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Hot Topic Logs Strong Third Quarter

Hot Topic went against the grain with higher third-quarter sales and earnings.

Capitalizing on its tie-in with a teen-oriented movie, Hot Topic Inc. went against the grain of specialty store competitors Wednesday with higher third-quarter sales and earnings. The company beat analysts’ expectations and maintained fourth-quarter guidance.

For the quarter ended Nov. 1, the City of Industry, Calif.-based company reported an 11.4 percent increase in profits, to $7.4 million, or 17 cents a share, from $6.7 million, or 15 cents a share, for the year-ago period. Net sales grew 4.7 percent to $197.3 million from $188.5 million. Analysts surveyed by Yahoo Finance were expecting EPS of 16 cents on sales of $195.8 million.

Gross margin improved to 37.6 percent of sales from 36.3 percent in the prior-year period.

Quarterly comparable-store sales grew 1 percent, with Hot Topic and its plus-sized counterpart Torrid posting a 1.7 percent increase and a 3 percent decrease, respectively.

Aided by sales from its license with the teen movie “Twilight,” Hot Topic comps are up in the mid-single digits this month, said chief executive officer Betsy McLaughlin, who added that Torrid comps are down in the high-single digits.

McLaughlin said “Twilight,” which is poised to be one of the company’s top three licenses of all time, has helped drive comps in the short term and also boosted the women’s business 1 percent for the quarter. Aside from the excitement surrounding the film, McLaughlin said Halloween also helped grow sales.

“Through the quarter, we were less promotional,” McLaughlin said, adding that the retailer tightened inventory so that, going into the fourth quarter, the company has a “strong, clean inventory position.”

Profits for the nine months jumped 34.9 percent, to $5.6 million, or 13 cents a share, versus $4.1 million, or 9 cents a share, for the same period in 2007. Net sales rose 3.1 percent to $523.1 million from $507.4 million.

The mall-based retailer said it expects fourth-quarter earnings between 25 and 28 cents a share based upon a comparable-store sales decline in the low-single digits. Analysts had anticipated EPS of 27 cents on sales of $221.6 million.