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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-28784
HOT TOPIC, INC.
---------------
(Exact name of Registrant as specified in its Charter)
CALIFORNIA 77-0198182
- ---------- ----------
(State of Incorporation) (IRS Employer Identification No.)
18305 EAST SAN JOSE AVE., CITY OF INDUSTRY, CA 91748
- ---------------------------------------------- -----
(address of principal executive offices) (Zip Code)
(626) 839-4681
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: May 24, 2004 - 46,709,926 shares of common stock, no par value.
HOT TOPIC, INC.
INDEX TO FORM 10-Q
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets - May 1, 2004 and January 31, 2004 3
Consolidated Statements of Income for the three months
ended May 1, 2004 and May 3, 2003 4
Consolidated Statements of Cash Flows for the three months
ended May 1, 2004 and May 3, 2003 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hot Topic, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
May 1, 2004 January 31, 2004
-------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,021 $ 11,886
Short-term investments 75,250 116,319
Inventory 57,623 51,937
Prepaid expenses and other 11,089 10,654
Deferred tax assets 2,259 2,259
--------------------------
Total current assets 157,242 193,055
Leaseholds, fixtures and equipment, net 96,236 88,348
Deposits and other 193 189
--------------------------
Total assets $ 253,671 $ 281,592
==========================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 22,042 $ 15,841
Accrued liabilities 22,913 28,133
Income taxes payable 2,269 7,242
--------------------------
Total current liabilities 47,224 51,216
Deferred rent 3,368 3,155
Deferred tax liability 3,316 3,316
Commitments and contingencies -- --
Shareholders' equity:
Preferred shares, no par value; 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common shares, no par value; 150,000,000 shares authorized;
46,983,700 and 48,120,989 shares issued and outstanding at
May 1, 2004 and January 31, 2004, respectively 33,599 62,972
Retained earnings 166,492 161,134
Accumulated other comprehensive loss (328) (201)
--------------------------
Total shareholders' equity 199,763 223,905
--------------------------
Total liabilities and shareholders' equity $ 253,671 $ 281,592
==========================
See notes to consolidated financial statements.
3
HOT TOPIC, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
--------------------------
May 1, May 3,
2004 2003
--------------------------
Net sales $ 128,143 $ 100,657
Cost of goods sold, including buying,
distribution and occupancy costs 83,826 65,043
--------------------------
Gross margin 44,317 35,614
Selling, general and administrative expenses 35,985 28,859
--------------------------
Operating income 8,332 6,755
Interest income, net (352) (358)
--------------------------
Income before income taxes 8,684 7,113
Provision for income taxes 3,326 2,703
--------------------------
Net income $ 5,358 $ 4,410
==========================
Net income per share:
Basic $ 0.11 $ 0.09
==========================
Diluted $ 0.11 $ 0.09
==========================
Shares used in computing net income per share:
Basic 48,019 46,968
Diluted 50,131 48,567
See notes to consolidated financial statements.
4
HOT TOPIC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
------------------------
May 1, May 3,
2004 2003
------------------------
OPERATING ACTIVITIES
Net income $ 5,358 $ 4,410
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,018 4,359
Tax benefit from exercise of stock options 767 1,155
Stock-based compensation 39 39
Deferred rent 213 170
Loss on disposal of fixed assets 38 13
Changes in operating assets and liabilities:
Inventory (5,686) (5,536)
Prepaid expenses and other current assets (435) (1,083)
Deposits and other assets (4) (1)
Accounts payable 6,201 514
Accrued liabilities (5,225) (2,299)
Income taxes payable (4,973) (6,163)
------------------------
Net cash provided by (used in) operating activities 1,311 (4,422)
INVESTING ACTIVITIES
Purchases of property and equipment (12,978) (8,773)
Proceeds from sale of short-term investments 87,493 56,890
Net purchase of short-term investments (46,551) (50,339)
------------------------
Net cash provided by (used in) investing activities 27,964 (2,222)
FINANCING ACTIVITIES
Repurchase of common stock (31,286) --
Proceeds from employee stock purchases and exercise
of stock options 1,146 1,297
------------------------
Net cash provided by (used in) financing activities (30,140) 1,297
------------------------
Decrease in cash and cash equivalents (865) (5,347)
Cash and cash equivalents at beginning of period 11,886 13,139
------------------------
Cash and cash equivalents at end of period $ 11,021 $ 7,792
========================
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 2 $ 23
========================
Cash paid during the period for income taxes $ 7,562 $ 7,743
========================
See notes to consolidated financial statements.
5
HOT TOPIC, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Hot Topic, Inc. is a mall-based specialty retailer operating the Hot Topic and
Torrid store concepts. Hot Topic sells a selection of music/pop culture-licensed
and music/pop culture-influenced apparel, accessories and gift items for young
men and women principally between the ages of 12 and 22. In the first half of
fiscal 2001 (the fiscal year ended February 2, 2002), we launched a second
retail concept with the opening of six stores under the trade name Torrid.
Torrid sells apparel, lingerie, shoes and accessories designed for various
lifestyles for plus-size females between the ages of 15 and 29. At the end of
the first quarter (May 1, 2004) of fiscal 2004 (the fiscal year ending January
29, 2005), we operated 529 Hot Topic stores in 49 states and Puerto Rico, and 52
Torrid stores. We also maintain two distinct websites, www.hottopic.com
("hottopic.com") and www.torrid.com ("torrid.com"), which reflect the Hot Topic
and Torrid store concepts and sell merchandise similar to that sold in the
respective stores. Throughout this report, the terms "our", "we" and "us" refer
to Hot Topic, Inc. and its subsidiaries.
The information set forth in these financial statements is unaudited except for
the January 31, 2004 Consolidated Balance Sheet. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information, the instructions to Form 10-Q,
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation have been included. The
results of operations for the three months ended May 1, 2004 are not necessarily
indicative of the results that may be expected for the year ending January 29,
2005.
Certain reclassifications have been made to prior year periods to conform to
current period presentation. For further information, refer to the consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended January 31, 2004.
NOTE 2. NET INCOME PER SHARE
We compute net income per share pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share." Basic net income per share is
computed based on the weighted average number of common shares outstanding for
the period. Diluted net income per share is computed based on the weighted
average number of common shares outstanding for the period and potentially
dilutive common stock equivalents outstanding for the period. A three-for-two
stock split of our common stock became effective September 2, 2003. All share
and per share amounts have been restated to reflect this stock split and all
previous stock splits we effectuated.
6
A reconciliation of the numerator and denominator of basic earnings per share
and diluted earnings per share is as follows (all amounts in thousands except
per share amounts):
Three Months Ended
-----------------------------
May 1, 2004 May 3, 2003
----------- -----------
Basic EPS Computation:
Numerator $ 5,358 $ 4,410
Denominator:
Weighted average common shares outstanding 48,019 46,968
-------- --------
Total shares 48,019 46,968
======== ========
Basic EPS $ 0.11 $ 0.09
======== ========
Diluted EPS Computation:
Numerator $ 5,358 $ 4,410
Denominator:
Weighted average common shares outstanding 48,019 46,968
Incremental shares from assumed
conversion of options 2,112 1,599
-------- --------
Total shares 50,131 48,567
======== ========
Diluted EPS $ 0.11 $ 0.09
======== ========
NOTE 3. COMPREHENSIVE INCOME
Comprehensive Income for the three months ended May 1, 2004 and May 3, 2003 is
as follows (in thousands):
Three Months Ended
-----------------------------
May 1, 2004 May 3, 2003
----------- -----------
Comprehensive income:
Net income $ 5,358 $ 4,410
Unrealized loss on marketable securities, net (127) --
-------- --------
Total comprehensive income $ 5,231 $ 4,410
======== ========
NOTE 4. SHAREHOLDERS' EQUITY
On March 19, 2004, we announced that our Board of Directors approved the
repurchase of up to an aggregate of two million shares of our common stock
during the period ending January 29, 2005. As of May 1, 2004, we completed the
repurchase of 1,280,000 shares of our common stock at a cost of $31.3 million.
7
NOTE 5. BANK CREDIT AGREEMENT
We maintain an unsecured bank credit agreement of $5.0 million. The credit
agreement will expire in August 2004 and we expect to renew the credit agreement
under similar terms. Letters of credit are issued under the credit agreement,
which are primarily used for inventory purchases. At May 1, 2004, we had $0.6
million of outstanding letters of credit issued under the credit agreement.
NOTE 6. STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if we accounted for our employee stock
incentives under the fair value method of that Statement. For purposes of pro
forma disclosures, the estimated fair value of the options, based on the
Black-Scholes option pricing model, is amortized to expense over the options'
vesting periods. The following is the pro forma information using the fair value
method under SFAS No. 123, as amended by SFAS No. 148 (in thousands, except per
share amounts):
Three Months Ended
------------------------------
May 1, 2004 May 3, 2003
----------- -----------
Net income
As reported $ 5,358 $ 4,410
Add: Stock-based compensation
expense included in reported
net income, net of related tax
effects 24 24
Deduct: Total stock-based
compensation expense
determined under fair value
method for all awards, net of
related tax effects (1,550) (1,204)
---------- ----------
Pro forma $ 3,832 $ 3,230
========== ==========
Basic earnings per share:
As reported $ 0.11 $ 0.09
Pro forma $ 0.08 $ 0.07
Diluted earnings per share:
As reported $ 0.11 $ 0.09
Pro forma $ 0.08 $ 0.07
8
NOTE 7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement 133. SFAS 149 is effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The guidance should be applied
prospectively. The adoption of SFAS 149 did not have any material impact on our
operating results or financial condition as we do not have any derivative
instruments that are affected by FAS 149.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. We do not currently have any variable
interest entities and the adoption of the provisions of FIN 46 did not have a
material impact on our results of operations or financial condition.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our results of operations, financial condition and
liquidity, and other matters should be read in conjunction with our Consolidated
Financial Statements and the Notes related thereto.
