Shopping mall based specialty retailer,
Hot Topic Inc.
) reported first-quarter 2012 earnings of 9 cents per share,
beating the Zacks Consensus Estimate by a penny and the prior-year
The year-over-year increase in quarterly earnings was primarily
driven by solid top-line growth and improved margins, resulting
from the company's cost reduction initiatives. The reported
earnings also beat its guidance range of 7 cents to 8 cents.
Hot Topic's net sales for the quarter increased 6.4% year over
year to $171.5 million, on account of robust sales in both the
namesake and Torrid concepts. On a segmental basis, net sales rose
7% year over year to $124 million at the company's namesake stores,
while Torrid stores registered a 5% increase with sales of $47.6
million. Moreover, quarterly sales were almost in line with the
Zacks Consensus Estimate of $172 million.
Hot Topic's first-quarter 2012 comparable store sales (comps)
were up 7.5% compared with 1.2% reported in the year-ago period.
Comps increase in the quarter was driven by a 9.5% rise in comps at
the company's namesake stores and a 2.5% spike in Torrid stores.
Comps gain in the quarter also resulted from positive comps at
Torrid and improvements in fashion attire validating the company's
Cost & Margin Performance
Adjusted cost of goods sold (COGS), including buying,
distribution and occupancy costs, increased 4.1% to $109.9 million.
As a percentage of revenue, adjusted COGS decreased 140 basis
points to 64%. Consequently, gross profit surged 10.6% to $61.7
million and gross margin expanded 140 basis points to 36%.
Adjusted selling, general & administrative expenses inched
down 0.25% to $55.6 million compared with $55.7 million in the
prior-year quarter. Based on revenues, it declined 220 basis points
to 32.4%. Adjusted operating income in the quarter came in at $6.1
million compared with an operating income of $0.04 million in the
year-ago quarter. Consequently, operating margin surged 348 basis
points to 3.5%.
Other Financial Details
At the end of the first quarter of fiscal 2012, Hot Topic had
cash, cash equivalents and short-term investments of $69.6 million,
down from $73.7 million at the end of the first quarter of fiscal
2011. Shareholders' equity was $185.2 million compared with $206.5
million in the prior-year period.
During the quarter, the company closed net 4 Hot Topic stores
and opened net 16 Torrid stores. The company ended the quarter with
624 Hot Topic stores and 164 Torrid stores.
The company provided its earnings guidance for the second
quarter of fiscal 2012 at the time of reporting its first quarter
comparable sales result on May 2, 2012. Hot Topic estimates
second-quarter 2012 loss per share between 4 cents and 6 cents
compared with a loss of 14 cents per share recorded in the year-ago
period. The company's guidance is based on comparable-store sales
growth in the low to mid-single-digit range. The current Zacks
Consensus Estimate for the second quarter stands at a loss of 5
cents per share.
One of Hot Topic's closest competitors,
Abercrombie & Fitch Co.
) adjusted earnings of 3 cents per share for the first quarter of
fiscal 2012 came a penny ahead of the Zacks Consensus Estimate.
However, quarterly earnings for the quarter dipped substantially
from the year-ago quarter earnings of 27 cents per share.
We believe Hot Topic's niche market position, strong brand
recall, ability to tweak merchandise in line with rapidly changing
trends and a debt-free balance sheet augur well for operating
performance. However, macroeconomic headwinds, intense competition
from other specialty retailers and the seasonal nature of the
business severely undermine the company's future growth
Currently, we are maintaining our long-term 'Neutral'
recommendation on Hot Topic. Moreover, the company has a Zacks #2
Rank implying a short-term 'Buy' rating on the stock.
ABERCROMBIE (ANF): Free Stock Analysis Report
HOT TOPIC INC (HOTT): Free Stock Analysis
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