HOTT Hot Topic, Inc. (MM)

Hot Topic Inc. (HOTT) posted positive sales and comparable-store sales (comps) results in the fourth quarter ended Feb 2, 2013. Moreover, the company skewed its fourth quarter fiscal 2012 earnings guidance towards the higher end of the range and maintained its fiscal 2013 forecast.

Hot Topic’s fourth-quarter comps grew 2.6% compared with a 1.9% increase reported in the comparable year-ago period. The increase in comps was driven by strong performance at both namesake and Torrid divisions. Comps at the company’s namesake stores rose 2.0%, while Torrid stores witnessed a 5.4% hike in comps.

The company’s net sales for the quarter increased 11.0% year over year to $233.0 million, on account of robust sales at both store concepts. Quarterly sales also beat the Zacks Consensus Estimate of $229.0 million.

On a segmental basis, net sales escalated 6.8% year over year to $180.5 million at the company’s namesake stores, while Torrid stores registered a 28.4% increase with sales of $52.5 million. Management believes the success of the company’s Torrid store concepts, through new Torrid branding and vertical product strategies has strengthened the brand’s unit growth opportunity.

Fiscal 2012 Sales Data

During fiscal 2012, the company’s total sales grew 6.3% to $741.8 million driven primarily by strong sales in both namesake and Torrid concepts. Full year sales were also above the Zacks Consensus Estimate of $738.0 million. Net sales improved 3.6% year over year to $553.7 million at the company’s namesake stores, while Torrid stores registered a 15.1% increase with sales of $188.1 million.

During the year, Hot Topic’s comps were up 3.4% compared with 1.4% reported in the year-ago period. This increase was driven by 3.5% and 3.1% elevation in comps at the company’s namesake stores and Torrid stores, respectively.

Guidance Update

Following the company’s strong sales performance, management narrowed its fourth quarter earnings guidance range, skewing toward the higher end of its previous guidance. The company now expects fourth quarter earnings in the range of 26 cents - 27 cents, against the previously formulated guidance range of 23 cents- 27 cents. This compares to the prior-year quarter earnings of 21 cents per share. The current Zacks Consensus Estimate stands at 25 cents per share for the quarter.

Moreover, the company retained its previously forecasted fiscal 2013 earnings growth guidance of 30% to 35% compared with earnings reported in fiscal 2012. The guidance is based on the comps growth in the low-single-digit range.

Conclusion

Hot Topic’s core business strategy focuses on music/pop culture related merchandise, based on the foundation of pop culture and mainly targets customers in the teenage group. As of Feb 2, 2013, the company operated 618 Hot Topic stores across 50 states and in Puerto Rico as well as in Canada, 190 Torrid stores and 5 Blackheart stores. The company’s e-Commerce business looks strong and it runs three e-Commerce sites - hottopic.com, torrid.com and blackheartlingerie.com.

Currently, Hot Topic has a Zacks Rank #2 (Buy). Other stocks that continue to perform well in the apparel retailing space are Abercrombie & Fitch Co. (ANF), which has a Zacks Rank #1 (Strong Buy), American Eagle Outfitters Inc. (AEO) and Gap Inc. (GPS), both of which carry a Zacks Rank #2 (Buy).

 
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