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Trans World Entertainment Announces Third Quarter Results

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ALBANY, N.Y., Dec. 12, 2018 (GLOBE NEWSWIRE) -- Trans World Entertainment Corporation (NASDAQ:TWMC) today reported financial results for its third quarter and thirty nine weeks ended November 3, 2018.

"For the fye segment, the steps we've taken, including changes in our merchandise assortment and presentation, to counter declining mall traffic and the ongoing declines in physical media are beginning to generate a positive response from our customers as we delivered a comparable store sales increase of 3.8% for the quarter," commented Mike Feurer, Company CEO. "For etailz, sales increased 8% and represented 48% of our total revenue for the quarter, as compared to 44% for the same period last year. Our positive top line growth was offset by lower gross margins for both segments and higher SG&A expenses in the etailz segment.  Although meaningful headwinds will continue, we have made real progress in our efforts to differentiate our position in this challenging retail environment," continued Mr. Feurer.

Third Quarter Overview Consolidated

  • Total revenue decreased 1.1% to $92.0 million compared to $93.0 million in the third quarter of fiscal 2017. 
  • Net loss was $14.1 million, or $0.39 per share, for the 13 weeks ended November 3, 2018, compared to a net loss of $8.1 million, or $0.22 per share, for the same period last year.
  • Loss from operations was $13.8 million compared to an operating loss of $8.1 million for the third quarter of fiscal 2017.
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $10.7 million compared to a loss of $3.6 million for the third quarter of fiscal 2017 (see note 1).
  • Cash, cash equivalents and restricted cash as of November 3, 2018 was $14.6 million, compared to $16.2 million as of October 28, 2017. 
  • Borrowings under the credit facility at the end of the third quarter were $27.4 million compared to $5.0 million at the end of the third quarter last year. 
  • Inventory was $131.3 million at the end of third quarter of 2018 as compared to  $144.8 million at the end of the third quarter of 2017. 

Thirty-nine weeks ended November 3, 2018 Overview – Consolidated

  • Total revenue for the thirty-nine weeks ended November 3, 2018 decreased 2.2% to $290.8 million, compared to $297.4 million for the same period last year. 
  • Net loss was $31.7 million, or $0.87 per share, for the thirty-nine weeks ended November 3, 2018, compared to a net loss of $10.1 million, or $0.28 per share, for the same period last year. During the thirty-nine weeks ended October 28, 2017, the Company recorded an $8.7 million, or $0.24 per diluted share, gain on insurance proceeds from Company owned life insurance policies on the former Chairman.
  • Loss from operations was $31.3 million compared to an operating loss of $18.7 million for the thirty-nine weeks ended October 28, 2017.
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $21.5 million compared to a loss of $7.0 million for the thirty-nine weeks ended October 28, 2017 (see note 1).

Segment Highlights

  Thirteen Weeks Ended   Thirty-nine Weeks Ended
  ($ in thousands) November 3,
2018
October 28,
2017
  November 3,
2018
October 28,
2017
Total Revenue          
fye $   47,865   $   52,105     $   152,473   $   176,006  
etailz   44,119       40,896       138,288       121,440  
Total Company $   91,984   $   93,001     $   290,761   $   297,446  
           
Gross Profit          
fye $   18,276   $   21,347     $   61,181   $   73,342  
etailz   9,110       10,234       30,066       29,714  
Total Company $   27,386   $   31,581     $   91,247   $   103,056  
           
SG&A          
fye $   26,620   $   26,790     $   79,212   $   84,102  
etailz     11,467       8,359         33,537       25,926  
Total Company $   38,087   $   35,149     $   112,749   $   110,028  
Loss From Operations          
fye $   (9,493 ) $   (7,858 )   $   (21,495 ) $   (17,703 )
etailz     (4,261 )     (253 )       (9,808 )     (966 )
Total Company $   (13,754 ) $   (8,111 )   $   (31,303 ) $    (18,669 )
           
           
Reconciliation of etailz Loss from Operations to etailz Adjusted (Loss) Income From Operations          
etailz loss from operations $   (4,261 ) $   (253 )   $   (9,808 ) $   (966 )
Acquisition related amortization expense     972       969         2,915       2,905  
Acquisition related compensation expense, net of contingency benefit     750       1,118         2,991       1,708  
etailz adjusted (loss) income from operations $   (2,539 ) $   1,834     $   (3,902 ) $   3,647  
                           

Third Quarter Overview - etailz

  • Revenue for the third quarter was $44.1 million, a 7.9% increase as compared to the third quarter of 2017.  etailz revenue contributed 48.0% of total consolidated revenue during the quarter as compared to 44.0% for the same period last year.
  • Gross profit for the third quarter was $9.1 million, or 20.6% of revenue, as compared to $10.2 million, or 25.0% of revenue, for the same period last year.  The decrease in gross profit as a percentage of sales was due to increased warehousing and fulfillment fees. 
  • Selling, general and administrative ("SG&A") expenses, before acquisition related compensation expenses, for the third quarter were $11.5 million, or 26.0% of revenue, compared to $8.4 million, or 20.4% of revenue, for the same period last year.  The increase in SG&A expenses was due to higher marketplace commissions and investments in product identification and sourcing, technology, and diversification.  In addition, last year's third quarter SG&A expenses were offset by income from a joint venture in the amount of $0.9 million. 
  • etailz loss from operations was $4.3 million for the third quarter versus $0.3 million for the same period last year. 
  • etailz adjusted loss from operations (a non-GAAP measure) was $2.5 million for the third quarter of fiscal 2018 compared to income of $1.8 million for the third quarter of fiscal 2017 (see note 1).

