OREANDA-NEWS. Trans World Entertainment Corporation (Nasdaq:TWMC) today reported financial results for its third quarter ended October 28, 2017. 

“Driven by etailz, total consolidated revenue for the quarter increased 40%.  etailz revenue, which contributed 44.0% of total consolidated revenue, increased 48% from the comparative period in fiscal 2016. In the fye segment, efforts to change our merchandise point of view based on unique, relevant, collaborative and exclusive merchandise have shown promise.  However, fye revenue continues to be impacted by declining mall traffic, the general accelerated decline in the physical media business and the specific lack of strong franchises resulting from the lowest summer box office in 25 years. This negatively impacted our lifestyle categories as well.  We are focused on the growth potential of etailz, the reinvention and stabilization of the fye brand, and the synergies afforded by the combination of the two,” commented Mike Feurer, Chief Executive Officer.

On October 17, 2016, the Company acquired etailz, Inc., a leading digital marketplace retailer. Results for etailz are included in the consolidated results for all the periods presented for fiscal 2017. For periods presented for fiscal 2016, results for etailz are included in consolidated results from October 17, 2016 through October 29, 2016. Quarterly and year-to-date comparisons to the prior year for the etailz segment represent the unconsolidated performance of etailz for the period from August 1, 2016 through October 16, 2016, and, from February 1, 2016 through October 16, 2016, respectively, and, consolidated performance of etailz from October 17, 2016 through October 29, 2016.

Third Quarter Overview - Consolidated

  • Total revenue increased 40.3% to $93.0 million, compared to $66.3 million in the third quarter of fiscal 2016, as $40.9 million in revenue from etailz more than offset a $10.4 million decline in fye revenue. 
  • Operating loss was $8.1 million compared to an operating loss of $7.8 million for the third quarter of fiscal 2016.
  • Net loss was $8.1 million, or $0.22 per diluted share, for the 13 weeks ended October 28, 2017, compared to a net loss of $0.5 million, or $0.02 per diluted share, for the same period last year, which included a tax benefit of $7.5 million.
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $3.6 million compared to a loss of $3.1 million for the third quarter of fiscal 2016 (see note 1).
  • The Company had $5.0 million outstanding under its credit facility at the end of the third quarter and cash on hand of $3.9 million as compared to borrowings of $5.9 million and cash on hand of $4.7 million at the end of the comparable quarter last year.  Inventory, including $31.5 million from etailz, was $144.8 million as of October 28, 2017, versus $157.8 million, as of October 29, 2016. Excluding the impact of etailz, inventory per square foot was $76 as of October 28, 2017 as compared to $86 as of October 29, 2016. 

Thirty-nine weeks ended October 28, 2017 Overview – Consolidated

  • Total revenue for the thirty-nine weeks ended October 28, 2017 increased 44.1% to $297.4 million, compared to $206.4 million for the same period last year, as $121.4 million in revenue from etailz more than offset a $26.5 million decline in fye revenue.
  • Operating loss was $18.7 million compared to an operating loss of $13.0 million for the thirty-nine weeks ended October 29, 2016.
  • Net loss was $10.1 million, or $0.28 per diluted share, for the thirty-nine weeks ended October 28, 2017, compared to a net loss of $5.1 million, or $0.17 per diluted share, for the same period last year.
  • Adjusted EBITDA (a non-GAAP measure) was a loss of $7.0 million compared to a loss of $5.2 million for the thirty-nine weeks ended October 29, 2016. (see note 1).

Segment Highlights

           
  Thirteen Weeks Ended    Thirty-nine Weeks Ended
  October 28,
2017		 October 29,
2016		   October 28,
2017		 October 29,
2016
Total Revenue          
fye $   52,105   $   62,457     $   176,006   $   202,535  
etailz   40,896       3,824       121,440       3,824  
        Total Company $   93,001   $   66,281     $   297,446   $   206,359  
           
Gross Profit          
fye $   21,347   $   25,932     $   73,342   $   83,459  
etailz   10,234       940       29,714       940  
        Total Company $   31,581   $   26,872     $   103,056   $   84,399  
           
