helps you get through a recession and you can buy stock all of which is a plus, but I can’t remember exactly how you phrased it but you also mentioned something about exploring other opportunities. Could you elaborate at all? I don’t think you’d invest more money in ethanol at this point? Correct me if I’m wrong. You’re certainly not expanding the retail business. What plans do you have for the cash apart from buying the stock?

At the moment we’re using it to buy in the stock but in terms of plans we’ll see what opportunistic opportunities come our way. There are a lot of people out there in far worse shape than we are and we feel again buying in the stock is the best use of the cash that we know of right now. On the other hand if something better comes along, we’re in a position where we have the cash to look at that. And again we’re in a very deep recession. Not many industries, not many businesses are making money right now. But if the opportunity came along to find something like we previously had in synthetic fuel, we have the money to do it and these are the type of times where opportunities do once in a while come along like that. Having cash isn’t the end of the world. [Arnold Brief - Goldsmith & Harrison]: I know it’s available but I just haven’t looked it up. What is the amount of options that you have left that can be exercised?

I can get that number. At the current price I think they’re all under water at this point but the number of options outstanding is approximately 3 million shares.

Before we proceed to our next question, Mr. Rose is back on the line. Our next question comes from [Mike Nary]. [Mike Nary]: What was depreciation and base cap ex during the quarter and what is kind of the cap ex needs for the retail business going forward do you think?

Most of our cap ex for the year-to-date has been on the ethanol part of the business. Capital expenditures on retail year-to-date’s been about $600,000 and probably about $75 million for the ethanol part of the business. [Mike Nary]: What was depreciation in the quarter?

I’ve got the depreciation on a year-to-date basis. It’s about $2.6 million overall with about $1.2 million of that being on the retail portion of the company. [Mike Nary]: Can you give a little more color on the ethanol business for us? Right now, what kind of operating costs we have? You mentioned that November the gross margins improved. Was November profitable? Can you just give some kind of sense of what that business looks like currently? Stuart A. Rose: We don’t to date have the final November statements but we do know that the gross margin improved in the main plant, the biggest reason being we’re able to now buy freshly harvested sorghum. Before we were paying at or over in many cases Chicago basis because the sorghum from the crops had already been spoken for although sorghum usually sells for less than Chicago basis. Now we’re able to buy it for less than Chicago basis. That along with the better price of ethanol relative to wholesale gasoline has allowed us to maybe do a little bit better. The other thing that we hope going forward will make a difference is the federal mandates where refiners have to buy ethanol are in effect and if there’s less production from some of the companies in financial trouble, we hear of plants being slowed down, plants being canceled, plants going bankrupt. The biggest in the industry went bankrupt. If there’s less supply out there, then the pricing should be better and we think that particular plant because it’s in a sorghum market with the lower basis of corn, it’s in a very good market in terms of being relatively close to the refiners. We’re optimistic that we can do considerably better in that. We also have a new plant coming on line next year. Same story. We think it’s a perfectly positioned plant. We looked at lots of plants all over the country and we think that one’s as good as any. We are not unoptimistic. We don’t think it’s an industry that this government’s going to let fail. Obama was a big supporter of ethanol. It’s one of the few products that in a significant way lessens our dependence on foreign oil and it also helps our farmers and our farm base which is right now one of the few parts of the economy that’s going relatively well. So we are optimistic on that business. [Mike Nary]: When I think about sorghum and DDG, is it the same kind of relationship as corn and DDG? Can you sell the byproduct? Stuart A. Rose: Absolutely. [Mike Nary]: Can you give some kind of ratio to corn price or how do we look at that? Stuart A. Rose: It is its own market but generally our experience has been roughly 1/3 of the price per bushel of corn is what DDG sells for. [Mike Nary]: How does the sorghum relate to corn prices? Stuart A. Rose: 1/3 might not be exactly right but again it does depending on where corn is, it goes up again with the price of corn. What was the next question? Sorghum? Sorghum generally our experience in November was significantly under corn. We do not want to disclose that number right now for competitive reasons but it was significantly under corn. [Mike Nary]: All the data associated with those plants I know is non-recourse to the company. Can you give some type of color in terms of are there certain EBITDA requirements or how long can the plants operate at losses if necessary before they the debt gets called basically?

