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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 17, 2016 TRANS WORLD ENTERTAINMENT CORPORATION (Exact name of registrant as specified in its charter) New York 0-14818 14-1541629 (State or other jurisdiction of incorporation or organization) (Commission file number) (I.R.S. Employer Identification No.) 38 Corporate Circle, Albany, New York 12203 (Address of principal executive offices) (518) 452-1242 (Registrant’s telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION On August 17, 2016, Trans World Entertainment Corporation issued a press release announcing its financial results for its fiscal first quarter ended July 30, 2016. A copy of Trans World Entertainment Corporation’s press release is furnished with this report as Exhibit 99.1, and is incorporated herein by reference. In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K is being furnished under Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act. ITEM 7.01. REGULATION FD DISCLOSURE Attached hereto as Exhibit 99.2 is the transcript for the earnings conference call of Trans World Entertainment Corporation held on August 18, 2016. The information in this Current Report on Form 8-K, including the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section. Furthermore, such information, including the exhibit attached hereto, shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing. Certain information contained in this Current Report on Form 8-K, including information in Exhibit 99.2 hereto, is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning results of operations and Trans World Entertainment Corporation’s strategies. Trans World Entertainment Corporation cautions that there are factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Trans World Entertainment Corporation; accordingly, there can be no assurance that such suggested results will be realized. For a list of Trans World Entertainment Corporation’s risk factors, see the Company’s Annual Filing on Form 10-K with the Securities and Exchange Commission for the year ended January 30, 2016. 2 ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS. The following are furnished as Exhibits to this Report: Exhibit No. Description 99.1 Trans World Entertainment Corporation Press Release dated August 17, 2016. 99.2 Trans World Entertainment Corporation Transcript for Earnings Call held on August 18, 2016. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD ENTERTAINMENT CORPORATION /s/ John Anderson Date: August 19, 2016 John Anderson Chief Financial Officer 3 EXHIBIT INDEX Exhibit No. Description 99.1 Trans World Entertainment Corporation Press Release dated August 17, 2016. 99.2 Trans World Entertainment Corporation Transcript for Earnings Call held on August 18, 2016. Exhibit 99.1 Contact: Trans World Entertainment John Anderson Chief Financial Officer (518) 452-1242 Contact: Financial Relations Board Marilynn Meek ([email protected]) (212) 827-3773 38 Corporate Circle Albany, NY 12203 NEWS RELEASE www.twec.com TRANS WORLD ENTERTAINMENT ANNOUNCES SECOND QUARTER RESULTS Reports flat comp sales and historically high gross margin for the Second Quarter Plans to open 18 new stores prior to the holiday season Albany, NY, August 17, 2016 -- Trans World Entertainment Corporation (Nasdaq: TWMC) today reported financial results for its second quarter ended July 30, 2016. For the second quarter of 2016, the Company reported a net loss of $4.7 million or $0.15 per diluted share, as compared to a net loss of $3.0 million, or $0.10 per diluted share, for the same period last year. Operating results for the second quarter of 2015 included a one-time reimbursement of expenses related to a legal settlement of $1.4 million. Adjusted EBITDA (a non GAAP measure) for the second quarter of 2016 (see note 1) was a loss of $2.9 million, the same level as the second quarter of 2015. “We delivered a flat comp for the fifth consecutive quarter despite the continued significant disruption in our media categories,” commented Mike Feurer, Company CEO. “In addition, we continue to generate historically high gross margins through better price management and the shift in sales contribution to our higher margin trend category. Also, we have seen encouraging performance from the 14 new format stores and plan to open 18 additional new format stores prior to the holiday season. While we are still in the early stages of our reinvention, our progress validates we are successfully leveraging our heritage, industry relationships and hard earned credibility with our customers to achieve our vision,” Mr. Feurer added. Second Quarter Overview Comparable store sales for the second quarter were flat compared to the same quarter last year as a 40% comp increase in our trend category offset a 12% decline in our heritage media categories. The trend category represented 29% of business for the quarter as compared to 19% last year. Total revenue for the quarter decreased 6.1% to $64.3 million compared to $68.5 million for the same period last year. At the end of the quarter, the Company operated 290 stores