Trans World Entertainment Announces Third Quarter Results

ALBANY, N.Y., Dec. 17, 2019 (GLOBE NEWSWIRE) — Trans World Entertainment Corporation (Nasdaq: TWMC) today reported financial results for its third quarter ended November 2, 2019.

Third Quarter Overview – Consolidated

  • Total revenue decreased 24.5% to $69.5 million compared to $92.0 million in the third quarter of fiscal 2018. 
  • Loss from operations was $22.9 million compared to a loss from operations of $13.8 million for the third quarter of fiscal 2018.
  • Net loss was $23.2 million, or $12.73 per share, for the 13 weeks ended November 2, 2019, compared to a net loss of $14.1 million, or $7.74 per share, for the same period last year (see note 1). Included in the third quarter 2019 operating results were non-cash charges due to impairment of certain long lived assets in the amount of $16.0 million.    
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $5.7 million compared to a loss of $10.7 million for the third quarter of fiscal 2018 (see note 2).

Thirty-nine weeks ended November 2, 2019 Overview – Consolidated

  • Total revenue for the thirty-nine weeks ended November 2, 2019 decreased 22.4% to $225.6 million, compared to $290.8 million for the same period last year. 
  • Loss from operations was $37.9 million compared to a loss from operations of $31.3 million for the thirty-nine weeks ended November 3, 2018.
  • Net loss was $39.1 million, or $21.51 per share, for the thirty-nine weeks ended November 2, 2019, compared to a net loss of $31.7 million, or $17.48 per share, for the same period last year (see note 1).  Included in the operating results were non-cash charges due to impairment of certain long lived assets in the amount of $16.0 million.    
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $18.7 million compared to a loss of $21.5 million for the third quarter of fiscal 2018 (see note 2).
  • Cash used in operations during the thirty-nine weeks ended November 2, 2019 was $30.8 million compared to $53.3 million for the same period last year, an improvement of $22.5 million.
  • Cash, cash equivalents and restricted cash as of November 2, 2019 was $9.2 million, compared to $14.6 million as of November 3, 2018. 
  • Inventory was $101.1 million at the end of third quarter of 2019 as compared to  $131.3 million at the end of the third quarter of 2018. 
  • Borrowings under the credit facility at the end of the third quarter were $27.8 million as compared to $27.4 million at the end of the third quarter last year.  As of November 2, 2019, $11.0 million was available for borrowing.

Segment Highlights

    Thirteen Weeks Ended   Thirty-nine Weeks Ended      
  (amounts in thousands) November 2, 2019 November 3, 2018   November 2, 2019 November 3, 2018      
  Total Revenue                
  fye $ 40,840 $ 47,865   $ 127,602 $ 152,473      
  etailz 28,616 44,119   98,008 138,288      
  Total Company $ 69,456 $ 91,984   $ 225,610 $ 290,761      
                   
  Gross Profit                
  fye $ 16,155 $ 18,276   $ 50,670 $ 61,181      
  etailz 6,924 9,110   22,915 30,066      
  Total Company $ 23,079 $ 27,386   $ 73,585 $ 91,247      
                   
  SG&A                
  fye $ 21,012 $ 26,620   $ 67,094 $ 79,214    
  etailz 7,812 12,217   25,180 36,528  
  Total Company $ 28,824 $ 38,837   $ 92,274 $ 115,742      
  Loss From Operations                
  fye $ (21,524) $ (9,493)   $ (34,280) $ (21,495)      
  etailz (1,353) (4,261)   (3,640) (9,808)      
  Total Company $ (22,877) $ (13,754)   $ (37,920) $ (31,303)      
                   
                   
  Reconciliation of etailz Loss from Operations to etailz Adjusted Loss From Operations            
  etailz loss from operations $ (1,353) $ (4,261)   $ (3,640) $ (9,808)      
  Acquisition related amortization expense 286 972   858 2,915      
  Acquisition related compensation expense, net of contingency benefit 750   66 2,991      
  etailz adjusted loss from operations $ (1,067) $ (2,539)   $ (2,716) $ (3,902)      
                   
                   
  Reconciliation of fye Loss From Operations to fye Adjusted Loss From Operations            
  fye Loss From Operations $ (21,524) $ (9,493)   $ (34,280) $ (21,495)      
  Asset impairment charges 16,035   16,035      
  fye Adjusted Loss From Operations $ (5,489) $ (9,493)   $ (18,245) $ (21,495)      
                   

