UPDATE: Trans World's Brick and Mortar Blowout
Staff Writer: Craig Schneider (2/26/99)
Individual Investor
The threat of online music distribution has not been music to the ears of Trans World Entertainment (NASDAQ: TWMC) investors.
Since we first highlighted the company and issue in late December, shares have plummeted by as much as 47% to a low of $9.75 on Monday. Then Trans World reported blowout fourth quarter earnings after the close of trading Wednesday, and investors bid up shares Thursday as much as 32% to $17.31, before pulling back to close at $14. Click here to read Craig's original piece about Transworld.
It looks like the doom and gloom scenario set forth by people claiming that online sales would kill traditional bricks and mortar establishments may be wrong -- or at least is premature in the case with Trans World.
Chairman and Chief Executive Robert J. Higgens announced on CNBC Thursday morning that the specialty retailer of music and videos will have a 'record year' in 1999 and is expected to receive a revenue boost from its recently launched Internet site, www.twec.com.
Trans World reported net income of $0.95 per share for the fourth quarter ended January 30, 1999, crushing the $0.80 average estimate by analysts and the $0.67 profit in the year-ago period. Sales for the fourth quarter of fiscal 1998 increased 11% to $268 million, with strong same store sales, up 6%.
For the year, selling, general & administrative expenses as a percentage of sales decreased to 25.5%, from 27.2%, and interest expense was cut by 69%, to $1.5 million, from $5 million. Sales increased 22%, to $698 million, with same-store sales increasing 8%. The company increased cash to $116 million from $95 million and cut long-term debt to $16 million from $41 million.
501 Brick-and-Mortar Stores
Trans World operates 501 retail stores across the nation including Strawberries, Record Town and Coconuts Music and Movies. Its October acquisition of Camelot Music Holdings should give another boost on the balance sheet after its expected completion in the first quarter of 1999. Camelot will double the company's store base and catapult the company into the No. 1 spot in its industry. Keep in mind that Trans World trades at only 10 times projected 2000 earnings per share.
Bottom Line:
As we reported in our first story, digital downloads are less of a threat to brick-and-mortar companies such as Trans World than to the record club business. And while this is not the most aggressive e-commerce player (the company's goal is to have 5% of Internet music sales in 1999), successfully linking its stronghold in retail with online sales could land the company's shares back to its previous $25-$30 range (at least that's what the company's CEO said.)
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