compared to 308 stores at the same time last year, a 5.8% decline. · Gross profit for the quarter was $26.7 million, or 41.5% of revenue, compared to $28.2 million, or 41.2% of revenue, for the same period last year. The increase in gross profit as a percentage of revenue was due to the increased revenue contribution from the higher margin trend category and increased margins in the trend and electronics categories. · Selling, general and administrative (“SG&A”) expenses decreased approximately $200 thousand, or 0.5%, for the quarter to $29.6 million, or 46.0% of revenue, compared to $29.8 million, or 43.4% of revenue, for the same period last year. SG&A in the Second Quarter of 2015 was reduced by $1.4 million, or a 200 basis point benefit due to the one-time reimbursement of expenses related to a legal settlement. · Cash on hand at the end of the quarter was $78.6 million compared to $91.4 million at the end of the second quarter last year. The decline in cash was due to the repurchase of shares, investments in new and remodeled stores, the chain wide rollout of new marketplace fixtures to support the shift in our merchandise assortment and technology enhancements, including the rollout of a new point of sale system. · Since the end of the second quarter last year, the Company has spent $3.3 million to repurchase shares under its repurchase program. · Capital spending was $7.7 million for the twenty-six weeks ended July 30, 2016, compared to $8.0 million for the same period last year. Since the end of the second quarter last year, the Company has spent $20.3 million in capital expenditures to support strategic initiatives and necessary technology enhancements. Mr. Feurer added, “One of the top priorities for the Company this year is to further engage complementary world class talent to capitalize on strategic opportunities. I am happy to announce the hiring of Chris Hoerenz as our new Chief Digital and Marketing Officer. For over 20 years, Chris has coupled strong e-Commerce experience with operating expertise in technology, digital and mobile and led teams through all phases of the company life cycle. He has been a forerunner in launching consumer products into the mobile and social media space, with emphasis on driving results in the marketplace. His background includes extensive experience in the digital entertainment category.” Twenty-six weeks ended July 30, 2016 Overview · For the twenty-six weeks ended July 30, 2016, the Company reported a net loss of $4.6 million or $0.15 per diluted share, as compared to a net loss of $2.9 million, or $0.09 per diluted share, for the same period last year. Adjusted EBITDA (a non GAAP measure) for the twenty-six weeks ended July 30, 2016 (note 1) was a loss of $2.1 million as compared to a loss of $1.2 million for the same period of 2015. · For the twenty-six weeks ended July 30, 2016, total revenue decreased 5.2% to $140.1 million, compared to $147.7 million for the same period last year. Comparable store 2 sales for the twenty-six weeks ended July 30, 2016 were flat compared to the same period last year. · Gross profit for the twenty-six weeks ended July 30, 2016 was $57.5 million, or 41.1% of revenue, compared to $60.2 million, or 40.8%, of revenue for the same period last year. · For the twenty-six weeks ended July 30, 2016, SG&A expenses decreased $500 thousand, or 0.8% to $59.6 million compared to $60.1 million in the comparable period last year. As a percentage of revenue, SG&A expenses were 42.6% versus 40.7% for the same period last year. SG&A in the twenty-six weeks of 2015 was reduced by $1.4 million, or a 90 basis point benefit due to the one-time reimbursement of expenses related to a legal settlement. In addition, higher health insurance costs for the twenty-six weeks of 2016 contributed to a 50 basis point increase in SG&A as a percentage of sales. · Inventory was $120.3 million, or $72 per square foot, at the end of the quarter, versus $124.5 million, or $69 per square foot, at the end of the second quarter last year. Trans World will host a teleconference call on Thursday, August 18, 2016, at 10:00 AM ET to discuss its financial results. Interested parties can listen to the simultaneous webcast on the Company’s corporate website, www.twec.com. Notes: 1. Reconciliation of net loss to adjusted EBITDA: Adjusted EBITDA is defined as net earnings from continued operations, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; and (v) items not reflective of the core operations of the business. We use adjusted EBITDA to evaluate our own operating performance and as an integral part of our planning process. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating performance. We believe this measure is a financial metric used by many investors to compare companies. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings from continuing operations or cash flows from operating activities, as determined in accordance with GAAP. Our method of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net loss to adjusted EBITDA appears below. 