Hot Topic Management Discusses Q2 2012 Results - Earnings Call Transcript

At Hot Topic, apparel was 56% of total sales for the quarter, compared to 51% last year. At Torrid, apparel was 83% of total sales for the quarter compared to 81% last year.

Gross margin was 34.1% of sales, compared to 32.2% last year. The 190 basis point increase breaks down into the following categories: 120 basis points increase in merchandise margin as a result of higher realized markup and lower markdowns; 40% basis point decrease in the store depreciation expense due to leverage on higher sales and store closures; 40 basis points decrease in distribution expenses, primarily a result of lower freight, depreciation, supply and leverage on higher sales, partially offset by higher payroll and consulting costs; 20 basis points decrease in store occupancy percentage due to leverage on higher sales, partially offset by deferred rent credits recognized in the prior year as part of our cost-reduction plan; and lastly, 30% -- 30 basis points increase in our buying payroll expenses.

In the second quarter, selling, general and administration expenses were 34.9% of sales compared to 38.9% last year. Last year's SG&A expenses included approximately $4.1 million related to the strategic business changes and cost-reduction plan.

Excluding these costs, SG&A expenses for last year were 36.2% of sales. The 130 basis point improvement breaks down into the following categories: Store and Internet payroll expenses decreased 130 basis points, as a result of leverage on higher comp sales, improved productivity and lower store performance-based bonuses; the other store expenses decreased 80 basis points, primarily due to lower debit and credit card processing costs, utility costs, supplies and freight costs. These are partially offset by higher inventory service fees.

Other general and administrative expenses decreased 50 basis points as a result of lower relocation and asset impairment charges, partially offset by an increase in computer maintenance costs, a 20 basis point decrease due to lower depreciation expense and leverage on higher sales.

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