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ALBANY, NY-Trans World Entertainment Corp. boosted its retail operation by 243 stores in fiscal 2006, took in $10.2 million in earnings and drove sales up 19% to $1.471 billion, yet the results proved disappointing to company officials challenged by big-box competition and declining music sales.

“We were disappointed with our 2006 results,” said Robert Higgins, Trans World’s chairman and CEO, vowing improved results in 2007.

The Albany, NY retailer of music, movies, video games and other specialty products said the $10 million in net income was due to a one-time tax gain from last year’s purchase of Musicland Holding Group, the bankrupt entertainment retailer that it acquired in March for $122.3 million. Without that gain, net income was $1.3 million, down from $2.9 million a year earlier. The retailer, which has nearly 1,000 stores in the United States, Puerto Rico and the Virgin Island, under a variety of chains that include the f.y.e. banner, said comparative store sales fell by 6% in fiscal 2006. This is the second year of same store sales declines for the company.

Higgins, however, is optimistic about Trans World’s future. In a conference call with analysts, he says the firm is moving to transition itself from music sales to a retailer that primarily sells video game consoles, DVDs, electronics and gaming accessories as it struggles to compete with big box stores and online music sites. Video sales last year represented 37% of the firm’s business, a 7% increase over the prior year, while music sales dropped 10% in that same period to 44%.

“Music continues to decline,” said James Litwak, president and chief operating officer. “Even though we had a greater market share than last year it was not up to our expectations.”

Litwak said the firm plans to morph its stores into “a full entertainment center” by rolling out a new concept called “Mix & Burn” to 25 stores that will allow customers to download digital songs and burn them to CDs. The firm also plans to add posters and T-shirts to its merchandise mix, he says.

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