FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan

Trans World Still All-World

It may be a boring old mall-based music and video retailer, but Trans World Entertainment (Nasdaq: TWMC) has been all-world at consolidating a once-troubled niche where debt-laden Musicland (NYSE: MLG) is about the only competitor left standing. Even well off its July high near $30 a share, Trans World has delivered nearly a 3000% return over the last three years, including a 64% gain this year after the stock recovered from the late-summer small-cap slaughter. Today, this contender is looking like a heavyweight champ again, though the stock doesn't show it. By mid-morning, Trans World had stumbled for a $7/8 loss to $21 after delivering knock-out Q3 earnings of $0.13 per share, up from $0.10 a year ago and three cents ahead of estimates.

An operator of 522 retail stores, including the Record Town, Saturday Matinee, Coconuts, and Strawberries chains, Trans World reported a 25% jump in revenue to $143.4 million on 6% higher same-store sales for the October period. Gross margins increased to 38.5% from 38.1% last year and selling, general, and administrative costs dropped to 30% of sales from 32.4% in 1997. On an EBITDA basis, operating margins were 8.5% versus just 3.3% for Musicland during its September period. Meanwhile, interest expenses plunged 58% as Trans World ended the quarter with no balance under its revolving credit facility. The company has also paid down its long-term debt. Cash is up to $33.2 million from $4.6 million a year ago and inventories rose just 5.5% despite the terrific sales growth. Year-to-date, Trans World has earned $0.29 a share versus a year earlier loss of $0.02 on 31% higher sales and 9% better same-store sales.

Chair/CEO Robert J. Higgins said the company thinks hot new releases will allow the all-important Q4 sales to "meet or exceed expectations," though investors seem to be worried over the slowdown in same-store sales growth. Given that the company has crushed estimates three quarters in a row, the $1.07 consensus EPS estimate for the January fiscal year could be jacked up yet again. Trans World continues to leverage its larger but now healthier store base. The company's growth in recent years came after taking painful early action on the store-closing front. That prepared it to acquire other chains that were slow to adopt survival mode in a tough marketplace where Best Buy (NYSE: BBY) and Wal-Mart (NYSE: WMT) helped introduce serious price competition.

Trans World is now embracing new opportunities that will make it the nation's largest mall-based music retailer and -- it hopes -- a leading music e-tailer. On October 26, the company agreed to merge with Camelot Music Holdings (OTC: CMHDA), an operator of nearly 500 stores that emerged from a reorganization in January. Trans World will issue 20.7 million new shares, exchanging 1.9 shares for each Camelot share. The deal will close early next year and is expected to add to earnings immediately, even before cost-savings partly related to Camelot's distribution facilities. This aggressive move to bulk up seems connected to Monday's launch of TWEC.com, Trans World's new online storefront. The company hopes to create a Web presence through cross-marketing opportunities such as point-of-purchase promotions in its stores.

Insiders were big sellers in May at prices ranging from $17 1/2 to $22 a share, after adjusting for a 3-for-2 stock split. But assuming Trans World's FY99 earnings come in near the current high-side estimate of $1.46 per share, the stock now trades at just 14 times forward earnings, a discount to its projected 18% long-term growth. That's also a steep discount to the 39% annualized earnings growth possible over the next five quarters. Given the company's track record, you might want to press the repeat button.

UPS

High-end department store retailer Nordstrom (Nasdaq: NOBE) wrapped up a $2 3/16 gain to $32 15/16 after it reported Q3 EPS of $0.27, beating last year's $0.23 and topping the First Call mean estimate of $0.26. However, net sales only grew by a scant 0.4% in the period to $1.09 billion. The company said posting advances in Q3 same-store sales will be "a challenge."

Wednesday Internet IPO EarthWeb Inc. (Nasdaq: EWBX) continued to spread today, expanding $20 13/16 to $69 1/2 after rising 247.8% in heavy trading yesterday. EarthWeb, which provides online information and services to computer programmers, developers, and technicians, had an initial offering price of $14 per share.

