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DVD Resilient, Trans World Financials Not

20 Nov, 2008 By: Erik Gruenwedel

Steady DVD sales coupled with the emerging Blu-ray Disc format couldn’t counter a macroeconomic reality that continues to batter retailers including Trans World Entertainment Corp.

The Albany, N.Y.-based parent to 786 f.y.e. (For Your Entertainment), Suncoast and Second Spin stores said third-quarter (ended Nov. 1) DVD sales slipped 5%, due largely to a 24% decline in new releases rather than economic conditions.

“DVD did outperform the industry in the quarter as strong promotion and better depth of catalog helped counter the steep decline in new releases,” Jim Litwak, president and COO, said in a call with investors. “We also saw Blu-ray begin to emerge as a potential meaningful growth opportunity.”

Video now represents 41% of Trans World’s business, up from 38% last year.

Despite video’s buoyancy, economic woes continued to impact the bottom line as Trans World reported a net loss of $28.4 million —nearly double the loss of $14.3 million during the previous year period.

Gross revenue dropped 25% to $195.2 million from $260.6 million in the same quarter last year, when it operated 962 stores compared to 786 stores this quarter.

Same-store sales (open at least 12 months) fell 14% from last year.

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

Same-store music CD sales dropped 22% (representing 38% of the business), which was a 1% improvement from the first two quarters.

“The decline is in line with the industry (new releases were down 29%) and an improvement in our performance during the first half of the year,” Litwak said.

Comp-store video game sales dropped 32% and represented 8% of business, unchanged from last year.

Trans World reduced the number of stores carrying games to 400 from 600 last September, based on a strategy of building the business with greater product in fewer stores to strengthen game-selling culture.

“While we made the transition last year, we also aggressively cleared out product,” Litwak said. “Strong clearance sales coupled with the ‘Halo’ new release last year caused difficult comps this year.”

Trans World lowered its inventory levels (and related expenses) $100 million from a year ago. It also closed three stores during the quarter.

Edward Woo, who covers Trans World for Wedbush Morgan Securities in Los Angeles, said the retailer’s balance sheet remained relatively solid in the short term.

“I think they have at a decent chance to turn things around, but in this environment, it’s a tough challenge,” Woo said. “The silver lining is that they aren't in bankruptcy, yet.”

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