Trans World revenue drops 23% in Q4

Chain plans to focus on videogames after 8% sales jump

By Susanne Ault -- Video Business, 3/6/2008

MARCH 6 | Trans World Entertainment’s plan to become a broad entertainment retailer hit some bumps in the fourth quarter, as revenue for the three months ended Feb. 2 fell 23% to $451.5 million and the chain posted a net loss of $66 million.

In the 2006 period, Trans World saw net income of $37.8 million.

“Our transition to a full entertainment center is taking longer than expected,” said Robert Higgins, Trans World CEO. “We were encouraged after the first three quarters of 2007 with an improving trend where comp sales declines were progressively less and certain categories of business were doing rather well. But in fourth quarter, that turned rather dramatically. The decline in music continued at a far faster pace than we expected and the economy grew weaker.”

The chain is promising improvement in 2008, as it continues to slim its free-falling music business while emphasizing categories such as videogames and electronics. Trans World also hopes to realize cost savings in the next year as a result of its January closures of stores and distribution facilities following a softer-than-expected 2007 holiday season.

In the full year, Trans World posted a $99.4 million net loss. That compares to $11.7 million net income for its prior fiscal 2006 year. Full-year sales fell 14% to $1.3 billion.

On a conference call with analysts, Trans World executives said that a portion of these quarterly and full-year losses are due to one-time expenses and the fact that there was one less week in its fourth quarter and full-year 2007 compared to 2006.

“The sales decline in the fourth quarter was a dramatic reversal toward a trend of improving comparable store sales results over the first three quarters of 2007,” said John Sullivan, Trans Word chief financial officer.

Music continues to be a sore spot for the chain, as the category fell 23% in comparable store sales for fiscal 2007. But the chain is determined to keep moving away from the category that represented 39% of its business in 2007, down from 46% in 2006.

Due to increased hardware allocation of hot next-generation consoles, such as Wii and PlayStation 3, videogame comp sales jumped 8%. Trans World plans to focus more energy on this category, which moved from 8% of its business last year to 9% in 2007.

DVD sales were up 1% and widened from 36% of 2006 business to 39% in 2007.

Trans World’s electronics, accessories and trend area rose 11%, growing from 10% of the chain’s sales in 2006 to 13% in 2007.

Overall, comp store sales fell 8%.

Higgins said that his plan to reinvigorate the retailer, by taking it private, also is taking longer than previously anticipated, because of a tough financial climate.

“The special committee of the board continues to work,” said Higgins. “In light of the challenging macroeconomic environment and tighter credit market, timetables have been extended.”

In the year ahead, Trans World will look to close more unprofitable stores. During the fourth quarter, Trans World shut 149 outlets, leaving 813 in operation at the end of its fiscal 2007. That count is expanded from the 138 initially anticipated in January.