Market Overview

Hot Topic Shares Soar to 3-Year High on Q1 Guidance


Shares of Hot Topic (NASDAQ: HOTT) shot up to $10.11, a three-year high, this morning and shares are maintaining upside so far in the session, buoyed by solid fourth quarter results, an increase in quarterly dividends, and an optimistic guide to next quarter.

The company reported Q4 net income of $9 million ($0.21/share) which was an improvement to the net loss of $0.6 million ($0.01/share) from the same period last year. It should be noted that 4Q10 was impacted by cost reduction plan expenses, which reduced EPS from the positive $0.12 it would have been in lieu of them. Q4 EPS beat analyst estimates of $0.20 by one cent.

On a full-year basis, Hot Topics improved as well, although it still ended up posting a loss of $1.8 million, or $0.04 per share. Full-year 2010 saw net loss of $8.2 million or $18 cents per share, which excluding aforementioned cost reduction plans, would have been $0.12/share.

The cost reduction plan instituted in 2010 is apparently working, because Hot Topic's top-line upside came in the back of less sales for the quarter when compared to last year. The company reported $209.9 million in revenues for its latest quarter, compared to $212.5 million in the same quarter in 2010. Q4 revenues were slightly up on analyst's estimates of $209.1 million.

The company believes its strong execution will continue into the first quarter, which ends on April 28, 2012. The company guides an EPS range of $0.02 to $0.05 as compared to a loss of $0.17 per share for last year's Q1. Guided EPS is also markedly higher than the $0.01 Street consensus.

The company said this uptick in EPS is based on a mid-single-digit percent increase in comp store sales. Although comps were up just 1.3 percent for the fourth quarter, the company is confident to guide a higher upside as Q1 is the first quarter. The company starts including internet sales in its comp results in the first quarter.

Finally, it did not hurt that the company announced a 14% boost to its quarterly dividend, which went from $0.07 to $0.08 per share. On the dividend increase, Hot Topic CEO Lisa Harper commented, "By increasing our quarterly dividend, our Board of Directors has demonstrated its confidence in our strategic direction and our ability to execute to our plan. The strength of our balance sheet and the substantial free cash flow generated by our business provide us with the financial flexibility to return capital to our shareholders in this manner.”

Piper Jaffray (NYSE: PJC) reiterated its Overweight-rating on shares following the earnings call. Noting that business momentum supports further recovery and appreciation in stock's price, it raises the price target on HOTT to $12 from $9. “While shares of HOTT are up over 30% since the beginning of the year, we continue to believe there are tangible catalysts that support earnings recovery,” noted Jaffray analysts, pointing to Hunger Games licenced merchandise as just such a catalyst.

HOTT shares are currently trading at $9.79 a share, up 11.4 percent.

Posted-In: Analyst Color Earnings News Guidance Dividends Price Target Reiteration Topics Best of Benzinga


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