Shopping mall-based specialty retailer,
Hot Topic Inc.
) posted fourth-quarter fiscal 2012 results with earnings per
share of 29 cents, surging 38.1% from the comparable prior-year
period. The year-over-year increase in quarterly earnings was
primarily driven by robust top-line performance, improved gross
margin and lower effective tax rate. Moreover, the quarterly
earnings surpassed the Zacks Consensus Estimate by a couple of
Hot Topic's net sales for the quarter increased approximately
11.0% year over year to $233.0 million, on the back of benefits
from an additional week in the quarter, along with robust sales
at its namesake and Torrid concepts stores. Moreover, quarterly
sales surpassed the Zacks Consensus Estimate of $223.0
On a segmental basis, net sales escalated 6.8% year over year
to $180.5 million at Hot Topic's namesake stores, while Torrid
stores registered a 28.4% increase with sales of $52.5 million.
Management believes that branding and vertical product strategies
have strengthened the Torrid store concepts' growth.
Hot Topic's fourth-quarter comparable-store sales (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 hike also resulted from
improvements in fashion attire, partially offset by a decline in
the accessories category.
Gross profit for the quarter increased 19.2% year over year to
$88.5 million and as a percentage of sales it improved 260 basis
points (bps) to 38.0%. The year-over-year expansion in gross
margin was primarily driven by improved merchandise margin and
lower store occupancy and store depreciation expenses as a
percentage of sales.
Selling, general & administrative expenses rose 16.7% to
$69.3 million compared with $59.4 million in the prior-year
comparable quarter. Based on revenues, it expanded 150 bps to
29.8% primarily due to increased payroll and performance-based
compensations partially offset by lower other store expenses.
Income from operations in the quarter came in at $19.1 million
compared with $14.8 million in the year-ago quarter. As a
percentage of sales, it expanded 110 bps year over year to 8.2%
primarily driven by improved gross margin.
Fiscal 2012, in Brief
During fiscal 2012, Hot Topic's total sales grew 6.3% to
$741.8 million owing to strong sales in both namesake and Torrid
concepts. Full-year sales were almost in line with the Zacks
Consensus Estimate of $742.0 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.
Hot Topic's adjusted earnings for the fiscal jumped over
twofold to 46 cents per share compared with 19 cents reported in
fiscal 2011, primarily driven by strong top-line performance and
improved margins. Moreover, quarterly earnings were ahead of the
Zacks Consensus Estimate of 43 cents per share.
Other Financial Details
At the end of the fiscal year, Hot Topic had cash, cash
equivalents and short-term investments of $50.0 million, compared
with $66.1 million at the end of fiscal 2011. Shareholders'
equity stood at $172.8 million compared with $183.0 million in
the previous fiscal year.
Hot Topic's total capital expenditures for the 12 months ended
Feb 2, 2013 were $36.4 million, primarily associated to store
construction and IT projects. Cash flows from operating
activities for the reported fiscal came in at $53.2 million
compared with $45.9 million in fiscal 2011.
During the quarter, Hot Topic opened 5 Torrid and 5 Blackheart
stores, while it shuttered 2 namesake stores and 1 Torrid store.
Additionally, the company remodeled 1 Hot Topic store. Thus, net
stores at the end of the fiscal included 618 Hot Topic stores,
190 Torrid stores and 5 Blackheart stores. For fiscal 2013, Hot
Topic reaffirmed its strategy of opening about 40 new Torrid
Hot Topic retained its previously forecasted fiscal 2013
earnings growth guidance of 30%-35% compared with fiscal 2012
level. The guidance is based on the comps growth in the
In the first week of March, Hot Topic and a privately-held
investment firm, Sycamore Partners, agreed to collaborate,
wherein the latter will acquire the former in an all-cash
transaction worth about $600 million. The transaction has been
structured as a one-step merger between the parties and Hot Topic
is proposed to be the surviving company.
Other Stocks to Consider
Currently, Hot Topic has a Zacks Rank #2 (Buy). Other stocks
that are performing well in the apparel retailing space are
Big 5 Sporting Goods Corp
). All these stocks carry a Zacks Rank #2 (Buy).
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