3 (in thousands) Thirteen Weeks Ended July 30, August 1, 2016 2015 Net loss Income tax expense Other income Interest expense Operating loss Depreciation and amortization One-time reimbursement of expenses related to a legal settlement Adjusted EBITDA $ $ (4,656) 48 (86) 172 (4,522) 1,623 (2,899) $ $ (3,045) 44 (14) 455 (2,560) 1,047 (1,367) (2,880) Twenty-six Weeks Ended July 30, August 1, 2016 2015 $ $ (4,630) 95 (1,017) 345 (5,207) 3,086 (2,121) $ $ (2,851) 89 (41) 920 (1,883) 2,011 (1,367) (1,239) Trans World Entertainment is a leading specialty retailer of entertainment products, including video, music, trend, electronics, video games and related products. The Company operates retail stores in the United States and Puerto Rico, primarily under the names f.y.e. for your entertainment and Suncoast and on the web at www.fye.com and www.secondspin.com. Certain statements in this release set forth management’s intentions, plans, beliefs, expectations or predictions of the future based on current facts and analyses. Actual results may differ materially from those indicated in such statements. Additional information on factors that may affect the business and financial results of the Company can be found in filings of the Company with the Securities and Exchange Commission. - table to follow 4 TRANS WORLD ENTERTAINMENT CORPORATION Financial Results STATEMENTS OF OPERATIONS: (in thousands, except per share data) July 30, 2016 Net sales Other revenue Total revenue Thirteen Weeks Ended % to August 1, Revenue 2015 $ 63,320 1,028 $ 64,348 % to Revenue $ 67,451 1,088 $ 68,539 July 30, 2016 Twenty-six Weeks Ended % to August 1, Revenue 2015 $ 138,088 1,990 $ 140,078 % to Revenue $ 145,415 2,288 $ 147,703 Cost of sales Gross profit 37,647 26,701 58.5% 41.5% 40,293 28,246 58.8% 41.2% 82,551 57,527 58.9% 41.1% 87,454 60,249 59.2% 40.8% Selling, general and administrative expenses 29,600 46.0% 29,759 43.4% 59,648 42.6% 60,121 40.7% 1,623 2.4% 1,047 1.5% 3,086 2.2% 2,011 1.4% (4,522) -6.9% (2,560) -3.7% (5,207) -3.7% (1,883) -1.3% 172 (86) 0.3% -0.1% 455 (14) 0.7% 0.0% 345 (1,017) 0.2% -0.7% 920 (41) 0.6% 0.0% (4,608) -7.2% (3,001) -4.4% (4,535) -3.2% (2,762) -1.9% Depreciation and amortization Income (loss) from operations Interest expense Other income Income (loss) before income taxes Income tax expense Net loss 48 $ (4,656) 0.1% -7.2% Basic and diluted loss per common share: Basic and dilluted loss per share $ (0.15) Weighted average number of common shares outstanding basic and diluted 30,403 SELECTED BALANCE SHEET CAPTIONS: (in thousands, except store data) Cash and cash equivalents Merchandise inventory Fixed assets (net) Accounts payable 44 $ (3,045) $ (0.10) 31,196 0.1% -4.4% 95 $ (4,630) $ (0.15) 0.1% -3.3% 89 $ (2,851) $ (0.09) 30,576 31,202 July 30, 2016 August 1, 2015 $ 78,644 $ 91,400 120,268 34,990 42,753 124,469 21,441 44,217 0.1% -1.9% Borrowings under line of credit Stores in operation, end of period Stores in operation, average during the period 5 - - 290 292 308 310 Exhibit 99.2 Trans World Entertainment’s (TWMC) CEO Mike Feurer on Q2 2016 Results - Earnings Call Transcript Trans World Entertainment Corp. (NASDAQ:TWMC) Q2 2016 Results Earnings Conference Call August 18, 2016, 10:00 AM ET This transcript includes certain non-GAAP financial measures including adjusted EBITDA. A reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP financial measures can be found in the Company’s Second Quarter earnings release dated August 17, 2016. Executives Michael Feurer - Chief Executive Officer John Anderson - Chief Financial Officer Scott Hoffman - Chief Merchandising Officer Analysts William Meyers - Miller Asset Management Operator Greetings and welcome to the Trans World Entertainment Corporation second quarter 2016 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Michael Feurer, Chief Executive Officer for Trans World Entertainment. Thank you, Mr. Feurer; you may begin. Michael Feurer Thank you, Doug. Good morning. Thank you for joining us as we discuss our second quarter results. On the call with me today are John Anderson, our Chief Financial Officer, and Scott Hoffman, our Chief Merchandising Officer. Before John reviews our financial results, I’d like to provide highlights from this past quarter. We delivered a flat comp for the fifth consecutive quarter despite the continued significant disruption in our media categories. A 40% comp increase in our trend category offset a 12% decline in our heritage media categories. We generated historically high gross margins through better costing and price management and the shift in sales contribution to our higher margin trend category. In addition, we remodeled one store under our new format, bringing the total number of stores operating with the format to 14. We will open 18 new stores under the new format during the second half of the year. We continue to be encouraged by the performance of the new format stores. These stores open new avenues of customer engagement that further capitalizes on our unique and wide-ranging demographic, the strength of our sales team, our long-standing credibility in the entertainment space, and the loyalty of our customers. In