Majestic Research

The Wall Street Journal

Hot Topic Shares Keep Rising On Dividend, Ahead Of Conference

By Shara Tibken
Published: April 13, 2010

NEW YORK (Dow Jones)--Shares of Hot Topic Inc. (HOTT) climbed Tuesday on continuing optimism tied to its special dividend and a day ahead of the teen retailer’s presentation at a consumer conference.

Last week, Hot Topic’s board authorized a special one-time $1 per-share cash dividend and also authorized a regular 7-cent-a-share quarterly dividend. The news boosted shares 11% the day after the dividend was announced.

“They did have a fair amount of cash on their balance sheet and a relatively strong balance sheet, so it made sense for them to give some of that back to shareholders,” Argus Research analyst Erin Smith said Tuesday, adding that she didn’t necessarily expect the dividend to be announced at that time.

And Jim Cramer, on his CNBC show “Mad Money” said late Monday in response to a caller that he’s bullish on Hot Topic because the special dividend sends a strong signal the company is doing well.

Meanwhile, Hot Topic plans to present Wednesday at the Telsey Advisory Group Consumer Conference in New York, with both its chief executive and chief financial officer representing the company.

“I think that shows some interest on the part of the shareholder base or potentially new shareholders in learning...directionally where the company is heading [long term],” Wall Street Strategies analyst Brian Sozzi said, adding he doesn’t expect Hot Topic to update its guidance at the conference.

In recent trading, Hot Topic shares climbed about 6% to $8.58, up 32% month to date. Still, shares have declined 33% over the past 12 months.

For months, Hot Topic’s results were bolstered by merchandise tied to the popular vampire film “Twilight,” but sales have slid as the film’s sequel was “much less popular than management had planned for,” according to Majestic Research. As a result, the firm has said there will likely be more markdowns in the months ahead, given the inventory buildup.

Argus’ Smith said she still sees challenges ahead for Hot Topic, with the company facing difficult comparisons in the first quarter based on the success of the popular “Twilight” movie line.

“They gave relatively conservative guidance for the first quarter and said there are still a number of aggressive promotions at competing stores,” Smith said, adding she also expects costs to go up in the second half of the year.