Trans World Entertainment Corporation ( TWMC)

Q3 2010 Earnings Call Transcript

November 18, 2010 10:00 am ET

Executives

Bob Higgins – Chairman & CEO

John Sullivan – CFO

Edmond Thomas – Board of Directors

Analysts

Brandon McMillan – Centurion Investment

William Myers – Miller Asset Management

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Trans World Entertainment third quarter 2010 conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) as a reminder, this conference is being recorded.

I would now like to turn the conference over to your host for today, Mr. Bob Higgins, Chairman and CEO. Please begin sir.

Bob Higgins

Thank you, Sean. Good morning everyone. On the call with me today are Mike Honeyman, our President and Chief Operating Officer; and John Sullivan, our Chief Financial Officer. Thank you for joining us today as we discuss our third quarter results, we will take questions following our comments.

Although sales were softer than expected, we managed them improve our financial performance from last year through management of gross margin and expenses. Comp store sales decreased 5%. Total sales in the quarter decreased 20% to $129 million. Our net loss for the third quarter was $16.1 million or $0.51 per share compared to $22.3 million last year or $0.71 per share. Overall the video industry was down 11% our video sales increased 2% on a comp store basis in the third quarter. We managed to increase sales in this category with our broad assortment of titles. Video now represents 44% of our business, up from 41% last year.

For the quarter our comp sales in music were down 7% compared to CD sales for the industry that declined 24%. Music represents 36% of our business as compared to 37% last year. Comp store sales for electronics accessory and trend increased 5% on a combined basis and represented 15% of our business versus 13% last year. Comp store sales in our game category decreased 41% and represented 5% of our business as compared to 8% last year. During fiscal 2009, the company eliminated the game category in over 200 stores; at the end of the third quarter 135 of our stores carry games compared to 347 a year ago. John will now take you through the financial results for the third quarter. John.

John Sullivan

Thank you Bob, good morning. Our net loss for the quarter improved $6.2 million to $16.1 million from last year’s net loss of $22.3 million. The loss per share was $0.51 compared to $0.71 per share last year. Our gross margin rate for the quarter increased to 34.1% from 33.9% last year, a 20 basis point improvement. SG&A expenses were $56.2 million, a reduction of 22% versus a sales decline of 20%. As a percentage of sales, SG&A expenses were 43.7% this year versus 44.8% last year, an improvement of a 110 basis points.

EBITDA was a loss of $12.3 million in the quarter versus $17.6 million last year, an improvement of $5.3 million. Net interest expense was $900,000 in the quarter versus $700,000 last year.

At the end of the quarter, borrowings on our line of credit were $8.6 million which was $46.9 million less than last year's $55.5 million. We accomplish this through the management of working capital. Year-over-year, we lowered our inventory by $98 million. At quarter-end inventory position was $271 million versus last year's $369 million.

On a square foot basis, this was $76 a foot versus $83 last year. We continue to focus on managing our working capital needs in relation to the business trends and continue to maintain a strong financial position. During the quarter, we closed one store and we ended the quarter with 533 stores in operation and square feet totaling 3.6 million versus last year's 690 stores and square feet totaling 4.5 million. I will now turn it back to Bob to complete our comments.

Bob Higgins

Thank you John. We are well positioned for the all important holiday season. The line-up of new releases in music is stronger this year than last and we expect Blue Ray sales to drive the video category. We have created a stronger value statement to drive additional traffic across the lease line and improve conversion rates. Our associates continue to offer best-of-class customer service to compliment the broadest selection of music and video product available in any national retail chain.

In this challenging time we’re effectively managing our working capital as evidenced by our inventory position at the end of the third quarter, and our lower borrowings under our credit facility. We’re also keeping our capital expenditures below $5 million for the year. Despite the sales decline during the third quarter, we’re able to reduce our EBITA loss versus last year, to improve gross margin and control of expenses and our balance sheet remains strong.

I would like to thank our associates for their commitment to the company and our vendors for their continued support. We look forward to maximizing our financial results in the fourth quarter and I would now like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you ladies and -

Bob Higgins

Yes if you could open up the call I would appreciate it.

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