Several other Internet stocks also climbed this morning. Retailer Shopping.com (Nasdaq: IBUY) rose $15/16 to $6 15/16 while CyberShop (Nasdaq: CYSP) won $2 5/16 to $14 3/16; portal company Yahoo (Nasdaq: YHOO) rose $6 5/8 to $171 5/8; online transactions technology firm CyberCash (Nasdaq: CYCH) snagged $1 7/16 to $11 7/16; and portal company Infoseek (Nasdaq: SEEK) found $1 11/16 to $34 1/16.

Natural gas processor and marketer Aquila Gas Pipeline Corp. (NYSE: AQP) shot up $2 to $8 1/2 following the announcement that UtiliCorp United (NYSE: UCU) proposed to buy back the 5.4 million Aquila common shares it doesn't own for $8 per share, about a 23% premium over yesterday's closing price. Aquila is 82% owned by Aquila Energy Corp., a UtiliCorp subsidiary.

Air-powered tool and heating product marketer P & F Industries (Nasdaq: PFINA) lofted $29/32 to $8 29/32 after it reported Q3 EPS of $0.33, compared with $0.25 (excluding discontinued operations) a year ago. New customer Home Depot (NYSE: HD) has already had a "significant positive impact" on business, according to CEO Richard Horowitz, who expects the retailer to become a larger customer in 1999.

Craftsman tool maker Danaher Corp. (NYSE: DHR) hammered out gains of $3 1/16 to $43 7/16 this morning. Danaher will be added to the Standard & Poor's 500 Index, replacing Stone Container Corp. (NYSE: STO), which is merging with fellow packaging products maker Jefferson Smurfit Corp. (Nasdaq: JJSC). Electric and natural gas utility holding company DPL Inc. (NYSE: DPL) will take Danaher's place on the S&P MidCap 400 Index.

Telecommunications network capacity firm Ciena Corp. (Nasdaq: CIEN) moved ahead $3/8 to $17 3/4 after it said a unit of Britain's Cable & Wireless (NYSE: CWP) placed a $16 million order for its MultiWave Sentry 4000 dense wavelength division multiplexing (DWDM) equipment.

Cargo air carrier and Boring Port holding Atlas Air (NYSE: CGO) added $2 7/16 to $36 11/16 after it announced a contract with FDX Corp.'s (NYSE: FDX) Federal Express unit for the lease of three Atlas freighter aircraft. Service under the contract will begin in Q4.

Natural foods grocer Whole Foods Markets (Nasdaq: WFMI) grew $4 11/16 to $37 15/16 after it reported fiscal Q4 pro forma EPS of $0.40, beating last year's $0.33 figure (excluding charges) and falling in line with market estimates. The earnings news helped Whole Foods' stock end a week-long fall from Friday's $40 per share closing price. For more information on the company, check out Warren Gump's "Fool on the Hill" column from Monday.

Earnings Movers

Congoleum Corp. (NYSE: CGM) up $3/8 to $9; Q3 EPS: $0.43 (before charges) vs. $0.22 last year; Estimate: $0.34

Intimate Brands (NYSE: IBI) up $1/16 to $24 15/16; Q3 EPS: $0.16 vs. $0.14 last year; Estimate: $0.16

DOWNS

Agricultural technology and life sciences company Monsanto Co. (NYSE: MTC) fell $7/16 to $38 3/16 after announcing it will eliminate 700 to 1,000 jobs and divest at least $1 billion in assets (which will cut another 1,300 to 1,500 jobs). The company expects to incur a pre-tax restructuring charge of $400 million to $600 million in the fourth quarter. It also plans to raise up to $4 billion in a series of financing deals that will include issuing $1 billion in shares.

Information technology (IT) research and consulting firm Gartner Group (NYSE: IT) dropped $3 1/4 to $18 1/2 after saying it expects 1999 revenues and per-share earnings growth in the 20% range. For fiscal 1998, revenues increased 26%, while EPS grew 31%. The company reported fiscal Q4 EPS of $0.23 (before charges), compared with $0.17 in the same prior-year period and the Street's mean estimate of $0.24.