Loss From Operations          
fye $   (7,858 ) $   (5,083 )   $   (17,703 ) $   (10,291 )
etailz     (253 )     (2,725 )       (966 )     (2,725 )
        Total Company $   (8,111 ) $   (7,808 )   $   (18,669 ) $   (13,016 )
           
Reconciliation of etailz Loss From Operations to etailz Adjusted Income From Operations (2)      
etailz Loss From Operations $   (253 ) $   (2,725 )   $   (966 ) $   (2,725 )
Acquisition related amortization and compensation expense     2,087       2,531         4,613       2,531  
etailz  Adjusted Income (Loss) From Operations $   1,834   $   (194 )   $   3,647   $   (194 )
           
           

Third Quarter Overview - fye

  • Total revenue declined 16.6% for the fye segment.  Comparable store sales declined 11% compared to the same quarter last year.
  • Gross profit for the third quarter was $21.3 million, or 41.0% of revenue, compared to $25.9 million, or 41.5% of revenue, for the same period last year.  Gross profit as a percentage of revenue declined as higher merchandise margins were offset by lost leverage on distribution and freight costs.
  • Selling, general and administrative (“SG&A”) expenses decreased $2.2 million, or 7.5%, for the third quarter to $26.8 million, or 51.4% of fye revenue, compared to $29.0 million, or 46.4% 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 the comp sales decline and expenses to support the upgrading of the Company’s digital foundation, including the re-platforming of fye.com.
  • The fye segment recorded an operating loss of $7.9 million for the quarter ended October 28, 2017, compared to an operating loss of $5.1 million for same period last year. 

Mr. Feurer added, “At the end of the quarter, we began to see the power of our entertainment merchandising strategy with strong sales in exclusive and licensed product.  During the quarter, we took aggressive actions to clear slow-moving merchandise from our stores and adjusted purchases to align our inventory levels with current business trends and future assortment strategy.”

Third Quarter Overview - etailz

  • Revenue for the third quarter was $40.9 million, a 48% increase as compared to the third quarter of 2016.  etailz revenue contributed 44.0% of total consolidated revenue during the quarter.
  • Gross profit for the third quarter was $10.2 million, or 25.0% of revenue.
  • SG&A expenses for the third quarter were $9.5 million, or 23.2% of revenue, which includes $0.9 million in income from a collaborative arrangement.
  • etailz loss from operations was $253 thousand for the third quarter.
  • etailz adjusted income from operations (a non-GAAP measure) was $1.8 million for the third quarter. 

Mr. Feurer further added, “We have successfully implemented initiatives to improve operating results for the etailz segment.  Our initiatives helped drive a $1.1 million increase in etailz adjusted income from operations from the second quarter of fiscal 2017.”

Thirty-nine weeks ended October 28, 2017 Overview – fye

  • For the thirty-nine weeks ended October 28, 2017, total revenue decreased 13.1% to $176 million, compared to $202.5 million for the same period last year.
  • Gross profit for the thirty-nine weeks ended October 28, 2017 was $73.3 million, or 41.7% of revenue, compared to $83.5 million, or 41.2% of revenue, for the same period last year.  The increase in gross margin as a percentage of revenue was due to better costing and price management.
  • For the thirty-nine weeks ended October 28, 2017, SG&A expenses decreased $4.5 million, or 5.1% to $84.1 million compared to $88.6 million in the comparable period last year.  As a percentage of revenue, SG&A expenses were 47.8% versus 43.8% 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 comp sales decline and expenses to support the upgrading of the Company’s digital foundation, including the re-platforming of fye.com.
  • The fye segment recorded an operating loss of $17.7 million for the thirty-nine weeks ended October 28, 2017, compared to an operating loss of $10.3 million for same period last year. 

Thirty-nine weeks ended October 28, 2017 Overview – etailz

  • Revenue for the thirty-nine weeks ended October 28, 2017 was $121.4 million, a 45.1% increase as compared to the same period in fiscal 2016.  etailz revenue contributed 40.8% of total consolidated revenue during the thirty-nine weeks ended October 28, 2017.
  • Gross profit for the thirty-nine weeks ended October 28, 2017 was $29.7 million, or 24.5% of revenue.
  • SG&A expenses for the thirty-nine weeks ended October 28, 2017 were $27.6 million, or 22.8% of revenue which includes $1.0 million in income from a collaborative arrangement.
  • Loss from operations was $966 thousand.
  • etailz adjusted income from operations (a non-GAAP measure) was $3.6 million for the thirty-nine weeks ended October 28, 2017.
                   
