Hot Topic Loss Grows In First Quarter

by Vicki M. Young
Posted Thursday May 19, 2011
From WWD.COM

Lower sales and margins left Hot Topic Inc. with a wider first-quarter loss, the company reported Wednesday.

For the three months ended April 30, the net loss fell to $7.7 million, or 17 cents a diluted share, from a loss of $1.8 million, or 4 cents, in the first quarter of 2010. Included in the more recent period were $12.4 million in charges for strategic business changes and cost reductions. Excluding items, EPS for the quarter came to zero cents versus the 1-cent loss expected, on average, by analysts polled by Yahoo Finance.

Sales decreased 0.8 percent to $161.3 million from $162.6 million, as comparable-store sales rose 0.2 percent for the quarter. Gross margin dropped to 31.3 percent of sales from 33.5 percent in the year-ago quarter.

Hot Topic said it expects a loss for the second quarter ending July 30 in the range of 9 cents to 11 cents a share, excluding $3 million in costs in connection with its ongoing strategic changes. Last year, it lost 14 cents a share in the second quarter.

At the end of the first quarter, the company operated 642 Hot Topic stores and 151 Torrid Stores, versus 681 and 156 last year, respectively.

Lisa Harper, former chief executive officer of Gymboree Corp., succeeded Betsy McLaughlin as ceo of Hot Topic in March.

Hot Topic April Same-Store Sales Jump 11%; Zumiez Up 18%

Dow Jones Newswires

Hot Topic Inc.'s April same-store sales grew more than analysts expected and in the process ended a two-year streak of declines, while Zumiez Inc.'s growth topped analysts' expectations.

Still, shares of Hot Topic fell 1.3% to $6.44 in after-hours trading, while Zumiez's stock grew 1.5% to $28.98.

Hot Topic reported same-store sales increased 11%, compared with a 3.4% jump projected by analysts polled by Thomson Reuters and rebounding from a 13% decline last year. The company last reported a monthly increase in April 2009.

Hot Topic also raised its full-year outlook, seeing breakeven results to a 2-cent loss, compared with the March forecast of a loss of a penny to 4 cents a share.

The mall- and Web-based retailer, which offers pop-culture-related clothing and accessories, has struggled to win shoppers after its merchandise geared to the "Twilight" vampire movie sequels failed to buoy results as much as products tied to the original film did. Poor results led the company to announce a cost-reduction plan in November, and two top executives have resigned, including longtime chief executive Betsy McLaughlin.

Zumiez--a specialty retailer of sports-related apparel, footwear and accessories for teens and young adults--reported April same-store sales jumped 18%, topping Wall Street's growth forecast of 14%, and building on a 2.1% increase last year.

Overall, retailers are expected to report an 8.2% jump in same-store sales in April, according to analysts, with teen apparel retailers forecast to report a 9% jump. Retailers delivered solid results in March in the face of poor weather and higher gasoline prices, and results this month should benefit from a late Easter.

March US Retail Sales Showing Unexpected Strength

Dow Jones Newswires
By Karen Talley

U.S. consumers spent March on the move, allowing many retailers to deliver solid sales numbers that suggest resilience in the face of challenges from a later Easter, poor weather and higher gasoline prices.

Early reports from companies including warehouse club Costco Wholesale Corp., Victoria's Secret operator Limited Brands Inc., and teen retailer Zumiez Inc. show considerably better gains than expected at stores open a year or more.

Others, including Hot Topic Inc., Stage Stores Inc. and apparel retailer Cato Corp. posted drops in same-store sales from a year earlier, but the declines were less than analysts projected.

"I wouldn't necessarily say the performances we're seeing for March was remarkable, because expectations were so low," said John Long, retail strategist at Kurt Salmon. "It will take April and the Easter holiday to really gauge what's going on, especially on the apparel side."

Wet Seal Inc., a young women's retailer, reported a 4.7% gain in same-store sales compared with expectations for a 1.7% drop. Chief Executive Susan McGalla said the company estimated same-store sales would have increased at a high single-digit percentage without the effect of a later Easter, but that April would benefit as a result.

The month did see robust growth in employment, with non-farm payrolls showing the addition of 216,000 positions, spurring hopes for a sustained employment recovery. The stock market also continues rising, a plus especially for higher-end shoppers.

Costco, which posted a 13% rise in same-store sales when analysts were projecting a 7.4% gain, continued to benefit from higher gasoline prices at the pumps at its clubs, favorable foreign exchange rates and the continued economic recovery in California, where the company has a significant presence.

