Teen apparel retailer Hot Topic Inc, which has lagged rivals due to an unappealing merchandise mix, will close stores and cut jobs to lower costs as it battles falling sales.
Hot Topic, which operated 680 Hot Topic stores and 155 Torrid stores at the end of the third quarter, said it will reduce about 14 percent of its home office and field management positions and close 40-50 underperforming stores.
"The store closures were a long time coming," said Wall Street Stratagies analyst Brian Sozzi, adding it was only a short-term solution.
Beyond mid-2011 the focus will once again be on how Hot Topic could reignite the sales trend, Sozzi said.
San Jose, California-based Hot Topic, one of the few retailers that saw strong sales in fiscal 2008 due to teen-movie Twilight merchandise, has seen revenue drop for the past six quarters.
The company, which sells licensed band and movie apparel and accessories, expects fourth-quarter earnings of 11-14 cents a share, excluding items. Analysts are looking for 13 cents a share, according to Thomson Reuters I/B/E/S.
"I think the stock will receive a short-term boost tomorrow as analysts readjust their estimates to account for greater profit flow through next year from the store closures," Sozzi said.
Hot Topic, whose peers include Abercrombie & Fitch Co, American Eagle Outfitters Inc and Wet Seal Inc, also posted a lower third-quarter profit, hurt by lower sales and gross margins.
Earlier this month, the company said quarterly sales fell 3.4 percent to $183.2 million.
Shares of Hot Topic, with a market cap of about $246 million, closed at $5.44 on Tuesday on Nasdaq. They have lost about 5 percent since the company reported a fall in sales in early November. (Reporting by Mihir Dalal in Bangalore; Editing by Roshni Menon, Unnikrishnan Nair)
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