Hot Topic to Rethink Business
When Hot Topic Inc. reported results for its 2010 fourth quarter on March 7, the City of Industry, Calif.–based company made a surprise announcement.
The mall-based retailer hired an outside consulting and financial-advisory firm to review company business and to recommend ways to improve revenues. Hot Topic had been sluggishly improving its same-store sales.
The retailer has not identified the name of the advisory firm. But advisers are making their recommendations to the company’s board of directors during a March 15–16 meeting. Hot Topic deferred its first-quarter financial guidance and postponed its conference call to discuss the fourth quarter and fiscal-year results. The company has not rescheduled a conference call to discuss the fourth quarter. But one is taking place shortly after the March 15 meeting.
The announcement took many of Hot Topic’s Wall Street analysts by surprise. The company has not released any details on what measures the company would consider.
In a March 7 e-mail to clients, Jeff Van Sinderen of Los Angeles–based financial-services firm B. Riley & Co. forecast the company could consider any of the following options: an auction to sell the company; a sale of Torrid, its division for plus-size women; or changes in merchandising strategy, expense structure unit concentration and sourcing.
Hot Topic is profitable, but it has not reported positive same-store sales since May 2009. The collaboration with the unnamed outside consultants may have been put into play by Hot Topic’s newest members of its nine-person board of directors
Steve Becker and Matt Drapkin joined Hot Topic’s board of directors in October 2010. The principals of Becker Drapkin Management are known as activist investors. They control more than 5 percent of Hot Topic’s stock.
Van Sinderen said: “They have been trying to improve everything about the company. We’ve seen some early initiatives including store closings, which have improved profitability.”
Hot Topic’s total sales for the fourth quarter of fiscal 2010 declined 0.8 percent to $212.4 million, compared with $214.2 million for the fourth quarter the previous year. Total company comparable-store sales declined 2.1 percent for the 2010 fourth quarter.—Andrew Asch