Thirty-nine weeks ended November 3, 2018 Overview – etailz

  • Revenue for the thirty-nine weeks ended November 3, 2018 was $138.3 million, a 13.9% increase as compared to the same period in fiscal 2017.  etailz revenue contributed 47.6% of total consolidated revenue during the thirty-nine weeks ended November 3, 2018 as compared to 40.8% in the same period last year.
  • Total gross profit for the thirty-nine weeks ended November 3, 2018 was $30.1 million, or 21.7% of revenue, compared to $29.7 million, or 24.5% of revenue, for the same period last year.   
  • SG&A expenses, before acquisition related compensation expenses, for the thirty-nine weeks ended November 3, 2018 were $33.5 million, or 24.3% of revenue, compared to $25.9 million, or 21.3% of revenue, for the same period last year.  The increase in SG&A expenses was due to higher marketplace commissions and investments in product identification and sourcing, technology, and diversification.  In addition, last year's SG&A expenses for the thirty-nine weeks ended October 28, 2017 were offset by income from a joint venture in the amount of $1.0 million. 
  • etailz adjusted loss from operations (a non-GAAP measure) was $3.9 million for the thirty-nine weeks ended November 3, 2018, compared to income of $3.6 million for the same period last year (see note 1).

Third Quarter Overview - fye

  • Revenue declined 8.1% for the fye segment.  The decline in revenue resulted from a 15.3% decline in total stores in operation offset by a 3.8% increase in comparable store sales compared to the same quarter last year.
  • Gross profit for the third quarter was $18.3 million, or 38.2% of revenue, compared to $21.3 million, or 41.0% of revenue, for the same period last year. 
  • SG&A expenses decreased $0.2 million, or 0.6%, for the third quarter to $26.6 million, or 55.6% of fye revenue, compared to $26.8 million, or 51.4% of fye revenue, for the same period last year.  The decline in SG&A expenses was due to fewer stores in operation. The increase in SG&A as a percentage of revenue was due to  an increase in healthcare costs and corporate overhead expenses.    
  • The fye segment recorded an operating loss of $9.5 million for the 13 weeks ended November 3, 2018, compared to an operating loss of $7.9 million for same period last year.
  • As of November 3, 2018, fye segment inventory was $76 per square foot, same level as last year.

Thirty-nine weeks ended November 3, 2018 Overview – fye

  • For the thirty-nine weeks ended November 3, 2018, revenue decreased 13.4% to $152.5 million, compared to $176.0 million for the same period last year.
  • Gross profit for the thirty-nine weeks ended November 3, 2018 was $61.2 million, or 40.1% of revenue, compared to $73.3 million, or 41.7% of revenue, for the same period last year. 
  • For the thirty-nine weeks ended November 3, 2018, SG&A expenses decreased $4.9 million, or 5.8% to $79.2 million compared to $84.1 million in the comparable period last year.  As a percentage of revenue, SG&A expenses were 52.0% versus 47.8% for the same period last year. The decline in SG&A expenses was due to fewer stores in operation.   The increase in SG&A as a percentage of revenue was due to the comparable stores sales decline of 4.3%.     
  • The fye segment recorded an operating loss of $21.5 million for the thirty-nine weeks ended November 3, 2018, compared to an operating loss of $17.7 million for same period last year. 

Trans World will host a teleconference call Wednesday, December 12, 2018, at 10:00 AM ET to discuss its financial results. Interested parties can listen to the simultaneous webcast on the Company's corporate website, www.twec.com.

TRANS WORLD ENTERTAINMENT CORPORATION
Condensed Consolidated Financial Results

 

STATEMENTS OF OPERATIONS:                  
(in thousands, except per share data)                  
  Thirteen Weeks Ended
  Thirty-nine Weeks Ended
  November 3, % to October 28, % to   November 3, % to October 28, % to
  2018 Revenue 2017 Revenue   2018 Revenue 2017 Revenue
                   
Net sales $   90,877     $   91,817       $   287,148     $   293,482    
Other revenue     1,107         1,184           3,613         3,964    
Total revenue $   91,984     $   93,001       $   290,761     $   297,446    
                   
Cost of sales     64,598   70.2 %     61,420   66.0 %       199,514   68.6 %     194,390   65.4 %
Gross profit     27,386   29.8 %     31,581   34.0 %       91,247   31.4 %     103,056   34.6 %
                   
