February 10, 2006

Mr. William Choi

Accounting Branch Chief

Securities and Exchange Commission

Washington, DC 20549

RE:	Trans World Entertainment Form 10-K for the Fiscal Year Ended January 29, 2005
	File Number 0-14818

Dear Mr. Choi:

This letter is submitted on behalf of Trans World Entertainment (“Trans World Entertainment” or the “Company”) in response to the comments of the Staff of the Division of Corporation Finance (the “Staff”) as set forth in your letter to the Company dated January 31, 2006.  For your convenience the Staff’s comments and the responses thereto are set forth sequentially below.

Consolidated Financial Statements

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Gift Certificates, page 39

1.We note that you estimate breakage based on the historical relationship of the redemption of gift cards redeemed to gift cards sold over a certain period of time. Please tell us your basis in GAAP for recognizing revenue before either performance or a legal release from the liability as contemplated by SFAS No.140. In doing so, tell us whether all of your gift cards and certificates are redeemable for cash and carry expiration dates and whether and how your accounting policies differ with respect to gift cards and certificates that do and do not carry expiration dates. Please also tell us whether you recognize breakage upon sale of the gift cards and certificates over the term of your performance obligation and your basis in GAAP for doing so. We generally do not believe that any breakage should be recognized at the point of purchase. In your response, please provide historical evidence that demonstrates to us that the demand for future performance with respect to the estimated breakage recognized is remote and that the estimate is based on a large population of homogenous transactions. Consider providing us with a schedule that reflects the following information for an appropriate historical period:

•the number and dollar amount of gift cards purchased by year;

•the number, dollar amount and percentage of gift cards redeemed in the year of purchase and in each subsequent year;

•the number, dollar amount and percentage of gift cards outstanding at the end of the year of purchase and each subsequent year; and

1

•the breakage recognized on a quarterly basis for the historical periods presented in the filing.

Finally, tell us where breakage is classified in your statements of operations.

COMPANY RESPONSE:

We sell gift cards that are redeemable only for merchandise and have no expiration date and have considered the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting and Servicing of Financial Assets and Extinguishment of Liabilities” in the evaluation of our liability of gift cards. We derecognize our card liability when either customers redeem cards (at which point we record revenue) or the Company determines it does not have a legal obligation to remit unredeemed cards to the relevant jurisdictions and the likelihood of the cards being redeemed becomes remote (at which point we record breakage as a credit to selling, general and administrative expenses).

Our accounting for gift cards is based on estimating the Company’s liability for future card redemptions as of a reporting period end.  In response to the Staff’s comments, we have completed a historical analysis of our gift card liability. A summary of our analysis is presented and discussed below.  In summary, our estimated liability is equal to two years of unredeemed cards, plus an amount for outstanding cards that may possibly be redeemed for the cumulative look back period, exclusive of the last two years.  As mentioned above, the Company has considered the guidance within SFAS No. 140, but has determined there is a remote chance that customer will require performance on the remaining card balances not included in the liability and this is recorded as breakage.

We considered Emerging Issues Task Force (“EITF”) No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” in establishing our accounting for gift cards, which defines breakage as “the portion or percentage of customers eligible to qualify for an offer who ultimately will not earn and/or claim an incentive award or consideration (such as rebates or refunds) from a vendor.”  We believe our treatment is analogous with EITF No. 01-9 in that the measurement of our gift card liability is based on the estimated number of customers that will ultimately redeem the gift cards (that is, breakage is considered as it can be reasonably estimated).  Our ability to reasonably and reliably estimate the liability is based on our historical experience with gift cards and similar types of arrangements and the existence of a large volume of relatively homogeneous transactions.

We further considered SFAS No. 48, “Revenue Recognition When Right of Return Exists”, when estimating the percentage of card balances where performance is deemed remote.  Our percentage is based on a history of gift card sales, actual redemptions and unredeemed cards for a period of more than ten years reflecting a large, homogeneous population of transactions.  Our estimate is not susceptible to significant external factors and the circumstances around card sales and redemptions have not changed significantly over time.  We believe that this analogous view is consistent with the guidance presented within the interpretative response to question 1 presented in Staff Accounting Bulletin No. 104, “Revenue Recognition,” topic 13.A.4(a).

The following table presents the amounts of purchases and redemptions of gifts cards for a cumulative ten year period and the three most recent years and demonstrates the percentage of purchases over redemptions to card purchases:

2

(000) omitted

			Redemptions				Purchases over Redemptions
Period	Purchases		Amount		%		Amount		%
Cumulative-
10 Year	$	312,583	$	273,230	87.4	%	$	39,353	12.6	%
2004	36,995		32,806		88.7	%	4,189		11.3	%
2003	37,238		32,466		87.2	%	4,772		12.8	%
2002	36,047		32,493		90.1	%	3,554		9.9	%

The above table demonstrates that the Company has experienced a historical redemption percentage of 87.4% over the ten year period ended January 29, 2005 (fiscal 2004).

