Hot Topic Inc.
) posted robust sales and comparable store sales (comps) results
for the holiday season for the combined months of November and
December. Moreover, the company maintained its guidance for the
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Hot Topic's comps for the nine weeks ended December 29, 2012,
inched up 2.2% compared with 1.8% reported in the comparable
year-ago period. The increase in comps was driven by a 1.6% rise
in comps at the company's namesake stores and a 5.5% hike in
Hot Topic's net holiday sales increased 4.0% year over year to
$177.3 million, on account of robust sales in Torrid concepts
stores as well as marginal improvement in the company's namesake
stores. On a segmental basis, net sales inched up 0.8% year over
year to $141.1 million at the company's namesake stores, while
Torrid stores registered a 18.8% increase with sales of $36.2
Positive results during the holiday season mainly came from the
new merchandising and sourcing strategies at Torrid. Further, the
company continued to benefit from favorable customer response to
the fashion apparel and tee businesses, which largely made up for
the drag in the accessories category.
Year-to-date Sales Data
Year to date, the company's total sales grew 4.2% to $686.0
million driven primarily by strong sales at Torrid concepts. Net
sales improved 1.7% year over year to $514.2 million at the
company's namesake stores, while Torrid stores registered a 12.3%
increase with sales of $171.8 million.
Comps were up 3.4% compared with the 1.3% rise reported in the
year-ago period. This increase was driven by 3.5% and 3.0% comps
growth at the company's namesake stores and Torrid stores,
Management maintained its earnings guidance for the fourth
quarter, projecting earnings in the range of 23 cents - 27 cents
per share compared with 21 cents earned in the fourth quarter of
2011. The company's guidance is based on comps growth in the low
to mid-single-digit percentage range. The current Zacks Consensus
Estimate for fourth quarter earnings stands at 25 cents per
Hot Topic also provided initial guidance for fiscal 2013 (52
weeks ended February 1, 2014), anticipating a 30% - 35% increase
in earnings compared to fiscal 2012. This guidance assumes comp
sales to increase in the low-single-digit range.
Further, management remains confident about its business
prospects in 2013, anticipating continued growth from its Torrid
segment. Buoyed by such an overwhelming outlook, the company
reaffirmed its plan to open 40 new Torrid stores, 15 new Hot
Topic outlets and an additional 5 to 10, newly introduced
Blackheart stores in 2013.
Share Repurchase Program
Through December 2012, the company bought back about 2,535,370
shares at $9.86 per share, valued at $25 million. This buy back
was in line with the company's previously announced share
repurchase authorization of up to $25.0 million.
Hot Topic's core business strategy focuses on music/pop culture
related merchandise and mainly targets customers in the teenage
group. As of December 29, 2012, the company operated 619 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.
Hot Topic regularly monitors store sales and takes prudent steps
to align merchandise mix in accordance with the rapidly changing
preferences of its target customers. Furthermore, the company
periodically evaluates its stores and remodels or relocates them
in compliance with the latest trends.
However, Hot Topic's business is seasonal in nature and generates
high proportion of sales during 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 if the seasons fail to deliver the expected
level of operating performance.
As a result, we have a long-term 'Neutral' recommendation on the
stock. However, Hot Topic, which competes with
Abercrombie & Fitch Co.
), carries a Zacks #2 Rank, implying a short-term Buy rating for
the upcoming 1-3 months.