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Trans World Entertainment Announces Third Quarter Results

ALBANY, N.Y., Nov. 17, 2016 (GLOBE NEWSWIRE) -- Trans World Entertainment Corporation (Nasdaq:TWMC) today reported financial results for its third quarter ended October 29, 2016. For the third quarter of 2016, the Company reported a net loss of $8.1 million or $0.26 per diluted share, including $2.7 million in acquisition related expenses, as compared to a net loss of $4.3 million, or $0.14 per diluted share, for the same period last year. Adjusted EBITDA (a non GAAP measure) for the third quarter of 2016 (see note 1) was a loss of $3.2 million, as compared to a loss of $2.6 million for the third quarter of 2015.

During the quarter, the Company completed its acquisition of etailz, Inc. (“etailz”), an innovative and leading digital marketplace retail expert. Results for etailz are included in our financial statements beginning October 17, 2016, the date of the closing of the acquisition (“Post Acquisition Period”). The Company is currently in the process of reviewing certain preliminary purchase price allocations as of the acquisition date, specifically related to definite lived intangible assets and deferred taxes. Any updates to the preliminary purchase price allocations identified in advance of the Company’s third quarter Form 10-Q will be updated by management in conjunction with the Company filing its Form 10-Q with the Securities and Exchange Commission for the 2016 third quarter.

Third Quarter Overview

  • Total revenue for the quarter, including $3.8 million from etailz for the Post Acquisition Period, decreased 4.0% to $66.3 million compared to $69.1 million for the same period last year. At the end of the quarter, the Company operated 294 stores compared to 309 stores at the same time last year, a 4.9% decline.
  • Comparable store sales for the third quarter were down 5% compared to the same quarter last year, as a 27% comp increase in our trend category was offset by an 18% decline in our heritage media categories. The trend category represented 32% of business for the quarter as compared to 23% last year.
  • Gross profit for the quarter was $26.9 million, or 40.5% of revenue, compared to $27.8 million, or 40.3% of revenue, for the same period last year. Gross profit as a percentage of revenue excluding the impact of etailz was 41.5% for the quarter, compared to 40.3% for the same period last year, a 120 basis point increase. The increase in gross profit as a percentage of revenue was due primarily to higher margins and increased revenue contribution from the trend category. During the quarter, etailz contributed $940 thousand in gross profit, or 24.6% of etailz revenue for the Post Acquisition Period.
  • Selling, general and administrative (“SG&A”) expenses including acquisition expenses, increased approximately $2.2 million, or 7.2%, for the quarter to $32.6 million, or 49.1% of revenue, compared to $30.4 million, or 44.0% of revenue, for the same period last year. SG&A in the third quarter included $3.6 million in expenses related to etailz, including $2.5 million in acquisition related expenses. SG&A expenses excluding the impact of etailz, decreased approximately $1.4 million, or 4.6%, for the quarter to $29.0 million, or 46.4% of sales.
  • The Company had $5.9 million outstanding under its credit facility at the end of the third quarter and cash and cashs equivalent on hand of $4.7 million. At the end of the third quarter last year, the Company had $74.9 million on hand without any borrowings on its credit facility. The primary use of cash was $64 million related to the acquisition and operations of etailz. Additional uses of cash included the repurchase of shares in previous quarters, investments in new and remodeled stores, technology enhancements; including a new POS implementation and the chain wide rollout of new marketplace fixtures to support the shift in our merchandise assortment.

“Our quarter was highlighted by the acquisition of etailz, which diversifies our business into the fastest growing segment of retail: the digital marketplace.” commented Mike Feurer, Company CEO. “Our operating results for the third quarter reflect the ongoing disruption in our heritage media categories and declines in mall traffic, each of which will continue to create headwinds in the fourth quarter. We have made strategic investments in capital and talent over the last two years as we reinvent our Company. We are well positioned for the upcoming holiday season both in-store and on-line,” Mr. Feurer added.

