Strong Sales Help Hot Topic Beat Forecasts

Teen retailer Hot Topic Inc. reported Wednesday better-than-expected third-quarter net income, which the company said was due to strong Halloween and back-to-school sales.

For the quarter ended Nov. 2, net income was $10 million, or 31 cents a share, compared with $8.5 million, or 26 cents, a year earlier. The results beat analysts’ expectations by a penny.

Sales rose 33% to $122.6 million. Sales at stores open at least a year, a key industry indicator, increased 6.3%

All per-share figures reflect a 3-for-2 stock split Feb. 7.

The City of Industry-based company, which sells music-themed clothes and accessories to teens, also announced the resignation of Tom Rail, who had been general manager of its Torrid stores, a concept launched last year to sell trendy clothes to plus-size girls and young women.

The company said Rail’s departure was “a mutual decision.” Rail, who resigned last week, could not be reached for comment.

His duties will be assumed by Chief Executive Betsy McLaughlin until a replacement is named.

Rail’s departure initially raised questions about whether there might be a problem with Torrid, or whether McLaughlin might be weighed down by the additional duties. But analyst Elizabeth Pierce, of Wedbush Morgan Securities, said the company had allayed her concerns.

“I’m not looking at Tom’s resignation as any indication that they are not as gung-ho about Torrid as they were two years ago,” Pierce said. “Nor do I believe it will impact Hot Topic’s business.”

Hot Topic also announced plans to open 25 Torrid stores next year. Company spokesman Jay Johnson said the openings, which would double the size of the Torrid chain, reflected the company’s confidence in the concept.

The company also operates 419 Hot Topic stores in 48 states.

Johnson said the company was optimistic about the upcoming holiday season. Although there is lingering weakness in sales of young men’s pants, sales of women’s apparel and accessories have remained solid, the retailer said.

Analysts say the company has attracted young shoppers, while other retailers are struggling, because its products differ from those of most other specialty stores. Hot Topic describes itself as a seller of unisex, primarily music-licensed clothes for the MTV generation.

Hot Topic’s stock rose 87 cents to $23.22 on Nasdaq. The earnings were announced after the market closed.