Trans World Entertainment Announces Fourth Quarter and Fiscal Year 2002 Results

– Company Provides Guidance for 2003 – – Company Determines it Has an Impairment of Goodwill Balances –

ALBANY, N.Y., Feb 27, 2003 /PRNewswire-FirstCall via COMTEX/ — Trans World
Entertainment Corporation (Nasdaq: TWMC) today announced its financial results
for the fourth quarter and fiscal year 2002 and its outlook for fiscal 2003. The
following quarterly and annual 2002 results do not reflect a charge the Company
will take in its fiscal year 2002 in accordance with the Statement of Financial
Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets”,
which was adopted by the Company at the beginning of the fiscal year.

For the fourth quarter of 2002, the Company reported net income, prior to the as
yet undetermined impairment charge discussed below, of $27.4 million, or $0.69
per share, compared to net income of $34.5 million, or $0.82 per share, in the
fourth quarter of 2001. Total sales were $483.7 million for the fourth quarter
of 2002, compared to sales of $511.0 million in the prior year. Comparable store
sales for the fourth quarter of 2002 decreased 3%.

In the fourth quarter of 2002, gross profit as a percentage of sales was 31.9%,
compared to 31.7% for the same period in 2001. Selling, general and
administrative expenses as a percentage of sales were 18.7% as compared to 17.9%
in the fourth quarter of last year.

“We had a relatively strong conclusion to an otherwise challenging year,”
commented Robert J. Higgins, Trans World’s Chairman and CEO. “Our Holiday Sales
compared well to other retailers’ results, and earnings were in-line with our
expectations.”

Total sales for the fiscal year ended February 1, 2003, were $1.3 billion, a
decrease of 8% from last year. Comparable store sales decreased 5%. Excluding
the effect of a non-cash write off of an investment taken in the third quarter,
and prior to the as yet undetermined impairment charge discussed below, net
income for fiscal 2002 was $5.8 million, or $0.14 per share compared to net
income of $16.8 million, or $0.39 per share in 2001. After the effect of the
investment charge, but prior to the as yet undetermined impairment charge
discussed below, net income was $0.6 million or $0.01 per share.

The Company further reported that it would record a non-cash impairment charge
in fiscal 2002 related to Statement of Financial Accounting Standard (SFAS) No.
142, concerning the accounting for goodwill. The Company completed its annual
impairment assessment, as prescribed by FAS 142, and has determined that its
goodwill asset balance is impaired. The Company will undertake the effort to
determine the amount of the impairment in accordance with FAS 142 and the charge
will be reflected in its 2002 annual financial results when filed in its annual
10-K report, due to be filed on May 2, 2003. At fiscal year end 2002, the
Company has $41 million recorded in goodwill and the Company believes that after
completing its final assessment it is likely that the entire amount will be
written-off. Assuming that the Company’s full $41 million of recorded goodwill
is determined to be impaired, the Company’s net loss for the fourth quarter of
2002 will be $1.7 million or $(0.04) per share, and the net loss for fiscal 2002
would be $28.5 million or $(0.71) per share.

Mr. Higgins added, “The determination that the fair value of our recorded
goodwill has declined reflects current economic and industry conditions, yet
does not reflect our overall view of and optimism for the future. We will
continue to invest in and grow our business to improve profitability.”

“During 2003 we will leverage our strong financial position and proven industry
expertise as we continue to exploit Trans World’s leadership position. Our
strategy will focus on further developing the FYE brand, broadening our product
offering, and expanding Trans World’s market share in the DVD and video game
categories. We anticipate that newly installed Listening and Viewing Stations
(LVS) will increase our share of the music market and that the exit of
competitors from the market will allow us to capitalize on real estate
opportunities,” Mr. Higgins continued.

Management expects earnings in the range of $0.15 to $0.20 per share for fiscal
year 2003 on total sales approximating 2002 levels. In addition, management
forecasts gross margin of 32% with SG&A rates improving to the range of 27% to
28%.

“With the current line-up of new releases, and our results for February to date,
we expect comparable store sales in the first quarter of this year to be
positive to last year,” concluded Mr. Higgins.

About Trans World Entertainment Corp.

Trans World Entertainment is a leading specialty retailer of music and video
products. The Company operates retail stores in 46 states, the District of
Columbia, the U.S. Virgin Islands, Puerto Rico and an e-commerce site,
http://www.fye.com. In addition to its mall locations, operated under the “fye”
(for your entertainment) brand, the Company also operates freestanding locations
under the names Coconuts Music and Movies, Strawberries Music, Spec’s and Planet
Music.

