Wayland J. Russell
Chairman and CEO
"Although we were encouraged by higher deliveries for the second straight quarter, higher costs in our comparable stores affected our profitability"

Rainbow Rentals (RBOW) today reported slightly increased revenues and flat same store sales for the quarter ended June 30, 2003.

The company also reported higher expenses and a slight decrease in collection performance during the quarter.

On the upside, Deliveries were up 17% over last year and core units on rent are reportedly up 11% for the quarter.

According to the company release, revenue for the quarter was $25.8 million, up 3.8 percent from $24.8 for the comparable period of 2002. Revenue at comparable stores (opened on or before April 1, 2002) was flat. Comparable store revenue was affected by lower units on rent, as the company discontinued the rental of certain unprofitable accessories, as well as lower merchandise sales and a decline in collection performance, partially offset by higher rental rates.

Net income for the quarter was $308,000, or $0.05 per share, compared to net income of $476,000, or $0.08 per share, in the second quarter of 2002. The results were affected by $329,000 in pre-tax severance costs (included in general and administrative expenses) associated with the May resignation of the company's chief operating officer Larry Hendricks, partially offset by a $157,000 pre-tax adjustment to depreciation of rental purchase merchandise. The effect of these items was to decrease net income by $104,000, or $0.02 per share. Net income was also affected by higher operating expenses in comparable stores, which offset improved rental depreciation margins and increased revenue in stores opened in 2002. Start-up costs associated with four new stores opened in June 2003 also negatively impacted net income.

For the six months ended June 30, 2003 revenue was $51.5 million, up 3.5 percent from $49.8 million for the comparable period of 2002. Revenue at comparable stores (opened on or before January 1, 2002) was down 1.1 percent. Net income for the six-month period ended June 30, 2003 was $710,000 or $0.12 per share, compared to net income of $1.0 million, or $0.17, per share for the comparable period in 2002.

"Although we were encouraged by higher deliveries for the second straight quarter, higher costs in our comparable stores affected our profitability," said Wayland J. Russell, chairman and chief executive officer. "Our new chief operating officer, Robert Harris, has begun implementing new systems for recruiting and training strong store managers and developing regional managers to support our growth plans. In the past three months, we have implemented personnel changes in many of the stores we opened and acquired between 1999 and 2001, as these stores as a group have performed below our expectations.

"We continue to be pleased with the new marketing campaign we introduced early this year, as monthly deliveries and unit gain performance has improved over 2002 for two straight quarters. In the second quarter, our gains in core units were offset by our decision to discontinue rentals of certain accessory items. Over the next several months, we will be re-evaluating our business during strategic planning sessions designed to foster higher profitability and greater shareholder value."

A summary of Rainbow Rentals earnings conference call will be published here shortly.