Trans World Entertainment

    

Courtesy Photo

The retail chain makes most of its profits in Q4, which has put the company in the black for the last six years.

Trans World Entertainment lost $5.6 million, or 15 cents per diluted share on sales of $102.5 million for the quarter ended July 29. That compares with a $4.7 million loss, or 15 cent per diluted share, on revenues of $64.3 million for the corresponding second quarter in the prior year.

While profits were down, sales grew exponentially by nearly 74% thanks to the $75 million acquisition of etailz in October of 2016. Without that addition, the FYE store operation’s revenue was down 8.4% to $59 million. That means that etailz, the e-commerce and internet marketing company, generated sales of $43.5 million during the quarter. For the etialz segment that total represented a 43.8% increase over the $30.25 million that segment produced in the corresponding year earlier period.

“We continue to focus on the growth potential of etailz, the reinvention and stabilization of the fye brand, and the synergies afforded by the combination of the two,” Trans World CEO Mike Feurer said in a statement.

For the first six months of the year, Trans World reported a loss of $2.03 million, or six cents per diluted share, which is an improvement from the $4.6 million loss, or 15 cents per diluted share, the company had at the mid-way point in the prior fiscal year when revenues totaled $140.1 million. Trans World typically records most of its profits in the fourth quarter, which has put the company into the black annually for the last six years running, through January of 2017.

For the six month period this year, adjusted earnings before interest, taxes, depreciation, and amortization was $3.4 million, versus a loss of  $2.12 million in the corresponding earlier period, while operating loss doubled this time to $10.6 million from $5.2 million.

Getting back to the bottom line, the narrower overall net loss was due to a one-time gain from insurance proceeds, according to the company 10-Q, which was filed today with the U.S. Securities and Exchange Commission.

Comparable stores sales declined 3.6% for the quarter as music and video suffered a 17% decline from the prior year. Furthermore, during its conference call with analysts Trans World executives said music declined 19% while video dropped by 15%.  Overall, at mid-year entertainment media, i.e., CDs, vinyl and DVDs, represented 52% of store revenue. Within that music composed 21.4% of store revenue, down from 24.7% in the first half of last year, while video accounted for 33.1%, down from 38.2%.
 

While the company continues to have nothing drawn down from its revolving credit facility, its cash on hand which for years has provided a comfortable cushion, now stands at $14 million, as opposed to $78.64 million at the mid-way point last year. The decline in cash is due to the etailz acquisition and remodeling stores to continue its transformation from a music and video merchant to a lifestyle merchant centered on entertainment media.

While cash on hand is down, the company still has a very clean balance sheet with no debt whatsoever, and $202 million in shareholder equity. Moreover in January, Trans World entered into a new revolving credit facility with Wells Fargo that provides up to $50 million in availability and up to $75 million during the holiday selling season.

Moreover on the plus side, the growing etailz will provide more than complementary aid to the Trans World stores: its also a growing business, that offsets the sales decline on the store side, which company management hopes to arrest through its store transformation to a life-style merchant built around music and video. Trans World finished the mid-year point with 269 stores, down from 290 at the same time in the prior year.

“To achieve our overall growth we must combine the best of physical and digital experiences in new ways that matter to the customer,” Feurer said during the conference call. “Through etailz and the ongoing transformation of the FYE segment, we will maximize the tools and capabilities we've constructed, acquired and are developing to create a next generation 360 degree consumer model.”