May 20, 2009 / 10:59 PM / 10 years ago

UPDATE 2-Hot Topic tops Q1 estimates, but forecasts Q2 loss

* Q1 profit 3 cents/shr vs est of 2 cents

* Q1 rev up 10 pct

* Sees Q2 loss * Shares fall 9 pct after market (Recasts; adds conference call details, analyst comments; updates stock movement)

May 20 (Reuters) - Hot Topic Inc HOTT.O, which had so far bucked weak trends in apparel, forecast a second-quarter loss due to a slowdown in traffic post Easter, sending its shares down as much as 9 percent in trading after the bell.

The mall and web-based retailer, which also reported a quarterly profit for the first quarter compared with a loss a year ago, now expects a second-quarter loss of 4 cents a share to 6 cents a share, including charges related to its web-based store, ShockHound.

Revenue for the period is expected to be in the range of $161 million to $165 million, the company said during a conference call with analysts.

Analysts were expecting a profit of 1 cent in the second quarter on revenue of $172.6 million, according to Reuters Estimates.

Analyst Brian Sozzi of Wall Street Strategies Inc (wstreet.com) said Hot Topic looks to be using the seasonally slow second quarter to clear excess inventory ahead of the back-to-school season.

“I think what you may have seen in the (second-quarter) estimates is the belief that Twilight product would help smooth out the results,” he said.

Sales of merchandise related to the hit movie “Twilight” had boosted business at Hot Topic for months, but the company saw a fall in comparable sales in April, when demand for the movie-related merchandise waned a bit.

Hot Topic has also seen some weakness in its women’s division, with demand for its brightly colored denims falling.

MUSIC SALES FALTER

The company, which also sells music and often hosts live bands at their stores, saw an unexpected slowdown in music in so far in the quarter, Chief Executive Betsy McLaughlin said in the call.

The retailer now projects comparable sales to fall in the mid-single-digit percentage range for the second quarter, while month-to-date comparable sales in May have slipped 6 percent, she added.

But the company plans to get new merchandise for the back-to-school season, as well as newer Twilight-related product when the movie sequel arrives in the fall.

“I am planning for Q3 to be a winner for Hot Topic. It should capture the bulk of back-to-school sales in August and September, analyst Sozzi, who has a “buy” rating on the company, said.

Q1 RESULTS TOP VIEW

For the latest quarter ended May 2, the company that operates stores under its namesake and Torrid brands, earned $1.2 million, or 3 cents a share, compared with a net loss of $1.4 million, or 3 cents a share in the year-ago quarter.

Revenue rose 10.1 percent to $175.1 million, while same-store sales, or those at stores open for at least a year, rose 7.1 percent during the quarter.

Analysts, on average, were expecting the company to earn 2 cents a share, on revenue of $173.3 million.

Shares of the company were trading at $8.09 after hours. They closed at $8.75 Wednesday on Nasdaq. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Aradhana Aravindan, Anthony Kurian)

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