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Strategies & Market Trends : Value Investing

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From: Graham Osborn	7/1/2015 11:12:04 AM
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TWMC/ Trans World Entertainment Corp – This is a net net. Specialty retail chain focused on video/ music/ video games/ electronics. Based in NY, operates the FYE store chain (~260 stores) plus Suncoast and a few other brands in US and Virgin Islands. Company was started in the 1970s by Robert Higgins (still controls ~50%) and maxed out sales around 2001 at 1.4B before slowly succumbing to digital media/ online/ mass retail, etc. Sales have declined since then to about ~350M today. Management has been executing a controlled store closure program. If a store is not profitable they close it. They opened 6 new stores last year. In the 2000s they made a number of acquisitions of bankrupt competitors but Higgins seems to have largely thrown in the towel on this approach. Price: 3.66 NCAVPS: 4.64 Cash to Cap: 0.88 D/ E: ~0 P/ TB: 0.66 EV/ Rev: 0.03 EV/ EBITDA: 2.63 EV/ FCF: 0.70 PE ttm: 48 PE 5: 55 The focus for the past 5 years at least has been a controlled liquidation/ shuttering of operations and growing the cash balance. They paid a 60-cent cash dividend (19M) in 2014 and 47-cent dividend (15M) in 2013. In addition board approved 22M buyback program August 2013 of which about 16M is outstanding. Higgins and Lloyd Miller have been steadily buying shares some open market over the past year in the 3.20s. That the business is next to worthless is a given, so the cyclical risk and competition don’t concern me as much. This is about as logical a death as one can conceive for a legacy retail operation (look at RSH for what happens when management does not have a vested interest). That Higgins has rebuffed past activist BlueShore (which seems now to have exited their stake) also concerns me less as the business is already effectively in liquidation. Higgins is just taking the slow route. I don’t love the fact that he paid himself a $2M+ bonus in 2012 (more than NI), or that he leases properties to TWMC. But when Marissa is getting paid $250M to do essentially the same thing at YHOO I guess I can tolerate this. I can easily see future cash dividends and conceivably even a strategic takeover down the road. One just needs to be patient. I’m aiming for buys around cash in the low 3.20s where Higgins and Miller have been buying. FYI- Graham

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