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Trans World Entertainment Announces Fourth Quarter and Fiscal Year 2006 Results

ALBANY, N.Y., March 1 /PRNewswire-FirstCall/ -- Trans World Entertainment Corporation (Nasdaq: TWMC) today reported financial results for its fourth quarter and fiscal year 2006. For the quarter, total sales increased 28% to $586.7 million. The Company operated an average of 1,087 stores compared to an average of 791 stores in the fourth quarter of last year. In addition, the fourth quarter of 2006 contained fourteen weeks compared to thirteen weeks for the fourth quarter of 2005. Comparable store sales for the quarter decreased 6%. For the fourth quarter of 2006, the Company recorded net income of $36.4 million, or $1.12 per diluted share, including an extraordinary gain for unallocated negative goodwill of $3.6 million, net of income taxes, related to the acquisition of Musicland. Income before the extraordinary gain was $32.8 million, or $1.01 per diluted share. Net income for the fourth quarter of 2005, including the cumulative effect of a change in accounting principle related to the adoption of FIN 47, Accounting for Conditional Asset Retirement Obligations, was $20.0 million, or $0.64 per diluted share. Income before the cumulative effect of a change in accounting principle was $22.3 million or $0.71 per diluted share.

For fiscal year 2006, total sales increased 19% to $1.471 billion. The Company operated an average of 1,044 stores compared to 801 during fiscal year 2005. In addition, fiscal year 2006 contained fifty-three weeks compared to fifty-two weeks for fiscal year 2005. Comparable store sales for fiscal year 2006 decreased 6%. Net income for fiscal 2006 was $10.2 million, or $0.32 per diluted share, including an extraordinary gain for unallocated negative goodwill of $8.9 million, net of income taxes, related to the acquisition of Musicland. Income before extraordinary gain was $1.3 million, or $0.04 per diluted share. Net income in 2005 was $0.6 million, or $0.02 per diluted share, including the cumulative effect of a change in accounting principle related to the adoption of FIN 47, Accounting for Conditional Asset Retirement Obligations, of $2.3 million, net of income taxes. Income for fiscal 2005, before the cumulative effect of a change in accounting principle was $2.9 million, or $0.09 per diluted share.

"We were disappointed with our 2006 results," commented Robert J. Higgins, Trans World's Chairman and CEO. "For 2007, we are committed to improve our operations through strengthening our brand, increasing sales in our core categories, while expanding into other product lines, and improving our selling culture and in-store experience. While we remain cautious in this challenging environment, we also remain optimistic about our transition to be the preferred retailer of all things entertainment."

Trans World Entertainment is a leading specialty retailer of music, video and video games and related products. The Company operates nearly 1,000 retail stores in the United States, the District of Columbia, the U.S. Virgin Islands, and Puerto Rico under various brands. The Company is in the process of consolidating the majority of its stores (Coconuts Music and Movies, Strawberries Music, Wherehouse, Sam Goody and Spec's) under the name f.y.e. for your entertainment. The Company also operates over 130 video only stores primarily under the Suncoast brand and on the web at www.fye.com, www.coconuts.com, www.wherehouse.com, www.secondspin.com, www.samgoody.com and www.suncoast.com.

Certain statements in this release set forth management's intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission.



                    TRANS WORLD ENTERTAINMENT CORPORATION
                              Financial Results
    INCOME STATEMENTS:

    (in millions, except per share data)

                    Fourteen and Thirteen
                        Weeks Ended (1)              Fiscal Year Ended (2)

               Feb. 3,   % to   Jan. 28,  % to    Feb. 3,  % to Jan. 28,  % to
                2007    Sales     2006    Sales    2007   Sales   2006   Sales

    Sales      $ 586.7          $ 458.6          $1,471.2      $1,238.5

    Cost of
     sales       382.9   65.3%    307.4    67.0%    952.0  64.7%  806.9  65.1%
    Gross
     profit      203.8   34.7%    151.2    33.0%    519.2  35.3%  431.6  34.9%

    Selling,
     general and
     admini-
     strative
     expenses    137.0   23.3%    106.7    23.3%    482.4  32.8%  392.8  31.7%

