UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 31, 2015FEBRUARY 3, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

FOR THE TRANSITION PERIOD FROM ………… TO …………

COMMISSION FILE NUMBER: 0-14818

TRANS WORLD ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)

38 Corporate Circle

Albany, New York 12203

(Address of principal executive offices, including zip code)

(518) 452-1242

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par valueNone

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in the Rule 405 of the Securities Act.
Yeso Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yeso Nox

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s Knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K.x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Act).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yeso  Nox

As of August 2, 2014, 31,678,388July 29, 2017, 36,117,055 shares of the Registrant’s Common Stock were issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Registrant’s Common Stock on August 2, 2014July 29, 2017 as reported on the National MarketGlobal tier of The NASDAQ Stock Market, Inc. was $60,491,992.$41,490,946, Shares of Common Stock held by the Company’s controlling shareholder, who controlled approximately 45.5%40% of the outstanding Common Stock, have been excluded for purposes of this computation. Because of such shareholder’s control, shares owned by other officers, directors and 5% shareholders have not been excluded from the computation. As of March 31, 2015,29, 2018, there were 31,159,48836,148,570 shares of Common Stock issued and outstanding.

PART I

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to the Trans World Entertainment Corporation’s (“the Company’s)Company’s”) future prospects, developments and business strategies. The statements contained in this document that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.

We have used the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, and similar terms and phrases, including references to assumptions, in this document to identify forward-looking statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control, that could cause actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from the Company’s forward-looking statements.

The reader should keep in mind that any forward-looking statement made by us in this document, or elsewhere, pertains only as of the date on which we make it. New risks and uncertainties come up from time-to-time and it’s impossible for us to predict these events or how they may affect us. In light of these risks and uncertainties, you should keep in mind that any forward-looking statements made in this report or elsewhere might not occur.

In addition, the preparation of financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions. These estimates and assumptions affect:

Actual results may vary from our estimates and assumptions. These estimates and assumptions are based on historical results, assumptions that we make, as well as assumptions by third parties.

Item 1. BUSINESS

Company Background

Trans World Entertainment Corporation, which, together with its consolidated subsidiaries, is referred to herein as “the Company”, “we”, “us” and “our”, was incorporated in New York in 1972. We own 100% of the outstanding common stockCommon Stock of Record Town, Inc., through which and etailz, Inc. See below for additional information.

Our Reportable Segments

We operate our principal operations are conducted. business in two segments:

For Your Entertainment Segment (“fye”)

The CompanyCompany’s fye segment operates retail stores and threetwo e-commerce sites and is one of the largest specialty retailers of entertainment products, including trend, video, music, trend, electronics video games and related products in the United States.

Stores and Store Concepts

As of January 31, 2015,February3, 2018, the Companyfye segment operated 310260 stores totaling approximately 1.81.4 million square feet in the United States, the District of Columbia and the U.S. Virgin Islands.

Mall Stores

As of January 31, 2015, the Company operated 270 mall-based stores,Islands predominantly under the f.y.e. (“For Your Entertainment”) brand, including:Entertainment brand.

f.y.e.Mall stores. The Company operated 261231 traditional mall-based stores. f.y.e.stores as of February 3, 2018. Mall stores average about 5,3005,200 square feet and carry a full complement of entertainment products, including trend, video, music, trend, electronics, video games and related products.

Video only stores.The Company operated 96 video only stores as of February 3, 2018, predominately under the Suncoast Motion Pictures brand. These stores specialize in the sale of video and related product. They average about 3,1002,500 square feet.

Freestanding StoresStores.

As of January 31, 2015, theThe Company operated 4023 freestanding stores predominantly under the f.y.e.fye brand. They carry a full complement of entertainment products, including trend, video, music, trend, electronics, video games and related products and are located in freestanding, strip center and downtown locations. The freestanding stores average approximately 9,80010,300 square feet.

E-CommerceRetail Web Sites

The Companyfye segment operates threetwo retail web sites includingwww.fye.com www.wherehouse.comandwww.secondspin.com. FYE.comfye.com is our flagship site and carries a full complement of entertainment products, including trend, video, music, trend, electronics video games and related products.  SecondSpin.com is a leading seller of used CDs, DVDs, Blu-Ray and video games online and carries one of the largest catalogs of used media available online. Wherehouse.com offers

etailz Segment (“etailz”)

etailz is the innovating and leading online marketplace retail expert. etailz uses a broad selection ofdata driven approach to digital marketplace retailing utilizing proprietary software and e-commerce insight to identify new distributors and used CDs, DVDs, Blu-Ray,wholesalers, isolate emerging product trends, and video games.optimize price positioning and inventory purchase decisions.

etailz Retail Partnerships

Fulfilled by Amazon Global.etailz is a leading Amazon marketplace retailer that partners with brands and employs advanced technology and strategies to grow sales both domestically and internationally.

Additional Marketplace Opportunities.etailz partners with brands to expand their brand on eBay, Jet and Walmart.

Drop Ship.Drop ship arrangements allow etailz to offer partners’ entire catalog across marketplaces, expanding their brand presence and capturing additional sales.

Merchandise Categories

fye Segment

Net sales by merchandise category as a percentage of total net sales for Fiscal 2014, 2013fiscal 2017, 2016 and 20122015 were as follows:

Financial information about industry segments requiredetailz Segment

etailz generates revenue across a broad array of product lines primarily through the Amazon Marketplace. Approximately 60% of total etailz revenue was generated by this item is included in the Company’s Consolidated Financial Statements, which are incorporated herein by reference.four major categories: health & personal care; home/kitchen/grocery; tools/office/outdoor; and baby.

Business Environment

Based primarily on statistical information obtained from Warner Brothers Home Entertainment and Nielsen Sound Scan (“SoundScan”); physical video and music represent an approximately $10 billion industry nationwide in 2014. fye Segment

Video and music accounted for approximately 71%50% of the Company’ssegment’s net sales in Fiscal 2014fiscal 2017 versus 74%approximately 57% of net sales in Fiscal 2013.

According to statistics obtained from Warner Brothers Home Entertainment, overall video industry physical retail sales in 2014 were $6.7 billion compared to $7.5 billion in 2013, a decrease of 10.7%. Industry DVD retail sales decreased 10.9% in 2014 compared to 2013, while Blu-ray sales increased 10.0%.

According to statistical information from SoundScan, the total number of music albums sold, including CD and digital albums, decreased 10.3% to approximately 257 million units in 2014. Excluding digital albums, in Fiscal 2014, album sales decreased 14.1% from Fiscal 2013 to approximately 140 million units.

Competition

fiscal 2016. Physical media sales have suffered from the shift of content to digital distribution, media streaming and online retailers (e.g., Amazon) that offer entertainment products at discounted pricesto consumers and collectively have gained a larger share of the market. As

According to statistical information from Billboard Bulletin, total albums sold, including CDs and digital albums, decreased 17.7% to approximately 169 million units in 2017.

According to the Digital Entertainment Group’s year-end report, total video sales in the United States declined 14% in 2017.

etailz Segment

The Company’s etailz segment operates as a result of such competition, the number of specialty and independentthird party e-commerce market place (“Digital Marketplace”) reseller. Digital Marketplaces are e-commerce platforms where online retailers has decreased dramatically dueenable third party sellers access to their reliance onwebsite and customer base to sell various merchandise. Digital marketplaces allow consumers to shop from a variety of merchants in one place and have become an integral part of many e-commerce sellers’ businesses, including Amazon.com, Walmart/Jet.com and ebay.

e-commerce sales are growing faster than physical store sales. According to the U.S. Census Bureau, total estimated e-commerce sales for 2018 are projected at $461.6 billion, an increase of physical product. 13% from 2017, while e-commerce sales in 2017 accounted for 9% of total retail sales as compared to 8% of total retail sales for 2016.

Competition

fye Segment

The specialty entertainment retail industry is intensely competitive and subject to rapid changes in consumer preferences. We compete with mass merchants, consumer electronics stores, lifestyle retailers and online retailers. Our media products are also distributed through other methods such as digital delivery. We also compete with sellers of pre-owned and value media products. Additionally, we compete with other forms of entertainment activities, including casual and mobile games, movies, television, theater, sporting events and family entertainment centers.

We compete with Walmart, Inc.; Target Corporation; Amazon.com, Inc. (“Amazon”); and Best Buy Co., Inc., among others.

The Company has diversified its products and taken other measures to position itself competitively within its industry. The Company believes it effectively competes in the following ways:

etailz Segment

etailz competes with other third-party marketplace sellers using a data driven approach to digital marketplace retailing utilizing proprietary software and e-commerce insight coupled with a direct customer relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions.  In the past 12 months, etailz sold over 34,000 SKUs from over 2,300 suppliers in numerous product categories, primarily through the Amazon Marketplace. etailz generates $10.7 million, or 6% of its revenue from foreign marketplaces operated by Amazon.

