With its ability to tweak merchandise in line with the rapidly
Hot Topic Inc.
) once again posted solid sales and comparable store sales (comps)
results in the second quarter ended July 28, 2012. The company's
second-quarter comps were up 3.9% compared with 3.2% reported in
the year-ago period.
The increase in comps in the reported quarter was driven by a
3.9% rise in comps at the company's namesake stores and a 4% rise
in Torrid stores. The hike also resulted from improvements in
fashion attire validating the company's planned direction.
Hot Topic's net sales for the quarter increased 4.6% year over
year to $157.9 million, on account of robust sales in both namesake
and Torrid concepts. Moreover, quarterly sales were almost in line
with the Zacks Consensus Estimate of $158 million.
On a segmental basis, net sales inched up 1.7% year over year to
$114.1 million at the company's namesake stores, while Torrid
stores registered a 13.1% increase with sales of $43.8 million.
Following strong sales results, Hot Topic lowered its loss per
share guidance range for the second quarter to 2 cents - 3 cents
per share, compared with its prior loss guidance range of 4 cents -
6 cents per share. The current Zacks Consensus Estimate for the
second quarter stands at 2 cents, which coincides with the lower
end of the company's revised guidance range.
Additionally, the company initiated its third and fourth-quarter
guidance. For the third quarter, the company is projecting earnings
per share of 8 cents - 10 cents compared with 7 cents recorded in
the year-ago period. The company's guidance is based on comps
growth in the low-single-digit range. The current Zacks Consensus
Estimate for third quarter stands at earnings of 10 cents per
For the fourth quarter, Hot Topic anticipates to earn in the
range of 23 cents - 27 cents per share on the back of low to
mid-single-digit growth in comps. This compares 9.5% to 28% higher
from the year-ago earnings of 21 cents per share. The company is
scheduled to release its second quarter fiscal 2012 results on
August 15, 2012.
Year-to-date sales data
During the first six months of fiscal 2012, the company's total
sales grew 5.5% to $329.4 million driven primarily by strong sales
in both namesake and Torrid concepts. Net sales improved 4.2% year
over year to $237.8 million at the company's namesake stores, while
Torrid stores registered a 9.1% increase with sales of $91.6
During the six months period, Hot Topic's comps were up 5.8%
compared with 2.1% reported in the year-ago period. This increase
was driven by 6.8% and 3.2% increases in comps at the company's
namesake stores and Torrid stores, respectively.
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. With this strategy,
Hot Topic has successfully carved a niche for itself amid a highly
competitive specialty retailing space. The company competes
head-to-head with other teenage focused specialty retailers like
Abercrombie & Fitch Company
American Eagle Outfitters Inc.
Moreover, Hot Topic stores are strategically located in shopping
malls and lifestyle centers frequented by teenagers, its primary
target segment. The company also regularly monitors store sales and
takes prudent steps to align merchandise mix in accordance with the
rapidly changing preferences of its target customers. The company
periodically evaluates its stores and remodels or relocates them in
accordance with the latest trends.
To conclude, Hot Topic maintains a healthy debt-free balance
sheet, with cash and cash equivalents and short-term investments of
$69.6 million at the end of first-quarter of fiscal 2012. This
offers Hot Topic the financial flexibility to drive growth in the
Currently, Hot Topic has a Zacks #2 Rank implying a short-term
Buy rating. Moreover, we are maintaining a long-term Outperform
recommendation over the stock.
AMER EAGLE OUTF (AEO): Free Stock Analysis
ABERCROMBIE (ANF): Free Stock Analysis Report
HOT TOPIC INC (HOTT): Free Stock Analysis
To read this article on Zacks.com click here.