While Trans World net loss widened in its fiscal second quarter, the 953-store chain showed improvement in key categories as it continues its transition to a multi-media entertainment retailer.

For the quarter ended Aug. 4, the chain lost $10.1 million, or 32 cents per diluted share, on revenue of $267.3 million. That compares with a net loss of $7.7 million, or 33 cents per share, on sales of $298.3 million in the corresponding period last year.

Although Trans World showed a wider loss than the same period last year, the results would have represented a slight improvement if the extraordinary gain from unallocated goodwill was excluded from 2006's second quarter results. If excluded, last year's red ink would have been slightly larger, at a $10.2 million loss in the prior period.

For the quarter, the company said sales were down 10.3%, due to the fact that it operated 148 fewer stores, finishing the second quarter with 963 stores. So far this year about 38 stores have been shuttered with another 40-45 stores scheduled to close, but that could change depending on holiday results.

Meanwhile, the company showed improvement in key financial ratios. "Our gross [profit] margin rate for the quarter increased to 36.6% from 35.6% last year," Trans World Entertainment Corp., executive VP/CFO said during an earnings conference call with Wall Street analysts. "SG&A [selling, general and administrative] expenses as a percentage of sales for the second quarter was 39.5% compared to 40.2% last year, a decrease of 70 basis points."

Sullivan also said that he expected to finish the year with sales over $1.3 billion, with gross margin in the 36% range and SG&A in the 33% range, which should produce earnings before interest, taxes, depreciation and amortization of $40 million to $45 million.

That would leave the company overall in black for the year, and in a cash positive position. That means its dependency on the company's $150 million revolving loan facility should decrease by the end of the year.

Currently, the revolving loan has been drawn down $20 million over last year, with $60 million borrowed at the end of the quarter. Sullivan said he expects the draw down on the revolver to "cap out" in the $80 million range, and then come down.

While comparable-sales were down 6% for the quarter, that's an improvement from the 10% decline charted in the company fiscal first quarter. All of the decline is due to weakness in music as the category, which now accounts for 43% of company revenue and shrinking, suffered a 19% comparable-store decline during the quarter. But all other product categories showed comparable-store gains,

Trans Word president Jim Litwak said during the conference call that the DVD category -- which was 36% of the chain's business during the quarter, up from 32% last year -- posted a 7% comparable store gain. Meanwhile, video games, which were down 12% on a comparable-store basis in the first quarter, posted a 5% same-store gain in the second quarter, and now comprise 8% of the chain's overall business. Finally, electronics, accessories and boutique, which now comprise 13% of overall business, showed a 16% comparable-store gain.

According to Litwak, those product lines comprising "57% of our business was up 9% during the quarter.”

The company expects to continue showing improvement for the rest of the year as the release schedule improves. But Trans World chairman/CEO Bob Higgins cautioned that assessment by reminding that the chain still is operating in a week retail environment with a gloomy economic outlook.

At mid-day, Trans World shares showed a 5 cent gain from its previous day close of $4.36.