If Hot Topic (Nasdaq: HOTT) hits analysts estimates, it will be the fourth consecutive quarter it has hit the number on the nose. The company will unveil its latest earnings on Wednesday, August 17. Hot Topic is a mall- and web-based specialty retailer operating the Hot Topic and Torrid concepts, as well as the e-space music discovery concept, ShockHound.

What analysts say:

  • Buy, sell, or hold?: Analysts think investors should stand pat on Hot Topic with five of nine analysts rating it hold. Analysts like Hot Topic better than competitor Pacific Sunwear of California overall. Two out of 16 analysts rate Pacific Sunwear of California a buy compared to three of nine for Hot Topic. Analysts still rate the stock a Hold, but they are a bit more wary about it compared to three months ago.
  • Revenue Forecasts: On average, analysts predict $149.1 million in revenue this quarter. That would represent a decline of 0.6% from the year-ago quarter.
  • Wall Street Earnings Expectations: The average analyst estimate is a loss of 8 cents per share.

What our community says:
Most CAPS All Stars are skeptical of HOTT prospects, with 58.7% awarding it an "underperform" rating. The community is divided on the stock with 55% Fools giving it an "outperform" rating and 45% an "underperform" rating. Fools are bearish on Hot Topic and haven't been shy with their opinions lately, logging 259 posts in the past 30 days. Hot Topic's bearish CAPS rating of one out of five stars falls short of the Fool community sentiment.

Management:
Revenue has fallen for the past three quarters. The company's gross margin shrank by 2.2 percentage points in the last quarter. Revenue fell 0.8% while cost of sales rose 2.5% to $110.9 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.

Quarter

Q1

Q4

Q3

Q2

Gross Margin

31.3%

32.2%

35.2%

30.7%

Operating Margin

-7.7%

-0.3%

0.2%

-6.9%

Net Margin

-4.8%

-0.3%

0.2%

-4.2%

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