    Depreciation
     and
     amortization  9.3    1.7%      8.8     1.9%     36.8   2.5%   34.0   2.8%
    Income from
     operations   57.5    9.7%     35.7     7.8%      0.0   0.0%    4.8   0.4%
    Other
     income       (0.4)  -0.1%     (0.6)   -0.1%     (4.4) -0.3%   (2.2) -0.2%

    Interest
     expense       1.4    0.2%      1.0     0.1%      5.5   0.4%    3.0   0.3%
    Income (loss)
     before income
     taxes,
     extraordinary
     gain -
     unallocated
     goodwill and
     cumulative
     effect of
     change in
     accounting
     principle    56.5    9.6%     35.3     7.8%     (1.1) -0.1%    4.0   0.3%

    Income tax
     expense
     (benefit)    23.7    4.0%     13.0     2.8%     (2.4) -0.2%    1.1   0.1%

    Income before
     extraordinary
     gain -
     unallocated
     goodwill and
     cumulative
     effect of
     change in
     accounting
     principle   $32.8    5.6%    $22.3     5.0%     $1.3   0.1%   $2.9   0.2%

    Extraordinary
     gain -
     unallocated
     negative
     goodwill,
     net of income
     taxes         3.6    0.6%        -     0.0%      8.9   0.6%      -   0.0%
    Cumulative
     effect of
     change in
     accounting
     principle,
     net of
     income taxes    -    0.0%     (2.3)   -0.5%        -   0.0%   (2.3) -0.2%

    Net income   $36.4    6.2%    $20.0     4.5%    $10.2   0.7%   $0.6   0.0%

    Basic
     earnings per
     common share:
    Earnings per
     share before
     extraordinary
     gain -
     unallocated
     negative
     goodwill
     and cumulative
     effect of
     change in
     accounting
     principle,
     net of income
     taxes       $1.06            $0.72             $0.04         $0.09

    Extraordinary
     gain -
     unallocated
     negative
     goodwill,
     net of income
     taxes        0.12                -              0.29             -

    Cumulative
     effect of
     change in
     accounting
     principle,
     net of
     income taxes    -            (0.07)                -         (0.07)

    Basic earnings
     per common
     share       $1.18            $0.65             $0.33        $ 0.02

    Weighted
     average
     number of
     common
     shares
     outstanding  30.9             30.8              30.8          32.0

    Diluted
     earnings per
     common share:
    Earnings per
     share before
     extraordinary
     gain -
     unallocated
     negative
     goodwill
     and
     cumulative
     effect of
     change in
     accounting
     principle,
     net of
     income
     taxes       $1.01            $0.71             $0.04        $ 0.09

    Extraordinary
     gain -
     unallocated
     negative
     goodwill,
     net of
     income
     taxes        0.11                -              0.28             -

    Cumulative
     effect of
     change in
     accounting
     principle,
     net of
     income
     taxes           -            (0.07)                -         (0.07)

    Diluted
     earnings
     per common
     share       $1.12            $0.64             $0.32        $ 0.02

    Weighted
     average
     number of
     common
     shares
     outstanding  32.4             31.5             32.0           32.1

    SELECTED BALANCE
     SHEET CAPTIONS:
    (in millions, except
     store data)
    Cash and cash
     equivalents                                  $118.6         $197.2
    Merchandise
     inventory                                     504.9          402.7
    Fixed assets
    (net)                                          138.9          132.5
    Accounts payable                               311.3          307.7
    Long-term debt and
     capital lease
     obligations, less
     current portion                                16.1           19.5

    Stores in
     operation                                       992            782


    (1) - The fourth fiscal quarter ended February 3, 2007 contains 14 weeks.
          The fourth fiscal quarter ended January 28, 2006 contains 13 weeks.

    (2) - The fiscal year ended February 3, 2007 contains 53 weeks.
          The fiscal year ended January 28, 2006 contains 52 weeks.

SOURCE:
Trans World Entertainment Corporation

CONTACT:
John J. Sullivan
EVP
Chief Financial Officer of Trans World Entertainment
+1-518-452-1242

Rich Tauberman of MWW Group
+1-201-507-9500
rtauberman@mww.com