Thirty-nine weeks ended October 29, 2016 Overview

  • For the thirty-nine weeks ended October 29, 2016, the Company reported a net loss of $12.7 million or $0.41 per diluted share, including acquisition expenses, as compared to a net loss of $7.2 million, or $0.23 per diluted share, for the same period last year. Adjusted EBITDA (a non GAAP measure) for the thirty-nine weeks ended October 29, 2016 (note 1) was a loss of $5.3 million as compared to a loss of $3.8 million for the same period last year.
  • For the thirty-nine weeks ended October 29, 2016, total revenue decreased 4.8% to $206.4 million, compared to $216.8 million for the same period last year. During the thirty-nine week period, etailz contributed $3.8 million in sales.
  • Comparable store sales for the thirty-nine weeks ended October 29, 2016 declined 2% compared to the same thirty-nine weeks last year.
  • Gross profit for the thirty-nine weeks ended October 29, 2016 was $84.4 million, or 40.9% of revenue, compared to $88.1 million, or 40.6%, of revenue for the same period last year. Gross profit as a percentage of revenue excluding the impact of etailz was 41.2% for the thirty-nine weeks compared to 40.6% for the same period last year.
  • For the thirty-nine weeks ended October 29, 2016, SG&A expenses, including acquisition expenses, increased $1.7 million, or 1.9% to $92.2 million compared to $90.5 million in the comparable period last year. As a percentage of revenue, SG&A expenses were 44.7% versus 41.7% for the same period last year. SG&A in the thirty-nine weeks of 2015 was reduced by $1.4 million, or 60 basis points due to the one-time reimbursement of expenses related to a legal settlement. SG&A in the thirty-nine weeks included $3.6 million in expenses related to the acquisition of etailz.
  • Inventory, including $15.3 million from etailz, was $157.9 million at the end of the quarter, versus $149.5 million, at the end of the third quarter last year. Excluding the impact of etailz, inventory per square foot was $86 at the end of the quarter, compared to $83 per square foot at the end of the third quarter last year. Inventory per square foot was impacted by $3 per foot for additional inventory on hand for the 8 new stores opening in November.

Trans World will host a teleconference call on Thursday, November 17, 2016, 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
Financial Results
STATEMENTS OF OPERATIONS:
(in thousands, except per share data)
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 29,% toOctober 31,% to October 29,% toOctober 31,% to
2016 Revenue 2015 Revenue 2016 Revenue 2015 Revenue
Net sales$ 65,039 $ 67,925 $ 203,127 $ 213,339
Other revenue 1,242 1,125 3,232 3,413
Total revenue$ 66,281 $ 69,050 $ 206,359 $ 216,752
Cost of sales 39,409 59.5% 41,245 59.7% 121,960 59.1% 128,699 59.4%
Gross profit 26,872 40.5% 27,805 40.3% 84,399 40.9% 88,053 40.6%
Selling, general and
administrative expenses 32,566 49.1% 30,373 44.0% 92,214 44.7% 90,493 41.7%
Depreciation and amortization 2,222 3.4% 1,227 1.8% 5,309 2.6% 3,238 1.5%
Income (loss) from operations (7,916) -11.9% (3,795) -5.5% (13,124) -6.4% (5,678) -2.6%
Interest expense 179 0.3% 532 0.8% 523 0.3% 1,451 0.7%
Other income (51) -0.1% (43) -0.1% (1,068) -0.5% (84) 0.0%
Income (loss) before income taxes (8,044) -12.1% (4,283) -6.2% (12,579) -6.1% (7,045) -3.3%
Income tax expense 49 0.1% 45 0.1% 144 0.1% 134 0.1%
Net income (loss)$ (8,093) -12.2%$ (4,328) -6.3% $ (12,723) -6.2%$ (7,179) -3.3%
Basic and diluted loss per common share:
Basic and diluted loss per share$ (0.26) $ (0.14) $ (0.41) $ (0.23)
Weighted average number of
common shares outstanding - basic and diluted 31,434 31,107 30,854 31,140
SELECTED BALANCE SHEET CAPTIONS: October 29, October 31,
(in thousands, except store data) 2016 2015
Cash and cash equivalents $ 4,708 $ 74,854
Merchandise inventory 157,896 149,524
Fixed assets (net) 41,905 27,282
Accounts payable 61,956 65,471
Borrowings under line of credit 5,936 -
Stores in operation, end of period 294 309

Notes:

1. Reconciliation of net loss to adjusted EBITDA:

Adjusted EBITDA is defined as net loss, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition related expenses, (vi) acquisition related compensation expenses and (vii) items not related to the core business. 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, net earnings from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. 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. A reconciliation of net loss to adjusted EBITDA appears below.

(in thousands)
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 29,October 31, October 29,October 31,
2016 2015 2016 2015
Net loss$ (8,093)$ (4,328) $ (12,723)$ (7,179)
Income tax expense 49 44 144 134
Other income (51) (43) (1,068) (84)
Interest expense 179 532 523 1,451
Operating loss (7,916) (3,795) (13,124) (5,678)
Depreciation and amortization 2,222 1,227 5,309 3,238
Acquisition expenses 2,228 - 2,228 -
Acquisition related compensation expense 303 - 303 -
One-time reimbursement of expenses related to a legal settlement - - - (1,367)
Adjusted EBITDA$ (3,163)$ (2,568) $ (5,284)$ (3,807)

Trans World Entertainment is a unique omni-channel retailer coupling a long history of specialty retail experience with digital marketplace expertise. 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.secondspin.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.

Trans World Entertainment John Anderson Chief Financial Officer (518) 452-1242 Financial Relations Board Marilynn Meek (mmeek@frbir.com) (212) 827-3773

Source:Trans World Entertainment Corp