NEW YORK — Hot Topic Inc.’s first-quarter profits fell despite a 16.9 percent increase in first-quarter sales, due partly to continued weakness in its accessories and women’s apparel categories.

For the three months ended April 30, income dropped by 5.3 percent to $5 million, or 11 cents a share, for the City of Industry, Calif.-based company, which matched both its own and analysts’ estimates. Comparatively, Hot Topic earned $5.3 million, or 11 cents, in last year’s first quarter.

Sales for the quarter totaled $149.8 million, versus $128.1 million a year ago, while same-store sales were up 0.9 percent. The retailer said its women’s business had comps that fell 5 percent during the first quarter.

Elizabeth M. McLaughlin, chief executive officer of Hot Topic, on a post-earnings conference call, said: “The same-store sales increase for the quarter was primarily driven by a slight increase in the average transaction value partially offset by a slight decrease in the number of transactions in comp stores.”

The ceo noted that while “women’s fashion tops continue to experience double-digit increases [in comps], the lack of key items to drive women’s bottoms and dresses was too much to overcome.”

Brian Tunick, an analyst at J.P. Morgan Securities, wrote in a May 16 research report, in which he upgraded shares of Hot Topic to “neutral” from “underweight,” that although he expected “choppiness” in women’s and accessories during the latest quarter, he thinks the “worst is now behind us as far as margin erosion and downward EPS revisions.”

The company guided second-quarter earnings to 12 cents a share, which is also the Wall Street consensus.

This story first appeared in the May 19, 2005 issue of WWD. Subscribe Today.

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