Seasonality

The Company’s business is seasonal, with its fourth fiscal quarter constituting the Company’s peak selling period. In Fiscal 2014, thefiscal 2017, fourth quarter revenue accounted for approximately 35%33% of annual net sales.total revenue. In anticipation of increased sales activity in the fourth quarter, the Company purchases additional inventory and hires seasonal associates to supplement its

core store sales and distribution center staffs. If, for any reason, the Company’s net sales were below seasonal norms during the fourth quarter, the Company’s operating results could be adversely affected. During fiscal 2017, fye comparable store sales declined 10% and adversely affected annual results. Quarterly sales can also be affected by the timing of new product releases, new store openings or closings and the performance of existing stores.

Advertising

fye Segment

The Company makes use of visual displays including in-store signage and external banners. It usesThe Company employs a mass-media marketing program,strategy including newspaper and radio advertisements, as well as sending email blasts and social networking. Certain vendors from whom the Company purchases merchandise offer advertising allowances, of varying duration and amount, to promote their merchandise.

etailz Segment

etailz utilizes social media and content marketing to strengthen its visibility within the industry and locally. The segment’s Facebook, Instagram, LinkedIn, Pinterest, and Twitter accounts have a strong and engaged following. etailz public relations efforts consist of press releases, articles in industry publications, and articles on our website. In addition, etailz hosts conferences for its partners which strengthens its presence within the industry and establishes etailz as a leader in online marketplace retail.

Within in its marketing division, etailz offers advertising services to its partners including social media ads, influencer campaigns, and marketplace advertising.

Suppliers and Purchasing

fye Segment

The Companyfye segment purchases inventory from approximately 500350 suppliers. In Fiscal 2014, 58%fiscal 2017, 47% of fye purchases were made from ten suppliers including Universal Studio Home Entertainment, AEC - Paramount Video, Buena Vista Home Video, SONY Music, SONY Pictures, Twentieth Century Fox Video, Paramount Home Entertainment, RED Distribution, Sony Music Entertainment, Sony Pictures Home Entertainment,Warner/Elektra/Atlantic, Universal Music Group Distribution, Universal Studios Home Entertainment, Buena Vista Home Entertainment,Funko LLC, and Warner Home Video and Warner, Elektra, Atlantic Corp Group. Video.

etailz Segment

During fiscal 2017, etailz sold over 34,000 SKUs from over 2,300 suppliers in numerous product categories, primarily through the Amazon Marketplace. In fiscal 2017, no individual supplier exceeded 10% of etailz revenue.

The Company does not have material long-term purchase contracts; rather, it purchases products from its suppliers on an order-by-order basis. Historically, the Company has not experienced difficulty in obtaining satisfactory sources of supply and management believes that it will continue to have access to adequate sources of supply.

Trade Customs and Practices

Under current trade practices with large suppliers, retailers of music and video products are generally entitled to return unsold merchandise they have purchased in exchange for other merchandise carried by the suppliers. The four largest music suppliers charge a related merchandise return penalty or return handling fee. Most manufacturers and distributors of video products do not charge a return penalty or handling fee. Under current trade practices with large suppliers, retailers of trend, electronics, video games and related products may receive markdown support from suppliers to help clear discontinued or slow turning merchandise. Merchandise return policies and other trade practices have not changed significantly in recent years. The Company generally adapts its purchasing policies to changes in the policies of its largest suppliers.

Employees

As of January 31, 2015,February 3, 2018, the Company employed approximately 3,0002,600 people, of whom approximately 1,200 were employed on a full-time basis. Others were employed on a part-time basis. The Companyfye segment had approximately 1,000 full-time employees and approximately 1,400 part-time employees. The etailz segment had approximately 200 full-time and 30 part-time employees. The fye segment hires seasonal sales and distribution center employees during its fourth quarter peak selling season to ensure continued levels of personalized customer service and in-stock position. Assistant store managers, store managers, district managers and regional managers are eligible to receive incentive compensation based on the sales and/or profitability of stores for which they are responsible. Sales support managers are generally eligible to receive incentive compensation based on achieving Company performance targets. None of the Company’s employees are covered by collective bargaining agreements and management believes that the Company enjoys favorable relations with its employees.

Trademarks

The trademarks, f.y.e. for your entertainment (fye), etailz, and Suncoast Motion Pictures and Saturday Matinee are registered with the U.S. Patent and Trademark Office and are owned by the Company. We believe that our rights to these trademarks are adequately protected. We hold no material patents, licenses, franchises or concessions; however, our established trademarks and trade names are essential to maintaining our competitive position in the entertainment retail industry.

Information Systems

fye Segment

The Company’s inventory management systems and point-of-sale technology show daily sales and in-store stock by title by store. The systems use this data to automatically generate replenishment shipments to each store from our distribution centers, enabling each store to carry a merchandise assortment uniquely tailored to its own sales mix and rate of sale. Call lists and reservation system also provide our buying staff with information to determine order size and inventory management for store-by-store inventory allocation.

To support most operations, the Company uses a large-scale computing environment with a state-of-the-art storage area network, a wired and wireless corporate network installed at regional headquarters, and a secure virtual private network to access and provide services to computing assets located in stores, distribution centers and satellite offices, and to the mobile workforce.

An Oracle based point-of-sale system has been enhanced to facilitate trade-in transactions, including automatic lookup of trade-in prices and printing of machine-readable bar codes to facilitate in-store restocking of pre-owned products. In addition, our central database of all pre-owned products allows us to actively manage the pricing and product availability of our pre-owned products across our store base and reallocate our pre-owned products as necessary.

etailz segment

etailz has a data driven approach to digital marketplace retail utilizing proprietary software. Using data collected from the marketplaces, optimal inventory thresholds and purchasing trends are calculated within their advanced inventory management software developed in-house. etailz also has proprietary software related to pricing, marketing, and marketplace seller information.  To support most operations, etailz uses cloud computing services and a secure network to provide computing services.  

Business Combinations

etailz Acquisition

On October 17, 2016, the Company completed the purchase of all of the issued and outstanding shares of etailz. The acquisition of etailz is part of our strategy to diversify our business into the fastest growing segment of retail: the Digital Marketplace. The Company utilizesplans to access the relationships, operational expertise, and infrastructure built by etailz to help unlock the full potential of etailz and to accelerate our progress towards being the industry leader for digital marketplace sales and expertise.

The Company paid $32.3 million in cash, issued 5.7 million shares of TWMC stock at closing to the shareholders of etailz as consideration for their shares, and paid $4.3 million in cash advances to settle obligations of the selling shareholders. Based on the fair value of $3.56 per share on the acquisition date, the shares had a value of $20.4 million. An earn-out of up to a maximum of $14.6 million will be payable in fiscal 2018 and fiscal 2019 subject to the achievement by etailz of $6 million in operating income in fiscal 2017 and $7.5 million in fiscal 2018 as outlined in the share purchase agreement. In connection with the acquisition, the Company assumed a liability of the selling shareholders for an etailz employee bonus plan, of which $1.9 million was due and payable at closing and funded as part of the cash advances and the remaining $2.3 million will be earned over a two year service period. The acquisition and related costs were funded primarily IBM AS400 technologyfrom the Company’s cash on hand and short term borrowings under its revolving credit facility. The acquisition was accounted for using the purchase method of accounting.

During the Company’s second quarter of fiscal 2017, the share purchase agreement with the selling shareholders of etailz was amended to run its management information systems, including its merchandising, distributionprovide that $11.5 million be released from the earnout escrow account and financial systems. Management believes its systems contributethe $3.1 million remaining in the earnout escrow account may be payable in cash to enhanced customer servicethe selling shareholders in 2019, subject to the achievement by etailz of operating income in excess of $15.5 million during the twenty-four month period ending February 2, 2019. In the event that etailz achieves operating income in excess of $13.5 million, but less than $15.5 million, an earnout of $1.6 million would be payable in 2019. If etailz operating income is below $13.5 million, the $3.1 million escrow would be returned to the Company.

The amount released from the earnout escrow was disbursed during the Company’s second quarter of fiscal 2017 as follows: $5.0 million to the Company for future investment to support growth initiatives, $5.0 million to the selling shareholders, and operational efficiency,$1.5 million to the Company (to be allocated to increase the maximum amount available under the etailz employee bonus plan from $4.2 million to $5.7 million).

