In March, I noted that Hot Topic's
Hot Topic's first quarter did manage to beat analysts' expectations. The firm swung to a profit of $1.2 million, or $0.03 per share, versus a loss of $1.4 million, or $0.03 per share this time last year. Total revenue increased 10.1%, to $175.1 million, and same-store sales jumped a solid 7.1%.
However, there was some chilling news in Hot Topic's second-quarter guidance. Analysts were expecting a modest profit of a penny per share, but now it looks like Hot Topic will report a second-quarter loss of $0.04 to $0.06 per share, with same-store sales expected to fall in the mid-single-digit range.
Hot Topic's never been my idea of a great long-term retail stock; it peddles merchandise that caters to teen trends, which are notoriously short-lived. Even though its emphasis on music- and pop culture-related merchandise seems to come from a subversive bent, I've often questioned whether it really gives off any sense of authenticity.
Furthermore, lately, it seems as if a great deal of Hot Topic's turnaround success has been due to the brisk sales of items related to the popular Twilight franchise. However, that trend doesn't strike me as particularly sustainable. And of course, investors who have tangled with stocks such as Crocs
In addition, investors might look no further than Abercrombie & Fitch
Given the recent tumble in its stock, Hot Topic looks a bit cheaper on a relative basis than it did in March. Back then, I noted that it was trading at an outsized 21 times earnings, while other teen retailers with solid performance were trading at far cheaper multiples, firms such as Buckle
Even with the recent pullbacks in Hot Topic's stock price, though, it looks to me like Hot Topic is due for a major cooldown, and I still believe long-term investors should avoid it.
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