HOT TOPIC, CATO PROFITS SURGE IN 4TH QUARTER

Byline: Thomas J. Ryan

NEW YORK — Focused selections of timely fashions helped Hot Topic and Cato Corp. post strong fourth-quarter earnings, but an accumulation of “merchandise issues” and inventories brought on losses at Harold’s Stores.
In a season that has produced mixed results and prospects for apparel specialty retailers, Hot Topic credited field training and a new distribution center for some of the pickup in its earnings and reported that it plans 60 new stores during the current year. Cato has budgeted an additional 100 units.
Meanwhile, Harold’s has turned its attention inward, searching for a new chief executive and researching the meaning and positioning of its brand.

HOT TOPIC
Hot Topic reported earnings sped ahead 91.6 percent in the fourth quarter and 124.9 percent in the year.
The retailer of music-influenced apparel for teens earned $7.4 million, or 72 cents a share, up from $3.9 million, or 39 cents, a year ago. Sales jumped 63.9 percent to $59.9 million from $36.6 million and ran up 27.1 percent on a same-store basis.
In the year, earnings reached $13.5 million, or $1.38 a share, against $6 million, or 61 cents, a year ago. Sales surged 63.4 percent to $168.9 million and were up 22.8 percent on a comp-store basis.
The company, based in City of Industry, Calif., added 54 stores last year to close with 212, and plans to open 60 new stores this year.
“As in prior years, all stores were profitable in 1999,” said Betsy McLaughlin, president, in a statement. “In addition to the strong sales performances in every major merchandise category, the new field-training programs which were introduced in late 1998 and early 1999 and our new distribution center improved our operations.
“Fiscal 2000 is off to a great start with very positive customer reaction to our spring merchandise assortment,” she added. “The company’s Internet store, Hottopic.com, completed 30 months of operations, operated at a profit in 1999 and continues to experience significant sales increases.”

CATO CORP.
Capitalizing on overall strength at strip centers, Cato Corp. reported profits jumped 51.8 percent in the fourth quarter and 41.9 percent in the year.
The Charlotte, N.C.-based moderate-priced women’s apparel chain, which primarily operates in strip centers in the Southeast, earned $6.6 million, or 25 cents a share, in the three months, up from $4.4 million, or 16 cents, a year ago. Wall Street’s consensus estimate had been 21 cents.
Sales advanced 9.6 percent to $160.9 million from $146.8 million, with same-store sales up 1 percent.
In the year, earnings rose to $33.9 million, or $1.26 a share, from $23.9 million, or 85 cents, a year ago. Sales gained 11.3 percent to $605 million from $543.7 million and gained 3 percent on a same-store basis.
John P. Derham Cato, vice chairman, president and chief executive, noted that results marked the 12th consecutive quarter of earnings growth and stemmed from selling on-trend fashions at everyday low prices.
“This strategy has created a niche for Cato that differentiates us from our competitors,” said Cato.
The firm plans to open 100 new stores this year, bringing the total number of units to about 899. It opened 83 last year.

HAROLD’S STORES
Harold’s Stores reported a $2.6 million loss on lower same-store sales for the fourth quarter. The loss for the 53-unit upscale private label apparel chain, based in Norman, Okla., compares with earnings of $1.3 million, or 22 cents a share, a year ago. Sales gained 7.2 percent to $38.3 million from $35.7 million, but same-store sales decreased 5.8 percent.
The company said it hired an executive search firm, Berglass Grayson, to help it recruit a new chief executive.
“The numbers were clearly disappointing,” said Rebecca P. Casey, interim president and ceo. “We chose to take aggressive markdowns on our fall and holiday merchandise so that we would not perpetuate our merchandise issues. Consequently, excess inventories were sold at a loss that is reflected in these results.”
In December, Harold’s said Casey would step aside as ceo to focus on product design, sourcing, manufacturing and marketing, and the firm in January hired The Richard Group to conduct an extensive survey on the Harold’s brand.
In February, Harold’s acquired CMT Enterprises, an exclusive designer and sourcing agent of Harold’s products, for $4 million to improve quality and inventory flow. The firm has a two-year consulting agreement with Frank Bober, the sole shareholder of CMT.
In the year, Harold’s lost $2.5 million against earnings of $2.8 million, or 47 cents a share, a year ago. Sales increased 5.4 percent to $136.3 million from $129.2 million, but declined 3.1 percent on a comparable-store basis.

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