The acquisition date fair value of the consideration for the above transaction consisted of the following as wellof October 17, 2016 (in thousands):

The following table summarizes the allocation of the aggregate purchase price to the estimated fair value of the net assets acquired:

The amount of goodwill represents the excess of the purchase price over the net identifiable assets acquired and liabilities assumed. Goodwill primarily represents, among other factors, the value of synergies expected to be realized and for the knowledge and expertise of, and established presence in, the digital marketplace, which do not qualify as provideseparate amortizable intangible assets. Goodwill arising from the abilityacquisition of etailz is not deductible for tax purposes. There were no adjustments from preliminary purchase price accounting to monitor critical performance indicators versus plansfinal.

The results of operations of etailz are reported in the Company’s etailz segment and historical results.have been included in the consolidated results of operations of the Company from the date of acquisition, October 17, 2016.

Available Information

The Company’s headquarters are located at 38 Corporate Circle, Albany, New York 12203, and its telephone number is (518) 452-1242. The Company’s corporate website address is www.twec.com. The Company makes available, free of charge, its Exchange Act Reports (Forms 10-K, 10-Q, 8-K and any amendments thereto) on its web site as soon as practical after the reports are filed with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. This information can be obtained from the site http://www.sec.gov. The Company’s Common Stock, $0.01 par value, is listed on the NASDAQ National Market under the trading symbol “TWMC”. The Company’s fiscal year end is the Saturday closest to January 31. The Fiscal 2014fiscal 2017 (“Fiscal 2014”fiscal 2017”) year ended on February 3, 2018; fiscal 2016 (“fiscal 2016”) year ended January 28, 2017; and fiscal 2015 (“fiscal 2015”) year ended on January 31, 2015;30, 2016. Fiscal 2013 (“Fiscal 2013”) year ended on February 1, 2014; and Fiscal 2012 (“Fiscal 2012”) year ended on February 2, 2013. Fiscal 20122017 consisted of 53 weeks. All other periods presented were 52 weeks.

Item 1A. RISK FACTORS

The following is a discussion of certain factors, which could affect the financial results of the Company.

The Company’s results of operations are affected by the availability of new products.

The Company’s business is affected by the release of “hit” musicRisks Related to Our Business and video titles, which can create fluctuations in sales. It is not possible to determine the timing of these fluctuations or the future availability of hit titles. The Company is dependent upon the major music and movie producers to continue to produce hit products. To the extent that new hit releases are not available, or not available at prices attractive to consumers, or, if manufacturers fail to introduce or delay the introduction of new products, the Company’s results of operations may be adversely affected.Industry

The Company’s results of operations are affected by the continued declines in the physical video and music industries.

The videoPhysical media sales have suffered from the shift of content to digital distribution, streaming and music retailing industries are mature industriesonline retailers that offer entertainment products at discounted prices and collectively have experienced declines in recent years.gained a larger share of the market. Physical video and music represent our largest product categories in termsapproximately 50% of sales and have been impacted by new distribution channels, including digital distribution, streaming and internet fulfillment. As a result, the Company has had negative comparable store sales for the past five years.all periods presented.

If we cannot successfully diversify our product mix and implement our business strategy our growth and profitability could be adversely impacted.

Our future results will depend, among other things, on our success in implementing our business strategy. There can be no assurance that we will be successful in implementing our business strategy or that the strategy will be successful in sustaining acceptable levels of sales growth and profitability.

The Company’s results of operations may suffer if the Company does not accurately predict consumer acceptance of new product,products or distribution technologies or adapt to a shift to multichannel experience.

The entertainment industry is characterized by changing technology, evolving format standards, and new and enhanced product introductions. These

characteristics require the Company to respond quickly to technological changes and understand the impact of these changes on customers’ preferences. If the Company is unable to participate in new product or distribution technologies, its results of operations may suffer. Specifically, CD and DVD formats have experienced a continuous decline as digital forms of music and video content have become more prevalent. If the Company does not timely adapt to these changing technologies orand sufficiently focus on theshift to other merchandise categories, operating results could significantly suffer.

In addition, multichannel retailing is rapidly evolving with the increasing use of computers, tablets, mobile phones and other devices to shop in stores and online and the increased use of social media as a means of interacting with our customers and enhancing their shopping experiences. If we are unable to adapt to the gowthgrowth of multichannel retailing, and keep pace with the changing expectations of our customers and new developments by our competitors, customer experience could be negatively affected, resulting in a loss of customer confidence and satisfaction, and lost sales, which could adversely affect our reputation and results of operations.

Increased competition from existing retailers, including internet retailers, could adversely affect the Company’s results of operations.

The Company competes with a wide variety of entertainment retailers, including deep-discount retailers, mass merchandisers, consumer electronics outlets, internet retailers and independent operators, some of whom have greater financial and other resources than the Company and frequently sell their product at discounted prices or with added value.

In addition, the Company’s success depends on our ability to positively differentiate ourselves from other retailers. The retail business is highly competitive. In the past, the Company has been able to compete successfully by differentiating our customer shopping experience, by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, customer service and marketing efforts. Customer perceptions regarding our stores, our in-stock position and deep assortment of product are also factors in our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross profit and expenses. If we fail to continue to positively differentiate ourselves from our competitors, our results of operations could be adversely affected.

The ability to attract customers to our stores depends heavily on the success of the shopping malls in which many of our stores are located; any decrease in consumer traffic in those malls could adversely affect the Company’s results of operations.

In order to generate customer traffic, we depend heavily on locating many of our stores in prominent locations within shopping malls. Sales at these stores are derived from the volume of traffic in those malls. Our stores benefit from the ability of a mall’s other tenants to generate consumer traffic in the vicinity of our stores. Our sales volume and mall traffic generally may be adversely affected by, among other things, economic downturns in a particular area, competition from e-commerce retailers, non-mall retailers and other malls, increases in gasoline prices, fluctuations in exchange rates in border or tourism-oriented locations and the closing or decline in popularity of other stores in the malls in which we are located. An uncertain economic outlook could curtail new shopping mall development, decrease shopping mall traffic, reduce the number of hours that shopping mall operators keep their shopping malls open or force them to cease operations entirely. A reduction in mall traffic as a result of these or any other factors could have a material adverse effect on our business, results of operations and financial condition.

The Company’s business is influenced by general economic conditions.

The Company’s performance is subject to general economic conditions and their impact on levels of discretionary consumer spending. General economic conditions impacting discretionary consumer spending include, among others, wages and employment, consumer debt, reductions in net worth, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence and other macroeconomic factors.

Consumer purchases of discretionary items, such as our merchandise, generally decline during recessionary periods and other periods where disposable income is adversely affected. A downturn in the economy affects specialty retailers disproportionately, as consumers may prioritize reductions in discretionary spending, which could have a direct impact on purchases of our merchandise and adversely impact our results of operations. In addition, reduced consumer spending may drive us and our competitors to offer additional products at promotional prices, which would have a negative impact on gross profit.

Disruption of global capital and credit markets may have a material adverse effect on the Company’s liquidity and capital resources.

Distress in the financial markets has in the past and can in the future result in extreme volatility in security prices, diminished liquidity and credit availability. There can be no assurance that our liquidity will not be affected by changes in the financial markets and the global economy or that our capital resources will at all times be sufficient to satisfy our liquidity needs.

Because of our floating rate credit facility, we may be adversely affected by interest rate changes.

Our financial position may be affected by fluctuations in interest rates, as our credit facility is subject to floating interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. If we were to borrow against our senior credit facility, a significant increase in interest rates could have an adverse effect on our financial position and results of operations.

Historically, in the fye segment, we have experienced declines and we may continue to experience fluctuation in our level of sales, results from operations and operating cash flow.

A variety of factors has historically affected, and will continue to affect, our comparable stores sales results and profit margins. These factors include general, regional and national economic conditions; competition; actions taken by our competitors; consumer trends and preferences; new product introductions and changes in our product mix; timing and effectiveness of promotional events and weather. The Company’sfye’s comparable store sales may decline further than they did in Fiscal 2014.fiscal 2017. Also, they may vary from quarter to quarter as our business is highly seasonal in nature. Our highest sales and operating income historically occur during the fourth fiscal quarter, which is due in part to the holiday selling season. The fourth quarter generated approximately 35%33% of our net salestotal revenue for Fiscal 2014.fiscal 2017. Any decrease in our fourth quarter sales, whether due to a slow holiday selling season, unseasonable weather conditions, economic conditions or otherwise, could have a material adverse effect on our business, financial condition and operating results for the entire fiscal year. There is no

assurance that we will achieve positive levels of sales and earnings growth, and any decline in our future growth or performance could have a material adverse effect on our business and results of operations.

Failure to open new stores or renew existing leases in profitable stores may limit our earnings.

