Hot Topic Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Hot Topic (NASDAQ: HOTT) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction that turns out to be exactly the wrong response to the news.

Teen retail is one of the most cutthroat businesses out there, and Hot Topic has had its trials trying to stay on top of the space. But a recent buyout offer is changing the game for the company and its shareholders. Let's take an early look at what's been happening with Hot Topic over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Hot Topic

Source: Yahoo! Finance.

Will Hot Topic be trendy this quarter?
Analysts have gotten more optimistic about Hot Topic's earnings prospects in the past few months, raising their calls for the holiday quarter by $0.02 per share and adding a nickel to fiscal 2014 projections. But the stock has absolutely soared, rising more than 40% since early December.

The most important recent news for Hot Topic came just last week, when the company said that private-equity firm Sycamore Partners planned to buy the company for $590 million, or $14 per share. That price represented a 30% premium to where Hot Topic traded before the offer.

With a buyout offer on the table, Hot Topic's quarterly results may seem irrelevant. Yet in preliminary results, the company posted a much better quarter this time around compared to the year-earlier period, with same-store sales rising 2.6% on an 11% jump in net sales, according to preliminary estimates released back in February. In particular, the company's Torrid stores have produced a lot of the company's growth, reversing year-ago negative comps with a strong 5.4% performance this quarter.

Moreover, Hot Topic has tried to latch onto new fashion trends. With lingerie becoming more popular among younger women, Hot Topic's new Blackheart line will go up against Limited Brands' (BBWI 2.71%) Victoria's Secret, which has dominated the intimates space. American Eagle Outfitters (AEO 2.75%) has made a similar play with its Aerie line, but with a customized marketing strategy, Hot Topic may be able to appeal to a different target audience than Limited Brands and American Eagle Outfitters typically serve.

In its quarterly report, news of the acquisition will be overwhelming, but pay attention to the fundamentals. You never know when a deal might fall through, and being prepared for anything is an essential way to stay ahead in investing. 

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