NEW YORK — Shares of Hot Topic Inc. rose Thursday after the teen retailer reported a 38 percent jump in third-quarter net income, as improved merchandising and a new fashions drew in more customers.
THE SPARK: The City of Industry, Calif.-based company said Wednesday that it's changed how it buys products for its Torrid brand, increasing profitability, while demand for t-shirts and other clothing at Hot Topic is improving.
Hot Topic's earnings of 10 cents per share beat Wall Street predictions by a penny. Revenue grew 2 percent to $179.4 million, but analysts expected higher revenue of $182.9 million.
THE BIG PICTURE: Like other teen retailers, Hot Topic struggled to boost profitability in a weak economy. The company has closed unprofitable stores, changed its product lineup and shuttered its music download and social networking website. But in recent quarters, its profitability has improved and sales have risen.
THE ANALYSIS: Hot Topic has been able to turn around most of its business, said B. Riley analyst Jeff Van Sinderen, who has a "Buy" rating on the retailer.
Janney Capital Markets analyst Adrienne Tennant also backed her "Buy" rating for the company, saying that its management is doing what's needed to boost profitability by controlling store inventories – how much merchandise it stocks – and making the most of its sales promotions.
THE SHARES: Up 60 cents, or 7 percent, to $9.16 in heavy midday trading. Over the past 52 weeks, the company's shares have traded between $6.44 and $10.73.