Historically, the Company’s growth has come from adding stores. The Company opens new stores if it finds desirable locations and is able to negotiate suitable lease terms for profitability. A lack of new store growth may impact the Company’s ability to increase sales and earnings. The

During 2017, the Company opened six1 new store and closed 25 stores in Fiscal 2014.with expiring leases. Likewise, the Company regularly renews leases at existing locations if those stores are profitable. Failure to renew these leases may impact the Company’s earnings. See Item 2: Properties, for timing of lease expirations.

A change in one or more of the Company’s vendors’ policies or the Company’s relationship with those vendors could adversely affect the Company’s results of operations.

The Company is dependent on its vendors to supply merchandise in a timely and efficient manner. If a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, the Company could experience merchandise shortages that could lead to lost sales.

The majorityApproximately 47% of the Company’sfye segment’s purchases come from ten major suppliers and less than 20% of total etailz segment revenue is generated from products purchased from its ten major suppliers. As is standard in its industry, the Company does not maintain long-term contracts with its suppliers but instead makes purchases on an order-by-order basis. If the Company fails to maintain customary trade terms or enjoy positive vendor relations, it could have an adverse effect on the Company’s results of operations.

The Company’s results of operations are affected by the availability of new products.

The Company’s business is affected by the release of “hit” music and video titles, which can create fluctuations in sales. It is not possible to determine the timing of these fluctuations or the future availability of hit titles. The Company is dependent upon the major music and movie producers to continue to produce hit products. To the extent that new hit releases are not available, or not available at prices attractive to consumers, or, if manufacturers fail to introduce or delay the introduction of new products, the Company’s results of operations may be adversely affected.

If the Company’s vendors fail to provide marketing and merchandising support at historical levels, the Company’s results of operations could be adversely affected.

The manufacturers of entertainment products have typically provided retailers with significant marketing and merchandising support for their products. As part of this support, the Company receives cooperative advertising and other allowances from these vendors. These allowances enable the Company to actively promote and merchandise the products it sells at its stores and on its websites. If the Company’s vendors fail to provide this support at historical levels, the Company’s results of operations could be negatively impacted.

Parties with whom the Company does business may be subject to insolvency risks or may otherwise become unable or unwilling to perform their obligations to the Company.

The Company is a party to contracts, transactions and business relationships with various third parties, including vendors, suppliers, service providers and lenders, pursuant to which such third parties have performance, payment and other obligations to the Company. In some cases, the Company depends upon such third parties to provide essential products, services or other benefits, including with respect to store and distribution center locations, merchandise, advertising, software development and support, logistics, other agreements for goods and services in order to operate the Company’s business in the ordinary course, extensions of credit, credit card accounts and related receivables, and other vital matters. Economic, industry and market conditions could result in increased risks to the Company associated with the potential financial distress or insolvency of such third parties. If any of these third parties were to become subject to bankruptcy, receivership or similar proceedings, the rights and benefits of the Company in relation to its contracts, transactions and business relationships with such third parties could be terminated, modified in a manner adverse to the Company, or otherwise impaired. The Company cannot make any assurances that it would be able to arrange for alternate or replacement contracts, transactions or business

relationships on terms as favorable as the Company’s existing contracts, transactions or business relationships, if at all. Any inability on the part of the Company to do so could negatively affect the Company’s cash flows, financial condition and results of operations.

Breach of data security could harm our business and standing with our customers.

The protection of our customer, employee and business data is critical to us. Our business, like that of most retailers, involves the receipt storage and transmission of customers’ personal information, consumer preferences and transmission of the payment card information, as well as confidential information about our employees, our suppliers and our Company. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential information. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means, including deceiving our employees or third partythird-party service providers. The methods used to obtain unauthorized access, disable or degrade service, or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect. We have implemented and regularly review and update our control systems, processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Any security breach involving the misappropriation, loss or other unauthorized disclosure of customer payment card or personal information or employee personal or confidential information, whether by us or our vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations, harm our business and have an adverse impact upon our net sales and profitability. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and changing requirements applicable to our business, compliance with those requirements could also result in additional costs. Further, if we are unable to comply with the security standards established by banks and the credit card industry, we may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect our retail operations.

Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business.

Our success, in particular our ability to successfully manage inventory levels and process customer transactions, largely depends upon the efficient operation of our computer hardware and software systems. We use management information systems to track inventory at the store level and aggregate daily sales information, communicate customer information and process purchasing card transactions, process shipments of goods and report financial information.

Any failure of our computer hardware or software systems that causes an interruption in our operations or a decrease in inventory tracking could result in reduced net sales and profitability. Additionally, if any data intrusion, security breach, misappropriation or theft were to occur, we could incur significant costs in responding to such event, including responding to any resulting claims, litigation or investigations, which could harm our operating results.

Our inability or failure to protect our intellectual property rights, or any claimed infringement by us of third party intellectual rights, could have a negative impact on our operating results.

Our trademarks, service marks, copyrights, patents, trade secrets and other intellectual property, including proprietary software, are valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our intellectual property could cause a decline in our revenue. In addition, any infringement or other intellectual property claim made against us could be time-consuming to address, result in costly litigation, cause product delays, require us to enter into royalty or licensing agreements or result in our loss of ownership or use of the intellectual property.

Loss of key personnel or the inability to attract, train and retain qualified employees could adversely affect the Company’s results of operations.

The Company believes that its future prospects depend, to a significant extent, on the services of its executive officers.  Our future success will also depend on our ability to attract and retain qualified key personnel. The loss of the services of certain

of the Company’s executive officers and other key management personnel could adversely affect the Company’s results of operations.

In addition to our executive officers, the Company’s business is dependent on our ability to attract, train and retain a large number of qualified team members.  Many of those team members are employed in entry-level or part-time positions with historically high turnover rates. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, health care costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations, customer service levels and support functions could suffer.  Those factors, together with increased wage and benefit costs, could adversely affect our results of operations.

Our Chairman owns approximately 46.9% of the outstanding Common Stock. Therefore, he has significant influence and control over the outcome of any vote of the Company’s Shareholders.

Robert J. Higgins, Chairman of the Board of the Company owns approximately 46.9% of the outstanding Common Stock of the Company, as of March 31, 2015 and there are no limitations on his acquiring shares in the future.  Accordingly, Mr. Higgins has significant influence over the election of our directors, the appointment of new management and the approval of actions requiring shareholder approval, such as adopting amendments to our articles of incorporation and approving mergers or sales of all or substantially all of our assets. Such concentration of ownership and substantial voting influence may have the effect of delaying or preventing a change of control, even if a change of control is in the best interest of all shareholders. There may be instances in which the interest of Mr. Higgins may conflict or be perceived as being in conflict with the interest of a holder of our securities or the interest of the Company.

Failure to comply with legal and regulatory requirements could adversely affect the Company’s results of operations.

The Company’s business is subject to a wide array of laws and regulations. Significant legislative changes that impact our relationship with our workforce (none of which is represented by unions) could increase our expenses and adversely affect our operations. Examples of possible legislative changes impacting our relationship with our workforce include changes to an employer’s obligation to recognize collective bargaining units, the process by which collective bargaining units are negotiated or imposed, minimum wage requirements, and health care mandates.mandates, and changes in overtime regulations.

Our policies, procedures and internal controls are designed to comply with all applicable laws and regulations, including those imposed by the Securities and Exchange Commission and the NASDAQ Global Market, as well as applicable employment laws. Additional legal and regulatory requirements increase the complexity of the regulatory environment in which we operate and the related cost of compliance. Failure to comply with such laws and regulations may result in damage to our reputation, financial condition and market price of our stock.

We could be materially and adversely affected if our distribution center is disrupted.

We operate a distribution center in Albany, New York. We ship approximately 76%77% of our fye segment merchandise inventory through our distribution center. If our distribution center is destroyed or disrupted for any reason, including weather, fire, labor, or other issues we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes to reopen or replace the distribution center.

We maintain business interruption insurance to protect us from the costs relating to matters such as a shutdown, but our insurance may not be sufficient, or the insurance proceeds may not be timely paid to us, in the event of a shutdown.

We may face difficulties in meeting our labor needs to effectively operate our business.

We are heavily dependent upon our labor workforce in the geographic areas where we conduct our business.  Our compensation packages are designed to provide benefits commensurate with our level of expected service.  However, within our retail and logistics operations, we face the challenge of filling many positions at wage scales that are appropriate to the industry and competitive factors.  We also face other risks in meeting our labor needs, including competition for qualified personnel and overall unemployment levels.  Changes in any of these factors, including a shortage of available workforce in areas in which we operate, could interfere with our ability to adequately service our customers or to open suitable locations and could result in increasing labor costs.

