In Focus

Trans World Entertainment

You Make Me Feel Like Dancing (Leo Sayer)

When my daughters and I get together with their friends and their moms, often the kids all want to ride in our vehicle. Not because we have a Suburban that seats a small army, or because we have a built-in television with loads of movies to watch, but rather because I listen to a lot of the same music they do, and I love to crank it. I have always had a strong affection for music, especially good dance music with a funky beat. There is something about music that can lift me out of the doldrums. It can make me want to exercise, clean my house, open my windows, sing out loud, and dance like a crazy woman.

How many people do you know who don't love music? There is seemingly something for everyone, from classical to rhythm & blues. We went from albums to 8-tracks to cassettes to CDs to DVDs. Whatever it takes to get the clearest sound. Music is a common bond for all people, everywhere. Which led me to wonder about the people profiting from this business. Not necessarily the artists, but the people selling the product. Who in the heck are they and how can I get involved?!

A Star Is Born (Barbra Streisand)

One of the leaders in this field is a company called Trans World Entertainment (TWMC:NASDAQ). TWMC came to fruition back in 1972 and was strictly a wholesaler for prerecorded music. Its first store was aptly named "Record Town" and its evolution resulted in a transition from wholesaler to retailer, and an IPO in July 1986. While the music world continued to expand its audience and its preferences for the various sound systems (with the introduction of CD players and home videos, etc.), Trans World easily kept up with the pace and was growing at an average of 41% annually. With the eventual acquisitions of Strawberries, Inc and Camelot Music Holdings, TWMC has positioned itself as one of the leading specialty music and video retailers in the US.

Being a leader means being able to keep in step with the times and progress more rapidly than your competitors. So in March of this year Interactive Objects, Inc. announced that they had been asked by Trans World Entertainment to create a multimedia entertainment system as part of its eWorks initiative. This initiative could make TWMC head honcho in the business of personalization and customization of entertainment. You would have the ability to listen to CDs and DVDs at your leisure and make decisions on what sort of mixed purchases you'd like to make. They will have 25 or more kiosks containing a full inventory of selections available for their customers. These will be centrally managed by a networked infrastructure interacting with a main system. How cool is that?

Another indicator of TWMC's leadership is their ranking at Business.com. This site takes your company and its competitors and ranks them by market cap, revenue growth, stock performance, profit margin, EPS growth, and net income growth. Check this out:

#1 Hot Topic (HOTT) $449.14 Million

#2 Trans World Entertainment (TWMC) $420.34 Million

#3 Hasting Entertainment (HAST) $ 19.65 Million

With the third listing being so incredibly far behind the second, it wasn't even worth going on with the list. Clearly, competitors have a long way to go to catch up to the two top dogs.

Couldn't Stand the Weather (Stevie Ray Vaughn)

So with all this glory and praise they must be kicking butt and taking names, right? Well, as fickle as the business world can be, not exactly. On February 28, 2001, TWMC reported a net income of $40.1 million (.89 cents/share) on sales of $553.4 million for the fiscal year ended 02/03/01. Sales were down 3% in the last quarter of 2000 and Gross Profits were down from 36.8% in fiscal 1999 to 35.2% in 2000. Chairman/CEO/President and founder Robert J. Higgins blames it on the difficult retail environment and results from new releases being lower than expected. (He also threw a little blame on the weather... hmmm)

I Will Survive (Gloria Gaynor)

In truth, nobody seems to be doubting the longevity of this company. With its founder owning 25% of shares it seems highly unlikely that he will let it fail. Having been involved in the industry since 1959 and turning TWMC into the empire it is today lends Higgins and his strategy great credibility. They continue to be innovative and profitable. Also, I did a little extra peek into their financials because I was curious about how they managed their cash flow and their product. Did they have a lot of old crusty CDs, or worse, 8-tracks, in their storage rooms? Do they owe everybody and their brother money? I was pleasantly surprised to find that TWMC has 4.78x more cash than they have long-term debt. And equally as good, they have a flow ratio of 1.05, meaning they aren't inundated with a bunch of one-hit wonders they couldn't get rid of.

At last glance, TWMC was trading at $8.05, with their 52-week high at $13.12 and their 52-week low at $6.50. With that price being less than the cost of the new Destiny's Child CD, it's possible that you'd get a little more for your money by buying into the company instead. Then again:

Only Time Will Tell (Alan Parsons Project)