Hot Topic, Inc. Reports 2nd Quarter Financial Results

A conference call to discuss second quarter results, business trends, guidance and other matters is scheduled for August 15, 2012 at 4:30 PM (ET). The live conference call number is 800-510-9836, pass code “Hot Topic”, and will be accessible to all interested parties. It will also be webcast on the company’s Investor Relations website located at http://investorrelations.hottopic.com. A replay of the conference call will be available at 888-286-8010, pass code 73585505, for approximately two weeks. In addition, a webcast replay of the conference call will be available on the company’s Investor Relations website for approximately two weeks.

Hot Topic, Inc. is a mall and web based specialty retailer operating the Hot Topic and Torrid concepts. Hot Topic offers music/pop culture-licensed and music/pop culture-influenced apparel, accessories, music and gift items for young men and women. Torrid offers on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears a size 12 and up.

This news release and the aforementioned conference call contain forward-looking statements, which may include statements relating to financial results, guidance, store and online operations (including closures, remodels and relocations), projections, financial performance including cost reductions and changes in business operations, and related matters. These statements involve risks and uncertainties, including risks and uncertainties associated with meeting expected financial results, fluctuations in sales and comparable sales results, music, license and fashion trends, competition from other retailers, uncertainties generally associated with specialty retailing, technology and other risks associated with Internet sales, the effect of negative conditions in the economic environment (including global capital and credit markets), the effect of severe weather or natural disasters, political and/or social changes or events that could negatively impact shopping patterns and/or mall traffic, relationships with mall developers and operators, relationships with our vendors, litigation proceedings and contingent liabilities, as well as other risks detailed in the company’s SEC reports including its Annual Report on Form 10-K for the year ended January 28, 2012, and its Quarterly Reports on Form 10-Q. Historical results achieved are not necessarily indicative of the future prospects of the company, and actual results or circumstances could differ materially from the forward-looking statements.

HOT TOPIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
		Three Months Ended
		Jul. 28, 2012			Jul. 30, 2011
Net sales		$157,828			$150,950
Cost of goods sold, including buying, distribution and occupancy costs		103,977			102,288
Gross margin		53,851			48,662
Selling, general & administrative expenses		55,091			58,760
Loss from operations		(1,240	)		(10,098	)
Interest income and other income (expense), net		(6	)		82
Loss before benefit for income taxes		(1,246	)		(10,016	)
Benefit for income taxes		(478	)		(3,796	)
Net loss		$(768	)		$(6,220	)
Loss per share:
Basic and Diluted		$(0.02	)		$(0.14	)
Shares used in computing loss per share:
Basic and Diluted		42,252			44,843
		Six Months Ended
		Jul. 28, 2012			Jul. 30, 2011
Net sales		$329,372			$312,223
Cost of goods sold, including buying, distribution and occupancy costs		213,836			213,152
Gross margin		115,536			99,071
Selling, general & administrative expenses		110,694			121,558
Income (loss) from operations		4,842			(22,487	)
Interest income and other income, net		56			134
Income (loss) before provision (benefit) for income taxes		4,898			(22,353	)
Provision (benefit) for income taxes		1,831			(8,472	)
Net income (loss)		$3,067			$(13,881	)
Income (loss) per share:
Basic and Diluted		$0.07			$(0.31	)
Shares used in computing earnings (loss) per share:
Basic		42,196			44,778
Diluted		42,915			44,778

HOT TOPIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
		Jul. 28, 2012		Jul. 30, 2011
Current Assets:
Cash, cash equivalents and short-term investments		$63,643		$72,550
Inventory		80,239		72,984
Prepaid expenses and other		16,006		27,431
Deferred tax assets		5,706		4,304
Total current assets		165,594		177,269
Property and equipment, net		106,863		112,705
Deposits and other		7,165		6,441
Long-term investments		1,724		1,819
Deferred tax assets		3,900		6,391
Total assets		$285,246		$304,625
Current Liabilities:
Accounts payable		$34,051		$35,282
Accrued liabilities		42,736		39,716
Income taxes payable		1,350		665
Total current liabilities		78,137		75,663
Deferred rent		19,217		22,565
Deferred compensation liability		4,596		4,665
Income taxes payable		593		1,911
Total liabilities		102,543		104,804
Total shareholders’ equity		182,703		199,821
Total liabilities and shareholders’ equity		$285,246		$304,625