Third Quarter Overview – etailz

  • Revenue for the third quarter was $28.6 million, compared to $44.1 million for the same period last year.  The decline in revenue was due to the vendor rationalization and remediation initiative.  Rationalization and remediation activities included terminating unprofitable vendors and improving vendor relationships through negotiations focused on improvements to gross margins and supply chain efficiencies.
  • Gross profit for the third quarter was $6.9 million, or 24.2% of revenue, as compared to $9.1 million, or 20.6% of revenue, for the same period last year. 
  • Selling, general and administrative (“SG&A”) expenses for the third quarter were $7.8 million, or 27.3% of revenue, compared to $12.2 million, or 27.7% of revenue, for the same period last year. The decline in SG&A expenses was due to expense reduction initiatives implemented in the fourth quarter of fiscal 2018. 
  • etailz loss from operations was $1.4 million for the third quarter versus $4.3 million for the same period last year. 
  • etailz adjusted loss from operations (a non-GAAP measure) was $1.1 million for the third quarter of fiscal 2019 as compared to $2.5 million for the third quarter of fiscal 2018 (see note 2).

Thirty-nine weeks ended November 2, 2019 Overview – etailz

  • Revenue for the thirty-nine weeks ended November 2, 2019 was $98.0 million compared to $138.3 million for the same period last year.
  • Gross profit for the thirty-nine weeks ended November 2, 2019 was $22.9 million, or 23.4% of revenue, compared to $30.1 million, or 21.7% of revenue, for the same period last year.   
  • SG&A expenses for the thirty-nine weeks ended November 2, 2019 were $25.2 million, or 25.7% of revenue, compared to $36.5 million, or 26.5% of revenue, for the same period last year.   
  • etailz adjusted loss from operations (a non-GAAP measure) was $2.7 million for the thirty-nine weeks ended November 2, 2019 compared to a loss of $3.9 million for the same period last year (see note 2).

Third Quarter Overview – fye

  • For the quarter ended November 2, 2019, revenue decreased 14.7% to $40.8 million, compared to $47.9 million for the same period last year. Comparable store sales were down 5.2% compared to the same quarter last year, as a comparable store sales increase of 6.3% in the lifestyle category was offset by declines in the media categories.  The lifestyle category represented 46.2% of revenue for the quarter as compared to 41.9% for the same period last year.
  • Gross profit for the third quarter was $16.2 million, or 39.6% of revenue, compared to $18.3 million, or 38.2% of revenue, for the same period last year. 
  • SG&A expenses decreased $5.6 million, or 21.1%, for the third quarter to $21.0 million, or 51.4% of revenue, compared to $26.6 million, or 55.6% of revenue, for the same period last year.  The decline in SG&A expenses was due to fewer stores in operation.    
  • The fye segment recorded an operating loss of $21.5 million for the 13 weeks ended November 2, 2019, compared to an operating loss of $9.5 million for same period last year.  Included in the operating results were non-cash charges due to impairment of certain long lived assets in the amount of $16.0 million.    
  • As of November 2, 2019, fye segment inventory was $69 per square foot as compared to $76 per square foot as of November 3, 2018.

Thirty-nine weeks ended November 2, 2019 Overview – fye

  • For the thirty-nine weeks ended November 2, 2019, revenue decreased 16.3% to $127.6 million, compared to $152.5 million for the same period last year.
  • Gross profit for the thirty-nine weeks ended November 2, 2019 was $50.7 million, or 39.7% of revenue, compared to $61.2 million, or 40.1% of revenue, for the same period last year. 
  • For the thirty-nine weeks ended November 2, 2019, SG&A expenses decreased $12.1 million, or 15.3%, to $67.1 million compared to $79.2 million in the comparable period last year.  As a percentage of revenue, SG&A expenses were 52.6% versus 52.0% for the same period last year. The decline in SG&A expenses was due to fewer stores in operation.      
  • The fye segment recorded an operating loss of $34.3 million for the thirty-nine weeks ended November 2, 2019, compared to an operating loss of $21.5 million for same period last year.  Included in the operating results were non-cash charges due to impairment of certain long lived assets in the amount of $16.0 million.    
             
