Has the underground gone deeper underground? Investors have been wondering whether Hot Topic (NASDAQ:HOTT) has lost its edge in recent months, and this quarter is no different, although it includes the major puzzlement as to how the company could falter during the Halloween season.

Hot Topic reported third-quarter earnings down 18%, at $12.6 million, or $0.27 per share. Net sales increased 12% to $180.8 million, while same-store sales decreased by 4.2%. Gross margin fell to 36% from 39% because of increased markdowns to move slow merchandise out the door. (If you took a peek at the financials and wondered why cash and short-term investments slid 57% to $41.7 million, that includes stock buybacks, the company said in its conference call.)

We'd check what Hot Topic's free cash flow status is, but the company didn't include a statement of cash flows with its press release, so we have to wait for its Form 10-Q to be filed.

Sluggish back-to-school and Halloween sales were troubling points. (It's difficult to imagine how Hot Topic managed not to profit from Halloween. After all, Halloween is the goth kid's Christmas.) Plus, I seem to recall that SEC filings in the past showed a tradition of increased sales during Halloween and other holidays where kids are off from school and thus have the extra time to walk the malls.

It's enough to cause sneaking suspicions. While the punk/goth/metal subculture that Hot Topic targets has been around for roughly 30 years (depending on whom you talk to), it's only been more mainstream and "trendy" for about 10 years (again, depending on whom you talk to), and kids are, we all know, very fickle with fashion. (On the other hand, if there's one thing President Bush's reelection might do, it's instigate a resurgence in punk rock music and attitude.)

Speaking of roots, while the newer concept, Torrid, has always been specifically for plus-sized girls, it has recently started an evolution into a more fashion-oriented store rather than a plus-sized version of Hot Topic. (It's worthwhile to note that during the summer, Motley Fool Stock Advisor pick Gap (NYSE:GPS) announced initiatives to attempt to address the fashionable teen plus-sized market with its Old Navy stores.)

Today's numbers are no surprise, given October's hints. Investors bid shares of Hot Topic up about 3.2% in this morning's trading. The stock's currently trading at a trailing P/E of 22, despite the fact that the stock has drifted 36% lower than its 52-week high. Given some of the things that don't quite feel right -- like why Halloween didn't go well for the retailer -- prospective investors might want more indications that things are back on track.

Alyce Lomax does not own shares of any of the companies mentioned.