Trans World Entertainment Profitable For First Time Since 2007
Trans World Entertainment Profitable For First Time Since 2007

Trans World Entertainment's fourth quarter net profit of $16.5 million has helped the chain attain its first profitable year since 2007.

Its fourth quarter profit translates into 51 cents per diluted share on sales of $193.1 million for the period ended Jan. 28. That represents a 33.6% increase over the $12.4 million, or 38 cents per diluted share, it earned in the fourth quarter of its prior fiscal year. Meanwhile sales declined 16.5% from the $231.3 million it earned in the prior year's fourth quarter, largely due to store closures.

For the full year, Trans World produced a net income of $2.16 million, or 7 cents per diluted share, on sales of $542.6 million. That compares with the prior year's loss of nearly $31 million, or 99 cents per diluted share, while sales declined 16.8% from $652.4 million, largely due to the closure of 70 stores during the year.

In a statement, Trans World Entertainment chairman and CEO Robert J. Higgins notes that the results represented the chain's eighth consecutive quarter of improved results as the company strived to return to profitability, something Billboard predicted would occur in the Retail Track column in the Feb. 12 issue.

The company's improved profitability came from reducing selling, general, and administrative expenses to 34.4% of sales from the prior year, when SG&A comprised 35.8% of sales. Meanwhile, gross profit margin rose to 36.5% of sales from the prior year when it was 33.6% of sales.

The company managed to withstand its four straight years of losses due to a strong balance sheet that only lists $4 million in long-term debt, and tight cash management that saw the chain operate without drawing down one cent from its revolving credit facility during the year. The company finished the year with $88.5 million in cash on hand.

But in one slightly troubling note, the company's comparable-store sales declined 2% for the year.

In a conference call with Wall Street analysts, Higgins broke comparable-store sales by product line for the quarter, reporting that music declined 10% while video was down 3% and video games declined 13% from the corresponding quarter in the prior year, according to the Seeking Alpha transcript of the call. Offsetting those declines, electronics increased 23% and trend merchandise increased 26%.

The company's new CFO Tom Seaver (NOT THE FORMER MET), who joined the company in late November, reported that earnings before interest, taxes, depreciation, and amortization improved to $25.8 million, more than double the $11.5 million in EBITDA the chain produced in 2010.