Costco's international operations showed continued growth, with foreign sales rising 17% for the month, while U.S. sales increased 11%. Costco said its Tamasakai, Japan, warehouse, closed for repairs from earthquake damage, is expected to reopen before the end of the year.

While many other big players are still to be heard from, including Target Corp., Macy's Inc. and Saks Inc., it is looking like retailers will beat expectations as a group.

The 25 retailers tracked by Thomson Reuters are expected to post a 0.7% drop in same-store sales for last month, with much of the reservations for a stronger showing the result of Easter being its latest since 1943. The calendar shift pushed buying into April. The March showing is expected to be followed by 7.5% gain in April. As a result of the April momentum, sales for the two months are expected to show 3.4% growth, which Thomson Reuters considers healthy buying.

Easter fell on April 4 last year and is three weeks later this year on April 24.

And consumers are expected to buy. U.S. retail spending on Easter related merchandise, for everything from cookware to clothing, is expected to average $131.04 a person this year, up 11% from a year ago, the National Retail Federation said. The figure is based on a poll of consumers. The increase suggests momentum and is "a good sign leading into the much busier and important months to come," said Matthew Shay, the trade group's president.

Retailers in coming months will look to back-to-school and Christmas holiday buying to the lion's share of their annual sales. They are also facing increasing cost pressures from rising cotton and labor prices and will have to see what kind of price increases shoppers will absorb.

Hot Topic To Close ShockHound Site; Sees $15 Million In Charges

Hot Topic Inc. said it would record a pretax charge of about $15 million related to the teen-retailing company's decision to discontinue its music-downloading site ShockHound.com and write down assets that aren't critical to the company's future.

The company said it estimates the charges, along with severance costs related to recent changes in management, will result in a total charge of 21 cents a share, to be recorded primarily in the fiscal first quarter.

The charges come as Hot Topic has reported weaker sales in recent quarters, a trend that prompted the company to announce a cost-reduction plan in November. The mall- and Web-based retailer, which offers pop culture-related clothing and accessories, has struggled to win shoppers after its merchandise geared to the "Twilight" vampire movie sequels failed to buoy results as much as products tied to the original film did.

Just last week, Hot Topic announced the resignation of its longtime Chief Executive Betsy McLaughlin and, on Monday, the company said Amy Kocourek, chief merchandising officer of the namesake division, has left. New CEO Lisa Harper, a board member, will assume direct oversight of Hot Topic merchandising, the company said.

Hot Topic also projected it would report a loss of 1 cent to 4 cents a share, excluding the charges, for the fiscal first quarter ended April 30, a view that was based on a low-single-digit percentage decline in same-store sales. Analysts polled by Thomson Reuters expected a loss of 3 cents a share.

For the year, Hot Topic sees earnings of 5 cents to 15 cents a share, based on flat to a low-single-digit percentage drop in same-store sales. Wall Street most recently forecast a profit of 14 cents a share.

Hot Topic also joined a number of its teen-retailing peers by saying it would discontinue the issuance of monthly sales reports, effective in the fiscal third quarter. The company will instead report quarterly sales results on the first Wednesday following the close of each fiscal quarter.

Abercrombie & Fitch Co., Aeropostale Inc. and American Eagle Outfitters Inc. all stopped reporting monthly sales earlier this year.

Shares of Hot Topic were halted ahead of the news. The stock closed up 9 cents to $5.95 on Monday.

Teen Retail CEOs On the Move

by Alexandra Steigrad
From WWD Issue 03/23/2011

Fickle teens are leading to insecurity in the executive ranks of youth retailers, who’ve seen a series of management shake-ups as the sector attempts to get back into growth mode after a weak, highly promotional 2010.

Since the start of the year Hot Topic Inc. and The Wet Seal Inc. have appointed new chief executive officers and American Eagle Outfitters Inc. has revealed plans to do so, while Mindy Meads stepped down as co-ceo of Aéropostale Inc. in December, leaving the role of sole ceo to Thomas Johnson.

All are in the process of turning around their respective brands and trying to get a handle on shifting teen fashion preferences and tightening spending tendencies. And all have struggled with top-line challenges. PacSun, Hot Topic and American Eagle had respective comparable-store sales declines of 8 percent, 5.3 percent and 1 percent in fiscal 2010. Aéropostale, an industry overachiever with a 10 percent comp gain in 2009, saw its increase dwindle to 1 percent last year. Wet Seal reports results for the fourth quarter and year on Thursday.

“As business shows some indication of getting better, companies seem to be more ready to make the executive changes that they expect will generate their share of the increase in business in this environment,” said John Jonas, president and ceo of executive search firm The Jonas Group. “The need for someone to ‘get’ how to approach online and international business is also key now. As always, having great leadership is necessary for success in the super competitive retail sector.”

