Trans World Entertainment Eyes Q4 Retail Rebound, Digital Decline

In a reversal of industry trends, Trans World Entertainment Corp. March 28 reported a 2.8% increase in fourth-quarter (ended Feb. 2) same-store sales in its f.y.e. (For Your Entertainment) mall-based packaged media retail stores.

At the same time, Etailz.com, the online retail subsidiary TWMC acquired in 2016 for $75 million, reported a $62 million loss from operations, which involved a $57 million impairment charge related to company restructuring and 30% workforce reduction – including some senior management.

“This [2.8%] marked the second consecutive quarter of positive [f.y.e.] comp sales,” CEO Mike Feurer said in a statement. “Our customers continue to respond positively to the changes in our merchandise assortment and presentation that were made to counter declining mall traffic and the ongoing declines in physical media.”

Indeed, f.y.e., which operates more than 200 stores nationwide, has been pushing trend items, including collectibles, action figures, posters, T-shirts and related merchandise.

Regardless, store revenue dropped 15% to $78.8 million from $92.4 million from the previous-year period. Operating loss narrowed to $1 million from a loss of $2.4 million during the previous-year period.

Fiscal-year store revenue declined 14% to $231.2 million from $268.3 million during the previous-year period.

Meanwhile, Spokane, Wash.-based Etailz, which helps third parties monetize online sales through platforms such as Amazon, Walmart.com and eBay, posted revenue of $48.6 million, down almost 9% from revenue of $53 million last year.

For the year, revenue increased 7% to $186.9 million from $174.4 million.

“In response to the decline in operating results, we’ve engaged outside support and initiated certain strategic changes to create operational efficiencies directed towards improving [Etailz’s] performance and cash flow,” said Feurer. “We remain confident in the underlying opportunity afforded by etailz as a top marketplace retailer and service provider.”

Trans World Entertainment shares closed up 5.5% at 47 cents per share on March 27.

 

 

GameStop Calls Off Company Sale, Stock Plummets

Shares of GameStop were down more than 23% in early trading Jan. 29 after the company announced it was canceling efforts to sell the world’s largest video game retailer.

The Grapevine, Texas company, which operates more than 5,800 retail locations in 14 countries, said is continuing the search process to appoint a permanent CEO and is working with an executive search firm.

In June 2018, GameStop’s board began discussions with third parties regarding a potential sale of the company. The board terminated sale efforts due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.

GameStop earlier this year sold its Spring Mobile business generating about $735 million in cash. It plans to use the funds pay down outstanding debt, fund share repurchases, and reinvest in core video game and collectibles businesses.

As of Nov. 3, 2018, GameStop had $820 million of outstanding debt, $350 million of which carries a 5.50% interest rate and is due on Oct. 1, 2019. The elimination of that debt will represent annualized savings of roughly 14 cents per share, according to Wedbush Securities digital media analyst Michael Pachter.

“GameStop should be a primary beneficiary from the console refresh in 2020 or 2021, and it remains the dominant force in the video game industry’s pre-owned segment,” Pachter wrote in a Jan. 29 note.

Earlier this month, GameStop reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.

 

Walmart Ups Collectibles Market Presence

Walmart is entering the lucrative collectibles market by partnering with niche merchandise providers. The retail behemoth is rolling out dedicated collectibles sections selling movie, TV show and pop culture-themed merchandise, bobbleheads, T-shirts and posters in the entertainment department of more than 3,500 stores, starting Oct. 15.

“Pop culture fans are passionate about their fandoms and look for ways to incorporate it into all aspects of their life,” Brent Duwe, senior buying manager at Walmart, said in a statement. “We’re introducing a new assortment to serve fans in a way we haven’t before.”

The world’s largest retailer is partnering with Loot Crate, Funko Fanatics, McFarlane Toys and CultureFly, among others, featuring top movie, TV and game franchises reimagined as limited-edition collectibles.

Walmart will be the exclusive brick-and-mortar retail home for Loot Crate fan subscription boxes. Customers have their choice of six different boxes, all around a unique theme such as “Best of the 80s,” “Space Out,” “Merc with a Mouth,” “Not of this World,” “Gaming Treasures,” or “Gaming Legends”.

“[We] creatively collaborate with top licenses to deliver collectibles that are unique, and something that super-fans could only find at fan conventions, but now they can [find] at Walmart stores nationwide,” said Chris Davis, CEO of Loot Crate.

Funko will market Funko Pop! vinyl figures at Walmart as Funkomerchandise migrates from toy stores to Walmart’s collectibles section. The retailer will feature exclusive chrome Thanos in six different colors, one for each of the Infinity Stones.

