ANF Abercrombie and Fitch Co

Hot Topic Inc. (HOTT) reported a decline of 5.0% in same-store sales for the five weeks ended April 2, 2011.

The drop narrowed marginally from a decline of 7.5% in the prior-year month; however, widened substantially from a decline of 1.4% as of February 26, 2011.

This marked the 23rd consecutive month of negative same-store sales. The company had last registered same-store sales growth of 3.1% way back in April 2009.

Hot Topic recorded a 6.4% year-over-year drop in total sales for the month, grossing $61.6 million.

March Sales Update

Hot Topic: Segment same-store sales declined 7.9% in March 2011, moderating from an 11.2% drop in the prior-year period. Total sales, at $44.7 million, declined 9.4% year over year for the five weeks ended April 2, 2011.

Torrid: Torrid registered same-store sales growth of 4.6% while sales improved 2.3% year over year to reach $16.9 million for the five weeks ended April 2, 2011.

4Q10 Results

Hot Topic recently reported fourth quarter fiscal 2010 earnings of 12 cents a share, in line with the Zacks Consensus Estimate. However, it dropped substantially from the prior-year earnings of 18 cents a share.

Total revenue declined 0.8% year over year to $212.4 million, marginally beating the Zacks Consensus Estimate of $210.0 million.  The company reported a 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%.

We maintain our long-term Neutral recommendation on Hot Topic Inc. The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the stock over the near term.

Headquartered in City of Industry, California, Hot Topic Inc. is a shopping mall-based specialty retailer operating the Hot Topic and Torrid store concepts across the U.S. as well as the e-space music discovery concept, ShockHound. The company competes with Abercrombie & Fitch Co. (ANF).

Hot Topic’s same-store sales have suffered due to the continued economic downturn, which has squeezed disposable incomes, compelling customers to cut back on non-essential spending. Also, Hot Topic’s business is seasonal in nature and generates a high proportion of sales during the fiscal third and fourth quarters, which are characterized by the back-to-school, Halloween and holiday seasons. As a result, the company is exposed to significant risks should the seasons fail to deliver expected operating performance.

Furthermore, Hot Topic sources its merchandise primarily from foreign vendors and manufacturers. This renders the company vulnerable to political, social and economic risks associated with operations in these countries.

 
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