They do have debt covenant calculations involved in them. It’ll be part of the ongoing process the majority of the ethanol plants have to deal with. Stuart A. Rose: My gut feel is that as long as we’re paying the interest and generating a positive cash flow and we’re running our plants efficiently that it would not be in the best interest for anyone to call those loans because at best they cannot force someone else to pay their interest. So I don’t expect that to happen but there are covenants in all these plants. [Mike Nary]: The $11.4 million of debt that the company has, that’s all mortgage debt on buildings. Is that correct?

That’s correct.

Our next question comes from [Arnold Brief - Goldsmith & Harrison]. [Arnold Brief - Goldsmith & Harrison]: You said you sold a warehouse. Could you tell us how many square feet were involved in that?

It was about 140,000 square feet and then we leased back about half of that warehouse. It was the warehouse in Cheyenne, Wyoming. [Arnold Brief - Goldsmith & Harrison]: You sold the whole warehouse and leased half of it back?

Yes. We have a three-year lease on that. [Arnold Brief - Goldsmith & Harrison]: What was the sale price on that again?

We sold it in two different spaces. There was the building and then there was a piece of land attached to it. In total the sale price was about $5.1 million. [Arnold Brief - Goldsmith & Harrison]: I think you gave us the right answer on that ethanol question but I’m just wondering, is the cash flow of ethanol at this point sufficient to pay the interest or are you loaning the money or where is the money for the interest coming from?

From the debt for the ethanol facility. [Arnold Brief - Goldsmith & Harrison]: I’m not talking about your share. I’m talking about their share.

Yes, I understand. Loveland [inaudible] up to this point has been able to pay their mortgages but we are in discussions with them about perhaps having to fund some additional money for them in the next quarter here to help them with their cash flow and their grain purchasing ability. Stuart A. Rose: A lot of that will be tied to opportunistic grain purchases. The price of grain right now is very advantageous to us. [Arnold Brief - Goldsmith & Harrison]: Based on your statements I’m assuming that you’re not locked in to any higher cost grain contracts?

Not long term, no. We might be a week or something out as grain’s fallen in the last week but to answer your question, we’re not locked into anything long term. We might have committed [inaudible] a week ago that it comes in this week or something. [Arnold Brief - Goldsmith & Harrison]: I’m talking more than a rollover kind of thing. Could you indicate whether the ethanol was in the black in the month of November?

We don’t have our November financials. We have our estimates and all I can say is they did considerably better and we’re hopeful cash flow wise that they were in the black. [Arnold Brief - Goldsmith & Harrison]: I’m not sure that you want to disclose what you’re discussing in terms of the retail solution, but without getting into that could you give us some timeframe on when you think a decision might be made one way or the other? Stuart A. Rose: As I said we received three proposals, two of them which we’re evaluating. I would hope by the end of our fiscal year to either say that none of them were worthwhile to our shareholders - We are evaluating them on two levels, both our shareholders and our employees. So we hope to have the process completed by our fiscal year end and I think there’s a good chance of that.

If I could clarify the earlier question, the number of options outstanding at October 31 was about 2.7 million shares at an average exercise price of about $960 and at this price some of the options are actually in the money but that’s the average exercise price.

There are no further questions at this time. Please continue with the presentation or closing remarks. Stuart A. Rose: I’d like to thank everyone for attending and I appreciate your listening very, very much. Even during these tough times we feel we have some reason for optimism and hopefully things will improve. We are certainly in a position to withstand what’s going on now and are hopeful for the future. Thank you.

Ladies and Gentlemen that does conclude the conference call for today. We thank you for your participation and ask you to please disconnect your lines. Have a good day everyone.