Despite meeting analysts’ third-quarter earnings estimates, Hot Topic Inc. said that higher markdowns and lackluster sales of accessories and Halloween costumes kept the retailer from fully charging forward in its turnaround.
Halloween, which is typically one of the mall-based retailer’s best selling periods, was its “biggest disappointment,” according to chairman and chief executive officer Lisa Harper.
“Our costume offering was not well differentiated…we learned that our assortment clearly needs to be much more edgy, sexy, rebellious, and frankly scary,” Harper said on a conference call with analysts. “We are currently restrategizing our approach to the Halloween business for next year.”
The ceo added that unexciting accessories collections at Hot Topic and Torrid, the company’s women’s plus-size concept, dragged down the overall business.
Fashion apparel is a “white space” for the company, said Harper, who has been on the job since March.
Still, the retailer made progress in its turnaround during the third quarter.
Net income jumped to $3.1 million, or 7 cents a diluted share for the period ended Oct. 29, matching Wall Street’s consensus estimate. This compared with year-ago income of $390,000, or 1 cent a share, which included a 4-cent impairment charge.
Quarterly sales slid 4 percent to $175.8 million from $183.2 million the prior year.
Comparable-store sales declined 1.6 percent in the quarter and were weighed down by a 2.2 percent comp dip at the Hot Topic division. Comps at Torrid rose 1.1 percent.
Higher markdowns contributed to the decline in gross margins to 33.9 percent of sales compared with year-ago margin of 35.2 percent.
For the fourth quarter, the firm projected EPS of 16 cents to 20 cents, a range that straddles the 18 cents analysts’ expected.
The retailer, which operates 634 Hot Topic stores and 146 Torrid doors, will open four Torrid stores in the fourth quarter. It also plans on closing five Hot Topic doors and one Torrid location.
The City of Industry, Calif.-based firm reiterated its expansion strategy for Torrid, which will open 25 to 45 stores next year. The chain has already committed to 20 leases.