addition, as part of our priority to further engage complementary world-class talent to capitalize on strategic opportunities, I am happy to announce the appointment of Chris Hoerenz as our new Chief Digital and Marketing Officer. For over 20 years, Chris has coupled strong e-commerce experience with operating expertise in technology, digital and mobile, and led teams through all phases of the company lifecycle. He has been a forerunner in launching consumer products into the mobile and social media space with emphasis on driving results in the marketplace. His background includes extensive experience in the digital entertainment category. Now, John will take you through financial highlights for the quarter. John Anderson Thanks, Mike. Good morning. For the second quarter, comp sales were flat. Total revenue for the quarter was $64.3 million, a decrease of 6.1% compared to last year. Stores in operation decreased 5.8%. Our gross margin rate for the quarter increased 30 basis points to 41.5% of sales from 41.2% last year. Margin rates continue at historically high levels. The increase in gross profit as a percent of revenue was due to the increased revenue contribution from our higher margin trend category and increased margins in the trend and electronic categories driven by better costing and price management. SG&A expenses decreased approximately $200,000 or 0.5% for the quarter to $29.6 million or 46% of revenue compared to $29.8 million or 43.4% of revenue for the same period last year. SG&A expense in the second quarter of 2015 was reduced by $1.4 million or a 200 basis point benefit due to the one-time reimbursement of expenses related to a legal settlement. Adjusted EBITDA for the second quarter of 2016 was a loss of $2.9 million, the same level as the second quarter of 2015 after excluding the $1.4 million one-time gain from our legal settlement. Depreciation expense was $1.6 million in the quarter versus $1 million last year. The increase was due to investments in new and remodeled stores, the chain-wide rollout of new marketplace fixtures to support our shift in our merchandising assortment and technology enhancements, including the rollout of the new POS system. Net interest expense was $86,000 in the quarter versus $441,000 last year point. The decline in interest expense was due to the expiration of the capital lease on our distribution center and corporate offices. The current lease is accounted for as an operating lease, with payments included as a $310,000 reduction in Adjusted EBITDA during the second quarter of 2016. For the second quarter, our net loss was $4.7 million or a loss of $0.15 per diluted share as compared to a net loss of $3 million or a loss of $0.10 per diluted share in the second quarter of 2015. Net loss in the second quarter of 2015 excluding the one-time legal settlement gain of $1.4 million was $4.4 million or a loss of $0.14 per diluted share results. Now, let me touch on our results for the first half of the year. For the first half, comparable sales were flat. Total revenue was $140.1 million or a decrease of 5.2% compared to last year. Our gross margin rate for the first half was 30 basis points favorable and increased to 41.1% of sales or 40.8% last year. For the first half, SG&A expenses decreased $500,000 or 0.8% to $59.6 million compared to $60.1 million in the comparable period last year. As a percentage of revenue, SG&A expenses were 42.6% versus 40.7% for the same period last year. SG&A in the first half of 2015 was reduced by $1.4 million or a 90 basis point benefit due to the one-time gain on the legal settlement. In addition, higher health insurance costs for the first half of 2016 contributed to a 50 basis point increase in SG&A as a percent of sales. Adjusted EBITDA for the first half was a loss of $2.1 million as compared to a loss of $1.2 million for the same period of 2015 after excluding a $1.4 million one-time gain on a legal settlement. Depreciation expense was $3.1 million in the first half versus $2 million last year. Interest expense was $345,000 versus $920,000 last year. Other income for the first half was $1 million compared to $41,000 last year. Other income included a gain of $800,000 from the sale of investment in Q1 of 2016. The remaining balance consist of interest income. For the first half, our net loss was $4.6 million or $0.15 per share as compared to a net loss of $2.8 million or a loss of $0.09 per diluted share in 2015. Net loss for the first half of 2015 excluding the $1.4 million one-time gain on a legal settlement was $4.2 million or a loss of $0.14 per diluted share. We ended the quarter with $79 million in cash compared to $91 million last year. The decline in cash was due to repurchase of shares and the capital investments mentioned earlier. Since the end of the second quarter last year, the company has spent $3.3 million to repurchase shares under its repurchase program. For the first half, capital spending was $7.7 million compared to $8 million for the same period last year. Since the end of the second quarter last year, the company has spent $20.3 million