ANF Abercrombie and Fitch Co

Teen retail chain Hot Topic Inc. (HOTT) recently announced string of strategic measures to enhance the company's growth followed by a series of business restructuring, which include discontinuation of its ShockHound.com website, selling music merchandise and MP3s.

In addition, the company will write down unproductive inventory and fixed assets that are not decisive to the company's strategy.  Moreover, from third-quarter 2011, the company will report its quarterly sales result on the last Wednesday of each fiscal quarter, instead of monthly sales reporting.

Followed by a broad evolution, Lisa Harper, Chief Executive Officer will now take up an additional responsibility of looking after the Hot Topic merchandising following the departure of Chief Merchandising Officer, Amy Kocourek. Management expects the separation costs plus the operational changes to cost approximately $15.0 million or 21 cents per diluted share in the first quarter of fiscal 2011.

Hot Topic in its guidance for the first quarter of 2011 is expecting a loss in the range of a penny to 4 cents per share apart from the costs related to the above mentioned changes. The company is expecting a decline of low-single-digit in comparable store sales for the first quarter.

For full fiscal 2011, Hot Topic expects earnings in the range of 5 cents to 15 cents per share based on flat to down low-single-digit growth in comparable store sales. The company will invest approximately $25.0 million toward capital expenditure.

Earlier, Hot Topic reported its fourth-quarter 2010 earnings. The company's earnings of 12 cents a share excluding 13 cents of expenses related to the implementation of the previously announced cost reduction plan, dropped substantially from the prior-year earnings of 18 cents a share. However, it was in line with the Zacks Consensus Estimate. Including the said expenses, loss per share came in at 1 cent.

Total revenue inched down 0.8% year over year to $212.4 million, marginally beating the Zacks Consensus Estimate of $210.0 million.  The company reported same-store sales decline of 2.1%, narrowing the gap from a fall of 11.5% in the year-ago period. Hot Topic reported same-store sales decline of 2.5% while Torrid registered a decrease of 0.4%.

The company has underperformed its peers as its products have failed to entice shoppers. Hot Topic's close competitor Abercrombie & Fitch Co. (ANF) registered earnings of $1.38 per share in the fourth quarter of fiscal 2010, thereby surpassing the Zacks Consensus Estimate of $1.32 per share and handily beating the prior-year net income of 91 cents per share. The company's other competitor; Wet Seal Inc. (WTSLA) reported earnings of 7 cents a share, outpacing the Zacks Consensus Estimate of 4 cents. Earnings also outshined the prior year's profit of 6 cents a share.

Hot Topic currently holds a Zacks #5 Rank, implying a short-term 'Strong Sell' rating on the stock. Besides, the company retains a long-term 'Neutral' recommendation on the stock.

 
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