Hot Topic’s Stock Falls on Slim Sales

It’s beginning to look like a cold Christmas for Hot Topic Inc., which sells clothing and accessories for teenagers, after it saw its shares fall 13% on Tuesday -- one day after the company cut its forecast for its fiscal fourth-quarter net income.

Shares closed at $16.37, down $2.47, on Nasdaq.

The City of Industry-based retailer late Monday reported an 8% drop in November sales at stores open more than one year. It also cut its fourth-quarter forecast to 37 cents to 43 cents a share from a previous range of 49 cents to 52 cents. It was expected to earn 48 cents, the average estimate of 22 analysts polled by Thomson First Call.

Several analysts downgraded the stock Tuesday, citing the big shortfall in accessories sales and a general shift in fashion trends away from the company’s edgy merchandise.

William Blair downgraded the company to “market perform” from “outperform,” saying the recent weakness will delay recovery of sales trends until at least spring.

Sales of accessories, including hats, jewelry, intimate apparel and leather goods, declined 13% compared with last year. That doesn’t bode well for December sales, William Blair analyst Sharon Zackfia said.

“The inventory is already there for the holidays, which tends to be more accessory-dependent versus other times of the year,” she said. “There’s little they can do to freshen that inventory before Christmas.”

It’s hard to say whether the shortfall in sales of certain lines, such as licensed merchandise from the movie “The Nightmare Before Christmas,” is a seasonal problem or more fundamental. The line did very well last year, so management increased its inventory this year, but “it appears as if that license has pretty much run its course,” Zackfia said.

Hot Topic said November sales at stores open at least a year -- a key industry indicator -- were down 8% to $48.5 million. The company operates 668 Hot Topic and Torrid stores.