All forward-looking statements made on this call speak only as of the time they are made, and Hot Topic undertakes no obligation to update these statements to reflect subsequent events or circumstances.To more effectively disseminate the information discussed this afternoon, this call is being webcast on the company's Investor Relations website at http://investorrelations.hottopic.com, and a replay will be available on that site. A replay will also be available at (888) 286-8010, passcode 73585505, for approximately 2 weeks. Now I'll turn the call over to Hot Topic's Chief Financial Officer, Jim McGinty. James J. McGinty Hi, this is Jim, and welcome to the call. While on hold, you've been listening to Smells Like Teen Spirit by Nirvana. My partners on the call today are Lisa Harper, Jerry Cook, George Wehlitz and Mark Mizicko. For competitive reasons, we will not be discussing any specific forward-looking product information during this call. George will begin by reviewing the second quarter results and making a few comments on the balance sheet. Following the Q2 details, Lisa will provide you with the thoughts on the second quarter performance and the outlook going forward. Lastly, we will discuss the guidance. Now I'll turn it over to George. George Wehlitz Thanks, Jim. All comparisons discussed are to the same period from a year ago unless otherwise noted. Overall, the net sales during the quarter increased $6.9 million. The components of this increase are as follows: $4.7 million sales increase, primarily from new and noncomparable Hot Topic and Torrid stores; $3.7 million sales gain from Hot Topic comparable stores increase at 3.9%, $1.6 million sales gain from Torrid comparable sales increase of 4%; and lastly, $3.1 million sales decrease from closed stores. For the second quarter, Hot Topic Division had an average transaction value increase of 13%, but the number of comparable transactions were down 8% from last year. Torrid had a 3% increase in the average dollar sale with a 1% increase in the average number of transactions.
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. Read the rest of this transcript for free on seekingalpha.com