Goth-teen retailer Hot Topic (NASDAQ:HOTT) will report first-quarter 2007 financial results on May 23 that don't seem so hot.

What analysts say:

•   Buy, sell, or waffle? Of the 17 analysts covering the niche retailer, 11 say hold, five rate it a buy, and one appeals to the counterculture roots of the company with a sell rating.

•   Revenues. Sales are expected to inch upward 1.7% to $156.6 million.

•   Earnings. Losses are expected to narrow as well, coming in at only $0.02 per share.

What management says:
Considering a more-than-disappointing April same-store sales report, maybe Hot Topic should just drape everything in black. Oh, wait, it already does. With comps falling 9% in April and sales down 5% for the month to $44.2 million, management reiterated that its earnings report will be dismal: It guided to a loss of $0.01 to $0.04 per share, which means analyst expectations could be a pretty rosy scenario. It looks to be more of the same like the fourth quarter, even though March's comps managed to surprise everyone.

What management does:
Store volumes have been steadily decreasing at the teen retailer as costs have climbed. For 2006, average store volume was under $1 million and may have reflected its target market's dissatisfaction with the company's foray into more mainstream fare. It's hard to lead a counterrevolution when you're marching to the same beat as everyone else. While fewer markdowns and greater breakage on gift cards helped hold things up last year, stock options, higher taxes, and costs associated with closing down unproductive stores led to a worsening bottom line.

























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As the father of a teenage daughter who, at times, enjoys expressing her inner Goth girl, I've also seen her grow more disaffected with Hot Topic's offerings. Even the mood of the stores has changed. Where things used to be appropriately dark with black walls and mood, the stores are now changing so that things are brighter and whiter. You could just as easily be walking into a PacSun (NASDAQ:PSUN), Zumiez (NASDAQ:ZUMZ), or Quiksilver (NYSE:ZQK) as you are walking into a Hot Topic. Being more mainstream, even if the clothes you sell are still predominantly black and red, may mean fewer sales streaming out of the stores.

As Alyce Lomax noted, with a market valuation in the upper 30s, it's donning a premium that can't be justified by its performance and outlook. Although it's still the primary destination for teens looking for alt-couture, investors would do well by draping black crepe over the stock until it rediscovers why it succeeded in the first place.

Related Foolishness:

•   Hot Topic Gets Goth-Served

•   Hot Topic's Warm March

•   Foolish Fundamentals: Margins

Hot Topic has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

PacSun is a recommendation of Motley Fool Stock Advisor. Zumiez is a recommendation of Motley Fool Hidden Gems. A 30-day guest pass lets you see why the teen demographic makes for compelling investment opportunities.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.