HOT TOPIC, WET SEAL SHINE IN QUARTER

Byline: Jennifer Weitzman / With contributions from Arnold J. Karr

NEW YORK — Hot Topic and Wet Seal were among a select group of specialty store chains managing to boost their profits during the problematic, highly unpredictable third quarter.
Boosted by strong margins and an effective expense control, Hot Topic, the mall-centered specialty retailer of music-influenced apparel and accessories, reported double-digit profits and sales gains in the third quarter.
HT, based in City of Industry, Calif., said for the three months ended Nov. 3, net income rose 16.3 percent to $8.5 million, or 39 cents a share, compared with profits of $7.3 million, or 34 cents, in the year-ago period. Sales increased 27.5 percent, to $92.1 million from $72.2 million, and comparable-store sales increased 2.2 percent.
Betsy McLaughlin, president and chief executive officer, said in a statement: “Throughout the third quarter, our promotional activity was low and in line with last year, and inventories at the end of October were on plan.”
The company also announced its plans to open 15 new plus-size apparel and accessories Torrid stores in fiscal 2002. The company opened six test Torrid stores in April and May 2001. Torrid is aimed at women ages 15 to 29.
“Customer reaction to the concept and the merchandise assortment has continued to be extremely positive,” McLaughlin said.
For the nine months, income was $16.1 million, or 73 cents a share, a 25.2 percent increase over income of $12.9 million, or 61 cents, reached last year. Sales were $227 million, an increase of 34.5 percent over prior-year sales of $168.8 million, and comps increased 3.9 percent.
Foothill Ranch, Calif.-based Wet Seal ended the third quarter with a 72.4 percent gain in net income, completing the quarter with earnings that edged past analysts’ estimates by 2 cents.
The 581-unit specialty retailer of contemporary apparel and accessories under the nameplates Wet Seal, Contempo Casuals, Arden B. and Zutopia stores reported income of $6.8 million, or 34 cents a diluted share, versus $4 million, or 21 cents, in the year-ago period. Sales for the three months ended Nov. 3 inched up 1.4 percent, to $146.9 million from $144.9 million, while same-store sales increased 4.4 percent.
“The results of the third quarter represent a 123 percent increase in earnings per share over the prior year, as well as our fifth consecutive quarter of earnings growth in an ongoing difficult retail environment,” Kathy Bronstein, ceo, said in a statement.
She noted that the company is comfortable with current analysts expectations of 72 cents. Comps for November finished ahead 1.3 percent. The company plans to open roughly 50 Wet Seal, 20 Arden B. and 15 Zutopia stores in fiscal 2002.
For the nine months, earnings more than doubled to $15.8 million, or 78 cents a diluted share, from $6.6 million, or 35 cents. Sales moved up 4.1 percent, to 420.4 million from $403.7 million, and increased 3.8 percent on a comp basis.
Dallas-based Gadzooks finished the third quarter with a 56.7 percent drop in net income, but crossed the fiscal finish line with earnings that beat analysts’ estimates by 2 cents.
The 425-unit specialty retailer of casual apparel and accessories eked out net income of $1 million, or 11 cents a diluted share, versus $2.3 million, or 25 cents, in the year-ago period. Sales for the three months ended Nov. 3 climbed 8.7 percent, to $73.2 million from $67.3 million, while same-store sales declined 3.2 percent versus a year-earlier comp gain of 9.3 percent.
“Even though sales were below our expectations, we tightly managed expenses to minimize the earnings impact of the sales shortfall,” said Jerry Szczepanski, chairman and ceo, in a statement.
For the nine months, earnings dropped by two-thirds to $2.1 million, or 22 cents a diluted share, from $6.3 million, or 68 cents. Sales moved up 11.3 percent, to $216.6 million from $194.5 million, and fell 5.6 percent on a comp basis.
A nonrecurring charge from the sale of its bookstore division spelled the difference between profit and loss in the third quarter for Deb Shops, the Philadelphia-based junior chain.
The net loss for the three months ended Oct. 31 was $289,000, or 2 cents a diluted share, versus net income of $3.9 million, or 29 cents, in the year-ago period. Excluding the bookstore charge, net income for the more recent period would have risen to $4.3 million, or 32 cents. Sales rose 9.9 percent, to $80.5 million from $73.2 million.
In a statement, Lewis Lyons, chief financial officer, said: “We will continue to focus our attention on operating efficiencies at all levels. In addition, we will closely evaluate the returns on our invested capital and arrive at the combination of remodeled stores and new openings that best serve our shareholders, while continuing to close stores that diminish those returns.”
Year-to-date, Deb has opened 22 stores, remodeled nine and closed four. It currently operates 309 units in 40 states.
For the nine months, net income declined 23.1 percent, to $8.5 million, or 62 cents a diluted share, from $11 million, or 81 cents. Excluding the one-time loss, earnings would have reached $13.1 million, or 96 cents. Sales jumped 9.2 percent, to $223 million from $204.3 million.
United Retail, owner of the 552-unit plus-size women’s apparel chain, Avenue, said same-store sales declines, promotional pricing and increased marketing costs produced a loss of $2.3 million, or 17 cents a share, in the third quarter ended Nov. 3.
The Rochelle Park, N.J.-based retailer suffered a loss of $1.1 million, or 9 cents a share, in the year-ago quarter. Sales gained 4.7 percent, to $96.6 million from $92.3 million, but dropped 1 percent on a comparable-store basis.
George R. Remeta, vice chairman and chief administrative officer, said in a statement that the firm was successful at building sales and driving down inventories through promotional pricing and aggressive marketing initiatives, but these actions hurt the bottom line.
Raphael Benaroya, chairman, president and ceo, said that although the firm had to overcome lower traffic with promotions and marketing, “our average dollar sale per transaction for the quarter was higher than last year. Further, with the merchandise margin only slightly below last year’s high level, these two indicators point to a solid merchandise assortment.”
Benaroya added that United Retail is on track to open a total of 55 new stores for the year.
Year-to-date income was $1.1 million, or 8 cents a share, a 65.2 percent drop when compared with $3 million, or 22 cents, in the first nine months of last year. Sales gained 4.1 percent, to $312.8 million from $300.4 million, but comps fell 3 percent.

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