Our business could be adversely affected by increased labor costs, including costs related to an increase in minimum wage and health care.

Labor is one of the primary components in the cost of operating our business.  Increased labor costs, whether due to competition, unionization, increased minimum wage, state unemployment rates, health care, or other employee benefits costs may adversely impact our operating expenses.  A considerable amount of our store team members are paid at rates related to the federal or state minimum wage and any changes to the minimum wage rate may increase our operating expenses.  Furthermore, inconsistent increases in state and or city minimum wage requirements limit our ability to increase prices across all markets and channels.  Additionally, we are self-insured with respect to our health care coverage in the U.S.

and do not purchase third party insurance for the health insurance benefits provided to employees with the exception of pre-defined stop loss coverage, which helps limit the cost of large claims.  There is no assurance that future health care legislation will not adversely impact our results or operations.  

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors, stockholders, government agencies or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.  The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify.  We may incur losses relating to these claims, and in addition, these proceedings could cause us to incur costs and may require us to devote resources to defend against these claims that could adversely affect our results of operations.  For a description of current legal proceedings, see “Part I, Item 3, Legal Proceedings.”

Certain of our strategies, including product innovations and expanding our exclusive offerings, may present greater risks.

We are continuously assessing opportunities to improve store productivity and complementary products and services related to our core business, including product innovations and exclusive offerings. We may expend both capital and personnel resources on such business opportunities which may or may not be successful. There can be no assurance that we will be able to develop product innovations and exclusive offerings to a point where they will become profitable or generate positive cash flow.

We could incur losses due to impairment on long-lived assets, goodwill and intangible assets.

Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. If a determination is made that a significant impairment in value of goodwill, other intangible assets or long-lived assets has occurred, such determination could require us to impair a substantial portion of our assets.

Under generally accepted accounting principles, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Goodwill is not amortized but is evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that an impairment could have occurred. In fiscal 2017, we recorded $29 million of asset impairment charges related to the long lived assets of the fye segment. In the future, significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes in our use of our long-lived assets may result in additional impairments to our goodwill, intangible assets and other long-lived assets. Any reduction in or impairment of the value of goodwill or intangible assets will result in a charge against earnings, which could have a material adverse impact on our reported results of operations and financial condition.

The effects of natural disasters, terrorism, acts of war, and public health issues may adversely affect our business.

Natural disasters, including earthquakes, hurricanes, floods, and tornadoes may affect store and distribution center operations. In addition, acts of terrorism, acts of war, and military action both in the United States and abroad can have a significant effect on economic conditions and may negatively affect our ability to purchase merchandise from suppliers for sale to our customers. Public health issues, such as flu or other pandemics, whether occurring in the United States or abroad, could disrupt our operations and result in a significant part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. Additionally, public health issues may disrupt, or have an adverse effect on, our suppliers’ operations, our operations, our customers, or customer demand. Our ability to mitigate the adverse effect of these events depends, in part, upon the effectiveness of our disaster preparedness and response planning as well as business continuity planning. However, we cannot be certain that our plans will be adequate or implemented properly in the event of an actual disaster. We may be required to suspend operations in some or all of our locations, which could have a material adverse effect on our business, financial condition, and results of operations. Any significant declines in public safety or uncertainties regarding future economic prospects that affect customer spending habits could have a material adverse effect on customer purchases of our products.

The terms of our asset-based revolving credit agreement impose certain restrictions on us that may impair our ability to respond to changing business and economic conditions, which could have a significant adverse impact on our business.  Additionally, our business could suffer if our ability to acquire financing is reduced or eliminated.

We maintain an asset-based revolving credit agreement with Wells Fargo Bank, N.A., which provides for a senior secured revolving credit facility (“ABL Facility”) of up to $75 million. The ABL Facility contains various representations, warranties and restrictive covenants that, among other things and subject to specified circumstances and exceptions, restrict our ability to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers, dispose of certain assets or change the nature of their business. In addition, excess availability equal to at least 10% of the loan cap must be maintained under the ABL Facility. The ABL Facility does not otherwise contain financial maintenance covenants. These restrictions could (1) limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans; and (2) adversely affect our ability to finance our operations, strategic acquisitions, investments or other capital needs or to engage in other business activities that would be in our interest.

The ABL Facility includes customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control. Additionally, we cannot be assured that our borrowing relationship with our lenders will continue or that our lenders will remain able to support their commitments to us in the future.  If our lenders fail to do so, then we may not be able to secure alternative financing on commercially reasonable terms, or at all.

etailz revenue is dependent upon maintaining etailz’s relationship with Amazon and failure to do so, or any restrictions on our ability to offer products on the Amazon Marketplace, could have an adverse impact on our business, financial condition and results of operations.

etailz generates substantially all of its revenue through the Amazon Marketplace. Therefore, we depend in large part on our relationship with Amazon for the continued growth of the etailz segment. In particular, we depend on our ability to offer products on the Amazon Marketplace. We also depend on Amazon for the timely delivery of products to customers. Any adverse change in our relationship with Amazon, including restrictions on the ability to offer products or termination of the relationship, could adversely affect the continued growth of our etailz segment and our financial condition and results of operations.

Risks Related to Ownership of Our Common Stock.

The Robert J. Higgins TWMC Trust (the “Trust”) owns approximately 39.5% of the outstanding Common Stock. Therefore, the trustees have significant influence and control over the outcome of any vote of the Company’s Shareholders.

The Robert J. Higgins TWMC Trust owns approximately 39.5% of the outstanding Common Stock and there are no limitations on the Trust acquiring shares in the future.  Accordingly, the trustees have significant influence over the election of our directors, the appointment of new management and the approval of actions requiring shareholder approval, such as adopting amendments to our articles of incorporation and approving mergers or sales of all or substantially all of our assets. Such concentration of ownership and substantial voting influence may have the effect of delaying or preventing a change of control, even if a change of control is in the best interest of all shareholders. There may be instances in which the interest of the Trust may conflict or be perceived as being in conflict with the interest of a holder of our securities or the interest of the Company. W. Michael Reickert, a member of the Board of Directors of the Company, is a trustee of the Trust.

The Company’s stock price has experienced and could continue to experience volatility and could decline, resulting in a substantial loss on your investment.

Our stock price has experienced, and could continue to experience in the future, substantial volatility as a result of many factors, including global economic conditions, broad market fluctuations and public perception of the prospects for music

and the home video industry. Changes in our comparable store net sales could also affect the price of our Common Stock. Failure to meet market expectations, particularly with respect to comparable store sales, net revenues, operating margins and earnings per share, would likely result in a decline in the market price of our stock.

In addition, an active trading market for our Common Stock may not be sustained, which could affect the ability of our stockholders to sell their shares and could depress the market price of their shares. The stock market in general and the market for video and music industry related stocks in particular, has been highly volatile. For example, the closing price of our Common Stock at quarter ends has fluctuated between $3.36$1.25 and $4.00$2.90 from January 30, 20132017 to March 31, 2015.29, 2018. Investors in our Common Stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects.

The declaration of dividend payments or the repurchase of our common stockCommon Stock pursuant to our share repurchase program may not continue.

Our dividend policy and share repurchase program may be affected by, among other items, business conditions, changes in our business strategy, our views on potential future capital requirements, the terms of our debt instruments, legal risks, changes in federal income tax law and challenges to our business model. Our dividend policy may change from time to time and we may or may not continue to declare discretionary dividend payments. The Company’s amended credit facility contains certain restrictions related to the payment of cash dividends and share repurchases, including limiting the amount of dividends to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment. Additionally, although we have a share repurchase program authorized by our Board of Directors, we are not obligated to make any purchases under the program and we may discontinue it at any time. During fiscal 2017, we did not make any share repurchases under the aforementioned program an may not resume making purchases in the future.

The failure to maintain a minimum closing share price of $1.00 per share of our Common Stock could result in the delisting of our shares on the NASDAQ Global Market, which would harm the market price of the Company’s Common Stock.

In order to retain our listing on the NASDAQ Global Market we are required by NASDAQ to maintain a minimum bid price of $1.00 per share. Our stock price is currently above $1.00 and has been since October 6, 2009.$1.00. However, in the event that our stock did close below the minimum bid price of $1.00 per share for any 30 consecutive business days, we would regain compliance if our Common Stock closed at or above $1.00 per share for 10 consecutive days during the 180 days immediately following failure to maintain the minimum bid price. If we are unable to do so, our stock could be delisted from the NASDAQ Global Market, transferred to a listing on the NASDAQ Capital Market, or delisted from the NASDAQ markets altogether. The failure to maintain our listing on the NASDAQ Global Market could harm the liquidity of the Company’s Common Stock and could have an adverse effect on the market price of our Common Stock. Our stock price traded below $1.00 on April 6^th, 2018, however, the closing price of our stock has remained at or above $1.00 since April 6^th, 2018.