The actual percentage used by the Company to recognize breakage is less than the historical percentage of purchases over redemptions to card purchases as the Company believes it is possible that some card balances older than two years may still be redeemed.  The historical breakage recognized by the Company reflects the percentage of card balances where performance is deemed remote.  This is shown in the following table:

	2004			2003			2002
Cumulative gift card sales through period ending two years prior to reporting period (e.g. cumulative sales through 2002 in the 2004 calculation)	$	256,288		$	220,241		$	177,707
Percentage amount considered remote	10.3		%	9.9		%	10.2		%
Cumulative breakage	$	26,383		$	21,705		$	18,194
Annual breakage	$	4,678		$	3,511		$	3,540

Our assessment of the estimated gift card liability includes consideration of the historical percentage of gift cards whose redemption is remote.  The following analysis is a summary of the gift card liability recorded as of January 29, 2005:

2004 gift card purchases over redemptions	$	4,189
2003 gift card purchases over redemptions	4,772
Subtotal	$	8,961
Possible redemptions:
Cumulative gift card sales through 2002	$	256,288
% of possible redemptions	3.3%		(*)
Liability for possible redemptions	$	8,563
Gift card liability	$	17,524

3

(*) Percentage is calculated as follows:

Total gift card sales	100.0	%
Historical redemption% - prior 10 years	(86.4	)
(1993 – 2002)
Remote redemption%	(10.3	)
% of possible redemptions	3.3	%

The Company began recording breakage on a quarterly basis in 2004 after reviewing the matter in conjunction with its efforts to comply with Section 404 of the Sarbanes Oxley Act.  Breakage recognized on a quarterly basis (pre-tax) for 2004 is as follows (000’s):

	Fiscal 2004
First quarter	$	289
Second quarter	368
Third quarter	321
Fourth quarter	3,700

Breakage recognized during fiscal years 2003 and 2002 was recorded in the fourth quarter.  Management calculated the impact on reported amounts included in its filing for the 2003 and 2002 quarters as if quarterly breakage had been recorded and determined the changes to be inconsequential as demonstrated in the following table.

	Fiscal 2003												Fiscal 2002
	Proforma Net Income (Loss)			Reported Net Income (Loss)			Proforma Diluted EPS			Reported Diluted EPS			Proforma Net Income (Loss)			Reported Net Income (Loss)			Proforma Diluted EPS			Reported Diluted EPS
Quarter 1	$	(4,958	)	$	(5,085	)	$	(0.13	)	$	(0.13	)	$	(18,734	)	$	(18,874	)	$	(0.47	)	$	(0.47	)
Quarter 2	$	(2,781	)	$	(2,913	)	$	(0.07	)	$	(0.08	)	$	(6,868	)	$	(7,003	)	$	(0.17	)	$	(0.17	)
Quarter 3	$	(5,803	)	$	(5,912	)	$	(0.16	)	$	(0.16	)	$	(14,654	)	$	(14,760	)	$	(0.37	)	$	(0.37	)
Quarter 4	$	36,609		$	36,977		$	0.98		$	0.99		$	(5,214	)	$	(4,833	)	$	(0.13	)	$	(0.12	)
Annual	$	23,067		$	23,067		$	0.60		$	0.60		$	(45,470	)	$	(45,470	)	$	(1.13	)	$	(1.13	)

Management further considered SAB 99 in its determination that the quarterly differences for 2003 and 2002 were inconsequential.  Among other reasons, by not presenting these quarterly changes, management would not:

•mask a change in earnings or other trends;

•change a loss into income or vice versa;

•hide a failure to meet analysts’ consensus expectations;

•concern a segment or other portion of the Company’s business that has been identified as playing a significant role in the Company’s operations or profitability;

•affect the Company’s compliance with loan covenants or other contractual requirements;

•affect management’s compensation; or

•conceal an unlawful transaction.

4

The Company does not believe that the changes in certain financial statement line items, would change or influence the judgment of a reasonable person relying on the Company’s previously filed reports.  As such, it is improbable that restatement would result in a change in an investors’ view of the Company’s valuation.  Similarly, these amounts would not significantly change balances, classifications or trends as previously discussed by management in public reports.

In conclusion, the Company believes its accounting for gift cards has been consistently applied and evaluated in consideration of generally accepted accounting principles and our consolidated financial statements accurately reflect our gift card transactions, as well as estimate our associated redemption liability.

Note 4. Fixed Assets, page 42

2.   We note your disclosures on pages 13, 25, 37, and 43 regarding the correction of lease accounting errors and that the cumulative effect of the error was recorded in fiscal year 2004. It appears that your prior period statements of cash flows and balance sheet have not been revised to conform to your current presentation for construction allowances. Tell us why you did not restate your historical statements of cash flows to reflect construction allowances in operating activities. Additionally with regard to your lease accounting errors, please provide us with your qualitative and quantitative assessment of materiality for the quarterly and annual periods presented which supports your conclusion that these adjustments are not material to your historical financial statements and that no restatements are necessary. In your response, please provide a table showing the previously reported and “as adjusted” amounts for each applicable cash flow, balance sheet, and statement of operations line item. The “As adjusted” column should reflect your financial statements as if all lease accounting errors and misclassifications have been corrected. Refer to SAB Topics 5:F and 1:M.

