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DVD Resurgence Can't Stop Trans World Loss

22 May, 2008 By: Erik Gruenwedel

Despite a 4% same-store (open at least 12 months) sales increase of DVD movies — the first since the second quarter last year — Trans World Entertainment Corp. posted a first-quarter (ended May 3) loss of $11.8 million, compared to a loss of $9.1 million during the prior-year period.

Total revenue topped $232 million, compared to $286 million last year.

Albany, N.Y.-based Trans World operates stores under the Second Spin, Suncoast and f.y.e. brands, in addition to several related Web sites.

The music category continued to be the fiscal culprit as same-store sales dropped 23%, with music CD sales representing 37% of company revenue, compared to 44% last year.

The company is eying secondary and tertiary music categories as a way to offset packaged music sales declines.

“As the music industry declines, were committed to improving our market share in the secondary markets,” said Jim Litwak, president and COO, in an analyst call.

Strong sales of catalog DVD titles and previously viewed product overcame a dearth of new releases as video sales represented 41% of company revenue, compared to 38% last year.

“Our strength in catalog continues to drive this business as the studios recognize our ability to differentiate ourselves from the competition through expanded assortment and depth of product,” Litwak said.

The COO said the elimination of the format war helped the company focus on Blu-ray and catalog titles, two areas he believes will drive video sales.

“Strong promotion opportunities on the video side have enabled us to stake out growth in market share,” Litwak said.

Same-store video game sales increased 11% and represented 8% of business, up from 7%. The category was primarily driven by the release of Grand Theft Auto IV in April.

In addition, Trans World last September reduced the number of stores carrying video games to 400 from 600, based on the belief it could build the business through reduced stores and strengthening its game selling culture.

Litwak said the 400-store strategy increased video game business 19% in the game category.

“We are beginning to see a payoff from that change in strategic direction,” Litwak said. “Once we have established ourselves as a force in that category, we plan on expanding it to other stores.”

Electronics, accessories and trends sales increased 17% and represented 14% of business, compared to 11% last year.

Trans World expects a fiscal year sales decline of 17% and mid-single digit comp stores sales decline. It ended the quarter with 799 stores following the closure of 14 locations.

“We were encouraged by positive comp store sales in video, video games and our other categories, which include accessories, electronics and trend,” said founder, chairman and CEO Robert Higgins.

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