Vinyl, Cassettes & Retail

Trans World Stores Report Bad Year

Trans World Entertainment last week reported financial results for its fourth quarter and fiscal year 2Cd_many_34
006 and despite cost cutting and store closures the picture wasn’t pretty. The company operated an average of 1,087 stores compared to 791 in the previous year and still comparable store sales decreased 6%.  Trans World is consolidating the majority of its Coconuts, Strawberries, Wherehouse, Sam Goody and Spec’s stores under f.y.e. (for your entertainment) brand which will lead to more store closures.

If you understand terms like "extraordinary gain for unallocated negative goodwill", there’s a lot more financial info after the jump.

Trans World Entertainment Corporation (NASDAQ:TWMC) reported financial results for its fourth quarter and fiscal year 2006.  For the quarter, total sales increased 28% to $586.7 million.  The Company operated an average of 1,087 stores compared to an average of 791 stores in the fourth quarter of last year.  In addition, the fourth quarter of 2006 contained fourteen weeks compared to thirteen weeks for the fourth quarter of 2005.  Comparable store sales for the quarter decreased 6%.  For the fourth quarter of 2006, the Company recorded net income of $36.4 million, or $1.12 per diluted share, including an extraordinary gain for unallocated negative goodwill of $3.6 million, net of income taxes, related to the acquisition of Musicland.  Income before the extraordinary gain was $32.8 million, or $1.01 per diluted share. Net income for the fourth quarter of 2005, including the cumulative effect of a change in accounting principle related to the adoption of FIN 47, Accounting for Conditional Asset Retirement Obligations, was $20.0 million, or $0.64 per diluted share.  Income before the cumulative effect of a change in accounting principle was $22.3 million or $0.71 per diluted share.

For fiscal year 2006, total sales increased 19% to $1.471 billion.  The Company operated an average of 1,044 stores compared to 801 during fiscal year 2005.  In addition, fiscal year 2006 contained fifty-three weeks compared to fifty-two weeks for fiscal year 2005.  Comparable store sales for fiscal year 2006 decreased 6%.  Net income for fiscal 2006 was $10.2 million, or $0.32 per diluted share, including an extraordinary gain for unallocated negative goodwill of $8.9 million, net of income taxes, related to the acquisition of Musicland.  Income before extraordinary gain was $1.3 million, or $0.04 per diluted share.  Net income in 2005 was $0.6 million, or $0.02 per diluted share, including the cumulative effect of a change in accounting principle related to the adoption of FIN 47, Accounting for Conditional Asset Retirement Obligations, of $2.3 million, net of income taxes.  Income for fiscal 2005, before the cumulative effect of a change in accounting principle was $2.9 million, or $0.09 per diluted share.

"We were disappointed with our 2006 results," commented Robert J. Higgins, Trans World’s Chairman and CEO.  "For 2007, we are committed to improve our operations through strengthening our brand, increasing sales in our core categories, while expanding into other product lines, and improving our selling culture and in-store experience.  While we remain cautious in this challenging environment, we also remain optimistic about our transition to be the preferred retailer of all things entertainment."

Trans World Entertainment is a leading specialty retailer of music, video and video games and related products.  The Company operates nearly 1,000 retail stores in the United States, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico under various brands.  The Company is in the process of consolidating the majority of its stores (Coconuts Music and Movies, Strawberries Music, Wherehouse, Sam Goody and Spec’s) under the name f.y.e. for your entertainment.  The Company also operates over 130 video only stores primarily under the Suncoast brand and on the web at www.fye.com, www.coconuts.com, www.wherehouse.com, www.secondspin.com, www.samgoody.com and www.suncoast.com.

Certain statements in this release set forth management’s intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses.  Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission.

                  TRANS WORLD ENTERTAINMENT CORPORATION
                            Financial Results
  INCOME STATEMENTS:

  (in millions, except per share data)

                  Fourteen and Thirteen
                      Weeks Ended (1)              Fiscal Year Ended (2)

             Feb. 3,   % to   Jan. 28,  % to    Feb. 3,  % to Jan. 28,  % to
              2007    Sales     2006    Sales    2007   Sales   2006   Sales

  Sales      $ 586.7          $ 458.6          $1,471.2      $1,238.5

  Cost of
   sales       382.9   65.3%    307.4    67.0%    952.0  64.7%  806.9  65.1%
  Gross
   profit      203.8   34.7%    151.2    33.0%    519.2  35.3%  431.6  34.9%