COMPANY RESPONSE:

We have provided schedules as an attachment showing previously reported amounts and “as adjusted” amounts for each applicable cash flow, balance sheet, and statement of operations line item. The “as adjusted” column reflects amounts as if all lease accounting errors and misclassifications had been retroactively applied.  The corrections, individually and in the aggregate, do not significantly alter amounts reported for the prior years.  For each year presented:

•Reported earnings per share would not change by more than $0.02 or 2.2%, in the annual consolidated statement of operations;

•Reported current assets, total assets, current liabilities or total liabilities would not change by more than 4.0%, in the year-end consolidated balance sheets;

•Reported net cash provided by (used in) operating activities or net cash used by investing activities would not change by more than $1.7 million;

•Cash balances would not change;

•Similarly, quarterly reported amounts would not change significantly;

5

The Company believes further that the lease accounting adjustments were not material following its analysis of all relevant considerations in accordance with the guidance set forth in SAB 99.  Among other reasons, by not restating previously reported periods, the Company:

•did not mask a change in earnings or other trends;

•did not change a loss into income or vice versa;

•did not hide a failure to meet analysts’ consensus expectations;

•did not concern a segment or other portion of the Company’s business that has been identified as playing a significant role in the Company’s operations or profitability;

•did not affect the Company’s compliance with loan covenants or other contractual requirements;

•did not affect (increase) management’s compensation; and

•did not conceal of an unlawful transaction.

The Company does not believe that the changes in certain financial statement line items, as set forth in the aforementioned schedule, would change or influence the judgment of a reasonable person relying on the Company’s previously filed reports.  As such, it is improbable that restatement would result in a change in an investors’ view of the Company’s valuation.  Similarly, these amounts would not significantly change balances, classifications or trends as previously discussed by management in public reports.

Consequently, management believes that the consolidated financial statements as presented in the Company’s Annual Report on Form 10-K, taken together with the disclosures, do not omit or obscure any material information and do not require restatement.

Form 8-K filed August 11, 2005

3.  We note that you disclose the per-share impacts of an income tax benefit and a state tax charge. We also note that similar disclosure is included in your Form 8-K filed on November 10, 2005. As required by Release 33-8176, please disclose the following information in future filings:

•the reasons why management believes that presentation of the non-GAAP financial measures provide useful information to investors regarding your financial condition and results of operations; and

•to the extent material, the additional purposes, if any, for which management uses the non-GAAP financial measures that are not otherwise disclosed.

COMPANY RESPONSE:

Management will comply with the requirements of Release 33-8176 in its future filings.

**********

6

In addition, in connection with responding to the Staff’s comments, we acknowledge the following:

•The Company is responsible for the adequacy and the accuracy of the disclosure in the filing;

•Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and

•The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

Please contact the undersigned (telephone number 518-452-1242) as soon as practicable with any questions or further comments you may have concerning this matter with a copy to the parties mentioned below.  Your assistance in this matter is greatly appreciated.

Very Truly Yours,

/s/ John J. Sullivan

John Sullivan

Executive Vice President and Chief Financial
Officer

CC:Mark Holtzman, KPMG LLP via fax 518-689-4724

Gary Brooks, Cahill Gordon & Reindel LLP via fax 212-378-2406

7

Trans World Entertainment

Lease Accounting Adjustment - As Reported and As Adjusted

	Fiscal 2004			Fiscal 2003						Fiscal 2002
	As Reported			As Reported			As Adjusted			As Reported			As Adjusted
	1/29/2005			1/31/2004			1/31/2004			2/1/2003			2/1/2003
Consolidated Balance Sheets
Cash	$	229,768		191,922			$	191,922		197,050			$	197,050
Accounts receivable	6,202			9,182			9,284			10,191			10,141
Merchandise inventory	431,246			424,783			424,783			378,005			378,005
Prepaid expenses and other	6,804			6,700			6,700			5,482			5,482
Current deferred taxes	15,526			7,349			7,349			4,977			4,977
Current assets	689,546			639,936			640,038			595,705			595,655
Fixed assets, net	130,196			125,641			138,206			155,417			171,699
Deferred taxes	25,039			39,964			40,373			40,667			40,764
Other assets	14,872			12,217			12,217			11,607			11,607
Total assets	$	859,653		$	817,758		$	830,834		$	803,396		$	819,725
Accounts payable	$	358,396		$	306,298		$	306,298		$	326,959		$	326,959
Income taxes payable	8,592			25,689			25,689			13,418			13,418
Accrued expenses and other	43,712			54,079			56,349			35,060			37,918
Current portion of long term debt	448			—			—			—			—
Current portion of capital leases	332			395			395			1,640			1,640
Current liabilities	411,480			386,461			388,731			377,077			379,935
Long term debt	5,060			—			—			—			—
Capital lease obligations, less current portion	6,977			7,465			7,465			7,860			7,860
Deferred rent and other long term liabilities	31,813			24,648			36,198			26,355			40,073
Total liabilities	455,330			418,574			432,394			411,292			427,868
Preferred stock	—			—			—			—			—
Common stock	550			542			542			540			540
Additional paid in capital	292,922			288,272			288,272			287,402			287,402
Unearned compensation - restricted stock	(46		)	(23		)	(23		)	(116		)	(116		)
Treasury stock at cost	(186,298		)	(146,055		)	(146,055		)	(129,103		)	(129,103		)
Accumulated other comprehensive loss	(1,094		)	—			—			—			—
Retained earnings	298,289			256,448			255,704			233,381			233,134
Total shareholders’ equity	404,323			399,184			398,440			392,104			391,857
Total liabilities and shareholders’ equity	$	859,653		$	817,758		$	830,834		$	803,396		$	819,725