The limited public float and trading volume for our Common Stock may have an adverse impact and cause significant fluctuation of market price.

Historically, ownership of a significant portion of our outstanding shares of Common Stock has been concentrated in a small number of stockholders. Consequently, our Common Stock has a relatively small float and low average daily trading volume, which could affect a stockholder’s ability to sell our stock or the price at which it can be sold. In addition, future sales of substantial amounts of our Common Stock in the public market by those larger stockholders, or the perception that these sales could occur, may adversely impact the market price of the stock and our stock could be difficult for a stockholder to liquidate.

Item 1B. UNRESOLVED SEC COMMENTS

None.

Item 2. PROPERTIES

Retail Stores

As of January 31, 2015,February 3, 2018, the Companyfye segment leased and operated 310260 stores of which 309 stores are under operating leases, some of which have renewal options. The Company owns 1 store. The majority of the leases provide for the payment of fixed monthly rent and expenses for maintenance, property taxes and insurance, while others provide for the payment of monthly rent based on a percentage of sales. Certain leases provide for additional rent based on store sales in excess of specified levels. The following table lists the leases due to expire in each of the fiscal years shown as of the fiscal year-end, assuming any renewal options are not exercised:

As leases expire, the Company will evaluate the decision to exercise renewal rights or obtain new leases for the same or similar locations based on store profitability.

Corporate Offices and Distribution Center FacilityFacilities

The Company leases its Albany, New YorkAs of February 3, 2018, we leased the following office and distribution facility and corporate office space from its largest shareholder and Chairman under three capital lease arrangements that extend through December 2015. These leases are at fixed rent with provisions for biennial increases based on increases in the Consumer Price Index. The Company incurs all property taxes, insurance and maintenance costs. The office portion of the facility is approximately 39,800 square feet and the distribution center portion is approximately 141,500 square feet. The Company is in the process of negotiating a new lease for its distribution facility and corporate office space.facilities:

The Company believes that its existingit has adequate distribution facility is adequatefacilities to meet the Company’s plannedcurrent business needs. Shipments from the Albany distribution facility to the Company’sfye segment’s retail stores provide approximately 76%77% of all merchandise shipment requirements to stores. Stores are serviced by common carriers chosen on the basis of geography and rate considerations. The balance of the stores’ merchandise requirements is satisfied through direct shipments from vendors. The Spokane, WA distribution center supports the distribution to outside distribution facilities for sale on third-party marketplaces.

Item 3. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Company.

Store Manager Class Actions

Two former Store Managers filed actions alleging claims of entitlement to unpaid compensation for overtime. In one action, the plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager and Senior Assistant Manager) while the other plaintiff seeks to represent a class of allegedly similarly situated employees who performed the same position (Store Manager).

Specifically, Carol Spack filed a complaint against Trans World Entertainment Corporation (Trans World) in the United States District Court, District of New Jersey, on April 20, 2017 (Case No.: 3:17-cv-02687-BRM-LHG) alleging that she is entitled to unpaid compensation for overtime under the federal Fair Labor Standards Act (FLSA). She brings a nationwide collective action under the FLSA on behalf of all Store Managers and Senior Assistant Managers. She also brings class action claims under New Jersey and Pennsylvania law on behalf of all persons who worked as Store Managers in New Jersey or Senior Assistant Managers in Pennsylvania.

On May 19, 2017, Natasha Roper filed a complaint against Trans World in the U.S. District Court for the Northern District of New York (Case No.: 1:17-cv-0553-TJM-CFH) in which she also alleges that she is entitled to unpaid compensation for overtime under the FLSA. Ms. Roper brings a nationwide collective action under the FLSA on behalf of all similarly situated Store Managers.

Item 4.Mine Safety Disclosures

None.

PART II

Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information:

Information: The Company’s Common Stock trades on the NASDAQ StockGlobal Market under the symbol “TWMC.” As of March 31, 2015,29, 2018, there were 348292 shareholders of record. The following table sets forth high and low last reported sale prices for each fiscal quarter during the period from February 3, 20131, 2016 through March 31, 2015.29, 2018.

On March 31, 2015,29, 2018, the last trading date in March, the reported sale price on the Common Stock on the NASDAQ National Market was $3.70.$1.25.

Dividend Policy:

In the first quarter of Fiscal 2014, theThe Company declareddid not pay cash dividends in fiscal 2017 and paid a special cash dividend of $0.50 per common share. This was a special dividend and we cannot guarantee any future dividends. Thefiscal 2016.The declaration and payment of any future dividends will beis at the sole discretion of the board of directors. We diddirectors and is not pay cash dividends in Fiscal 2013.guaranteed. The Company’s amended credit facility contains certain restrictions related to the payment of cash dividends, including limiting the amount of dividends to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the dividend payment. On March 5, 2014, Wells Fargo Bank, National Association (the “Administrative Agent”) and certain other parties to the amended credit facility consented to the payment of the special cash dividend.

Five-Year Performance Graph:

The following line graph reflects a comparison of the cumulative total return of the Company’s Common Stock from January 31, 2010 through January 30, 2015 with the NASDAQ US Benchmark TR Index and with ICB: 5300 Retail (Supersector) index. Because none of the Company’s leading competitors has been an independent publicly traded company over the period, the Company has elected to compare shareholder returns with the published index of retail companies compiled by NASDAQ. All values assume a $100 investment on January 31, 2010, and that all dividends were reinvested.

Issuer Purchases of Equity Securities During the Quarter Ended January 31, 2015February 3, 2018

The Board of Directors authorized a $22 millionDuring the three month period ended February 3, 2018, the Company did not repurchase any shares under the share repurchase program in August 2013. The timing of share repurchases under the repurchase program depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board of Directors.program.

Below is a summaryThe Company’s amended credit facility contains certain restrictions related to share repurchases, including limiting the amount of repurchases to $5.0 million annually and not allowing borrowings under the amended facility for the six months before or six months after the share repurchase activity for the 3 months period ended January 31, 2015:transaction.

Item 6.SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected Statements of Operations and Balance Sheet data for the five fiscal years ended January 31, 2015February 3, 2018 and is derived from the Company’s audited Consolidated Financial Statements. The fiscal year ended February 2, 20133, 2018 consisted of 53 weeks while all the other fiscal years of the Company presented consisted of 52 weeks. This information should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes and other financial information included herein, including Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations provide information that the Company’s management believes necessary to achieve an understanding of its financial condition and results of operations. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company’s merchandise, including the entry or exit of non-traditional retailers of the Company’s merchandise to or from its markets; releases by the music video, and video, game industries of an increased or decreased number of “hit releases”; general economic factors in markets where the Company’s merchandise is sold; and other factors including, but not limited to: cost of goods, consumer disposable income, consumer debt levels and buying patterns, consumer credit availability, interest rates, customer preferences, unemployment, labor costs, inflation, fuel and energy prices, weather patterns, climate change, catastrophic events, competitive pressures and insurance costs discussed in the Company’s filings with the Securities and Exchange Commission. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with “Item 6: Selected Consolidated Financial Data” and the Consolidated Financial Statements and related notes included elsewhere in this report.

During October 2016, the Company acquired all of the issued and outstanding capital stock of etailz, Inc., an innovative and leading digital marketplace retail expert. See Note 3 to the Consolidated Financial Statements for additional information. Subsequent to this acquisition, reportable segments consist of fye and etailz. The etailz acquisition represents a significant step forward in the Company’s reinvention. The Company believes the rapid growth of marketplace sales will continue and is clear evidence of the explosive long-term trends underway in retailing. As of January 31, 2015,February 3, 2018, the Company operated 310260 stores totaling approximately 1.81.4 million square feet in the United States, the District of Columbia and the U.S. Virgin Islands. In Fiscal 2014, the Company’s net sales decreased as compared to Fiscal 2013 as a result of lower average store count and a 1% decrease in comparable store sales.

fye Segment

The U.S. entertainment retailing industry is a mature industry and has experienced declines in recent years.continues to experience declines. Physical Videovideo and Musicmusic represent our primary product categories in termsapproximately 50% of sales and both categories have been impacted by new distribution channels, including digital distribution and internet fulfillment. As a result, the Company has had negative comparable store sales for the past five years. To mitigate or lessen the impact these changes have had, the Company has focused on the following areas in an effort to improve its business:

Improving Product Mix and Creating Value for our CustomersEvolve the fye Brand Customer Experience.