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 2, % to November 3, % to   November 2, % to November 3, % to
    2019   Revenue   2018 Revenue     2019   Revenue   2018   Revenue
                     
Net sales $ 68,592     $ 90,877         $ 223,100     $ 287,148    
Other revenue   864       1,107           2,510       3,613    
Total revenue $ 69,456     $ 91,984         $ 225,610     $ 290,761    
                     
Cost of sales   46,377   66.8 %   64,598     70.2 %     152,025   67.4 %   199,514   68.6 %
Gross profit   23,079   33.2 %   27,386     29.8 %     73,585   32.6 %   91,247   31.4 %
                     
Selling, general and                    
administrative expenses   28,824   41.5 %   38,087     41.4 %     92,274   40.9 %   112,751   38.8 %
Asset Impairment charges   16,035   23.1 %       0.0 %     16,035   7.1 %     0.0 %
Acquisition related compensation expenses     0.0 %   750     0.8 %     66   0.0 %   2,991   1.0 %
Depreciation and amortization expenses   1,097   1.6 %   2,303     2.5 %     3,130   1.4 %   6,808   2.3 %
Loss from operations   (22,877 ) -32.9 %   (13,754 )   -15.0 %     (37,920 ) -16.8 %   (31,303 ) -10.8 %
                     
Interest expense   228   0.3 %   277     0.3 %     554   0.2 %   444   0.2 %
Other (income) loss   (30 ) 0.0 %   (43 )   0.0 %     388   0.2 %   (171 ) -0.1 %
                     
Loss before income taxes   (23,075 ) -33.2 %   (13,988 )   -15.2 %     (38,862 ) -17.2 %   (31,576 ) -10.9 %
Income tax expense   80   0.1 %   64     0.1 %     223   0.1 %   136   0.0 %
                     
Net loss $ (23,155 ) -33.3 % $ (14,052 )   -15.3 %   $ (39,085 ) -17.3 % $ (31,712 ) -10.9 %
                     
Basic and diluted loss per common share:                    
                     
Basic and diluted loss per share $ (12.73 )   $ (7.74 )       $ (21.51 )   $ (17.48 )  
                     
Weighted average number of                    
common shares outstanding – basic and diluted   1,819       1,815           1,817       1,814    
                     
                     
SELECTED BALANCE SHEET CAPTIONS:         November 2,   November 3,  
(in thousands, except store data)             2019       2018    
                     
Cash, cash equivalents, and restricted cash             $ 9,162     $ 14,563    
Merchandise inventory               101,130       131,285    
Fixed assets (net)               4,987       12,177    
Accounts payable               29,994       42,272    
Borrowings under line of credit               27,771       27,440    
Cash used in operations               30,822       53,337    
Stores in operation, end of period               206       227    
                     

Notes:

1. Reverse Stock Split:

As previously reported, effective August 15th, 2019, the Company effected a 1-20 reverse stock split of its common stock. All share and earnings per share information have been retroactively adjusted to reflect this reverse stock split. 

2. Reconciliation of net loss to adjusted EBITDA:

Adjusted EBITDA is defined as net loss, adjusted to exclude: (i) income tax expense; (ii) other (loss) income, which includes the write-down of an investment; (iii) interest expense; (iv) depreciation expense; (v) acquisition related amortization expense; (vi) acquisition related compensation expense, which includes retention bonuses and restricted stock; and (vii) asset impairment charges.  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 2, November 3,   November 2, November 3,  
(amounts in thousands)   2019     2018       2019     2018    
             
Net loss $ (23,155 ) $ (14,052 )   $ (39,085 ) $ (31,712 )  
Income tax expense   80     64       223     136    
Other (income) loss   (30 )   (43 )     388     (171 )  
Interest expense   228     277       554     444    
Operating loss   (22,877 )   (13,754 )     (37,920 )   (31,303 )  
Depreciation expense   811     1,331       2,272     3,893    
Asset impairment charges   16,035           16,035        
Acquisition related amortization expense   286     972       858     2,915    
Acquisition related compensation expense, net of contingency adjustment       750       66     2,991    
Adjusted EBITDA $ (5,745 ) $ (10,701 )   $ (18,689 ) $ (21,504 )  
             

The Company believes that fye adjusted loss from operations and etailz adjusted 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 retailer, 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.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.

Contact:
Trans World Entertainment
Ed Sapienza
Chief Financial Officer
(518) 452-1242
Contact:
Financial Relations Board
Marilynn Meek
()
(212) 827-3773

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Source: Trans World Entertainment Corp.