Hot Topic, Inc. Reports 3rd Quarter Earnings Increase

A conference call to discuss third quarter results, business trends, guidance and other matters is scheduled for November 14, 2012 at 4:30 PM (ET). The live conference call number is 800-299-9086, 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 60862559, 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, as well as a new test retail concept, Blackheart. Hot Topic offers music/pop culture-licensed and music/pop culture-influenced apparel, accessories, music and gift items for young men and women. Torrid retails on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears size 12 and up. Blackheart offers an expanded collection of dark, edgy, sexy lingerie, accessories and beauty products. As of November 14, 2012, the company operated 620 Hot Topic stores in all 50 states, Puerto Rico and Canada, 190 Torrid stores, one Blackheart store, and Internet stores hottopic.com, torrid.com and blackheartlingerie.com.

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
	Oct. 27, 2012		Oct. 29, 2011
Net sales	$179,413		$175,822
Cost of goods sold, including buying,
distribution and occupancy costs	115,174		116,238
Gross margin	64,239		59,584
Selling, general & administrative expenses	57,379		55,361
Income from operations	6,860		4,223
Interest and other income, net	39		88
Income before provision for income taxes	6,899		4,311
Provision for income taxes	2,610		1,198
Net income	$4,289		$3,113
Earnings per share:
Basic and Diluted	$0.10		$0.07
Shares used in computing earnings per share:
Basic	42,319		43,942
Diluted	43,056		44,481
	Nine Months Ended
	Oct. 27, 2012			Oct. 29, 2011
Net sales	$508,785			$	488,045
Cost of goods sold, including buying,
distribution and occupancy costs	329,010				329,389
Gross margin	179,775				158,656
Selling, general & administrative expenses	168,073				176,919
Income (loss) from operations	11,702				(18,263	)
Interest and other income, net	96				222
Income (loss) before provision (benefit) for income taxes	11,798				(18,041	)
Provision (benefit) for income taxes	4,441				(7,274	)
Net income (loss)	$7,357			$	(10,767	)
Earnings (loss) per share:
Basic and Diluted	$0.17			$	(0.24	)
Shares used in computing earnings (loss) per share:
Basic	42,237				44,492
Diluted	42,962				44,492

HOT TOPIC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
	Oct. 27, 2012			Oct. 29, 2011
Current Assets:
Cash, cash equivalents and short-term investments	$	58,847		$	41,776
Inventory		90,745			84,911
Prepaid expenses and other		10,980			23,759
Deferred tax assets		5,610			2,832
Total current assets		166,182			153,278
Property and equipment, net		109,297			108,413
Deposits and other		7,734			6,843
Long-term investments		1,730			1,737
Deferred tax assets		4,402			6,395
Total assets	$	289,345		$	276,666
Current Liabilities:
Accounts payable	$	36,368		$	33,896
Accrued liabilities		41,466			36,637
Income taxes payable		1,306			665
Total current liabilities		79,140			71,198
Deferred rent		19,977			21,559
Deferred compensation liability		4,933			4,587
Income taxes payable		533			1,224
Total liabilities		104,582			98,568
Total shareholders’ equity		184,762			178,098
Total liabilities and shareholders’ equity	$	289,345		$	276,666

HOT TOPIC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	Nine Months Ended
	Oct. 27, 2012				Oct. 29, 2011
Operating Activities
Net income (loss)	$	7,357				($10,767	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		25,178				27,070
Change in inventory		(20,097	)			(14,594	)
Other, net		18,933				8,480
Net cash flows provided by operating activities		31,371				10,188
Investing activities
Purchases of property and equipment		(30,187	)			(17,112	)
Proceeds from sale of investments		6,425				11,852
Net cash flows used in investing activities		(23,762	)			(5,260	)
Financing activities
Payment of cash dividends		(10,148	)			(9,253	)
Excess tax benefit from stock-based compensation		472				589
Proceeds from employee stock purchases and stock
options exercised		1,213				2,844
Payment of capital lease obligation		-				(191	)
Repurchase of common stock		-				(23,170	)
Net cash used in financing activities		(8,463	)			(29,181	)
Decrease in cash and cash equivalents		(854	)			(24,253	)
Effect of foreign currency exchange rate changes on cash		6				3
Cash and cash equivalents at beginning of period		49,615				51,316
Cash and cash equivalents at end of period	$	48,767			$	27,066
OTHER DATA
Total company store square footage		1,579,400				1,486,000
Hot Topic average store size		1,774				1,770
Torrid average store size		2,539				2,497

	Nine Months Ended
	Oct. 27, 2012									Oct. 29, 2011
	Reported			Charges			Non-GAAP			Reported				Charges			Non-GAAP
Net sales	$	508,785		$	-		$	508,785		$	488,045			$	-		$	488,045
Cost of goods sold, including
buying, distribution and
occupancy costs		329,010			-			329,010			329,389				5,401			323,988
Gross margin		179,775			-			179,775			158,656				5,401			164,057
Selling, general and
administrative expenses		168,073			-			168,073			176,919				11,176			165,743
Income (loss) from operations		11,702			-			11,702			(18,263	)			16,577			(1,686	)
Interest income, net		96			-			96			222				-			222
Income (loss) before provision
(benefit) for income taxes		11,798			-			11,798			(18,041	)			16,577			(1,464	)
Provision (benefit) for income taxes		4,441			-			4,441			(7,274	)			6,283			(991	)
Net income (loss)	$	7,357		$	-		$	7,357			($10,767	)		$	10,294			($473	)
Earnings (loss) per share:
Basic	$	0.17					$	0.17		$	(0.24	)					$	(0.01	)
Diluted	$	0.17					$	0.17		$	(0.24	)					$	(0.01	)
Shares used in computing earnings
(loss) per share:
Basic		42,237						42,237			44,492							44,492
Diluted		42,962						42,962			44,492							44,492

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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