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Wednesday, September 06, 2006

Hot Topic: Late Analyst Call (HOTT)

Hot Topic, which run retail operations that cater to young shoppers, got panned in Barron’s this week. It was one of the biggest decliners on the Nasdaq, down 13.2% last week, and it hit a 52-week low.

On August 25, D.A. Davidson & Co. initiated coverage on the company with a “neutral”. That must be why institutions look to them for leading edge research.

Hot Topic’s same store sales dropped 6% in August. Not all retailers that target younger buyers did so poorly. According to the Associated Press, Abercrombie & Fitch same store sales rose 6% in August.

Hot Topic’s sales have been slow the last two quarter. Some of that is seasonal, but the trend is not getting any better. If the upcoming holiday season is not strong for the retailer, they will be in more hot water with investors. The company has lost money on an operating income basis the last two quarters. Revenue was in the $155 to $160 million range in both. The company has not had an operating loss in any of the previous three fiscal years (ending January 28).

The stock has shown the wear of bad results. After trading near $25 in the Spring of 2005, the stock started a long run down to its current level of $9.98, a multi-year low.

Hot Topic is in trouble, but D.A. Davidson may just have found out.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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