TRANS WORLD ENTERTAINMENT CORPORATION
Financial Results
                   
                   
STATEMENTS OF OPERATIONS:                  
(in thousands, except per share data)                  
  Thirteen Weeks Ended   Thirty-nine Weeks Ended
  October 28, % to October 29, % to   October 28, % to October 29, % to
    2017   Revenue   2016   Revenue     2017   Revenue   2016   Revenue
                   
Net sales $   91,817     $   65,039       $   293,482     $   203,127    
Other revenue     1,184         1,242           3,964         3,232    
Total revenue $   93,001     $   66,281       $   297,446     $   206,359    
                   
Cost of sales     61,420   66.0 %     39,409   59.5 %       194,390   65.4 %     121,960   59.1 %
Gross profit     31,581   34.0 %     26,872   40.5 %       103,056   34.6 %     84,399   40.9 %
                   
Selling, general and                  
  administrative expenses     36,267   39.0 %     32,458   49.0 %       111,736   37.6 %     92,106   44.6 %
                   
Depreciation and amortization     3,425   3.6 %     2,222   3.4 %       9,989   3.4 %     5,309   2.6 %
Loss from operations     (8,111 ) -8.6 %     (7,808 ) -11.8 %       (18,669 ) -6.3 %     (13,016 ) -6.3 %
                   
Interest expense     83   0.1 %     179   0.3 %       200   0.1 %     523   0.3 %
Other income     (59 ) -0.1 %     (51 ) -0.1 %       (8,824 ) -3.0 %     (1,068 ) -0.5 %
                   
Loss before income taxes     (8,135 ) -8.7 %     (7,936 ) -12.0 %       (10,045 ) -3.4 %     (12,471 ) -6.0 %
Income tax expense (benefit)     (64 ) -0.1 %     (7,452 ) -11.2 %       40   0.0 %     (7,358 ) -3.6 %
                   
                   
Net loss $   (8,071 ) -8.7 % $   (484 ) -0.7 %   $   (10,085 ) -3.4 % $   (5,113 ) -2.5 %
                   
Basic and diluted loss per common share:                
                   
Basic and diluted loss per share $   (0.22 )   $   (0.02 )     $   (0.28 )   $   (0.17 )  
                   
Weighted average number of                  
  common shares outstanding - basic and diluted   36,190       31,434         36,181       30,854    
                   
SELECTED BALANCE SHEET CAPTIONS:         October 28,   October 29,  
(in thousands, except store data)             2017       2016    
                   
Cash and cash equivalents           $   3,924     $   4,708    
Merchandise inventory               144,754         157,827    
Fixed assets (net)               43,472         41,902    
Accounts payable               45,378         61,956    
Borrowings under line of credit               5,000         5,936    
                   
Stores in operation, end of period               268         294    
                   

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) other income, including gain on sale of investments and gain from insurance proceeds; (iii) interest expense; (iv) depreciation and amortization; (v) acquisition related transaction expenses; and (vi) acquisition related compensation expenses including retention bonuses, restricted stock, and a contingency 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.  A reconciliation of net loss to adjusted EBITDA appears below.

           
(in thousands)          
  Thirteen Weeks Ended   Thirty-nine Weeks Ended
  October 28, October 29,   October 28, October 29,
    2017     2016       2017     2016  
           
Net income (loss) $    (8,071 ) $    (484 )   $    (10,085 ) $    (5,113 )
Income tax expense (benefit)     (64 )     (7,452 )       40       (7,358 )
Other income     (59 )     (51 )       (8,824 )     (1,068 )
Interest expense     83       179         200       523  
  Operating loss     (8,111 )     (7,808 )       (18,669 )     (13,016 )
Depreciation and amortization     3,425       2,222         9,989       5,309  
Acquisition related transaction expenses     -        2,228         -        2,228  
Acquisition related compensation expenses     1,118       303         1,708       303  
Adjusted EBITDA $    (3,568 ) $    (3,055 )   $    (6,972 ) $    (5,176 )
           

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.