There's still a chill settled over Hot Topic
Hot Topic's January comps fell 6.6%, compared with a 0.7% drop last year. A 6.1% decrease was worse than analysts' expectations, but sales weren't shabby, coming in 26% higher at $53.9 million.
That's not too heartening when you consider that Hot Topic gave tepid guidance for the fourth quarter. The retailer said that it will take a $0.04 per share charge related to asset impairment and lease terminations. It expects fourth-quarter earnings to come in at the low end of its previous guidance of $0.20-$0.22 per share, with a 5.3% decrease in comps for the quarter. Wall Street had expected its fourth-quarter earnings to come in at $0.21 per share.
Hot Topic shares experienced a spike back in November, but even then I suspected a real turnaround might not be forthcoming quite yet. Optimism has since faded, causing the stock to retreat.
Furthermore, many retailers did well in January on a same-store-sales basis -- better than expected, in fact, as cold weather and gift cards got people shopping. Even long-struggling Gap
I admit it, I have a soft spot for Hot Topic; as a teenager I dressed in black and had more piercings in my ears than fingers on my hands. (Back in those days, though, shopping at a mall-based retailer would have been a ticket straight to Poseur City, and maybe that's still part of the problem.) However, targeting a subculture niche like punk, goth, and alternative music fans always posed the risk of limited growth, and while Hot Topic was a hot growth stock for a while, that hasn't been the case lately. Too bad Hot Topic isn't opening up new stores called Neo-Hippies R Us, and targeting two subculture niches.
Hot Topic's continued lackluster performance gives it room for improvement, of course, but it still remains to be seen whether this is a good long-term investment. With a trailing P/E of 31 and a forward P/E of 21, Hot Topic sounds pricy, especially given recent growth and questions about future growth. These days, I can't help but wonder if Hot Topic and its specialized subculture niche might have fared better as a private retailer.
For hot topics on Hot Topic, see the following Foolish articles:
- Hot Topic stars in "A Tale of Two Retailers."
- Things heated up for Hot Topic in November.
- In September, I looked at Hot Topic's trying trends.
Alyce Lomax does not own shares of any of the companies mentioned.