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Hot Topic to cut staff and stores

The struggling teen clothing retailer plans to cut about 14% of its management positions and closing 40 to 50 locations by early next year.

November 18, 2010|By Shan Li, Los Angeles Times

Teen retailer Hot Topic Inc., struggling with weak sales and earnings, is cutting staff and closing 40 to 50 stores by early next year.

The City of Industry chain, which operates 680 Hot Topic stores and 155 Torrid stores for plus-sized teen girls, said it would cut about 14% of management positions as part of "a cost reduction plan to meet the challenges of the current environment."

The company plans to shutter 15 Hot Topic locations and two Torrid stores in next two months, with the rest to follow next year, Chief Financial Officer Jim McGinty said in a conference call.

The reductions are estimated to save the company $13 million in pretax income.

Known for its music- and pop-culture-inspired clothing, Hot Topic said lower sales have hurt its bottom line.

On Tuesday, the retailer reported its third-quarter earnings, which fell short of analysts' expectations. Hot Topic posted a profit of $400,000, or 1 cent a share, for the quarter that ended Oct. 30. Earnings were also affected by a one-time charge of $3 million related to its struggling ShockHound.com website, which took away 4 cents a share from earnings. In the same period last year, the company reported a profit of $5.8 million, or 13 cents a share.

Shares rose 25 cents, or 4.6%, to $5.69.

The company received a boost two years ago from licensed merchandise sales from the blockbuster "Twilight" movie franchise. But it has struggled since then, with revenue dropping in the last six quarters.

Also troubling for Hot Topic was that sales at stores open at least a year dropped 5%. These same-store sales are considered a key performance measure because they exclude the effects of store openings and closings.

"The third quarter was a tough quarter for both Hot Topic and Torrid stores," Chief Executive Betsy McLaughlin said. "Considering our year-to-date result, we remain prudent about our fourth-quarter results."

The company issued fourth-quarter earnings guidance of 11 cents to 14 cents a share.

McLaughlin added that further cost cutting was not out of the question, but that "it is our hope that this is it," she said.

shan.li@latimes.com

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