“Collectibles is a brilliant addition to the merchandise display as is evident by the millions of people that shop pop culture favorites,” said Brian Mariotti, CEO of Funko.

CultureFly markets pop-culture-themed apparel and TV show and movie boxed collectibles, including “Supernatural,” “Game of Thrones,” super hero-themed “World’s Finest: The Collection,” “Jay and Silent Bob,” and “The Nick Box” (Viacom), among others.

“I am confident that consumers will fall in love with the assortment and feel like they are walking a mini Comic-Con at their local Walmart,” said Edward Erani, co-founder of CultureFly.

Trend’s Tricky Retail Slope

NEWS ANALYSIS — GameStop, along with other entertainment retailers, is attempting to sustain its national retail footprint in part by selling popular culture items such as action figures, posters, T-shirts and other collectibles.

It’s a business strategy fraught with risk and reward.

GameStop’s collectibles business increased 24.4% to $142.4 million in its most-recent fiscal period, driven by continued expansion of licensed merchandise offerings and unique product offerings.

Trans World Entertainment Corp.’s f.y.e. chain reported a 3% increase “lifestyle” sales, which partially offset a 17% decline in video, music and video games.  The lifestyle category represented 49.5% of revenue for the quarter, up from 42% a year ago.

“We are focused on efforts to differentiate our entertainment merchandise towards creating a unique specialty retailing experience of choice for families and fans of pop culture,” CEO Mike Feurer said on the company’s May 29 fiscal call.

Feurer said the changing merchandise point-of-view at f.y.e. is based in part on reinforcing the chain’s credibility with customers, while enabling it to better connect “personally with welcomed frequency.”

Maybe, but retail chains Hastings Entertainment and MovieStop tried similar approaches focusing on trend merchandise and failed.

Acquired in 2014 by the company that runs Elvis Presley’s Graceland estate, as well as Prince’s pending Paisely Park in Minneapolis, Hastings and MovieStop turned their focus away from home video to consumables, trend, comics, electronics, hobbies and books. Hastings said it generated $100 million annually in book sales.

“We are hopeful that we are on the right path,” Jim Litwak, president of the combined companies, said at the time.

He wasn’t on the right path. Both chains halted operations in 2016, shuttering a combined 162 stores nationwide.

But Michael Pachter, media analyst with Wedbush Securites in Los Angeles, contends GameStop can succeed with trend.

“The real difference is that the core customer for GameStop is an almost perfect overlap with the core memorabilia collector,” said Pachter. “The foot traffic provides a cross-selling opportunity.”

The analyst cautioned the trend category is significant for GameStop but not a gamechanger. He said collectibles generated 7% of total sales in 2017, with 9% projected for this year.

“That seems sustainable,” Pachter said.

GameStop Posts Pre-Announced Q4 Loss

GameStop, the world’s largest video game retailer, March 28 reported a fourth-quarter (ended Feb. 3) net loss of $105.9 million compared to income of $208.7 million during the previous-year period. Revenue topped $3.5 billion from $3 billion last year.

As previously reported, GameStop incurred $406.5 million ($311 million after taxes) in asset impairment charges related to third-party (AT&T) mobile phone sales in its technology brands division.

Regardless, same-store store sales grew 12.2% (14.2% in the U.S. and 8.3% internationally).  New hardware sales increased 44.8%, led by demand for Nintendo Switch, and new software sales increased 12.4% driven by a strong title lineup. Pre-owned (used) game sales declined 2.6%.

Digital sales increased 10.6% to $413 million, while collectibles sales (trend, action figures, posters, trading cards, etc.) increased 22.8% to $260.8 million, driven by continued expansion of licensed merchandise offerings and targeted promotions during the holiday period.

Technology sales decreased 14.2% to $219.7 million, driven primarily by the previously disclosed change in AT&T’s dealer compensation structure. Excluding the impairment charges, operating income decreased 8.5% to $31.1 million from $34 million in the prior-year quarter.

CEO Mike Mauler said that while fiscal 2017 delivered a “solid performance,” GameStop going forward would focus on three key business units: games, collectibles, and technology brands.

“We plan to pause on investing in additional new businesses or acquisitions and focus on the fundamentals of improving the businesses that we already have,” Mauler said. “Focusing on the basics of retail operational excellence across the organization will maximize our free cash flow, improve our performance and, ultimately, deliver returns for our shareholders.”

Mauler was named CEO in February when long-time CEO Paul Raines stepped down for health reasons. Raines died March 5 following reoccurrence of cancer.