in capital expenditures to support strategic initiatives and necessary technology enhancements. Also, year-over-year, we have lowered our inventory by $4 million and finished the quarter with $120 million in inventory, 3.4% below last year’s $124 million. On a per square foot basis, inventory was $72 compared to $69 per square foot at the end of the second quarter last year. We ended the quarter with 294 stores in operation as compared to 308 stores last year, a reduction of 5.8%. Square footage in operation declined 6.8% to 1.7 million square feet versus 1.8 million square feet last year. Now Scott will take you through our merchandise sales highlights. Scott Hoffman Thanks, John. Good morning. I will now review our results by category. Despite the material declines in the media categories, our comparable sales for Q2 were flat as compared to last year and represent the fifth consecutive quarter with flat comp sales. In our trend category, comp sales increased 40%. We continue to take advantage of opportunities to strengthen our assortment and shift our inventory mix. Trend sales represented 29% of our business for the quarter compared to 19% last year. Video comp sales decreased 11%. Video represented 36% of our business during the quarter versus 42% last year. Music comp sales declined 9%. Within the music category, we’re seeing continued growth in vinyl, which is helping to offset declines in CDs. The music category represented 25% of our business for the quarter versus 27% last year. While these categories continued to decline, they still represent approximately 60% of our business. We’re focused on providing our loyal customers a strong selection in these categories. Electronics comp sales decreased 4%. Electronics sales represented 9% of our business for the quarter versus 10% last year. We continue to focus on optimizing gross profit in this category, while enhancing our merchandise selection. Video game comp sales were down 59%. Games represented 1% of our business for the quarter versus 2% last year. We continue to shift our inventory investment and space allocation away from games to our higher margin growth categories. Now, I’ll turn it back over to Mike. Michael Feurer Thanks, Scott. While we’re still in the early stages of our reinvention, our progress validates that we are successfully leveraging our heritage industry relationships and hard earned credibility with our customers to achieve our vision. We’re utilizing our financial strength to improve the customer experience by making investments in people, process, technology and strategic partnerships. In addition, we are evolving our merchandise assortment and presentation and providing customer service guided by an approach to engage every customer with gratitude, humility and respect. We’re encouraged by the progress we made and look to capitalize on the momentum we generated. We will continue to deliver on our vision of becoming the most compelling entertainment and pop culture centric engagement in the marketplace in an omni-channel environment, guided by the following priorities - champion a culture of innovation, experimentation and driving the business; engage complementary world-class talent to capitalize on strategic opportunities; elevate the brand and customer experience; evolve and deploy the economical, repeatable omni-channel model for the future; modernize our technological capability; and engage dynamic alliances and collaborations required to unlock the full potential of Trans World Entertainment. Now, I’d like to open the call for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from the line of William Meyers from Miller Asset Management. Please proceed with your question. William Meyers Hi. Good morning. On the 14 new formats - or 18 new format stores you plan to open, are those actual new stores or are those remodeling of current stores? Michael Feurer The 14 is a combination of new and remodeled stores. We do plan on opening 18 new stores in the back half of the year. William Meyers Okay. And could you characterize, are those likely to be mall stores, are they likely to be concentrated in any particular region of the country? John Anderson Yeah. They’re mall stores and they’re not concentrated in any particular region of the country. William Meyers Okay. And my only other question, was there anything in either music or video that was released or failed to be released in the quarter that would be of interest worth mentioning? Scott Hoffman Nothing of interest that would be worth mentioning from a release point of view. William Meyers Okay. Well, that’s all from me. Thank you. Good quarter. Michael Feurer Thank you. Operator Gentlemen, there are no further questions in the queue. I’d like to hand it back over to you for closing comments. Michael Feurer I’d like take this opportunity to thank everyone for their dedication to our company, our customers, and the shareholders and our Transworld Associates. We look forward to talking to you about our third quarter results on November 17. Thank you. Operator Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.