Hot Topic's (NASDAQ:HOTT) earnings for its fiscal second quarter, released last week, suggest that this clothing retailer is anything but hot right now. Net income fell 80% to $900,000 ($0.02 per diluted share) from $4.5 million a year ago, and operating income fared even worse -- falling by about 84%.
The poor results weren't completely unexpected, though, given that same-store-sales trends have been negative for quite a while. For the quarter, comps were down 3.5%, but August has shown further deterioration -- comps have fallen 8% this month.
Hot Topic runs two store concepts -- its namesake store, with 628 locations, and a smaller chain of 100 stores called Torrid, which caters to plus-sized women 15 to 29 years old. The Hot Topic chain is where most of the current woes reside, and you might say the woes reside in the "bottom" line -- specifically, pants, shorts, and skirts.
It seems that fewer people want to adorn their lower halves with clothes from Hot Topic. Sales of men's pants and shorts have declined by around 20%, and sales of bottom-half apparel for women's clothes have fallen by a similarly alarming amount. Management says this year's fashion trend toward denim -- which doesn't play a big part in Hot Topic's goth-flavored clothing -- has hurt the company's results. I find this comment odd. When the sun is baking the earth, as it has for much of the summer, just about the last thing a person is going to wear is a pair of blue jeans. As a result, denim sales in July were poor all over, even at red-hot Abercrombie & Fitch (NYSE:ANF), which has swelling inventories of the material. It makes me wonder whether Hot Topic's managers really know what's going on with the business.
On a positive note, at least management didn't blame the company's poor performance on external factors. Wal-Mart (NYSE:WMT), for example, is claiming that high gas prices are likely to hurt its results during the rest of the year. Before listening to the conference call, I almost expected to hear something like: "With the high temperatures and hot bright sun this summer, our customers, many of whom wear black, prefer to remain in the shade rather than head to the mall."
One hopeful development is the hiring of a chief merchandise officer, who might be able to improve on the company's merchandise assortment. If not, Hot Topic's stock price will probably continue to wilt.
For related Foolishness, head to our Hot Topic, Abercrombie & Fitch, or Wal-Mart discussion boards, or check out these stories:
Dan Bloom does not own shares of any company mentioned in this article.
