HOTT - Stock Loses Bite From Twilight

Hot Topic Inc (NASDAQ: HOTT) reported 4th quarter and year end 2009 earnings this afternoon. The company experienced a decrease in sales, as both net income and revenue dropped from comparable periods.

Financial Highlights:

1. Net income fell to $8 million, or $0.18/share, from $14.2 million, or $0.32/share, including expenses of $0.02/share related to ShockHound.
2. Revenue fell to $214.2 million from $238 million.
3. The retailer saw its same-store sales fall 13.5% in the latest quarter compared with a rise of 6.5% a year earlier.
4. Hot Topic projected a 1st quarter loss of $0.02-$0.05/share, based on expectations that comparable store sales will decline by a high single digit percentage.

From the numbers it seems Hot Topic got hammered in the 4th quarter and the year in general; however, the numbers can be slightly deceiving.

The company had a bit of an exaggerated 2008 with the licensing of the all powerful “Twilight.” This year the company spent a lot of time, energy and money trying to license the sequel “New Moon” but did not get it.

Not to say HOTT would have had blowout numbers had it gotten the New Moon license, however it is obvious they need to work on a strategy to stabilize their different core sections, making sure to balance out all endeavors. The company will work on gaining a broad variety of licenses in 2010, but don’t expect to go after anything quite as big as Twilight.

At the end of 2009 Shockhound was created as a new source of revenue in the form of an online music store. It is hard to say how this will impact future earnings, but it’s good to see a retailer diversifying.

During questions management projected that the music section would turn around first in 2010 with fashion accessories continuing to be the laggard.

Hot Topic continues to remodel stores and expects to remodel 25-30 stores in 2010. They will continue to host live bands as a way to drive volume and variety into stores.

The stock began to move upward after guidance was given. The company is in an extremely cyclical industry and it’s of utmost importance it can generate revenue from all 4 of its core sections. Let’s see if they can be more efficient in their licensing efforts and avoid another New Moon episode.