Following a sales decline in music and videos for the second year in a row, Trans World Entertainment management says it is looking to add new business opportunities to its stores in order to grow sales and get back to profitability.

Trans World Entertainment lost $9.4 million, or 30 cents per diluted share, on sales of $344.7 million for the three month period ended Jan. 31, 2009. But that's better than the $66 million loss, or $2.12 per share the company posted in the prior year when sales were $451.5 million.

For the full year, Trans World lost $69 million, or $2.21 per share, on sales of $987.6 million, versus the $99.4 million, or $3.20 a share it lost in the prior year when sales were $1.266 billion.

Music comparable-store sales were down 20% and represented 35% of the chain's business in fiscal 2008.

New initiatives

"We realized the need to add additional business opportunities to the box as we must grow our sales and gross profit," Trans World president Jim Litwak said on a conference call with analysts. "2009 will be a year of implementing new initiatives as we develop a model that has long-term sustainability."

Later on in the call, Trans World CEO Bob Higgins elaborated. "In going after new businesses, we think that there is an opportunity in terms of the electronic side, on expanding the whole prepaid phone category." The company also things there is an upside to going after a gadget business, and that there is greater opportunity in headphones.

Management also said they see opportunities on the trend side of the business; expanding consumables; and testing apparel that seem to be working. "And then there is seasonal opportunities where you take advantage of whether it's a Valentine Day, back-to-school, or Halloween, even things like tailgating where we have seen products that we put into the store perform well," Higgins added.

Litwak said the chain's goal was to "build a sustainable model that is less impacted by technological advances upon new physical product." The company is seeking to solidify it declining CD and DVD businesses by continuing to take marketshare and push the market for greater promotional opportunities. In addition to trend, Litwak added that the company is seeing "consistent double-digit growth in Blu-ray and its used business.

It is also moving to turnaround the under performing video game business by rolling out a stronger store presentations, which will be completed by the end of the first quarter this year.

Last year's loss

Last year's loss were attributed to falling sales due to 101 store closures and to an 11% comparable-store decrease. For the full year, the company posted a $27.8 million loss before interest, taxes, depreciation and amortization.

"Our gross margin rate for the quarter was 30.9% compared to 33.7% last year, a decline of 280 basis points," Trans World executive VP/CFO John Sullivan reported. "The primary drivers of the declining gross margin were more aggressive promotional mark downs and lower vendor allowances."

Meanwhile, selling, general and administrative expenses were 27.3% of sales for the quarter compared to 24.7% last year, an increase of 260 basis points, due primarily to fixed costs against the decline in sales.

Product line performances

For the year, video, which represents 42% of the business, suffered a 3% comparable-store decline; while music comparable-store sales were down 20% and represented 35% of the chain's business. Video games, which comprise 9% of the chain's overall sales, were down 14% for the year, from an 11% comparable store decline in game hardware; and 23% in game software. The other categories for electronics, accessories and trend comp down 1% for the year and represent 14% of the chain's business.

The Trans World year-end balance sheet had a cash balance of $30 million, as expected, compared to $75 million last year, while the $150 million revolving credit facility was drawn down $34 million. Inventory stood at $378 million down from the prior's $440 million.