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 CORPORATION
Financial Results

INCOME STATEMENTS:

(in millions,
except per
share data) Thirteen Weeks Ended

Excluding FAS 142 Including FAS 142
Impairment Charge Impairment Charge
Feb.1, %to Feb.1, %to Feb.2, %to
2003 Sales 2003 Sales 2002 Sales

Sales $483.7 $483.7 $511.0

Cost of sales 329.6 68.1% 329.6 68.1% 348.9 68.3%
Gross profit 154.1 31.9% 154.1 31.9% 162.1 31.7%

Selling, general
and administrative
expenses 90.4 18.7% 90.4 18.7% 91.3 17.9%

FAS 142 impairment
charge (1) — 40.9 8.5% —

Depreciation and
amortization 10.4 2.2% 10.4 2.1% 10.4 2.0%
Income (loss) from
operations 53.3 11.0% 12.4 2.6% 60.4 11.8%

Interest expense
(income) 0.3 0.1% 0.3 0.1% (0.2) 0.1%
Income (loss) before
income taxes 53.0 10.9% 12.1 2.5% 60.6 11.9%

Income tax expense
(benefit) 25.6 5.3% 13.8 2.9% 26.1 5.1%

NET INCOME (LOSS) $27.4 5.6% ($1.7) -0.4% $34.5 6.8%

Basic earnings (loss) per
common share:
Earnings (loss) per
share $0.69 ($0.04) $0.83
Weighted average number
of common shares
outstanding 39.5 39.5 41.5

Diluted earnings (loss)
per common share:
Earnings (loss)
per share $0.69 ($0.04) $0.82
Weighted average number
of common shares
outstanding 39.8 39.5 42.1

(in millions,
except per
share data) Fiscal Year Ended

Excluding FAS 142 Including FAS 142
Impairment Charge Impairment Charge
Feb.1, % to Feb.1, % to Feb.2, % to
2003 Sales 2003 Sales 2002 Sales

Sales $1,281.9 $1,281.9 $1,388.0

Cost of sales 863.4 67.4% 863.4 67.4% 935.3 67.4%
Gross profit 418.5 32.7% 418.5 32.7% 452.7 32.6%

Selling, general and
administrative
expenses 372.0 29.0% 372.0 29.0% 382.1 27.5%

FAS 142 impairment
charge (1) — 40.9 3.2% —

Depreciation and
amortization 40.2 3.1% 40.2 3.1% 40.6 2.9%
Income (loss) from
operations 6.3 0.5% (34.6) -2.6% 30.0 2.2%

Interest expense
(income) 1.1 0.1% 1.1 0.1% 0.3 0.1%
Income (loss) before
income taxes 5.2 0.4% (35.7) -2.7% 29.7 2.1%

Income tax expense
(benefit) 4.6 0.4% (7.2) -0.5% 12.9 0.9%

NET INCOME (LOSS) $0.6 0.0% ($28.5) -2.2% $16.8 1.2%

Basic earnings (loss)
per common share:
Earnings (loss) per
share $0.02 ($0.71) $0.40
Weighted average number
of common shares
outstanding 40.2 40.2 41.9

Diluted earnings (loss)
per common share:
Earnings (loss) per
share $0.01 ($0.71) $0.39
Weighted average number
of common shares
outstanding 40.6 40.2 42.6

SELECTED BALANCE SHEET
CAPTIONS:
(in millions, except
store data)

Cash and cash
equivalents $197.0 $254.9
Merchandise inventory 402.2 409.1
Fixed assets (net) 155.4 160.4
Accounts payable 326.9 378.9
Long-term debt and
capital lease
obligations, less
current portion 7.9 9.5

Stores in operation 855 902

(1) The Company will record a non-cash impairment charge in fiscal 2002
related to Statement of Financial Accounting Standard (SFAS) No.
142, concerning the accounting for goodwill. The Company completed
its annual impairment assessment, as prescribed by FAS 142, and has
determined that its goodwill asset balance is impaired. The Company
will undertake the effort to determine the amount of the impairment
in accordance with FAS 142 and the charge will be reflected in its
2002 annual financial results when filed in its annual 10k report,
due to be filed on May 2, 2003. At fiscal year end 2002 the Company
has $41 million recorded in goodwill and the Company believes it is
likely that the entire amount will be written-off after completing
its final assessment. Assuming that the Company’s full $41 million
of recorded goodwill is determined to be impaired, the Company’s net
loss for the fourth quarter of 2002 will be $1.7 million or $(0.04)
per share, and the net loss for fiscal 2002 would be $28.5 million
or $(0.71) per share.

SOURCE Trans World Entertainment Corporation

CONTACT:
John Sullivan, Executive Vice President and Chief Financial
Officer of Trans World Entertainment Corporation, +1-518-452-1242, ext. 7400;
or Kimberly Storin, Investor Relations Counsel of The MWW Group,
+1-212-704-9727, , for Trans World Entertainment Corporation

URL: http://www.fye.com