Troubled f.y.e. Parent Profits, But It May Not Last

Trans World Entertainment Corp. (TWMC), the owner of the f.y.e. chain, which sells CDs, DVDs and other entertainment media, posted its first profitable quarter in three years. Don't expect this to be a sign that business is going to turn around any time soon, though, and expect more store closures ahead.

Trans World, the last large mall-based chain that primarily sells music and movies, is in a sector that experienced plenty of carnage over the last few years due to falling music and DVD sales. Tower Records closed its 89 stores in 2006. Virgin Megastore, which had 23 locations at its peak, wound down last year.

And retailers with similar business models are in trouble. Blockbuster Inc.'s (BBI) is shutting hundreds of doors, and that company's future is in question. Borders Group (BGP), which primarily sells books and music, has financial problems.

For its part, Trans World already significantly pared back its store count. At the end of its recently completed fourth quarter, the company operated 655 stores, down from 763 at the same time last year.

Bob Higgins, Trans World's chairman and chief executive officer, didn't come right out and say it during the company's earnings call, but it sounds like more store closings are ahead. "We will capitalize on the real estate environment to maximize our footprint of productive locations," he said carefully. It is not difficult to read between the lines.

Still, the return to profitability--net income was $11.4 million, up from Trans World's $9.4-million loss during the fourth quarter of 2008. But over the entire fiscal year, the company lost $42.4 million, and same-store sales dropped 10 percent.

Trans World just faces too many obstacles. Music sales have fallen by half this decade, due primarily to digital downloading, and big-box chains like Best Buy (BBY) and Walmart (WMT) are more visible and sell the same products. Expect more stores to close, if not all of them.