Trans World Entertainment Corp (TWMC) Q1 2010 Earnings Call May 20, 2010 10:00 a.m. EST Executives Bob Higgins - Chairman and CEO John Sullivan - EVP, CFO and Secretary Presentation Operator
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The negative comp sales in video games were due to a reduction in the number of stores carrying games. During fiscal 2009, the company eliminated the game category in over 200 stores. At the end of the first quarter, 139 of our stores carry games compared to 347 a year ago.Music was down just 1% on a comp store basis with the top 50 up 20% for the quarter. The music category represented 36% of our business for the quarter, the same as last year. For the quarter, the industry was down 12%. Video sales increased 1% on a comp store basis. The comp increase was driven by the performance of Blue Ray as we were starting to see broad acceptance of this format. Comp sales at our top 50 increased 22% during the quarter. Video now represents 44% of our business, up from 43% last year. For the quarter, the industry was down 5%. Comp store sales for electronics, accessory and trend also increased 1% on the comp basis and represented 14% of our business in the quarter, up from 13% last year. Now John will take you through financial highlights for the quarter. John? John Sullivan Thank you, Bob. Good morning. As Bob mentioned, our net loss for the quarter was $11.4 million or $0.36 per share. Last year our net loss was $13.7 million or $0.44 per share. Our gross margin rate for the quarter decreased to 32.9% from 34.3% last year. The reduction in gross profit as a percentage of sales was due to lower vendor allowances this year. SG&A expenses were $59.3 million, a reduction of 22% on the sales decline of 18% resulting in a decrease as a percentage of sales from 39.5% last year to 37.9% this year. Included in SG&A expenses is a gain of $350,000 related to the acquisition of five value music stores offset by $150,000 in transition costs.
EBITDA was a loss of $7.8 million in the quarter versus the loss of $9.9 million last year. Our net interest expense was $688,000 in the quarter versus $703,000 last year. The decrease is due to no borrowings on our credit facility. We ended the quarter without borrowings under the line of credit compared to borrowings of $29 million last year.Year-over-year we have lowered our inventory by $81 million. Our quarter-end inventory position was $251 million versus last year's $333 million. On a square foot basis, this is $69 a foot versus $74 last year. During the quarter we closed 18 stores and acquired five new stores. We ended the quarter with 544 stores in operation and square footage totaling 3.6 million versus last year's 704 stores and square footage totaling 4.5 million. Now I'll turn it back to Bob. Bob Higgins Thank you, John. We are encouraged by our results in the first quarter. Comp sales in our two largest categories, music and DVD, has reversed the trends we've seen over the last several years. The initiatives we implemented for these two categories have helped us stabilize our sales and increase our market share despite operating 23% fewer stores in last year. We continue to leverage our SG&A expenses which helped us reduce our EBITDA loss in the first quarter versus last year's first quarter. We ended the quarter with cash of $21 million and zero borrowings on our line of credit as compared to the borrowings of $29 million last year. We amended our credit facility extending it to April 2013 providing us with the capital to refund our business for the next three years. As I mentioned earlier, we also hired Mike Honeyman as our President and COO to strengthen our management team and help drive our operating results. We made progress in the first quarter but we still have a lot to accomplish this year. We're moving in the right direction and look forward to the remainder of 2010. Read the rest of this transcript for free on seekingalpha.com