Hot Topic Comps Still in the Red

Feb. 4.11 | About: Hot Topic, (HOTT)

Hot Topic Inc. (NASDAQ:HOTT) reported a decline of 3.3% in same-store sales for the four weeks ended January 29, 2011. However, the drop in same-store sales narrowed considerably from a decline of 13.1% witnessed in the prior-year month and slightly widened from a decline of 1.7% in December 2010.

This marked the 21st consecutive month of negative same-store sales. The company had last registered same-store sales growth of 3.1% in April 2009.

Hot Topic recorded a 1.4% year-over-year drop in total sales for the month, grossing $39.3 million.

Headquartered in City of Industry, Calif., 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. (NYSE:ANF).

January Sales Update

Hot Topic: Segment same-store sales declined 3.2% in January 2011, an improvement from a decline of 17.4% in the prior-year period. Total sales declined 2.7% year over year to gross $29.6 million for the four weeks ended January 29, 2011.

Torrid: Torrid registered same-store sales decline of 3.7% while sales improved 1.8% year over year to gross $9.7 million for the four weeks ended January 29, 2011.

4Q10 Preliminary Sales

For the fourth quarter of fiscal 2010, the company issued preliminary sales and comparable store sales numbers. 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 declines of 2.5%, while Torrid registered a decrease of 0.4%. Total sales for the quarter came in at $212.4 million, a fall of 0.8% over the year-earlier quarter.

FY10 Preliminary Sales

For fiscal 2010, Hot Topic same-store sales suffered a decline of 5.3%, compared with a 5.1% drop in the prior year. The Hot Topic brand recorded a fall of 6.5%, while Torrid reported a decline of 0.7%. Total sales for the year slipped 3.9% to $708.3 million.

Outlook

The company expects fourth-quarter fiscal 2010 earnings per share in the range of 11 cents to 14 cents. The Zacks Consensus Estimate for fourth-quarter 2010 is presently at 12 cents per share, in tandem with the guided range. For fiscal years 2010 and 2011, the Zacks Consensus Estimates are, respectively, a loss of 1 cent per share and earnings of 17 cents per share.

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.