The Company tailorsis evolving the product mix offye brand experience by diversifying its merchandise assortment and enhancing its merchandise presentation as it continues its strategy towards becoming the most compelling entertainment and pop culture centric engagement in the marketplace. In addition, the Company offers personalized customer service in its stores toward regional tastes in orderguided by a commitment to optimize the productivity of its stores, seeking to serve keyapproach every customer segments within each store. We have also focused on creating a stronger value statement for our customers in our two largest categories of videowith gratitude, humility and music to drive additional traffic into the stores and improve customer conversion rates, while offering products in other categories to drive additional sales and traffic to broaden our customer base.respect.

Store Portfolio Evaluation

During Fiscal 2014 and Fiscal 2013, the Company closed 40 and 25 stores, respectively. fye Segment

The Company’s real estate strategy is to maintain oura core group of profitable locations, while evaluating opportunities for new locations in new and existing malls. TheDuring fiscal 2017, the Company opened 61 new and remodeled 4 existing fye stores under a new format which expands the merchandise selection and enhances the presentation of the trend and electronics categories while maintaining a strong presence in Fiscal 2014the media categories. As of February 3, 2018, the Company operated 36 stores under the new format.

During fiscal 2017 and 6fiscal 2016, the Company closed 25 and 29 stores, in Fiscal 2013. The Company also relocated 5 stores in existing malls in Fiscal 2014.

respectively. The Company closes stores when minimum operating thresholds are not achieved or upon lease expiration when either renewal is not available or management determines that renewal is not in the Company’s best interest. The Company has signed short-term lease agreements for desirable locations, which enables us to negotiate rents that are responsive to the then-current sales environment. The Company has 197 stores with leases expiring during fiscal 2018. We will continue to close stores that do not meet our profitability goals, a process which could result in further asset impairments and store closure costs. ContinuedA continued reduction in the number of stores would lower total sales and gross profit of the Company.sales.

The Company believes that there is near-term opportunity for improving the productivity of existing stores. The environment in which our stores operate is intensely competitive and includes Internet-basedinternet-based retailers and mass merchants. We believe a specialty retailer that can differentiate itself by offering a distinctive assortment and customer experience, and that can operate efficiently, will be better positioned to maintain or growits market share. Therefore, we remain dedicated to enhancing our product mixmerchandise assortment through introducing additional product lines, improving the operational efficiency of our stores and offering our customers a rewarding shopping experience.experience guided by an approach to engage every customer with gratitude, humility and respect.

Expanding Customer Base

fye Segment

To strengthen customer loyalty, the Company offersfye stores offer its customers the option of signing up for a Backstage Pass card which provides an additional 10% discount off of everyday selling prices on nearly all products in addition to other value added benefits members receive through the program in exchange for a membership fee.  The CompanyEvents are also co-sponsors events in many of its stores to provide various segments of its customers an opportunity to experience entertainment and shop for unique and exclusive products based on their particular interests.

etailz Segment

On October 17, 2016, etailz was acquired to continue to build upon its credibility with fans of entertainment and pop culture. The Company acquired all of the issued and outstanding capital stock of etailz, Inc., an innovative and leading digital marketplace retail expert. etailz uses a data driven approach to digital marketplace retailing utilizing proprietary software and e-commerce insight coupled with a direct customer relationship engagement to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. The etailz acquisition represents a significant step forward in the Company’s reinvention. The Company believes the rapid growth of marketplace sales will continue and is clear evidence of the explosive long-term trends underway in retailing. fye’s progress onboarding digital and marketing talent, accelerated through the etailz acquisition, will enable the Company to reach a large portion of the market share through a multi-channel approach spanning across retail storefronts, direct websites, and all major online marketplaces.

Key Performance Indicators

Management monitors a number of key performance indicators to evaluate its performance, including:

Net Sales and Comparable Store Net Sales:The Companyfye segment measures the rate of comparable store net sales change. A store is included in comparable store net sales calculations at the beginning of its thirteenth full month of operation. Stores relocated, expanded or downsized are excluded from comparable store sales if the change in square footage is greater than 20%until the thirteenth full month following relocation, expansion or downsizing. Closed stores that were open for at least thirteen months are included in comparable store sales through the month immediately preceding the month of closing. The Companyfye segment further analyzes net sales by store format and by product category.The etailz segment measures total year over year sales growth by product category.

Cost of Sales and Gross Profit: Gross profit is calculated based on the cost of product in relation to its retail selling value. Changes in gross profit are impacted primarily by net sales levels, mix of products sold, vendor discounts and allowances, shrinkage, obsolescence and distribution costs. Distribution expenses include those costs associated with receiving, inspecting and& warehousing merchandise, Amazon fulfillment fees, and costs associated with product returns to vendors.

Selling, General and Administrative (“SG&A”) Expenses: Included in SG&A expenses are payroll and related costs, occupancy charges, general operating and overhead expenses and depreciation charges (excluding those related to distribution operations, as discussed in Note 2 of Notes5 to the Consolidated Financial Statements in this report). SG&A expenses also include fixed assets write-offs associated with store closures, if any, and miscellaneous income and expense items, other than interest.  The Company recorded miscellaneous income items for Fiscal 2014, 2013,fiscal 2017, 2016, and 20122015 in the amount of $6.1$0.4 million, $6.1$0.4 million, and $6.0$3.6 million, respectively.  Included in fiscal 2015 miscellaneous income items was a one-time reimbursement of expenses incurred in prior years, related to a legal settlement of $1.4 million.

Balance Sheet and Ratios: The Company views cash, net inventory investment (merchandise inventory less accounts payable) and working capital (current assets less current liabilities) as key indicators of its financial position. See Liquidity and Capital Resources for further discussion of these items.

Fiscal Year Ended January 31, 2015February 3, 2018 (“Fiscal 2014”fiscal 2017”)

Compared to Fiscal Year Ended February 1, 2014January 28, 2017 (“Fiscal 2013”fiscal 2016”)

The Company’s fiscal year is a 52 or 53-week period ending the Saturday nearest to January 31. Fiscal 2017, 2016, and 2015 ended February 3, 2018, January 28, 2017, and January 30, 2016, respectively. Fiscal 2017 had 53 weeks and fiscal 2016 and fiscal 2015 had 52 weeks. The 53rd week in fiscal 2017 contributed approximately 1% to net sales.

etailz results for fiscal 2016 included in the tables below are for the period starting from the date of acquisition.

Segment Highlights:

Net Sales.Total Revenue.The following table sets forth a year-over-year comparison of the Company’s total net sales:revenue:

Total revenue increased 25.3% to $442.9 million compared to $353.5 million in fiscal 2016, driven by $174.5 million in revenue from etailz. For fiscal 2016, results for etailz are included in the consolidated results from October 17, 2016 through January 28, 2017.

fye Segment

The 8.9%14.8% net sales decline from the prior year is primarily due to a 7.6%an 8.5% decline in averagetotal stores in operation and a 1.0%an 8.7% decline in comparable store net sales. Stores closed in Fiscal 2013fiscal 2017 and Fiscal 2014fiscal 2016 recorded sales of $72.1$14.9 million in Fiscal 2013.and $45.2 million, respectively. Total product units sold in Fiscal 2014for fiscal 2017 decreased 6.6%11.1% and the average retail price for units sold decreased 3.0%8.1%.

Net fye sales by merchandise category for Fiscal 2014fiscal 2017 and Fiscal 2013fiscal 2016 were as follows:

Trend/lifestyle

fye stores offer a selection of trend/lifestyle products that primarily relate to theatrical releases, music, and gaming. The trend/lifestyle category increased 3.5% on a comparable store sales basis in fiscal 2017. The trend represented 37.3% of the Company’s total net sales in fiscal 2017 versus 32.0% in fiscal 2016. The Company continues to take advantage of opportunities to strengthen its selection and shift product mix to growing categories of entertainment-related merchandise. The Company grew sales in this category by strengthening its assortment of consumables and collectables, as well as by improving the product presentation and value proposition.

Video

The Company’sfye stores offer a wide range of new and used DVDs, Blu-rays, and Blu-rays4Ks in a majority of its stores. Total net sales for Fiscal 2014 in the video category decreased 11.3% due to the lower average store count, anddeclined 15.9% on a 3.0% decrease in comparable store sales.sales basis in fiscal 2017. Video sales were negatively impacted by weaker new releases resulting from the declineindustry wide declines in box office sales during the year.physical video due to digital options.

According to Warner Home Video,the Digital Entertainment Group’s year-end report, total video sales in the United States declined 9.9% during the period corresponding with the Company’s Fiscal 2014.14.0% in 2017.

