Hot Topic's Conformist Comps

Hot Topic (Nasdaq: HOTT  ) may have punk and Goth attitude, but when it comes to its September sales data, the retailer went along with the crowd.

Same-store sales at Hot Topic decreased 2.9% in September, and that's compared to a 7.3% decrease this time last year. It just barely squeaked past analysts' estimates; they were looking for a 3% decrease in comps. Net sales fell 6.9% to $59.3 million.

Hot Topic didn't differentiate itself from many retailers when it showed a rather lackluster September, and that's a real bummer. After all, even beyond its Goth sensibility, you would have thought that some kids would at least have wanted some of its music and pop culture T-shirts and gear for going back to school, but apparently, not enough of them.

Then again, what makes Hot Topic different from many other retailers is that it has been struggling for quite a few years now, much like Gap (NYSE: GPS  ) . And while Hot Topic could be seen as a niche retailer, it's not like all niche retailers faltered when it comes to September comps. Zumiez (Nasdaq: ZUMZ  ) , for example, did extremely well with the action sports set.

Turnarounds can be lucrative, but some companies have a harder time turning around than others, and Hot Topic's protracted problems give me the feeling that it's still not time to invest in this retailer. For one thing, its multiples always look like optimism is already priced in, with little proof that real growth is forthcoming (trading at 28 times trailing earnings sounds really pricey for a company that hasn't shown many signs of life).

Hot Topic has long seemed a bit lost when it comes to its brand strategy, and personally, over the course of following this company, I've often wondered if it's in grave danger of losing sight of its roots and hurting its brand even more.

We'll have to see what happens with Hot Topic, but for now, it's still lacking the clear signs of getting itself back into teens' good graces.

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