Albany, NY

Transcription

1 38 Corporate Circle Albany, NY A n n u a l R e p o r t

2 Letter from the Chairman 2007 Results Despite the continued dedication of our associates, financial results for 2007 can only be characterized as an extreme disappointment. Comparable store sales were below expectations and we recorded a net loss for the first time in recent history. We had been encouraged after the first three quarters by an improving trend in sales as our comparable sales declines were progressively less. During this time, certain categories of business were doing very well. In the fourth quarter, however, things turned rather dramatically. Not only did the declines in music continue at a faster pace than had been expected, but video sales which had a comp increase of 7% for the first three quarters declined 6% in the fourth quarter. This weakness in our two largest categories more than offset positive comp sales in our other categories led by games and trend. As we move forward, we know there are adjustments that need to be made. There are many factors that affected 2007 earnings that are within our control, and we re already addressing many of these issues. Throughout 2007, Trans World Entertainment has continued to make the changes necessary to remain a key player in the entertainment retail industry. We re progressing toward our goal of becoming a full entertainment retailer, but it is taking longer than expected. To make greater strides, we ve taken an aggressive stance on store closures enabling us to remove poorperformers and concentrate on a core group of productive stores. Part of our efforts included closing 149 stores at the end of January. As we shed these unprofitable locations, lower our expenses, and complete our transition, we are confident that results will improve. In the meantime, we continue to focus on strong management of inventory and cash giving us the capital needed to work through challenges that arise. In addition to gains made by closing underperforming stores, we also made significant improvements in efficiency and reduced our investment in inventory by $65 million at the end of the year. Shortly after year s end, we closed one of our three distribution facilities and our fixture manufacturing facility to reduce expenses. In 2007, we reduced selling, general and administrative expenses by 9% for the year and by 17% in the key fourth quarter (as compared to 2006). Plus, we were able to renegotiate leases to reduce occupancy costs and provide added operating flexibility for the future. Over the next two years, we intend to close approximately 150 more stores that are negatively impacting the Company s core business. This rigorous approach will allow us to become even more efficient, further reducing our operating expenses and occupancy costs. We will also continue to improve our balance sheet by reducing inventories and debt. Goals for 2008 Our core strategy centers on: Strengthening the f.y.e. brand; Improving sales in our core categories while expanding other entertainment product lines; Improving the in-store experience and visual presence; and Improving our selling culture. As we continue the process of reorienting our marketing and merchandising, we ll focus more on targeting locally and regionally adjusting inventory allocation to match customer demographics and marketing our stores aggressively to highlight their strengths. We are increasing our overall marketing effort in 2008, and plan to have a greater spread of media across print, television and radio. These efforts will include the launch of our first ever regional branding campaign in two markets this summer, which will build the foundation for a national branding campaign. Trans World is committed to enhancing customer loyalty at each store we operate. Through our Backstage Pass loyalty program, we offer terrific value on all product lines we carry for an annual membership fee. Our Backstage Pass customers are not only our most loyal and highest spending customers, but continue to account for an ever increasing share of our total sales further proof that our brand is getting stronger despite the challenging sales environment. We are remerchandising our stores as entertainment stores. Our strategy is to maximize our share within our core music and video categories, while growing our other product lines games, trend, and electronics to drive comp sales. As a result, we have taken a comprehensive look at every store s mix of business and made adjustments where appropriate to ensure we offer a compelling assortment of entertainment products. We will also continue to revamp our visual messaging to ensure we offer the customer a compelling value statement throughout the store. A key point of differentiation with our competitors is our friendly and knowledgeable associates. Continuing an initiative begun in 2006, our associates have completed training to support our customers. At the same time, we ve implemented specific performance measurements to track our progress in this area. Outlook Trans World Entertainment is poised for a return to profitability. We ve overcome great challenges in the past, and have the experience and leadership necessary to do so again in the future. All our employees, from our associates to our executives, should be proud of their diligent efforts. We re making the Company more efficient, more responsive and ultimately, more suited to meet the needs of our customers now and in the future.

3 Financial Highlights (in thousands except per share and store data) Sales $1,265,658 $1,471,157 $1,238,486 $1,365,133 $1,330,626 Change in total sales (14.0)% 18.8% (9.3)% 2.6% 3.8% Change in comparable store sales (8.5)% (6.2)% (5.7)% 0.8% 1.3% Net income (loss) $(99,435) $11,669 $609 $41,841 $23,067 Diluted earnings (loss) per share $(3.20) $0.36 $0.02 $1.15 $0.60 Total assets $638,993 $829,690 $799,657 $859,563 $817,758 Shareholders equity $298,149 $393,205 $378,512 $404,323 $399,184 Total stores

4 Board of Directors Robert J. Higgins Chairman and Chief Executive Officer Brett Brewer President, Adknowledge Mark A. Cohen Professor, Columbia University Martin E. Hanaka Chairman of the Board, Golfsmith International Holdings, Inc. Isaac Kaufman* Chief Financial Officer, Advanced Medical Management, Inc. Dr. Joseph G. Morone President/CEO, Albany International Lori Schafer* Vice President, SAS Global Retail Practice Michael Solow Partner, Kaye Scholer LLP Edmond Thomas* President and CEO, The Wet Seal, Inc. Executive Officers Robert J. Higgins Chairman and Chief Executive Officer James A. Litwak President and Chief Operating Officer Bruce J. Eisenberg Executive Vice President Real Estate John J. Sullivan Executive Vice President, Chief Financial Officer and Secretary Corporate Office 38 Corporate Circle, Albany, NY Independent Auditors KPMG LLP, Albany, NY Transfer Agent and Registrar BNY Mellon Shareowner Services 480 Washington Boulevard Jersey City, NJ Web site: Toll-free: TTD: Stock Exchange Listing NASDAQ National Market Trading Symbol TWMC Annual Meeting July 1, 2008, 10:00 a.m., Albany Country Club, Voorheesville, NY A copy of the Company s Annual Report on Form 10-K for the fiscal year ended February 2, 2008, and quarterly reports on Form 10-Q may be obtained by shareholders without charge from the following: Chief Financial Officer Trans World Entertainment Corporation 38 Corporate Circle, Albany, NY *Member of the Audit Committee Member of the Compensation Committee Member of the Nominating and Governance Committee Presiding Director

5 38 Corporate Circle Albany, NY A n n u a l R e p o r t