Bob Higgins - Chairman and Chief Executive Officer John Anderson - Chief Financial Officer Mike Manske - Senior Vice President of Merchandising and Marketing

Harsha Gowda - BlueShore

Good day ladies and gentlemen, and welcome to the Trans World Entertainment First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to turn the conference over to our host, Mr. Bob Higgins, Chairman and Chief Executive Officer of Trans World Entertainment. Please go ahead.

Thank you. Good morning. On the call with me today are John Anderson our Chief Financial Officer and Mike Manske, our Senior Vice President of Merchandising and Marketing. Thank you for joining us as we discuss our first quarter results. For the first quarter, net income was $1.6 million as compared to net income of $2.8 million in the first quarter of 2012. Total sales for the quarter were $93.9 million, a 16% decrease compared to last year's first quarter of $112.3 million as our stores in operation declined by 7%. In addition, comp sales for the first quarter declined 6.6% to the weaker traffic and poor comp sales in music and electronics. Now let me touch on our sales performance by category for the quarter. Video comp sales were flat for the quarter. Video represented 47% of our business during the quarter, versus 43% last year. Music comp sales declined 16% in line with industry-wide results. The Music category represented 30% of our business for the quarter, compared to 33% last year. Trend comp sales increased 10%. Trend sales represented 10% of our business for the quarter, compared to 8% last year. Electronics comp sales decreased 18%. Our performance in electronics was impacted by less year-over-year promotional activity in our headcount category. We continue to see Electronics as a growth opportunity for our company. One of our key initiatives for 2013 is to improve our assortment and customer shopping experience in portable electronics category which will be rolled out in the majority of our stores by the end of the second quarter and will impact our results in the third and fourth quarters. Electronic sales represented 9% of our business for the quarter compared to 11% last year. Video games comp sales were down 7%. Game sales represented 4% of our business for the quarter compared to 5%, last year. John will now take you through the financial highlights for the quarter. John?

Thanks Bob, good morning. As Bob mentioned, net income for the quarter was $1.6 million or $0.05 per diluted share, as compared to last year’s net income of $2.8 million or $0.09 per diluted share. EBITDA for the quarter was $3 million as compared to last year's EBITDA of $4.6 million. Our gross margin rate for the quarter increased 90 basis points to 38.1% of sales from 37.2% last year. The increase in gross profit as a percent of sales was due to higher margin rates across a majority of our product categories. SG&A expenses were $32.8 million, a reduction of 4.4 million or 12% from last year’s first quarter. The decrease in SG&A expenses was driven by the reduction in store count. SG&A expenses as a percent of sales were 34.9%, as compared to 33.2% for the same period last year. SG&A expenses increased as a percent of sales primary due to lost leverage on store expense associated with a comp sales decline in investments and resources to support initiatives for future growth. Net interest expense was $484,000 in the quarter versus $770,000 last year. We ended the quarter with $111 in cash, compared to $62 million last year. Year-over-year we've lowered our inventory by $23 million and finished the quarter with $154 million in inventory, 12% below last year. On a per square foot basis, inventory was $71 versus $74 last year. We ended the quarter with 353 stores and 2.2 million square feet in operation versus last year's 379 stores and 2.4 million square feet. During the quarter we opened two stores and closed seven. I’ll now turn it back over to Bob.

Thanks, John. Despite disappointing sales, we continue to see underlying strength in several areas of our business. Video sales continue being driven by strong sales of Blu-ray as competitors exit the DVD business to strength and depth of our selection provide just with a competitive advantage. We continue to deliver strong comp sales in our Trend category. The Trend category highlights our unique ability to sell entertainment related merchandize from [non-mediated] categories and to market our stores as a complete entertainment destination. We continue to drive higher gross margin rates in most of our merchandize categories through more disciplined management of markdowns driven by improved inventory management. As John mentioned, we ended the quarter with cash of $111 million. Our strong financial position provides us many options to enhance shareholder value. The Board will continue to monitor the company's financial needs and resources as is considering a full array of options to return value to our shareholders. The Board's careful evaluation of a potential return of capital to shareholders includes determining the appropriate level of cash required by the company to fund its business and strategic initiatives and the form, timing and tax implications of the alternatives being considered. Our strategy for the balance of 2013 is to continue to deliver value and an exceptional shopping experience for our customers. In addition, we will continue to aggressively seize opportunities to derive our sales and operating profits through investments in new and existing stores and growth categories. We are positioning our company for future growth and look forward to the remainder of 2013. Now I would like to open up to any questions that anyone has. Alley, could you do that for us?

(Operator instructions) Our first question comes from Harsha Gowda of BlueShore. Pardon me if I mispronounced. Please go ahead. Harsha Gowda - BlueShore: Good morning, gentlemen.

Good morning. Harsha Gowda - BlueShore: So the increase in gross margin percentage is very impressive, it seems -- you know, I would love to get a little bit more color on how you keep getting these improvements in gross margin even with the drop in sales? I know there is a shift over to more profitable merchandize such as used, but I want to know is, are vendor terms continuing to improve?

Yes, our vendor terms are very similar to what they have been, but they -- it's on an individual basis some of the companies are better and nobody is any worse to make use to be. Harsha Gowda - BlueShore: Okay. Great and also with what Best Buy is initiating there is I guess two phase system of cutting their shelf space to entertain the products, do you see that benefitting the company in the coming quarters or was there an improvement in last quarter from that because I know that they are planning to have a very strong decrease in shelf space?

Yes, we've always considered them our number one competitor. So I would say that we didn’t get any impact in the last quarter from it, but I would expect that in the future we will, even including the second quarter. Harsha Gowda - BlueShore: Okay. Great and continuing the line of questions I have in the past about the dividend, it looks like the cash balance continues to increase and based on my calculations, by the end of this year, we are going to have a very, very significant jump in the balance compared to last year assuming based on the results, so I hope that's kept in mind.

Yes, as I mentioned the Board is constantly looking at it and discusses it at every meeting and I think they do what's right for the company and they -- I am not part of those discussions just so you will know and they do what's right for all shareholders. Harsha Gowda - BlueShore: Okay. Great and I just want to again say incredible work with operating performance. Also as a note, I am impressed with how payable leverage stayed very -- has improved in the last quarter. So that was very impressive.

Yes. Thank you. We couldn’t have done better in sales, but we were up against some very strong numbers with some of the things that happened last year such as the Grammy's were very big last year. The unfortunate debt of Whitney Houston in February that we did very well on that product unfortunately and so it was a good quarter, the first quarter and even though we did well with the Twilight release, it did come out two or three weeks later in the quarter [at all], but it still would have been a little better if was a little earlier. Harsha Gowda - BlueShore: Okay. Great. And am I correct to read that this is the second first quarter you know including last year's first quarter that the company has been profitable going back I guess 10 years, 20 years, is that correct?

I think you are right. Yes, it is correct. Harsha Gowda - BlueShore: Okay. Great. That's fantastic. Thank you very much.

Thank you.

(Operator instructions) I am showing no further questions at this time gentlemen.

Okay. Then I would like to just thank you Alley and thank everybody else participating in the call and I look forward to having you on the call on August 22nd, for our results for the second quarter. Thank you very much. Operator Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.

Thank you.