Music

The Company’sfye stores offer a wide range of new and used CDs, music DVDs and vinyl across most music genres, including new releases from current artists as well as an extensive catalog of music from past periods and artists. Total net sales in the music category declined 7.8%19.6% on a comparable store sale basis in Fiscal 2014. The Company has offset declines in CD sales by adding vinyl to many of its stores.fiscal 2017.

According to SoundScan, total CDphysical album unit sales in the United States declined 14.1%17.0% during the period corresponding with the Company’s Fiscal 2014.

Trend

The Company’s stores offer a selection of trend products that relate to theatrical releases, music, and gaming. The trend category increased 20.2% on a comparable store sales basis. Trend represented 15.2% of the Company’s total net sales in Fiscal 2014 versus 12.3% in Fiscal 2013. The Company continues to take advantage of opportunities to strengthen its selection and shift product mix to growing categories of entertainment-related merchandise.fiscal 2017.

Electronics

The Company’sfye stores offer a selection of complementary portable electronics and accessories to support our entertainment products. Total net sales in theThe electronics category increased 2.2%1.1% on a comparable store sales basis. Electronics represented 9.6%12.5% of the Company’s total net sales in Fiscal 2014fiscal 2017 versus 9.2%11.2% in Fiscal 2013.fiscal 2016.

Video gamesetailz Segment

During Fiscal 2014,etailz recorded sales of $174.5 million for fiscal 2017. etailz generates revenue across a broad array of product lines primarily through the Company offered video games in approximately 120 stores. Comparable net sales in the games category decreased 4.3%.

According to NPD, industry-wide video games sales were up 2.3% during the period corresponding with the Company’s Fiscal 2014.Amazon Marketplace. Categories include: apparel, baby, beauty, electronics, health & personal care, home/kitchen/grocery, pets, sporting goods, toys & art.

Gross Profit. The following table sets forth a year-over-year comparison of the Company’s Gross Profit:gross profit:

Gross profit increased 6.8% to $143.83 million compared to $134.7 million in fiscal 2016 as a result of the increased gross profit from etailz attributed to the full year results, partially offset by the decline in overall fye gross profit.

fye Segment

The decline in gross profit as a percentage of revenue was due to lower sales.sales and higher inventory markdowns to sell off seasonal merchandise. Gross profit as a percentage of sales was 38.8% in fiscal 2017 as compared to 39.8% in fiscal 2016. The decline in gross margin as a percentage of revenue was due to aggressive actions to clear slow moving merchandise.

etailz Segment

etailz gross profit as a percentage of revenue was 22.7% in fiscal 2017 as compared to 24.7% in fiscal 2016. The decline in etailz gross profit percentage was primarily due to a $2.0 million markdown of inventory from a one-time large purchase.

Selling, General and Administrative Expenses.

The following table sets forth a year-over-year comparison of the Company’s SG&A expenses:

The $5.4 million decrease in SGTotalSG&A expenses is due to a $9increased $28.2 million reduction in store expenses arising from the Company operating an average of 7.1% fewer stores and lower operating expenses in the ongoing stores. SG&A as a percentage of net sales increased 200 basis points from 34.9% in 2013 to 36.9% in 2014 primarily due to expenses associated with the appointment of a new CEO, a legal settlement, higher workers’ compensationfor etailz and higher per-square-foot occupancy costs.amortization expenses.

fye Segment

SG&A, excluding depreciation and amortization, expenses decreased $5.2 million, or 4.3%, primarily as a result of lower expenses due to fewer stores in operation.

etailz Segment

etailz SG&A, excluding depreciation and amortization, expenses for fiscal 2017 were $39.4 million, or 22.6% of etailz revenue.

Depreciation and amortization expense. Consolidated depreciation and amortization expense increased $4.5 million primarily due to amortization of intangibles, and the fye segment’s investments in technology enhancements during previous fiscal years.

Income from Joint Venture

Income from joint venture was $1.8 million during fiscal 2017.

Asset Impairment Charge – fye segment. During fiscal 2017, the Company concluded, based on continued operating losses for the fye segment, that a triggering event had occurred, pursuant to FASB ASC 360,Property, Plant, and Equipment,requiring a test of long-lived assets for impairment at its retail stores. Long-lived assets at locations where impairment was determined to exist were written down to their estimated fair values as of the end of fiscal 2017 resulting in the recording of asset impairment charges of $29.1 million. Estimated fair values for long-lived assets at these locations, including store fixtures, equipment, and leasehold improvements were determined based on a measure of discounted future cash flows over the remaining lease terms at the respective locations. Future cash flows were estimated based on store plans and were discounted at a rate approximating the Company’s cost of capital. Management believes its assumptions were reasonable and consistently applied.

The Company did not recognize impairment during fiscal 2016 and fiscal 2015. Losses for store closings in the ordinary course of business represent the write down of the net book value of abandoned fixtures and leasehold improvements. The loss on disposal of fixed assets related to store closings was $0.6 million, $1.1 million and $0.6 million in fiscal 2017, 2016 and 2015, respectively, and is included in selling, general and administrative (“SG&A”) expenses in the Consolidated Statements of Operations and loss on disposal of fixed assets in the Consolidated Statements of Cash Flows. Store closings usually occur at the expiration of the lease, at which time leasehold improvements, which constitute a majority of the abandoned assets, are fully depreciated.

Interest Expense.Interest expense in Fiscal 2014fiscal 2017 was $2.0$0.3 million, the same level as Fiscal 2013.compared to $0.8 million in fiscal 2016.

Other Income.Other income which includes interest income, was $70,000$8.9 million in Fiscal 2014fiscal 2017 compared to $80,000$1.1 million in Fiscal 2013.fiscal 2016. Other income for fiscal 2017 consisted primarily of a gain on insurance proceeds relatedto the death of the Company’s former Chairman. Other income for fiscal 2016 consisted primarily of a gain on the sale of an investment of $0.8 million.

Income Tax Expense.Benefit. The following table sets forth a year-over-year comparison of the Company’s income tax expense:benefit:

The Fiscal 2014fiscal 2017 income tax benefit includes the refund of alternative minimum tax credits partially offset by state taxes, adjustments to the reserve for uncertain tax positions, and 2013the accrual of interest. The fiscal 2016 income tax expense includes state taxes, adjustments to the reserve for uncertain tax positions and, the accrual of interest.interest and an income tax benefit from the etailz, Inc. acquisition.  See Note 511 in the Notes to Consolidated Financial Statements for further detail.

Net (Loss) Income. The following table sets forth a year-over-year comparison of the Company’s net (loss) income:

Net incomeloss was $42.6 million for Fiscal 2014 decreased by $6.5 million to $1.8 million, asfiscal 2017, compared to $8.3net income of $3.2 million for Fiscal 2013fiscal 2016. Included in the results for fiscal 2017 is a non-cash charge of $29.1 million which is the result of recording impairment against certain long-lived assets in the fye segment. The increase in net loss was primarily due to the decline in fye sales and a lower salesgross margin rate partially offset by a higher gross margin rate and a decrease in SG&A expenses.an $8.7 million gain on proceeds from company owned life insurance policies.

Fiscal Year Ended February 1, 2014January 28, 2017 (“Fiscal 2013”fiscal 2016”)

Compared to Fiscal Year Ended February 2, 2013January 30, 2016 (“Fiscal 2012”fiscal 2015”)

Segment Highlights:

etailz results included in the tables below are for the period starting from the date of acquisition.

Reconciliation of etailz Loss from Operations to etailz Adjusted Income from Operations

Net Sales.Total Revenue.The following table sets forth a year-over-year comparison of the Company’s total net sales:revenue:

Total revenue increased 4.1% to $353.5 million compared to $339.5 million in fiscal 2015, driven by $40.3 million in net sales from etailz from the date of acquisition, and partially offset by the decline in fye net sales.

fye Segment

The 14.2 %7.8% net sales decline from the prior year is due to a 6.3%5% decline in averagetotal stores in operation and a 5.0%3.6% decline in comparable store net sales and 52 weeks in Fiscal 2013 versus 53 weeks in Fiscal 2012.sales. Stores closed in Fiscal 2012fiscal 2016 and Fiscal 2013fiscal 2015 recorded sales of $80.7$21.6 million in Fiscal 2012. While the Company believes a meaningful amount of sales was transferred to ongoing stores, there was a reduction of sales from store closings.and $45.2 million, respectively. Total product units sold in Fiscal 2013for fiscal 2016 decreased 11.9%7.5% and the average retail price for units sold decreased 2.7%1.8%.

Netfye net sales by merchandise category for Fiscal 2013fiscal 2016 and Fiscal 2012fiscal 2015 were as follows: