Hot Topic Still Chilly

There's still a chill settled over Hot Topic (Nasdaq: HOTT  ) , judging by the tidings the company shared last week in its January same-store sales report.

Hot Topic's January comps fell 6.6%, compared with a 0.7% drop last year. A 6.1% decrease was worse than analysts' expectations, but sales weren't shabby, coming in 26% higher at $53.9 million.

That's not too heartening when you consider that Hot Topic gave tepid guidance for the fourth quarter. The retailer said that it will take a $0.04 per share charge related to asset impairment and lease terminations. It expects fourth-quarter earnings to come in at the low end of its previous guidance of $0.20-$0.22 per share, with a 5.3% decrease in comps for the quarter. Wall Street had expected its fourth-quarter earnings to come in at $0.21 per share.

Hot Topic shares experienced a spike back in November, but even then I suspected a real turnaround might not be forthcoming quite yet. Optimism has since faded, causing the stock to retreat.

Furthermore, many retailers did well in January on a same-store-sales basis -- better than expected, in fact, as cold weather and gift cards got people shopping. Even long-struggling Gap (NYSE: GPS  ) had better news to share in January than it's had in quite some time. American Eagle Outfitters (Nasdaq: AEOS  ) continued its torrid pace with a 17% comps increase, although Abercrombie & Fitch's (NYSE: ANF  ) comps decreased 6%. Abercrombie has been firing on all cylinders for quite some time, so it was up against tough comparisons.

I admit it, I have a soft spot for Hot Topic; as a teenager I dressed in black and had more piercings in my ears than fingers on my hands. (Back in those days, though, shopping at a mall-based retailer would have been a ticket straight to Poseur City, and maybe that's still part of the problem.) However, targeting a subculture niche like punk, goth, and alternative music fans always posed the risk of limited growth, and while Hot Topic was a hot growth stock for a while, that hasn't been the case lately. Too bad Hot Topic isn't opening up new stores called Neo-Hippies R Us, and targeting two subculture niches.

Hot Topic's continued lackluster performance gives it room for improvement, of course, but it still remains to be seen whether this is a good long-term investment. With a trailing P/E of 31 and a forward P/E of 21, Hot Topic sounds pricy, especially given recent growth and questions about future growth. These days, I can't help but wonder if Hot Topic and its specialized subculture niche might have fared better as a private retailer.

For hot topics on Hot Topic, see the following Foolish articles:

• Hot Topic stars in "A Tale of Two Retailers."
• Things heated up for Hot Topic in November.
• In September, I looked at Hot Topic's trying trends.

Gap and American Eagle Outfitters are Motley Fool Stock Advisor picks. Gap has also been recommended by Motley Fool Inside Value.

Alyce Lomax does not own shares of any of the companies mentioned.