	2004 QUARTERS
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	5/1/2004			5/1/2004			7/31/2004			7/31/2004			10/30/2004			10/30/2004
Consolidated Balance Sheets
Cash	$	88,458		$	88,458		$	39,927		$	39,927		$	18,658		$	18,658
Accounts receivable	6,193			6,193			8,587			8,587			6,337			6,337
Merchandise inventory	442,630			442,630			422,209			422,209			459,246			459,246
Prepaid expenses and other	5,287			5,287			5,476			5,476			5,849			5,849
Income taxes receivable	—			—			—			—			3,829			3,829
Current deferred taxes	8,070			8,070			10,271			10,271			8,657			8,657
Current assets	550,638			550,638			486,470			486,470			502,576			502,576
Fixed assets, net	126,025			138,065			122,839			134,251			121,088			131,873
Deferred taxes	39,112			39,651			39,292			39,933			31,386			32,130
Other assets	14,906			14,906			14,081			14,081			14,063			14,063
Total assets	$	730,681		$	743,260		$	662,682		$	674,735		$	669,113		$	680,642
Accounts payable	$	242,975		$	242,975		$	196,460		$	196,460		$	224,777		$	224,777
Income taxes payable	15,306			15,306			1,760			1,760			3,940			3,940
Accrued expenses and other	42,289			44,608			37,388			39,755			35,965			38,381
Current portion of long term debt	—			—			436			436			442			442
Current portion of capital leases	407			407			418			418			431			431
Current liabilities	300,977			303,296			236,462			238,829			265,555			267,971
Long term debt	—			—			5,289			5,289			5,177			5,177
Capital lease obligations, less current portion	7,359			7,359			7,250			7,250			7,137			7,137
Deferred rent and other long term liabilities	23,866			35,018			22,756			33,509			13,891			24,246
Total liabilities	332,202			345,673			271,757			284,877			291,760			304,531
Preferred stock	—			—			—			—			—			—
Common stock	544			544			545			545			546			546
Additional paid in capital	288,964			288,964			289,220			289,220			289,672			289,672
Unearned compensation - restricted stock	(6		)	(6		)	(54		)	(54		)	(50		)	(50		)
Treasury stock at cost	(149,930		)	(149,930		)	(167,001		)	(167,001		)	(176,425		)	(176,425		)
Retained earnings	258,907			258,015			268,215			267,148			263,610			262,368
Total shareholders’ equity	398,479			397,587			390,925			389,858			377,353			376,111
Total liabilities and shareholders’ equity	$	730,681		$	743,260		$	662,682		$	674,735		$	669,113		$	680,642

	2003 QUARTERS
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	5/3/2003			5/3/2003			8/2/2003			8/2/2003			11/1/03			11/1/03
Consolidated Balance Sheets
Cash	$	62,016		$	62,016		$	44,868		$	44,868		$	19,840		$	19,840
Accounts receivable	11,401			11,401			11,822			11,822			10,823			10,823
Merchandise inventory	401,678			401,678			371,413			371,413			509,360			509,360
Prepaid expenses and other	5,701			5,701			5,519			5,519			5,649			5,649
Current deferred taxes	4,721			4,721			5,309			5,309			8,898			8,898
Current assets	485,517			485,517			438,931			438,931			554,570			554,570
Fixed assets, net	147,503			162,844			140,301			154,751			135,452			149,010
Deferred taxes	36,388			36,590			35,718			35,998			36,267			36,593
Other assets	11,294			11,294			10,929			10,929			12,160			12,160
Total assets	$	680,702		$	696,245		$	625,879		$	640,609		$	738,449		$	752,333
Accounts payable	$	222,219		$	222,219		$	189,018		$	189,018		$	277,293		$	277,293
Income taxes payable	3,701			3,701			1,478			1,478			—			—
Borrowings under line of credit	—			—			—			—			12,108			12,108
Accrued expenses and other	33,021			35,732			31,708			34,272			51,291			53,708
Current portion of capital leases and long term debt	955			955			470			470			409			409
Current liabilities	259,896			262,607			222,674			225,238			341,101			343,518
Capital lease obligations, less current portion	7,765			7,765			7,668			7,668			7,568			7,568
Deferred rent and other long term liabilities	25,851			39,027			22,056			34,690			25,563			37,655
Total liabilities	293,512			309,399			252,398			267,596			374,232			388,741
Preferred stock	—			—			—			—			—			—
Common stock	541			541			541			541			542			542
Additional paid in capital	287,532			287,532			288,010			288,010			288,382			288,382
Unearned compensation - restricted stock	(76		)	(76		)	(348		)	(348		)	(303		)	(303		)
Treasury stock at cost	(129,103		)	(129,103		)	(140,104		)	(140,104		)	(143,874		)	(143,874		)
Retained earnings	228,296			227,952			225,382			224,914			219,470			218,845
Total shareholders’ equity	387,190			386,846			373,481			373,013			364,217			363,592
Total liabilities and shareholders’ equity	$	680,702		$	696,245		$	625,879		$	640,609		$	738,449		$	752,333

Trans World Entertainment

Lease Accounting Adjustment - As Reported and As Adjusted

NOTE:  Given immateriality of impact on the annual 2/1/03 results ($79K), analysis was NOT performed separately on the quarterly information.

