Like some of the music acts on its T-shirts, City of Industry-based retailer Hot Topic Inc. has been torching the charts lately, with shares rising about 30 percent since the beginning of April.
Investors are excited by the company’s renewed assurances that it’s moving away from its goth roots to a more mainstream customer base. But it remains to be seen how well it can execute the gambit.
Investors started latching on to the stock April 6, inspired by Hot Topic’s surprise announcement of both a special $1 dividend and the initiation of a regular quarterly dividend. Shares jumped even more after the company’s presentation at the Telsey Advisory Group’s consumer conference Wednesday, where executives announced Hot Topic’s core businesses were improving.
The mall-based retailer, which centers its strategy on music-related accessories and apparel, has been moving away from goth merchandise for some time. Today, shoppers can find skinny jeans and Justin Bieber T-shirts alongside clothing with images of old staples such as bands Cure and Bauhaus. In 2008, Hot Topic began hosting alternative rock-flavored concerts with local bands and launched an MP3 sales Web site, Shockhound.com, to complement its in-store CD sales.
But investors were always hoping for more – and they got it last week, said Wall Street Strategies analyst Brian Sozzi, who’s rated the stock a “buy.”
The company also unveiled a logo and signage last week designed for wider appeal. The stencil-letter logo is a drastic shift from the flame-red scratchy handwriting that once attracted black nail-polished teens in malls across the United States.
Also encouraging are quarter-to-date sales at the company’s plus-sized Torrid stores, which are up 8 percent, and news that 4 million people have already signed up for the company’s e-mail loyalty program.
“It’s off the charts in terms of how the industry typically works,” said Jeffrey Van Sinderen, an analyst at West L.A.’s B. Riley & Co. who also rates the stock a “buy.” “It tells you that this company is engaged closely with their customer and that the customer is paying attention.”
Hot Topic rode a wave of revenue tied to the film “Twilight” a year ago after betting big on licensing deals with the blockbuster franchise, but sales and shares started dropping in summer 2009 once that buzz wore off.
The announcement last week that same-store sales were flat excluding sales related to “Twilight” and its sequel, “New Moon,” was a sign that non-“Twilight” merchandise was holding steady.
If the company keeps its anti-goth promise, results should follow, Sozzi believes.
“I think it’s a move in the right direction,” he said. “I think the goth market has evaporated at this point.”
