Teen retailer Hot Topic (Nasdaq: HOTT) has followed up August's robust back-to-school sales with another strong showing in September. The company announced Wednesday that it's upping its third-quarter earnings guidance -- again -- following a 9% increase in same-store sales in September.
As was pointed out last week, Hot Topic is outfitted for the rebellious, alternative teenage shopper. And let's face it, rebellion has been a strong teen archetype since James Dean put on the leather jacket and the tortured pout in Rebel Without a Cause.
Further, Hot Topic focuses on music's influence on fashion. There's no doubt that the music-driven merchandise Hot Topic peddles is going to attract the 12- to 22-year-old audience it targets. The allure of music in teenage pop culture is undeniable. With all the rumblings over rampant music piracy, it's clear that many of those who hoisted the metaphorical Jolly Roger to download tunes were tech-savvy, music-obsessed teens.
Hot Topic has the trends down too -- according to its 10-K, it orders most of its merchandise no more than 60 days ahead, assuring a quick response to the notoriously fickle tastes of teens.
And as winter approaches, things may heat up further. In its latest 10-Q, the company said that its sales generally increase during Halloween, holidays, and spring break -- in other words, when school's out. And there are lots of teens to wander the malls -- according to the U.S. Census Bureau, last year there were 32 million kids aged 12 to 19.
So they're legion and will soon have some time on their hands, but do they have the money? Well, without adult-sized financial obligations, their cash is generally earmarked for fun. Hot Topic, which estimates the total amount of teen spending to be $172 billion a year, is obviously giving the kids what they want.
To do so, Hot Topic will have to outwit competitors like American Eagle Outfitters (Nasdaq: AEOS), Abercrombie and Fitch (NYSE: ANF), the Buckle (NYSE: BKE), Pacific Sunwear (Nasdaq: PSUN), and Gap's (NYSE: GPS) Old Navy, to name just a few. And it's on its way.
(Speaking of the Gap, way back in 2001 Tom Jacobs explored the possibilities that this company could become the next Gap -- Hot Topic just may be fulfilling those prophecies.)
In contrast, on Wednesday American Eagle Outfitters said same-store sales fell 2.9% in September. So while September can be seen as a bit of a dead zone between back-to-school and holiday shopping, Hot Topic has made itself a popular teen hangout.
Alyce Lomax welcomes your feedback at alomax@fool.com.
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