Hot Topic Posts Profit Drop on Lower Prices

Hot Topic Inc. said Wednesday that its fiscal fourth-quarter profit fell 23% as it cut prices to sell clothes and accessories to young shoppers.

The Industry-based teen retailer earned $17.4 million, or 38 cents a share, down from $22.5 million, or 45 cents, a year earlier.

Per-share earnings matched a consensus of analysts polled by Thomson First Call.

Sales for the quarter that ended Jan. 29 increased 9% to $211.3 million. Comparable-store sales, or sales at stores open at least a year, fell 6%.

In a conference call with analysts, Chief Executive Elizabeth McLaughlin called the results disappointing but said that there had been an improvement in sales trends in some categories, including the men’s clothing business. And, she said, the company held on to its core customer because it didn’t “play to the mainstream.”

The retailer operates about 670 stores, including 76 Torrid stores for plus-size females.

It has struggled during the last year as styles in its namesake chain, which lean toward the punk and gothic, clashed with bright preppy trends. It does, however, have its own take on current styles. The chain’s spring line includes popular styles such as flirty skirts, camisole tops and cropped pants.

For the full fiscal year, Hot Topic posted negative comparable-store sales, a 2.9% decline from fiscal 2003, for the first time since it went public in 1996. But those sales nudged up a better-than-expected 0.2% in February, in the first upturn in five months.

Looking ahead, Hot Topic said that it expected to log positive comparable-store sales results by the end of the second quarter in all major product categories.

The company said it anticipated per-share earnings of 11 cents for the first quarter, 12 cents for the second, 31 cents for the third, 46 cents for the fourth and $1 for the fiscal year.

The second-half and full-year projections include the cost of stock option expenses: 3 cents each for the third and fourth quarters and 6 cents for the full year. Analysts were expecting profit of 11 cents for the first and second quarters, 34 cents for the third, 48 cents in the fourth and $1.04 for the year.

Fiscal 2005 revenue should be $775 million to $800 million, the company said, and comparable-store sales probably will increase in the “low single digits.”

The company plans to open 65 Hot Topic stores this fiscal year and 35 new Torrid locations.

For fiscal 2004, Hot Topic’s profit was $39.7 million, or 83 cents a share, a nearly 17% drop from the prior year’s $47.6 million, or 96 cents. Analysts were expecting annual earnings of 85 cents a share.

The stock, which has risen 31% this year, closed at $22.53, down 6 cents, on Nasdaq. The earnings were announced after the market closed.