Hot Topic (HOTT) posts 2 cents, vs. 9 cents, second-quarter earnings per share on 3.5% lower same-store sales and 12% higher total sales. Piper Jaffray cuts its price target to $18 from $24 and earnings estimates.
Analyst Jeffrey Klinefelter says the retailer's second-quarter EPS missed by 1 cent; the company cited difficult traffic and conversion trends. Management lowered guidance, which is prompting him to cut third-quarter EPS estimate to 16 cents, and fourth-quarter to 36 cents. He also cuts 88 cents fiscal year 2006 (January) EPS forecast to 65 cents on lower revenue estimate of $733.8 million (from $755.2 million). He also lowers his price target to $18 from $24.
However, given the shift in teen preferences paired with easy comps ahead, there is significant opportunity to grow operating margins, and Klinefelter thinks the shares undervalued. He keeps an outperform rating on the stock.