Hot Topic Fourth-Quarter Profit Falls

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Hot Topic Inc. said Wednesday that its fourth-quarter profit plunged more than 39 percent from the year-earlier period, but it still managed to beat estimates.


The City of Industry-based teen retailer reported fourth-quarter net income of $10.6 million (23 cents per share), compared with $17.4 million (38 cents) for the same period a year earlier. Revenue for the Commerce-based multiplex cinemas operator rose 9 percent to $230.4 million from $211.3 million in the year-prior period.


Fourth quarter results include an asset impairment charge of $1.6 million (2 cents per share) related to selling, general and administrative expenses.


Analysts had expected fourth-quarter earnings of 23 cents per share on revenue of $228.8 million.


Hot Topic has suffered as the “goth” look that made it a favorite of angst-ridden teens has lost ground. As a result, the retailer’s same-store sales, a key industry indicator of health, have been steadily sliding, dropping 3.8 percent in the fourth quarter. The company has been altering its inventory to make it more appealing.


To ramp up revenue, Hot Topic has been setting up new stores at a rapid pace, opening 117 last year. But revenue increases haven’t translated into more profit. In the fourth quarter, the company’s net income sunk 64 percent even as net sales jumped 9 percent.


Hot Topic appears to be taking a step back from store growth to get its current units in order and will add 35 fewer stores this year than previously announced. The company still plans to open 50 stores this year, which will push its total to around 733 stores.


In January, Hot Topic cut its fourth-quarter earnings outlook due to lower-than-expected same-store sales in the critical month of December. At the time, the retailer said it expected profit of between 21 cents and 24 cents per share, which was down from a previous fourth-quarter estimate of 30 cents to 38 cents per share. The revised guidance reflected a comparable store sales decline in the mid-single-digit range for the quarter and increased markdowns to aggressively address the resulting inventory risk.


As of Jan. 28, the company’s inventory value rose to $71.2 million from $60.5 million the year before.

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