	Fiscal 2004						Fiscal 2003						Fiscal 2002						Fiscal 2001						Fiscal 2000
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	1/29/2005			1/29/2005			1/31/2004			1/31/2004			2/1/2003			2/1/2003			2/2/2002			2/2/2002			2/3/2001			2/3/2001
Consolidated Statements of Operations
Sales	$	1,365,133		$	1,365,133		$	1,330,626		$	1,330,626		$	1,281,869		$	1,281,869		$	1,388,032		$	1,388,032		$	1,414,589		$	1,414,589
Cost of sales	869,999			869,999			842,726			842,726			815,071			815,071			935,256			935,256			917,354			917,354
Gross profit	495,134			495,134			487,900			487,900			466,798			466,798			452,776			452,776			497,235			497,235
Selling, general and administrative expenses	450,162			449,009			459,441			460,250			465,893			466,153			422,737			422,876			416,990			416,935
Goodwill impairment charge	—			—			—			—			40,914			40,914			—			—			—			—
Income (loss) from operations	44,972			46,125			28,459			27,650			(40,009		)	(40,269		)	30,039			29,900			80,245			80,300
Interest expense	2,444			2,444			2,147			2,147			2,349			2,349			2,477			2,477			3,128			3,128
Other income	(1,039		)	(1,039		)	(718		)	(718		)	(1,231		)	(1,231		)	(2,120		)	(2,120		)	(6,543		)	(6,543		)
Income (loss) before income taxes, cumulative effect of change in accounting principle and extraordinary gain - unallocated negative goodwill	43,567			44,720			27,030			26,221			(41,127		)	(41,387		)	29,682			29,543			83,660			83,715
Income tax expense	4,892			5,301			8,302			7,990			(9,341		)	(9,426		)	12,891			12,831			43,510			43,531
Income (loss) before cumulative effect of change in accounting principle and extraordinary gain - unallocated negative goodwill	38,675			39,419			18,728			18,231			(31,786		)	(31,961		)	16,791			16,712			40,150			40,184
Extraordinary gain - unallocated negative goodwill, net of income taxes	3,166			3,166			4,339			4,339			—			—			—			—			—			—
Cumulative effect of a change in accounting principle, net of income taxes	—			—			—			—			(13,684		)	(13,684		)	—			—			—			—
Net income	$	41,841		$	42,585		$	23,067		$	22,570		$	(45,470	)	$	(45,645	)	$	16,791		$	16,712		$	40,150		$	40,184
Basic Earnings Per Share
Earnings per share before cumulative effect of change in accounting principle and extraordinary gain - unallocated negative goodwill	$	1.12		$	1.14		$	0.50		$	0.49		$	(0.79	)	$	(0.79	)	$	0.40		$	0.40		$	0.84		$	0.84
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	0.09		$	0.09		$	0.12		$	0.12		$	—		$	—		$	—		$	—		$	—		$	—
Cumulative effect of a change in accounting principle net of income taxes	$	—		$	—		$	—		$	—		$	(0.34	)	$	(0.34	)	$	—		$	—		$	—		$	—
Basic earnings per share	$	1.21		$	1.23		$	0.62		$	0.60		$	(1.13	)	$	(1.13	)	$	0.40		$	0.40		$	0.84		$	0.84
Weighted average shares - basic	34,531			34,531			37,422			37,422			40,224			40,224			41,938			41,938			47,597			47,597
Diluted Earnings Per Share
Earnings per share before cumulative effect of change in accounting principle and extraordinary gain - unallocated negative goodwill	$	1.07		$	1.09		$	0.49		$	0.48		$	(0.79	)	$	(0.79	)	$	0.39		$	0.39		$	0.83		$	0.83
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	0.09		$	0.09		$	0.11		$	0.11		$	—		$	—		$	—		$	—		$	—		$	—
Cumulative effect of a change in accounting principle net of income taxes	$	—		$	—		$	—		$	—		$	(0.34	)	$	(0.34	)	$	—		$	—		$	—		$	—
Diluted earnings per share	$	1.15		$	1.17		$	0.60		$	0.59		$	(1.13	)	$	(1.13	)	$	0.39		$	0.39		$	0.83		$	0.83
Weighted average shares - diluted	36,296			36,296			38,209			38,209			40,224			40,224			42,553			42,553			48,498			48,498
Balance Sheet Data
Total assets	859,653			859,653			817,758			830,834			803,396			819,725			935,418			953,564			1,002,002			1,021,138
Current portion of long term obligations	780			780			395			395			1,640			1,640			4,711			4,711			5,702			5,702
Long term obligations	12,037			12,037			7,465			7,465			7,860			7,860			9,500			9,500			13,767			13,767
Shareholders’ equity	404,323			404,323			399,184			398,440			392,104			391,857			448,066			448,241			448,822			448,919

