Trans World Entertainment Skips a Beat

• Email
• Share
• Print

I sure am glad Trans World Entertainment (Nasdaq: TWMC) management said things are improving. After looking at the entertainment-software specialist's latest quarterly results, I might have never known.

Like a bad CD falling off the charts, same-store sales dropped 6%. The company also reported a quarterly loss of $0.32. I suppose that's technically an improvement over the $0.33 it lost a year ago, excluding an $0.08 "extraordinary" gain. At this rate, profitability should show up around mid-century.

The company did fire up one beacon of hope: Gross margins improved 100 basis points, to 36.5%. Cost-cutting helped cut sales, general, and administrative expenditures, too. I wouldn't take too much comfort, though. The sales numbers don't lie, and the company is indeed fighting an uphill battle.

Trans World Entertainment sells entertainment software, including music, home video, and video games and related products in its retail stores, primarily under the FYE format, but also under the Suncoast brand name. Music and videos make up about 80% of the top line. And the company faces a ton of competition. Consumers can go to Amazon.com (Nasdaq: AMZN) and order a CD or movie, or download music. We can rip our own CDs using Apple's (Nasdaq: AAPL) iTunes. We can pay a monthly fee and listen to just about anything on satellite radio. Cable providers even offer music channels of all styles and formats, as well as on-demand movies. And that's not counting traditional brick-and-mortar stores such as Blockbuster (NYSE: BBI). Meanwhile, other retailers, such as Wal-Mart (NYSE: WMT) and Best Buy (NYSE: BBY), lure customers in with cheap prices on their CDs and DVDs.

Trans World Entertainment, in the face of such fierce competition, will have a hard time trying to make an imprint. In fact, the days of hanging out at the music store and playing the latest CD may well be numbered. Not even a cheerful tune can turn this situation into a happy song.

Related Foolishness:

• Downloads: Music to Labels' Ears
• A Towering Anachronism?

Amazon and Best Buy are Motley Fool Stock Advisor selections. Wal-Mart is a Motley Fool Inside Value recommendation. Both market-beating newsletter services are available for a free 30-day trial.

Fool contributor Lawrence Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. He doesn't have any positions in the companies mentioned.