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Rainbow Rentals today reported improved financial results for its fourth quarter and full year ended December 31, 2002.

Revenue from continuing operations for the fourth quarter was $25.1 million, up 4.6 percent from $24.0 million for the comparable period in 2001. Revenue at comparable stores (those opened before October 1, 2001) was up nearly 1 percent, marking the fifth consecutive quarter of comparable store revenue increases.

Net Income from continuing operations for the quarter was $398,000 compared to a net loss of $169,000 in the fourth quarter of 2001. The improvement in continuing operations was primarily the result of improved pricing, lower merchandise costs and a reduction in most store-level expenses. These improvements offset the dilutive effects of increased new store openings and a $250,000 increase in associate medical claims.

During the fourth quarter the sale of a store in Newark, Delaware was completed and the results from this store including the sale and lease buyout are recorded as discontinued operations.

Net income and earnings per share for the fourth quarter were $302,000 or $0.05 per share, respectively, compared to a net loss of $169,000 or $0.03 per share a year ago. Proforma net loss for the fourth quarter of 2001 was reduced to $91,000 or $0.02 per share to reflect the required adoption of Statement of Financial Accounting Standards No. 142, under which the company discontinued amortization of goodwill.

Revenue from continuing operations for the full year ended December 31, 2002 was $99.3 million, up 5 percent from $94.6 million in 2001. Revenue at comparable stores (those opened before January 1, 2001) was up 1.4 percent. Net Income from continuing operations for the year was $1.81 million compared to $1.17 million in 2001. Net income and earnings per share for the full year ended December 31, 2002 were $1.64 million or $0.28 per share, respectively, compared to $1.17 million or $0.20 per share a year ago. Proforma net income for the full year ended December 31, 2002 was increased to $1.49 million or $0.25 per share to reflect the required adoption of Statement of Financial Accounting Standards No. 142, under which the company discounted the amortization of goodwill.

Wayland J. Russell
CEO
"We are pleased to have achieved higher profitability during 2002. Our rebound from declining results in 2000 and 2001 reflects our strong store operating system, the concerted effort of our associates to operate more efficiently and the resilient character of our company. To foster greater revenue growth, we dedicated much of our fourth quarter to redirecting our advertising program. As a result, we launched a new advertising campaign in January, and have increased our investment in direct-response programs to current and inactive customers. We have also improved our manager-training process to enhance manager retention. We are confident that these two key changes, along with continued attention to our store operating metrics, will yield better results in the year ahead."

To improve profitability, Rainbow sold an under-performing store in Newark, Delaware to Rent-A-Center in October, and closed two stores in January. The accounts of these stores closed in January 2003, in Schenectady, N.Y., and Norfolk, Va., were consolidated into nearby stores in Albany, N.Y., and Virginia Beach, Va.

                            RAINBOW RENTALS, INC.
                             STATEMENTS OF INCOME

                                       (unaudited)           (unaudited)
                                  For the three months
                                         ended           For the year ended
                                       December 31,          December 31,
                                      2002       2001       2002       2001
  Revenues
    Rental revenue                 $23,717    $22,698    $93,239    $88,770
    Fees                               677        651      2,728      2,697
    Merchandise sales                  729        674      3,300      3,088
         Total revenues             25,123     24,023     99,267     94,555

  Operating expenses
    Merchandise costs                8,433      8,844     33,995     33,310
    Store expenses
      Salaries and related           6,530      6,153     24,393     22,713
      Occupancy                      2,390      2,182      9,480      8,607
      Advertising                    1,581      1,599      6,167      5,928
      Other expenses                 3,371      3,368     13,494     13,258
         Total store expenses       13,872     13,302     53,534     50,506

         Total merchandise costs
          and store expenses        22,305     22,146     87,529     83,816

    General and administrative
     expenses                        1,912      1,795      7,706      7,160
    Amortization of goodwill and
     noncompete agreements              45        173        175        689
         Total operating
          expenses                  24,262     24,114     95,410     91,665

         Operating income (loss)       861        (91)     3,857      2,890

  Interest expense                     146        134        632        689
  Other expense, net                    57         57        228        227
         Income (loss) before
          continuing operations
            before income taxes        658       (282)     2,997      1,974

  Income tax expense (benefit)         260       (113)     1,184        800

         Net income (loss) from
          continuing operations        398       (169)     1,813      1,174

  Discontinued operations
    Loss from operations of
     discontinued store
     including loss on
     disposal                         (159)        --       (285)        --
    Income tax benefit                 (63)        --       (113)        --
         Loss on discontinued
          operations                   (96)        --       (172)        --

         Net income (loss)            $302      $(169)    $1,641     $1,174

  Basic earnings (loss)  per
   common share:
    Basic earnings per share
     from continuing operations      $0.07     $(0.03)     $0.31      $0.20
    Basic earnings per share
     from discontinued
     operations                      (0.02)        --      (0.03)        --
         Basic earnings per
          share                      $0.05     $(0.03)     $0.28      $0.20

  Diluted earnings (loss) per
   common share:
    Diluted earnings per share
     from continuing operations      $0.07     $(0.03)     $0.31      $0.20
    Diluted earnings per share
     from discontinued
     operations                      (0.02)        --        (0.03)      --
         Diluted earnings per
          share                      $0.05     $(0.03)     $0.28      $0.20

  Weighted average common shares
   outstanding:
    Basic                        5,929,319  5,925,735  5,928,006  5,925,735

    Diluted                      5,932,648  5,948,977  5,940,606  5,940,999

  Pro forma net income (loss)
   data:
    Net income (loss) as
     reported                         $302      $(169)    $1,641     $1,174
    Pro forma adjustment for
     goodwill amortization, net
     of tax                             --         78         --        312
    Pro forma net income (loss)       $302       $(91)    $1,641     $1,486

  Pro forma earnings (loss) per
   common share:
    Basic                            $0.05     $(0.02)     $0.28      $0.25

    Diluted                          $0.05     $(0.02)     $0.28      $0.25