	2004 QUARTERS
	As Reported		As Adjusted		As Reported			As Adjusted			As Reported			As Adjusted			As Reported		As Adjusted
	5/1/2004		5/1/2004		7/31/2004			7/31/2004			10/30/2004			10/30/2004			1/29/2005		1/29/2005
Consolidated Statements of Operations
Sales	$	304,483	$	304,483	$	277,182		$	277,182		$	270,013		$	270,013		$	513,455	$	513,455
Cost of sales	191,178		191,178		174,144			174,144			170,045			170,045			334,632		334,632
Gross profit	113,305		113,305		103,038			103,038			99,968			99,968			178,823		178,823
Selling, general and administrative expenses	109,695		109,972		108,899			109,176			108,863			109,140			122,705		120,720
Income (loss) from operations	3,610		3,333		(5,861		)	(6,138		)	(8,895		)	(9,172		)	56,118		58,103
Interest expense	317		317		407			407			578			578			103		103
Income (loss) before income taxes, cumulative effect of change in accounting principle and extraordinary gain - unallocated negative goodwill	3,293		3,016		(6,268		)	(6,545		)	(9,473		)	(9,750		)	56,015		58,000
Income tax expense	1,252		1,150		(13,397		)	(13,499		)	(4,299		)	(4,401		)	21,336		22,051
Income (loss) before extraordinary gain - unallocated negative goodwill	2,041		1,866		7,129			6,954			(5,174		)	(5,349		)	34,679		35,949
Extraordinary gain - unallocated negative goodwill, net of income taxes	418		418		2,178			2,178			570			570			—		—
Net income	$	2,459	$	2,284	$	9,307		$	9,132		$	(4,604	)	$	(4,779	)	$	34,679	$	35,949
Basic Earnings Per Share
Earnings per share before extraordinary gain - unallocated negative goodwill	$	0.06	$	0.05	$	0.20		$	0.20		$	(0.15	)	$	(0.15	)	$	1.04	$	1.08
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	0.01	$	0.01	$	0.06		$	0.06		$	0.01		$	0.01		$	—	$	—
Basic earnings per share	$	0.07	$	0.06	$	0.26		$	0.26		$	(0.14	)	$	(0.14	)	$	1.04	$	1.08
Weighted average shares - basic	35,981		35,981		35,100			35,100			33,812			33,812			33,232		33,232
Diluted Earnings Per Share
Earnings per share before extraordinary gain - unallocated negative goodwill	$	0.06	$	0.05	$	0.19		$	0.19		$	(0.15	)	$	(0.15	)	$	0.98	$	1.02
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	0.01	$	0.01	$	0.06		$	0.06		$	0.01		$	0.01		$	—	$	—
Diluted earnings per share	$	0.07	$	0.06	$	0.25		$	0.25		$	(0.14	)	$	(0.14	)	$	0.98	$	1.02
Weighted average shares - diluted	37,609		37,609		36,855			36,855			33,812			33,812			35,226		35,226

	2003 QUARTERS
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted			As Reported		As Adjusted
	5/3/2003			5/3/2003			8/2/2003			8/2/2003			11/1/2003			11/1/2003			1/31/2004		1/31/2004
Consolidated Statements of Operations
Sales	$	273,402		$	273,402		$	246,746		$	246,746		$	268,506		$	268,506		$	541,972	$	541,972
Cost of sales	175,831			175,831			150,209			150,209			172,199			172,199			344,487		344,487
Gross profit	97,571			97,571			96,537			96,537			96,307			96,307			197,485		197,485
Selling, general and administrative expenses	105,946			106,148			104,650			104,852			109,203			109,405			139,642		139,845
Income (loss) from operations	(8,375		)	(8,577		)	(8,113		)	(8,315		)	(12,896		)	(13,098		)	57,843		57,640
Interest expense	159			159			342			342			549			549			379		379
Income (loss) before income taxes and extraordinary gain - unallocated negative goodwill	(8,534		)	(8,736		)	(8,455		)	(8,657		)	(13,445		)	(13,647		)	57,464		57,261
Income tax expense	(3,449		)	(3,527		)	(5,542		)	(5,620		)	(5,342		)	(5,420		)	22,635		22,557
Income (loss) before extraordinary gain - unallocated negative goodwill	(5,085		)	(5,209		)	(2,913		)	(3,037		)	(8,103		)	(8,227		)	34,829		34,704
Extraordinary gain - unallocated negative goodwill, net of income taxes	—			—			—			—			2,191			2,191			2,148		2,148
Net income	$	(5,085	)	$	(5,209	)	$	(2,913	)	$	(3,037	)	$	(5,912	)	$	(6,036	)	$	36,977	$	36,852
Basic Earnings Per Share
Earnings per share before extraordinary gain - unallocated negative goodwill	$	(0.13	)	$	(0.13	)	$	(0.08	)	$	(0.08	)	$	(0.22	)	$	(0.22	)	$	0.96	$	0.96
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	—		$	—		$	—		$	—		$	0.06		$	0.06		$	0.06	$	0.06
Basic earnings per share	$	(0.13	)	$	(0.13	)	$	(0.08	)	$	(0.08	)	$	(0.16	)	$	(0.16	)	$	1.02	$	1.02
Weighted average shares - basic	38,920			38,920			37,969			37,969			36,625			36,625			36,170		36,170
Diluted Earnings Per Share
Earnings per share before extraordinary gain - unallocated negative goodwill	$	(0.13	)	$	(0.13	)	$	(0.08	)	$	(0.08	)	$	(0.22	)	$	(0.22	)	$	0.93	$	0.93
Extraordinary gain - unallocated negative goodwill, net of income taxes	$	—		$	—		$	—		$	—		$	0.06		$	0.06		$	0.06	$	0.06
Diluted earnings per share	$	(0.13	)	$	(0.13	)	$	(0.08	)	$	(0.08	)	$	(0.16	)	$	(0.16	)	$	0.99	$	0.98
Weighted average shares - diluted	38,920			38,920			37,969			37,969			36,625			36,625			37,471		37,471

