Trans World Entertainment's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Trans World Entertainment ( TWMC)

Q4 2011 Earnings Call

February 29, 2012 10:00 a.m. ET

Executives

Bob Higgins – CEO

Tom Seaver - CFO

Mike Honeyman – President and COO

Analysts

William Myers – Miller Asset Management

Harsha Gowda – Blue Shore Capital

Presentation

Operator

Good day, ladies and gentlemen. And welcome to Trans World Entertainment Fourth Quarter 2011 Results 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 be given at that time. (Operator Instructions).

As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to your host, Mr. Bob Higgins, Chairman and CEO. Please begin.

Bob Higgins

Thank you, Sean. Good morning. On the call with me today is Mike Honeyman, our President and Chief Operating Officer, and Tom Seaver, our Chief Financial Officer. Tom joined the company in late November, and has over 20 years of experience with Albany International, most recently as Vice President of Strategic Planning. He brings Trans World strong financial and strategic expertise, as well as demonstrated excellence in operational and process improvement. We’re happy to have Tom on board and look forward to working with him.

Now I’d like to thank you for joining us as we discuss our fourth quarter and full-year results. I’m pleased to announce that for the eighth consecutive quarter, we’ve driven improvement in our operating result. And with that continued improvement, we were able to deliver our first profitable fiscal year since 2006.

Our return to profitability reflects the commitment, hard work, and ability of our associates to execute our strategy.

Net income for the fourth quarter improved $4.1 million to $16.5 million, a 34% improvement over last year. For fiscal 2011, our bottom line improved by over $33 million to a net income of $2.2 million from a net loss of $31 million in 2010.

Total sales in the fourth quarter decreased 17% to $193 million as our average stores in operations also declined 17%. Our Comp store sales for the quarter were down 1% compared to last year.

Now let me touch on our performance by category for the fourth quarter. Video comp sales decreased 3%, and Video represented 43% of our business during the quarter versus 44 last year.. Music comps declined 10%. The music category represented 30% of our business for the quarter, compared to 33 last year. Electronics comp increased 23%, electronics sales represent 11% of our total business for the quarter compared to 8% last year.

Trend comp increased 26%. Trended sales represented 10% of our business for the quarter compared to 8% last year. Video game comps were down 13%, game sales represented 6% of our business for the quarter, compared to 7% last year. During the quarter we carried games in 110 stores.

Tom will now take you through financial highlights for the quarter and the year. Tom?

Tom Seaver

Thanks Bob, good morning everyone. I’ll first address our quarterly results, and then I’ll discuss the year results.

As Bob mentioned, our net income for the quarter improved $4.1 million to $16.5 million or $0.51 per diluted share, a 34% improvement over last year’s net income of $12.4 million or $0.38 per share.

EBITDA improved $800,000 for the quarter to $18.7 million, a 5% improvement over last year’s EBITDA $17.9 million.

Our gross margin rate for the quarter increased 200-basis points to 35.8% of net sales from 33.8% last year. The increase in gross profit as a percentage of sales was due to higher margin rates across all of our product categories.

SG&A expenses were $50.5 million, a reduction of 16% on total sales, decline of 17%. SG&A as a percentage of sales to 26.2% compared to a 26.1% last year. The decrease in SG&A expenses was driven by the closing of under-performing stores, and continued focus on effective expense management. Net interest expense was $790,000 for the quarter versus $915,000 last year.

Now I will comment on our full-year results. Total sales for the year decreased 17% to $543 million from $652 million last year, as our average number of stores in operation also declined 17%. Our comp store sales for the full year were down 2% compared to last year, and our net income for the year improved by over $33 million to $2.2 million, or $0.07 per diluted share versus last year’s net loss of $31 million or $0.99 per share.

EBITDA improved $25.8 million for the year to $11.5 million as compared to last year’s EBITDA loss of $14.3 million. Our gross margin rate for the year increased 290 basis points to 36.5% of sales, from 33.6% last year. The increase in gross profit as a percentage of sales was due to higher margin rates across all of our products.

SG&A expenses were $186.6 million, a reduction of 20% on a total sales decline of 17%, resulting in a 140 basis points decrease as a percentage of sales, to 34.4% this year from 35.8% last year.

Net interest expense was $3.2 million versus $3.3 million last year. The company did not require any borrowing under its line of credit at any point during the entire year. We ended the year with cash of $89 million, compared to $75 million last year. And year-over-year, we have lowered our inventory by $43 million, and finished the year with $191 million in inventory, 18% below last year’s $234 million.

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