Company acquired Musicland stores in March.

Trans World Entertainment released its fiscal second quarter earnings report that revealed an 18% increase in sales, thanks to its March acquisiton of 350 Musicland stores, but posted a net loss of $7.7 million, or 25 cents per share. That compares with a net loss of $7 million, or 21 cents per share in the company’s fiscal second quarter in 2005.

Trans World senior VP and CFO John Sullivan attributed the loss to weakness in the music category, which was down 16% on a comparable store basis.

The loss would have been larger, but for an extraordinary gain for unallocated negative goodwill of $2.5 million. Gross profit as a percentage of sales for the second quarter was 35.6%, versus 36.7% in the comparable period last year. Meanwhile, selling, general and administrative expenses increased to 40.2% from 37.4%. But part of the increase was due to a $4.4 million in acquisition costs related to the Musicland deal.

The sales increase was partially offset by a 7% comparable-store sales decline. “During the quarter, we successfully completed the integration of the recently acquired Musicland stores into our portfolio and expect our comparable store sales trend to improve in the second half of the year,” Trans World chairman and CEO said in a statement.

Trans World released their financial results before the market opened on August 17, and then held a conference call later in the day. Despite the weak financial performance, the stock rose 5.7% to $6.09 from $5.76 at the end of trading that day.