  Selling,
   general and
   admini-
   strative
   expenses    137.0   23.3%    106.7    23.3%    482.4  32.8%  392.8  31.7%

  Depreciation
   and
   amortization  9.3    1.7%      8.8     1.9%     36.8   2.5%   34.0   2.8%
  Income from
   operations   57.5    9.7%     35.7     7.8%      0.0   0.0%    4.8   0.4%
  Other
   income       (0.4)  -0.1%     (0.6)   -0.1%     (4.4) -0.3%   (2.2) -0.2%

  Interest
   expense       1.4    0.2%      1.0     0.1%      5.5   0.4%    3.0   0.3%
  Income (loss)
   before income
   taxes,
   extraordinary
   gain –
   unallocated
   goodwill and
   cumulative
   effect of
   change in
   accounting
   principle    56.5    9.6%     35.3     7.8%     (1.1) -0.1%    4.0   0.3%

  Income tax
   expense
   (benefit)    23.7    4.0%     13.0     2.8%     (2.4) -0.2%    1.1   0.1%

  Income before
   extraordinary
   gain –
   unallocated
   goodwill and
   cumulative
   effect of
   change in
   accounting
   principle   $32.8    5.6%    $22.3     5.0%     $1.3   0.1%   $2.9   0.2%

  Extraordinary
   gain –
   unallocated
   negative
   goodwill,
   net of income
   taxes         3.6    0.6%        –     0.0%      8.9   0.6%      –   0.0%
  Cumulative
   effect of
   change in
   accounting
   principle,
   net of
   income taxes    –    0.0%     (2.3)   -0.5%        –   0.0%   (2.3) -0.2%

  Net income   $36.4    6.2%    $20.0     4.5%    $10.2   0.7%   $0.6   0.0%

  Basic
   earnings per
   common share:
  Earnings per
   share before
   extraordinary
   gain –
   unallocated
   negative
   goodwill
   and cumulative
   effect of
   change in
   accounting
   principle,
   net of income
   taxes       $1.06            $0.72             $0.04         $0.09

  Extraordinary
   gain –
   unallocated
   negative
   goodwill,
   net of income
   taxes        0.12                –              0.29             –

  Cumulative
   effect of
   change in
   accounting
   principle,
   net of
   income taxes    –            (0.07)                –         (0.07)

  Basic earnings
   per common
   share       $1.18            $0.65             $0.33        $ 0.02

  Weighted
   average
   number of
   common
   shares
   outstanding  30.9             30.8              30.8          32.0

  Diluted
   earnings per
   common share:
  Earnings per
   share before
   extraordinary
   gain –
   unallocated
   negative
   goodwill
   and
   cumulative
   effect of
   change in
   accounting
   principle,
   net of
   income
   taxes       $1.01            $0.71             $0.04        $ 0.09

  Extraordinary
   gain –
   unallocated
   negative
   goodwill,
   net of
   income
   taxes        0.11                –              0.28             –

  Cumulative
   effect of
   change in
   accounting
   principle,
   net of
   income
   taxes           –            (0.07)                –         (0.07)

  Diluted
   earnings
   per common
   share       $1.12            $0.64             $0.32        $ 0.02

  Weighted
   average
   number of
   common
   shares
   outstanding  32.4             31.5             32.0           32.1

  SELECTED BALANCE
   SHEET CAPTIONS:
  (in millions, except
   store data)
  Cash and cash
   equivalents                                  $118.6         $197.2
  Merchandise
   inventory                                     504.9          402.7
  Fixed assets
  (net)                                          138.9          132.5
  Accounts payable                               311.3          307.7
  Long-term debt and
   capital lease
   obligations, less
   current portion                                16.1           19.5

  Stores in
   operation                                       992            782

  (1) – The fourth fiscal quarter ended February 3, 2007 contains 14 weeks.
        The fourth fiscal quarter ended January 28, 2006 contains 13 weeks.

  (2) – The fiscal year ended February 3, 2007 contains 53 weeks.
        The fiscal year ended January 28, 2006 contains 52 weeks.

First Call Analyst:
FCMN Contact: pgau@mww.com

Source: Trans World Entertainment Corporation

CONTACT:  John J. Sullivan, EVP, Chief Financial Officer of Trans World Entertainment, +1-518-452-1242; or Rich Tauberman of MWW Group,
+1-201-507-9500, rtauberman@mww.com

Web site:  http://www.twec.com/

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