HOT TOPIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		Six Months Ended
		July 28, 2012		July 30, 2011
Operating Activities
Net income (loss)		$3,067		($13,881)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		16,941		18,217
Change in inventory		(9,594)		(2,681)
Other, net		11,871		10,361
Net cash flows provided by operating activities		22,285		12,016
Investing activities
Purchases of property and equipment		(19,491)		(12,102)
Proceeds from sale of investments		4,435		10,974
Net cash flows used in investing activities		(15,056)		(1,128)
Financing activities
Payment of cash dividends		(6,762)		(6,278)
Excess tax benefit from stock-based compensation		421		194
Proceeds from employee stock purchases and stock options exercised		1,073		1,111
Payment of capital lease obligation		-		(191)
Net cash used in financing activities		(5,268)		(5,164)
Increase in cash and cash equivalents		1,961		5,724
Effect of foreign currency exchange rate changes on cash		(1)		(35)
Cash and cash equivalents at beginning of period		49,615		51,316
Cash and cash equivalents at end of period		$51,575		$57,005
OTHER DATA
Total company store square footage		1,534,000		1,488,900
Hot Topic average store size		1,773		1,771
Torrid average store size		2,540		2,498

HOT TOPIC, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO
NON-GAAP MEASURES
(In thousands, except per share amounts)
(Unaudited)
		Three Months Ended
		July 28, 2012						July 30, 2011
		Reported		Charges		Non-GAAP		Reported		Charges		Non-GAAP
Net sales		$157,828		$-		$157,828		$150,950		$-		$150,950
Cost of goods sold, including buying, distribution and occupancy costs		103,977		-		103,977		102,288		31		102,257
Gross margin		53,851		-		53,851		48,662		31		48,693
Selling, general and administrative expenses		55,091		-		55,091		58,760		4,117		54,643
Loss from operations		(1,240)		-		(1,240)		(10,098)		4,148		(5,950)
Interest income, net		(6)		-		(6)		82		-		82
Loss before benefit for income taxes		(1,246)		-		(1,246)		(10,016)		4,148		(5,868)
Benefit for income taxes		(478)		-		(478)		(3,796)		1,572		(2,224)
Net loss		($768)		$-		$(768)		($6,220)		$2,576		$(3,644)
Loss per share:
Basic		$(0.02)				$(0.02)		$(0.14)				$(0.08)
Diluted		$(0.02)				$(0.02)		$(0.14)				$(0.08)
Shares used in computing loss per share:
Basic		42,252				42,252		44,843				44,843
Diluted		42,252				42,252		44,843				44,843

		Six Months Ended
		July 28, 2012						July 30, 2011
		Reported		Charges		Non-GAAP		Reported		Charges		Non-GAAP
Net sales		$329,372		$-		$329,372		$312,223		$-		$312,223
Cost of goods sold, including buying, distribution and occupancy costs		213,836		-		213,836		213,152		5,401		207,751
Gross margin		115,536		-		115,536		99,071		5,401		104,472
Selling, general and administrative expenses		110,694		-		110,694		121,558		11,176		110,382
Income (loss) from operations		4,842		-		4,842		(22,487)		16,577		(5,910)
Interest income, net		56		-		56		134		-		134
Income (loss) before provision (benefit) for income taxes		4,898		-		4,898		(22,353)		16,577		(5,776)
Provision (benefit) for income taxes		1,831		-		1,831		(8,472)		6,283		(2,189)
Net income (loss)		$3,067		$-		$3,067		($13,881)		$10,294		($3,587)
Income (loss) per share:
Basic		$0.07				$0.07		$(0.31)				$(0.08)
Diluted		$0.07				$0.07		$(0.31)				$(0.08)
Shares used in computing earnings (loss) per share:
Basic		42,196				42,196		44,778				44,778
Diluted		42,915				42,915		44,778				44,778

NON-GAAP PERFORMANCE MEASURES – Hot Topic, Inc. reports its financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that non-GAAP performance measures, which exclude certain items that the Company does not consider part of its ongoing operating results when assessing the performance of the Company, present the operating results of the Company on a basis consistent with those used in managing the Company's business, and provide users of the Company's financial information with a more meaningful report on the condition of the Company's business. Non-GAAP performance measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

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