Hot Topic Posts Profit as Retailer Strikes a Chord With Teenagers

Teen retailer Hot Topic Inc. reported fiscal first-quarter profit Wednesday that edged past Wall Street’s expectations as young shoppers continued to snap up its T-shirts, CDs and accessories.

The City of Industry-based company, which sells music-themed apparel and other products, said earnings rose to $4.4 million, or 14 cents a share, from $3.7 million, or 11 cents, in the year-earlier period. That was a penny more than expected by a consensus of analysts surveyed by Thomson First Call.

Sales in the quarter, which ended May 3, jumped 26% to $100.7 million, from $79.9 million. Sales at stores open at least a year rose 2.6%.

The operator of 474 Hot Topic and Torrid stores has been one of retailing’s stronger performers over the last few years, partly because its products are so different from those found elsewhere in malls.

The retailer, which ties much of its merchandise to bands such as Good Charlotte, a hot punk group, is quick to react to entertainment trends. For example, when “The Matrix Reloaded” opened last week, Hot Topic moved long coats and boots similar to those worn by the film’s actors to the front of the store with good results, spokesman Jay Johnson said.

“The core business is performing beautifully,” said Robert Buchanan, an analyst with A.G. Edwards & Sons. “I fully expect them to continue to crank here over the next several quarters.”

Still, Hot Topic has had some challenges. It has struggled, along with other teen retailers, to get male shoppers to buy more apparel other than T-shirts and shorts. And it is still tweaking its 37-store Torrid chain, which sells hip clothes to plus-size young women.

The company has been redesigning its Torrid stores and adjusting its merchandise mix, adding dresses and “wear to work” clothes, especially on the East Coast, where Torrid has found it harder to build sales.

Buchanan said he thinks Torrid stores should lower their prices and have more promotions to tempt the plus-size shopper, who has become accustomed to the blizzard of mark-downs at department stores.

During a conference call with analysts, Chief Executive Elizabeth McLaughlin expressed confidence in the concept, saying she still believes Torrid could become a national chain. The company plans to open 25 Torrid stores and 70 Hot Topic stores this year.

The retailer also told analysts it expects per-share profit of 16 cents this fiscal quarter, 37 cents in the third quarter and 60 cents in the last quarter. All of those projections were in line with analysts’ expectations.

Hot Topic shares closed at $23.73, up 15 cents, on Nasdaq. The earnings were released after the market closed.