Video top earner at Trans World

For first time, DVD sales higher than music at retail chain

By Susanne Ault -- Video Business, 3/1/2007

MARCH 1 | Video, rather than music, accounted for the largest portion of Trans World Entertainment’s sales in the fiscal fourth quarter, a first for the company and one it was quick to hold up as proof of its ongoing improvement.

In 2000, music made up 80% of the retailer’s revenue, Trans World CEO Robert Higgins said during a Thursday call with analysts. Yet, during the three months ended Feb. 3, DVD-VHS represented 41% of sales; music, 38%; games, 9% and electronics/accessories/boutique, 11%.

“As we take a critical view of our business, the evolution from a music retailer to a full entertainment store continues to develop,” said James Litwak, Trans World president and chief operating officer. “Music continues to decline. Video is growing, and as we make room for expanding catalog, we will see greater increases going forward.”

During its fourth quarter and latest full fiscal year, Trans World experienced several setbacks, including comparable store declines in numerous product categories. But the chain remains upbeat as it shifts more focus into the strengthening areas of DVD, videogames and electronics.

Thanks to its recent Musicland acquisition—driving up its annual store count by about 200 stores more than the roughly 1,000 stores the chain had in 2006—Trans World delivered higher earnings.

The chain’s net income for the fourth quarter was $36.4 million, which is up 82% from the comparable three-month period ended Jan. 28, 2006.

Fourth-quarter revenue climbed 28% to $586.7 million.

For the full year, Trans World jumped ten-fold in net income, to $10.2 million. Revenue gained 19% to $1.47 billion.

However, fourth-quarter comparable-store sales fell 6%. By category, music sales slipped 14%; DVD was flat (total video was down 2% because of weak VHS); games down 4%; and electronics/accessory/boutique up 11%.

For the full year, comparable stores dropped 6%. Music was down 14%; DVD up 6% (total video up 1%); games up 4% and electronics/accessory/boutique up 8%.

As well as dedicating more energy to DVD, Trans World is committed to strengthening its core F.Y.E. brand as it transitions out of its Musicland-inherited Sam Goody outlets. Trans World aims to complete its rebranding, which also spans certain free-standing Musicland stores, by the end of its fiscal 2007 second quarter. The company recently revamped its FYE.com Web site.

“We are expanding our marketing efforts,” said Higgins. “There will be greater TV and radio advertising, particularly in markets where there are a large number of rebranded F.Y.E. outlets.”

To save on expenses, Trans World has no plans to open further stores at this time. It did recently open F.Y.E. stores in former Tower locations in Philadelphia, Nashville and Torrance, Calif.

“We really want to focus on our core stores of about 1,000,” said Higgins. “It doesn’t mean we won’t open any new stores, but we want to be very selective this year. We will be cautious.”

Trans World doesn’t rule out closing poorly performing outlets in 2007 and expects that fiscal 2007 sales could dip 10% from fiscal 2006.

“We are confident that our strategies, along with efforts to shed unprofitable stores, will improve our results,” said Higgins. “Yet, given our trend and allowing for execution of these strategies, we are cautious about sales.”