But there’s something specific about the teen sector that has sparked the ceo mass exodus, according to analysts.

“Ceo movement is a direct correlation to performance,” said Susquehanna specialty retail analyst Thomas Filandro. “Clearly, there’s a lack of differentiation within the sector…. There’s not a dominant enough trend in the teen sector, and as a result, it’s more of a dog-eat-dog world.”

Gone are the days of relying on basics and “heavily logoed” T-shirts and hoodies. “Kids are somewhat de-logoizing,” he said. “It’s more difficult to differentiate without logos.”

With their low-priced, trendy apparel, competitors like H&M, Zara and Forever 21 have left many staple teen retailers flat-footed, he said, pointing to American Eagle, which this month announced the retirement of ceo James O’Donnell. The ceo, who’d been with the firm for 11 years, was set to resign in 2013 and will remain until his successor is in place.

“The Eagle lost sight of who its target market and customer are,” he said. “They have been extraordinarily disappointing…the merchandise on the floor, the messaging and their marketing are inconsistent with their brand DNA.”

In order to turn around the brand, American Eagle should look for a ceo with a “merchandising or design background, as product seems to be what they are struggling with,” noted Wedbush Securities analyst Betty Chen.

Chen suggested former Aéropostale co-ceo Meads or current Charlotte Russe head honcho Jenny Ming.

What many of these companies have in common is the need for a “fresh perspective” to expedite a turnaround, she said, pointing to Hot Topic, which Monday appointed director and former Gymboree ceo Lisa Harper to succeed Betsy McLaughlin as ceo. McLaughlin resigned after 11 years in HT’s top spot.

It’s now been 20 months since Gary Schoenfeld joined PacSun as president and ceo, snagging a spot that had been occupied for three years by Sally Frame Kasaks, the former Ann Taylor and Abercrombie & Fitch executive. Kasaks, a PacSun director, was initially appointed interim ceo, but the interim was removed after she’d been on the job a year.

Under Schoenfeld, PacSun’s struggles have continued. Last week, it reported a smaller fourth-quarter loss but fell short of analysts’ sales and earnings estimates.

Sitting out the ceo dramas of recent months — although not exempt from occasional rumors of a possible takeover — is Abercrombie & Fitch, led by chairman and ceo Michael Jeffries and coming off a year in which it posted a 7 percent comp gain after a 23 percent decline in 2009. Abercrombie generally is viewed as having held the line on fashion leadership while becoming far more competitive in its pricing.

Prior to hiring its new ceo Susan McGalla in January, Wet Seal has battled to balance price and compelling fashions.

This balancing act, however, is symptomatic of the times, as retailers who have fared best have opted to buy shallow and test different merchandise.

“If you are offering commoditized product, you will get beat,” Susquehanna’s Filandro said, pointing to chains like Victoria’s Secret, Express, Buckle Inc. and Zumiez Inc. “These companies are creating innovation and newness. They are reading and reacting to what consumers are looking for and they are winning.”

Betsy McLaughlin Exits Hot Topic

by Alexandra Steigrad
From WWD Issue 03/22/2011

In another top executive departure in the suddenly unstable teen specialty retailing space, Betsy McLaughlin has resigned as chief executive officer and a director at Hot Topic Inc.

Lisa Harper, a member of Hot Topic’s board and the former chairman and ceo of Gymboree Corp., has succeeded McLaughlin as ceo.

Responsible for launching Hot Topic’s plus-size concept Torrid, McLaughlin, who had held the ceo spot since 2000, will assist in Harper’s transition for the next three months.

“Harper is a good merchant and that seems to be what Hot Topic needs,” said Needham & Co. analyst Christine Chen. “But I’m surprised that she’s coming back to run a business.”

For the past few years, Hot Topic has had an image problem. The perception out there is that the retailer is still “goth and grunge,” even though it sells Taylor Swift and Eminem paraphernalia, the analyst said, adding that at Torrid, stores are too reminiscent of Hot Topic and need to instead look more like boutiques.

Also on Monday, The Wet Seal Inc. tapped Ken Seipel to serve as its president and chief operating officer, effective March 28. Seipel, a former executive vice president of stores, operations and store design for Gap Inc.’s Old Navy chain, will report to Susan McGalla, who was appointed ceo of Wet Seal in January.

Management shifts have come to be the norm in the struggling specialty sector. Earlier this month, American Eagle Outfitters Inc. said it was on the hunt for a new ceo to succeed James O’Donnell. Like McLaughlin, he’d serve as ceo since 2000.