Hot Topic's on Fire, But for How Long?

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It's been an ugly scene for many retailers here lately, and investors should look around for outliers in the sector. These would be the retailers that are doing well despite the terrible economic challenges. Hot Topic (Nasdaq: HOTT) currently fits the bill, but is its recent success sustainable?

Hot Topic's February same-store sales jumped 10.8%, compared to the 2.3% drop in comps this time last year. Granted, that's an easy comparison to make, but that's still a pretty impressive spike, with total sales jumping 13.7% to $57.3 million.

The namesake stores' comps increased a healthy 12.4%, while the Torrid concept's comps increased by 4.8%. Still, let's bear in mind that Hot Topic was long floundering. Looking through its press release archives, I noticed that it hadn't increased same-store sales in the month of February since 2005.

Still, it's a sign of improvement for Hot Topic. By comparison, teen retailer Abercrombie & Fitch (NYSE: ANF) used to be totally hot in its snooty sort of way, but these days, it's totally not. Its February comps plunged a nauseating 30%. Board-sports related mall retailer Zumiez (Nasdaq: ZUMZ) looks almost successful by comparison, with a mere 13.4% same-store sales decline.

I admit that over the years I've maybe been too enthusiastic about mocking Hot Topic -- but it's hard for me to resist. Way back in my day, kids who were into punk, goth, and so forth didn't have some mall-based retailer handy to help them buy their way into rebellion -- it was all do-it-yourself. I guess that's why I've had a hard time holding back the mockery (Hot Topic got goth served!) and questioned its authenticity with anybody other than kids who simply jump on board with whatever is the latest trend.

This brings me back to my question regarding whether Hot Topic's recent success is sustainable. Not only is it facing easy comparisons, but speaking of trendiness, I wonder just how much the popularity of items related to the vampire franchise Twilight may be helping out, and I'm not convinced that's a trend that can keep on giving for too long. In fact, if you'd like a good laugh, South Park's recent "The Ungroundable" episode linked the proliferation of trendy teen wannabe vampires with Hot Topic.

Regardless, Hot Topic shares have surged 84% in the last 12 months. It's trading at 21 times trailing earnings. Come on, investors can get successful retailers like Aeropostale (NYSE: ARO) or The Buckle (NYSE: BKE) far cheaper than that -- both are trading at around 11 times earnings. Even if I'm off base with my theories about the company's authentic appeal, Hot Topic still looks like an overpriced stock in the retail universe.