Before doing my analysis of Hot Topic (NASDAQ:HOTT), I did an investigation of Guess? (NYSE:GES). Charles Dickens' classic A Tale of Two Cities includes one of the most well-known lines in English literature, as he writes, It was the best of times; it was the worst of times. If there were ever a line that summed up the performances for Guess? and Hot Topic, it is this one.
While Guess? saw December comparable same-store sales increase a stout 9.6%, Hot Topic's comps were about as gloomy as its Goth attire, declining 5.1% for the period. To make matters worse, Hot Topic's decline follows a 6.2% drop in comps in December of 2005. Guess?, on the other hand, achieved a 9.6% increase on top of a 17.6% surge in the year-ago period.
In my analysis of Guess?, I concluded that the primary reason why it has been dominating the apparel retailing scene is because it is designing trend-right fashions. It is the lack of trend-right fashions that has spelled doom for Hot Topic.
Don't get me wrong, I like to sport a Led Zeppelin tee every now and then, and I've always been a fan of Star Wars. But come on, I think we can all agree that designing an entire merchandise line around dark attire is not only a huge fashion faux pas, it is also a disastrous business strategy. Because of the limited appeal to its merchandise, it has significantly decreased its opportunities to attract other shoppers.
I think I'm beginning to run out of negative things to say for Hot Topic. I urged the company to turn from the dark side well over a year ago, and I then pronounced more dark days for the retailer if it didn't rapidly change its ways.
Knock, knock?
Who's there?
Not Hot Topic's management.
Somebody at Hot Topic is seriously failing the company, and worse, its shareholders. The stock dropped again in recent trading, this time down roughly 17%.
Investors have plenty of options in this part of the market, including Guess?, Abercrombie & Fitch (NYSE:ANF)'s RUEHL brand, and American Eagle Outfitters (NASDAQ:AEOS). One of those options is not Hot Topic.
It's a tale of two cities when it comes to Hot Topic, and it once again failed to pin the tail on the donkey. Wait a second, the analogy doesn't make sense, you say. You're right -- it is as senseless as Hot Topic's business strategy.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