Trans World Entertainment

Lease Accounting Adjustment - As Reported and As Adjusted

	Fiscal 2004						Fiscal 2003						Fiscal 2002
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
	1/29/2005			1/29/2005			1/31/2004			1/31/2004			2/1/2003			2/1/2003
Consolidated Statements of Cash Flows
Operating Activities:
Net income	$	41,841		$	42,585		$	23,067		$	22,570		$	(45,470	)	$	(45,645	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization	39,796			38,560			40,539			43,894			42,476			45,553
Amortization of lease valuations	(844		)	(844		)	(893		)	(893		)	(148		)	(148		)
Stock compensation programs	90			90			143			143			368			368
Loss on disposal of fixed assets	2,848			2,848			2,544			2,928			2,834			3,176
Loss on impairment of fixed assets	—			—			3,682			3,682			—			—
Write off of investments in unconsolidated affiliates	—			—			—			—			9,311			9,311
Deferred tax expense (benefit)	6,948			7,357			(4,106		)	(4,418		)	(9,877		)	(10,184		)
Goodwill impairment charge	—			—			—			—			40,914			40,914
Cumulative effect of change in accounting principle, net of income taxes	—			—			—						13,684			13,684
Extraordinary gain, net of income taxes	(3,166		)	(3,166		)	(4,339		)	(4,339		)	—			—
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	2,980			3,082			1,009			857			(3,052		)	(3,002		)
Merchandise inventory	(4,009		)	(4,009		)	5,275			5,275			8,428			8,428
Prepaid expenses and other	(104		)	(104		)	(1,218		)	(1,218		)	1,298			1,298
Other assets	(2,730		)	(2,730		)	(353		)	(353		)	771			771
Accounts payable	52,098			52,098			(20,661		)	(20,661		)	(51,943		)	(51,943		)
Income taxes payable	(15,151		)	(15,151		)	12,479			12,479			(12,399		)	(12,399		)
Accrued expenses and other	(10,442		)	(12,712		)	12,849			12,261			784			784
Deferred rent and other long term liabilities	(4,224		)	(1,973		)	(3,134		)	(5,150		)	154			(1,178		)
Net cash provided (used) by operating activities	105,931			105,931			66,883			67,057			(1,867		)	(212		)
Investing Activities:
Purchases of fixed assets	(33,398		)	(33,398		)	(16,989		)	(17,163		)	(40,331		)	(41,986		)
Purchase of investments in unconsildated affiliates	(2,000		)	(2,000		)	(37,044		)	(37,044		)	(577		)	(577		)
Proceeds from sale of fixed assets	—			—			—			—			34			34
Net cash used by investing activities	(35,398		)	(35,398		)	(54,033		)	(54,207		)	(40,874		)	(42,529		)
Financing Activities:
Proceeds from long term debt	5,760			5,760			—			—			—			—
Payments of long term debt	(252		)	(252		)	—			—			—			—
Payments of capital lease obligations	(551		)	(551		)	(1,640		)	(1,640		)	(4,711		)	(4,711		)
Payments for purchases of treasury stock	(40,247		)	(40,247		)	(16,952		)	(16,952		)	(11,301		)	(11,301		)
Proceeds from exercise of stock options	2,603			2,603			614			614			255			255
Net cash used by financing activities	(32,687		)	(32,687		)	(17,978		)	(17,978		)	(15,757		)	(15,757		)
Net decrease in cash and cash equivalents	37,846			37,846			(5,128		)	(5,128		)	(58,498		)	(58,498		)
Cash and cash equivalents, beginning of the year	191,922			191,922			197,050			197,050			255,548			255,548
Cash and cash equivalents, end of the year	229,768			229,768			191,922			191,922			197,050			197,050

