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Hot Topic: More Expansion

Retailing: A trendy, teen-oriented clothing chain accelerated its growth strategy with plans to open 50 stores.


Hot Topic, a Pomona-based chain of trendy junior clothing stores, said Monday that it is stepping up its already ambitious expansion plans.

The chain, which sells vinyl pants, body-piercing jewelry and apparel licensed from musical acts, said it will open 50 stores this year, up from the 45 announced earlier. It has 143 stores nationwide, 31 of which are in California.

Hot Topic has been racking up steady gains in sales and earnings, fueled by its expansion. But sales at stores open at least a year, an important measure of retail performance, have been sluggish.

Hot Topic's "stores mature very quickly," said Joseph Teklits, a senior retail analyst for Ferris Baker Watts in Washington. "Each of its stores max out during year one as far as sales are concerned so they must continue to open new stores."

Nonetheless, some analysts are optimistic about Hot Topic's prospects.

"There is a strong sales momentum in Hot Topic," said Joe Grillo, an analyst with BT Alex. Brown in San Francisco. "They are one of the most profitable stores in apparel retailing."

The company, which caters to 12- to 22-year-olds, offers rock music-influenced clothing and accessories such as T-shirts from musical acts such as Marilyn Manson, Nine Inch Nails and Korn.

"Hot Topic is a place teens like to hang out. They have affordable-type stuff," said Barbara Coulon, director of trends for Youth Intelligence, a New York consulting firm. "They are fun stores and there are not too many available for teens."

Coulon said the spending power for consumers between ages 12 and 22 is expected to reach $141 billion in 1999.

"They each have $3,000 to spend on themselves and they are making the decisions on what to buy," said Jay Johnson, chief financial officer for Hot Topic.

Recent turmoil in the stock market, and ensuing economic concerns, haven't deterred Hot Topic from plans for major expansion. Hot Topic has already opened 35 stores this year, virtually all of them in malls.

"The fluctuations in the stock market haven't had much impact on us because our customers are teens, and as a whole, I don't think they pay much attention to the market," Johnson said.

Hot Topic reported income of $334,000 on sales of $20.79 million for the quarter that ended Aug. 1. Income rose 64% from the same three-month period in 1997. Same-store sales for the quarter rose only 2% from 1997.

Hot Topic also announced that it will expand its online services and has teamed with digital media company iXL-Los Angeles to provide strategic, creative and technological services.

"We have been selling on the Web for over a year and have learned a great deal," Madden said.

Hot Topic shares closed Monday up 38 cents to $12.88 on Nasdaq.

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