Trans World CEO: ‘We Expect to Have a Decent Year in Blu-ray’

5 Mar, 2012 By: Erik Gruenwedel

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Trans World Entertainment Corp. — owner and operator of f.y.e. (For Your Entertainment) and Second Spin packaged media stores — last week surprisingly hit a retail home run when it posted its first profitable year ($2.2 million) since 2006.

It was a turnaround from a loss of $31 million in 2010.

Albany, N.Y.-based Trans World cited consumer electronics and trend/novelty items in part for the turnaround. Indeed, fourth-quarter net income of $16.5 million was up 34% from net income of $12.4 million during the previous-year period.

“Our comp store results reflects our ability to offset declines in video and music with strong comp increases in our emerging categories of electronics and trend,” said CEO Robert Higgins.

Yet, when asked if Blu-ray continued to be a savior for disc sellthrough, Higgins concurred, saying studios are pricing BD titles (notably catalog) aggressively to reflect market conditions.

“Studios are really trying to get the customer to switch to Blu-ray,” Higgins said in a call with analysts. “We expect to have a decent year in Blu-ray. We’ve also done very well with DVD, especially compared with the industry.”

Thankfully, disc sellthrough conditions are not as dire as in music, which finds Trans World having to match $9.99 album prices found on iTunes.

Same-store video sales (Blu-ray Disc and DVD) in the quarter dropped 3%, representing 43% of total business compared to 44% a year ago. Consumer electronics increased 23%, representing 11% of total sales — up from 8% last year. Trend comp sales, which include novelty items, rose 26% and represented 10% of Trans World’s sales compared to 8% last year.

Standard & Poor’s analyst Michael Souers said the results underscored continued importance of specialty retailers. He said the year to date S&P Specialty Stores Index (through Jan. 27) increased 7.8%, slightly outpacing the 5% advance in the S&P 1500 Index. In 2011, this sub-industry underperformed, falling 10.7% versus the 0.3% decline in the S&P 1500 Index.

“We do not foresee the demise of brick and mortar retailing,” Souer wrote in March 3 note. “Most specialty retailers are continuing to build new stores, filling in existing markets, while penetrating new markets including smaller markets with downsized stores. We think that companies with a strong brand name, aggressive brand support, and a mix of traditional stores and websites will likely be solid performers in the long run.”

Higgins said going forward, f.y.e. stores (and Second Spin) locations would be challenged to operate under tighter margins. Trans World cut sales and general administration (SG&A) costs more than 16% in the quarter, driven in part by the closure of more than 50 underperforming stores. It ended the year with more than $89 million in cash and no borrowing on its line of credit.

The Second Spin location in Costa Mesa, Calif., resisted overstocking DVD copies of The Bodyguard, starring Whitney Houston and Kevin Costner, following the singer’s death — despite the fact the store was selling “anything with her name on it,” said a store clerk.

Higgins said Trans World was “pretty well beyond” the number of planned store closures going forward, adding that there would be continued pressure put on landlords to reduce rental rates on expiring leases in 2012.

“We’re the only national player in the [retail entertainment] business so we feel we’ll be able to negotiate [lease] terms and conditions that we need to move forward,” he said.

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