Book and music retailer Borders Group (NYSE: BGP) lost $2 1/4 to $25 after announcing a fiscal third quarter loss of $0.01 per share, versus breakeven results a year ago and in line with estimates. The company added that it still expects full-year EPS of $1.22, which would represent a 25% gain over last year.

Casual wear catalog retailer Lands' End (NYSE: LE) was ordered down $2 to $18 9/16 after reporting Q3 EPS of $0.01, compared with $0.26 in the year-earlier period and analysts' expectations of $0.22. Net sales climbed a mere 1% to $322.4 million. The company's new president and CEO David Dyer said it's been "over-assorted in stock keeping units and need[s] to bring them and overall inventory more in line with sales."

Timberland Co. (NYSE: TBL) was chopped down $1 1/8 to $44 1/2 after BT Alex. Brown downgraded its rating on the casual footwear and apparel designer to "market perform" from "buy." Maxwell Shoes (Nasdaq: MAXS) was also kicked down $1 3/4 to $10 1/2 following BT Alex. Brown's rating cut to "market perform" from "strong buy."

Acquisitive solid-waste services company Superior Services (Nasdaq: SUPR) was dumped for a $4 1/8, or 20.4%, loss to $16 1/16 on the heels of warning that Q4 EPS may fall roughly 20% short of consensus estimates, as the company needs time to "fully integrate" several recent acquisitions. Superior reported Q3 EPS of $0.33 (before merger-related charges), up from $0.28 a year ago and in line with analysts' forecasts.

Enterprise workflow and electronic forms automation company JetForm Corp. (Nasdaq: FORMF) was shredded for a $2 1/32 loss to $11 5/8 after announcing it expects fiscal Q2 EPS of around $0.16, which would fall short of analysts' projections of $0.19. Operating income is anticipated to be roughly $3 million, 14% lower than last year, due to weaker-than-expected revenues in Europe.

BrightStar Information Technology Group (Nasdaq: BTSR), an enterprise resource planning (ERP) software systems implementation company, shed $1 3/8 to $7 3/4 after reporting Q3 EPS of $0.14, matching the estimates of two analysts listed by First Call.

Information technology and professional services company Modis Professional Services (NYSE: MPS) slid $2 3/16 to $14 1/4 after reporting Q3 EPS of $0.20, up from $0.15 a year ago and even with analysts' estimates.

Online music vendor K-tel International (Nasdaq: KTEL) gave back $2 3/16 to $30 7/16, while rival N2K Inc. (Nasdaq: NTKI) came down $1 1/16 to $11 3/8 following a surge this week on news that K-Tel Express home shopping service will be included on the Microsoft Network's shopping channel. N2k merger partner CDnow (Nasdaq: CDNW) also fell $13/16 to $13 15/16.

Internet portal and browser software company Netscape Communications (Nasdaq: NSCP) slipped $3/4 to $27 9/16 after announcing it will acquire privately held website services firm AtWeb Inc. in exchange for 3.36 million Netscape shares. Netscape said the deal will allow it to integrate more than 600,000 websites into its Netcenter portal.

Earnings Movers

Advanced Lighting Technologies (Nasdaq: ADLT) down $15/16 to $7 3/16; fiscal Q1 EPS: $0.01 vs. $0.15 last year; Estimate: $0.10

ATEC Group (Nasdaq: ATEC) down $15/16 to $5 15/16; Q3 EPS: $0.03 vs. $0.08 last year

Dimon Inc. (NYSE: DMN) down $3 7/16 to $8 11/16; fiscal Q1 EPS: loss of $0.19 (excluding gain) vs. gain of $0.45 last year; Estimate: gain of $0.05

Pacific Gateway Exchange (Nasdaq: PGEX) down $2 to $42 3/4; Q3 EPS: $0.29 vs. $0.17 last year; Estimate: $0.29

Star Telecommunications (Nasdaq: STRX) down $1 1/32 to $15 27/32; Q3 EPS: $0.09 vs. $0.02 last year; Estimate: $0.09

Teligent (Nasdaq: TGNT) down $3/4 to $29 5/8; pro forma Q3 EPS: loss of $1.49 vs. loss of $0.63 last year; Estimate: loss of $1.45

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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last