Like its target audience, Hot Topic's
The edgy specialty retailer can claim it was able to grow net sales by 18%, but dig any deeper than that and you'll find startling shades of pale that would shock even the makeup brush of The Cure's Robert Smith.
The company may appear to be growing, but it's only a superficial illusion. Expanding quickly -- to the point where its namesake shops and Torrid stores specializing in plus-sized fashions for the Charmed crowd now encompass more than a million square feet of selling space -- Hot Topic is masking weakness at the store level.
Comps fell by 2% this past quarter. What's worse is that the trend got worse as the quarter progressed, with July same store sales down a meaty 5%. Yes, that was coming off the padding of an unusually favorable 8.7% spike in comps a year earlier, but it's still a significant downtick.
That's why the company earned just $0.10 a share in its fiscal second quarter, less than the $0.12 a share it earned last year -- with fewer stores.
What comes as a surprise here is that instead of slowing down and fixing whatever was ailing its cash registers last month, the company is shifting into an even higher gear. Instead of tacking on 80 new stores this year to its mall-rat empire, as it had originally projected, it will open 90 units. What? You can't make this up in volume!
The chain seems to realize that its shares aren't in demand. It is kicking off a new stock buyback after completing an identical repurchase of 2 million shares back in May. Why can't it realize that demand is also a problem at its stores?
This hasn't been a cruel summer for many of its rivals out in suburbia. Specialty retailers like Aeropostale
Hot Topic has every right to grow as fast as it wants, but investors have every right to wonder if it knows exactly what it is growing. If it's not comps -- and it hasn't been over the last few months -- it's not likely to be earnings, no matter how quickly it expands.
Which specialty retailers do you like to frequent at the mall? What are the latest workplace fashions? All this and more -- in the What to Wear? discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz hasn't bought anything the last couple of times he has stepped into a Hot Topic store. He does not own shares in any company mentioned in this story.
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