Hot Topic (Nasdaq: HOTT) hasn't actually been hot for some time. The Goth-inspired retailer reported an increase in fourth-quarter profit, but the fact that its sales are still flagging doesn't give investors much reason to celebrate.

Fourth-quarter net income increased 34% to $11.9 million, or $0.27 per share. Total sales, however, decreased by 8% to $220.7 million. Same-store sales fell 6.3%. Inventory increased 8.7%, so that wasn't really a great piece of news from the balance sheet.

Hot Topic only earned $16 million, or $0.36 per share, for the entire year, so a large chunk of the year's profit came from Q4. As far as guidance goes, in Q1, Hot Topic will be back to the losses -- it expects a net loss of $0.03 per share to $0.06 per share, with comps down in the low-single-digit range. 

Long, long ago, back in 2001, it looked like Hot Topic would be the next Gap (NYSE: GPS). But now the trend is not its friend; in hindsight, kids who embrace the Goth/punk lifestyle might not have been the wisest target for a mall-based retailer.

One interesting element from Hot Topic's conference call is that its focus on emerging music instead of major releases is working with customers. Its music segment has gone from a double-digit decrease in the first half of 2007 to positive comps in the second half. Moving away from the mainstream does make more sense -- kids can get major releases anywhere these days, including online, at store such such as Apple's (Nasdaq: AAPL) iTunes.  

Happily, Hot Topic recognizes that its edgy brand demands that the company appear credible and authentic; focusing on less well-known bands is a good strategy in that regard. Hot Topic's also working on a digital strategy for music sales as well. (I thought these were important ideas last year this time.)

Of course, caution's still in order. Hot Topic may be trading at just 9.5 times this year's earnings, but you can find less niche-driven, risky retail stocks are trading at similar levels or even cheaper -- consider American Eagle Outfitters (NYSE: AEO), which has a price-to-earnings ratio of just 9. Hot Topic still has a lot of turning around to do, and it could still burn investors, even at this price.

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Alyce Lomax does not own shares of any companies mentioned. The Fool has a disclosure policy.