Hot Topic Cuts Stores and Trims Jobs

Betsy McLaughlin, chief executive of Hot Topic Inc., announced her company would close 40 to 50 of its 835 stores and cut 14 percent of its field management and corporate jobs.

The announcement was made in conjunction with a report on its 2010 third-quarter results, which had comparable sales for the City of Industry, Calif.–based retailer declining 5 percent. The company’s reported net income was $400,000, or 1 cent a share, for the 2010 third quarter, compared with $5.8 million, or 13 cents a share, in the third quarter of last year. The forecast for the fourth quarter’s performance shows a decline in the low single digits.

McLaughlin blamed the poor performance of the 2010 third quarter on a change of direction for the company and comparisons to the relatively good business of the 2009 third quarter. One year ago, Hot Topic was one of the go-to places for merchandise for the hit movie “The Twilight Saga: New Moon.” There was no hit movie merchandise this year to replace that business.

Hot Topic typically enjoyed its best sales during Halloween because of its reputation as being a retailer for “Goth” fashions, which had been popular in the 1980s and 1990s. “We are no longer the Halloween store,” McLaughlin said during a Nov. 17 conference call with Wall Street analysts, and Hot Topic lost its market for casual shoppers who only purchased items such as fishnet stockings at the store for Halloween. The company made a mistake in not forecasting that loss of business this year, according to the Hot Topic chief executive. For the future, the retailer’s look will be funky and left of center, McLaughlin said.

The Hot Topic stores being closed down have not been profitable, according to Hot Topic President Jerry Cook, and the company is letting these stores’ leases run out. The Hot Topic employees whose jobs were cut were dismissed on Nov. 16. McLaughlin said the worst was over. “2011 will not have further reductions to this extent,” she said. “It is our hope this is it and we’ll be well-positioned going forward.”

One bright spot for the company is business in Canada. Hot Topic will open its fourth Toronto store in the 2010 fourth quarter.—Andrew Asch