Trans World Q3 DVD sales outperform industry

Loss widens on comparable store declines

By Susanne Ault -- Video Business, 11/20/2008

NOV. 20 | Trans World Entertainment, hit as hard as other retailers by the U.S. economic slump, said its DVD sales outperformed the industry in the third quarter despite a 5% drop in same-store sales for the product category.

The company behind the F.Y.E. mall chain recorded a $28.4 million net loss for the three months ended Nov. 1, twice as wide as the $14.3 million in red ink incurred last year.

Total revenue slipped 25% to $195.2 million.

All of Trans World merchandise categories, spanning DVD, music, videogames and electronics/accessories/trend, suffered comparable store sales declines in the quarter. Overall, comparable store sales narrowed 14% from the same 2007 period.

Yet, during a Thursday call with analysts, management said they were heartened by Trans World’s relatively healthy DVD results versus the retail business as a whole. Also, accelerating Blu-ray Disc momentum was singled out for hopefully supporting future Trans World improvement.

Comp store DVD sales fell 5%, with new releases alone dropping 24%.

“Our DVD did outperform the industry in Q3, as strong promotion and better depth of catalog helped counter the decline in new releases,” said Jim Litwak, Trans World president and chief operating officer. “We also saw Blu-ray beginning to emerge as a potential meaningful growth opportunity.”

Signaling Trans World’s dedication to the home entertainment category, DVD represented 41% of its business for the quarter, which is up from 38% last year.

Tough comparisons to last year, which included the release of mega hit Halo 3, drove down videogames 32%. The category makes up 8% of Trans World's sales and is unchanged from the same 2007 frame.

Music slid 22% and represented 38% of the retailer’s business. That is slimmed from 40% last year. Trans World management said this slide is in line with struggles all retailers are having with physical CD sales.

Electronics/accessories/trend, making up 14% of business, was down 1% in comp store sales. Last year, the category equaled 13% of Trans World sales.

Although Trans World cited pockets of strength, the chain lowered its full year guidance, based on its third-quarter showing.

Previously anticipating reaching positive territory with annual EBITDA (earnings before interest, taxes, depreciation and amortization) between $5 million and $10 million, Trans World now expects to record a loss of between $10 million and $15 million. Also, the retail’s comp store sales will dip between 8% and 10%, a steeper drop than an earlier expected mid-single-digit decline.

“We are operating in a difficult retail environment, with consumer spending down,” said Robert Higgins, Trans World chairman and CEO. “Our performance was well below our expectations.”

However, Higgins is cautiously optimistic that Trans World can start to turn around in the fourth quarter, which is filled with many of the year’s biggest titles.

“While we continue to operate in a challenging sales environment, we are positioned for the all important holiday season,” said Higgins. “The lineup of music is stronger this year than last. We are also being more promotional and have created a stronger value statement to consumers to drive additional traffic.”

He also underscored that Trans World is on stable financial ground, with more than $80 million in currently available credit.