	2004 QUARTERS
	As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted
	13 Weeks		13 Weeks		26 Weeks		26 Weeks		39 Weeks		39 Weeks
	5/1/2004		5/1/2004		7/31/2004		7/31/2004		10/30/2004		10/30/2004
Consolidated Statements of Cash Flows
Operating Activities:
Net cash provided (used) by operating activities	(89,434	)	(89,043	)	(118,972	)	(118,190	)	(128,495	)	(127,322	)
Investing Activities:
Purchases of fixed assets	(9,686	)	(10,077	)	(15,590	)	(16,372	)	(22,602	)	(23,775	)
Purchase of investments in unconsolidated affiliates	—		—		(2,000	)	(2,000	)	(2,000	)	(2,000	)
Net cash used by investing activities	(9,686	)	(10,077	)	(17,590	)	(18,372	)	(24,602	)	(25,775	)
Financing Activities:
Borrowings under line of credit	—		—		—		—		3,940		3,940
Proceeds from long term debt	—		—		5,760		5,760		5,760		5,760
Payments of long term debt	—		—		(35	)	(35	)	(141	)	(141	)
Payments of capital lease obligations	(94	)	(94	)	(192	)	(192	)	(292	)	(292	)
Payments for purchases of treasury stock	(3,875	)	(3,875	)	(20,946	)	(20,946	)	(30,362	)	(30,362	)
Proceeds from exercise of stock options	328		328		683		683		928		928
Net cash used by financing activities	(3,641	)	(3,641	)	(14,730	)	(14,730	)	(20,167	)	(20,167	)
Net decrease in cash and cash equivalents	(102,761	)	(102,761	)	(151,292	)	(151,292	)	(173,264	)	(173,264	)
Cash and cash equivalents, beginning of the year	191,219		191,219		191,219		191,219		191,922		191,922
Cash and cash equivalents, end of the year	88,458		88,458		39,927		39,927		18,658		18,658

	2003 QUARTERS
	As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted
	13 Weeks		13 Weeks		26 Weeks		26 Weeks		39 Weeks		39 Weeks
	5/3/2003		5/3/2003		8/2/2003		8/2/2003		11/1/2003		11/1/2003
Consolidated Statements of Cash Flows
Operating Activities:
Net cash provided (used) by operating activities	(131,525	)	(131,482	)	(133,532	)	(133,446	)	(136,013	)	(135,884	)
Investing Activities:
Purchases of fixed assets	(2,901	)	(2,944	)	(6,665	)	(6,751	)	(12,156	)	(12,285	)
Purchase of investments in unconsolidated affiliates	—		—		—		—		(25,600	)	(25,600	)
Net cash used by investing activities	(2,901	)	(2,944	)	(6,665	)	(6,751	)	(37,756	)	(37,885	)
Financing Activities:
Borrowings under line of credit	—		—		—		—		12,108		12,108
Payments of capital lease obligations	(780	)	(780	)	(1,362	)	(1,362	)	(1,523	)	(1,523	)
Payments for purchases of treasury stock	—		0		(11,001	)	(11,001	)	(14,771	)	(14,771	)
Proceeds from exercise of stock options	172		172		378		378		745		745
Net cash used by financing activities	(608	)	(608	)	(11,985	)	(11,985	)	(3,441	)	(3,441	)
Net decrease in cash and cash equivalents	(135,034	)	(135,034	)	(152,182	)	(152,182	)	(177,210	)	(177,210	)
Cash and cash equivalents, beginning of the year	197,050		197,050		197,050		197,050		197,050		197,050
Cash and cash equivalents, end of the year	62,016		62,016		44,868		44,868		19,840		19,840

	2002 QUARTERS
	As Reported		As Adjusted		As Reported		As Adjusted		As Reported		As Adjusted
	13 Weeks		13 Weeks		26 Weeks		26 Weeks		39 Weeks		39 Weeks
	5/4/2002		5/4/2002		8/3/2002		8/3/2002		11/2/2002		11/2/2002
Consolidated Statements of Cash Flows
Operating Activities:
Net cash provided (used) by operating activities	(187,045	)	(186,631	)	(203,840	)	(203,012	)	(216,731	)	(215,489	)
Investing Activities:
Purchases of fixed assets	(5,253	)	(5,667	)	(16,944	)	(17,772	)	(32,370	)	(33,612	)
Purchase of investments in unconsildated affiliates	—		—		(860	)	(860	)	(891	)	(891	)
Disposal of videocassette inventory, net of purchases	528		528		528		528		—		—
Net cash used by investing activities	(4,725	)	(5,139	)	(17,276	)	(18,104	)	(33,261	)	(34,503	)
Financing Activities:
Borrowings under line of credit	—		—		—		—		26,314		26,314
Payments of capital lease obligations	(1,513	)	(1,513	)	(2,877	)	(2,877	)	(3,897	)	(3,897	)
Payments for purchases of treasury stock	(3,022	)	(3,022	)	(5,498	)	(5,498	)	(7,066	)	(7,066	)
Proceeds from exercise of stock options	203		203		427		427		256		256
Net cash used by financing activities	(4,332	)	(4,332	)	(7,948	)	(7,948	)	15,607		15,607
Net decrease in cash and cash equivalents	(196,102	)	(196,102	)	(229,064	)	(229,064	)	(234,385	)	(234,385	)
Cash and cash equivalents, beginning of the year	254,943		254,943		254,943		254,943		254,943		254,943
Cash and cash equivalents, end of the year	58,841		58,841		25,879		25,879		20,558		20,558