Selling, general and administrative expenses     38,087   41.4 %     35,149   37.8 %       112,749   38.8 %     110,028   37.0 %
Acquisition related compensation expense, net of contingency benefit     750   0.8 %     1,118   1.2 %       2,991   1.0 %     1,708   0.6 %
Depreciation and amortization expenses     2,303   2.5 %     3,425   3.7 %       6,810   2.3 %     9,989   3.4 %
Loss from operations     (13,754 ) -14.9 %     (8,111 ) -8.7 %       (31,303 ) -10.8 %     (18,669 ) -6.3 %
                   
Interest expense     277   0.3 %     83   0.1 %       444   0.2 %     200   0.1 %
Gain on insurance proceeds     -          (27 ) 0.0 %       -          (8,733 ) -2.9 %
Other income     (43 ) 0.0 %     (32 ) 0.0 %       (171 ) -0.1 %     (91 ) 0.0 %
                   
Loss before income taxes     (13,988 ) -15.2 %     (8,135 ) -8.7 %       (31,576 ) -10.9 %     (10,045 ) -3.4 %
Income tax expense (benefit)     64   0.1 %     (64 ) -0.1 %       136   0.0 %     40   0.0 %
                   
Net loss $   (14,052 ) -15.3 % $   (8,071 ) -8.7 %   $   (31,712 ) -10.9 % $   (10,085 ) -3.4 %
                   
Basic and diluted loss per common share:                  
                   
Basic and diluted loss per share $   (0.39 )   $   (0.22 )     $   (0.87 )   $   (0.28 )  
                   
Weighted average number of common shares outstanding - basic and diluted   36,296       36,190         36,272       36,181    
                   
                   
SELECTED BALANCE SHEET CAPTIONS:           November 3,   October 28,  
(in thousands, except store data)           2018   2017  
                   
Cash, cash equivalents, and restricted cash           $   14,563     $   16,158    
Merchandise inventory               131,285         144,754    
Fixed assets (net)               12,177         43,472    
Accounts payable               42,272         45,378    
Borrowings under line of credit               27,440         5,000    
Stores in operation, end of period               227         268    
                           

Notes:

  1.  Reconciliation of net loss to adjusted EBITDA:

Adjusted EBITDA is defined as net loss, adjusted to exclude: (i) income tax expense (benefit); (ii) gain on insurance proceeds; (iii) other income (iv) interest expense; (v) depreciation expense; (vi) acquisition related amortization expense; (vii) and acquisition related compensation expense, which includes retention bonuses, restricted stock, and contingency benefit adjustment.  Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers.  We use adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process.  We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance.  We believe this measure is a financial metric used by many investors to compare companies.  This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP.

` Thirteen Weeks Ended   Thirty-nine Weeks Ended
  November 3, October 28,   November 3, October 28,
($ in thousands) 2018 2017   2018 2017
           
Net loss $   (14,052 ) $   (8,071 )   $   (31,712 ) $   (10,085 )
Income tax expense (benefit)     64       (64 )       136       40  
Gain on insurance proceeds     -        (27 )       -        (8,733 )
Other income     (43 )     (32 )       (171 )     (91 )
Interest expense     277        83         444       200  
Operating loss     (13,754 )     (8,111 )       (31,303 )     (18,669 )
Depreciation expense     1,331       2,456         3,895       7,084  
Acquisition related amortization expense     972       969         2,915       2,905  
Acquisition related compensation expense, net of contingency adjustment     750       1,118         2,991       1,708  
Adjusted EBITDA $   (10,701 ) $   (3,568 )   $   (21,502 ) $   (6,972 )
                           

The Company believes that etailz adjusted income (loss) from operations, per the segment disclosure, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.  This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings (losses), net earnings (loss) from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. 

Trans World Entertainment is a leading multi-channel retail, blending a 40-year history of entertainment retail experience with digital marketplace expertise. Our brands seamlessly connect customers with the most comprehensive selection of music, movies, and pop culture products on the channel of their choice.  For over 40 years, the Company has operated as a leading specialty retailer of entertainment and pop culture merchandise with stores in the United States and Puerto Rico, primarily under the name fye, for your entertainment, and on the web at www.fye.com  and www.thirdspin.com.  In October 2016, the Company acquired etailz, Inc., a leading digital marketplace expert retailer, operating both domestically and internationally. etailz uses a data driven approach to digital marketplace retailing utilizing proprietary software and ecommerce insight coupled with a direct customer relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. Trans World Entertainment, which established itself as a public company in 1986, is traded on the Nasdaq National Market under the symbol "TWMC".

Certain statements in this release set forth management's intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses.  Actual results may differ materially from those indicated in such statements.  Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission.

Contact:
Trans World Entertainment

Edwin Sapienza
Chief Financial Officer
(518) 452-1242
  Contact:
Financial Relations Board
Marilynn Meek
(mmeek@frbir.com)
(212) 827-3773
     

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