Our fiscal year is on a 52-53 week basis and ends on the Saturday nearest to
January 31. The fiscal years ended January 31, 2004, February 1, 2003 and
February 2, 2002 were 52-week years.
The discussion below includes references to "comparable stores." We consider a
store comparable after it has been open for 15 full months. If a store is
relocated or expanded by more than 15% in total square footage, it is removed
from the comparable store base and, similar to new stores, becomes comparable
after 15 full subsequent months.
RESULTS OF OPERATIONS
Three Months Ended May 1, 2004 Compared to Three Months Ended May 3, 2003
- -------------------------------------------------------------------------
Net sales increased $27.4 million, or 27.3%, to $128.1 million during the first
quarter of fiscal 2004 from $100.7 million during the first quarter of fiscal
2003. Net sales for new Hot Topic stores opened during the first quarter of
fiscal 2004 and for the other Hot Topic stores not yet qualifying as comparable
stores contributed $17.3 million of the net sales increase. Our comparable store
sales increased 4.0% in the first quarter of fiscal 2004 compared to the first
quarter of fiscal 2003 and contributed $3.7 million of the increase in net
sales. Net sales for new Torrid stores and for Torrid stores not yet qualifying
as comparable stores contributed $4.9 million of the net sales increase.
Hottopic.com and torrid.com sales were approximately 3.0% of our total net sales
in the first quarter of fiscal 2004 and contributed $1.2 million (including
shipping and handling revenue) of the net sales increase. The remainder of the
net sales increase came from the 6 Hot Topic expanded/relocated stores. At the
end of the first quarter of fiscal 2004, 438 of our 581 stores (Hot Topic and
Torrid) were included in the comparable store base, compared to 340 of our 468
stores (Hot Topic and Torrid) open at the end of the first quarter of fiscal
2003. Sales of Hot Topic's apparel and tee-shirts , as a percentage of total net
sales, were 52% in the first quarter of fiscal 2004 compared to 50% in the first
quarter of fiscal 2003. The increase in apparel and tee-shirt sales as a
percentage of net sales was due primarily to men's novelty tee-shirts and men's
music-related tee-shirts, partially offset by decreases in women's apparel.
Gross margin increased $8.7 million to $44.3 million during the first quarter of
fiscal 2004 from $35.6 million during the first quarter of fiscal 2003. As a
percentage of net sales, gross margin decreased to 34.6% during the first
quarter of fiscal 2004 from 35.4% in the first quarter of fiscal 2003. The 0.8%
decrease in gross margin was due primarily to lower merchandise margins, offset
slightly by lower store depreciation. Merchandise margin decreased 1.0% compared
to the first quarter of 2003 principally due to higher markdown activity. Store
depreciation costs were 0.2% lower as a result of leveraging the fixed costs and
lower depreciation from older stores' fixtures.
Selling, general and administrative expenses increased $7.1 million, or 24.7%,
to $36.0 million during the first quarter of fiscal 2004 compared to $28.9
million during the first quarter of fiscal 2003. As a percentage of net sales,
selling, general and administrative expenses decreased to 28.1% in the first
quarter of fiscal 2004 compared to 28.7% in the first quarter of fiscal 2003.
The total dollar increase in selling, general and administrative expenses was
primarily attributable to an increase in the number of retail stores from 468 at
the end of the first quarter of fiscal 2003 to 581 at the end of the first
10
quarter of fiscal 2004 and the corresponding additional payroll and other
expenses required to support these additional stores. The 0.6% decrease, as a
percentage of net sales breaks out as follows: a 0.2% decrease in store payroll,
a 0.4% decrease by leveraging headquarter expenses (bonus, depreciation and
travel expenses) and a 0.1% decrease in store pre-opening costs, partially
offset by a 0.1% increase in store expenses (supplies and wide area network
costs).
Operating income increased 23.3%, to $8.3 million, during the first quarter of
fiscal 2004 from $6.8 million during the first quarter of fiscal 2003. As a
percentage of net sales, operating income was 6.5% in the first quarter of
fiscal 2004 compared to 6.7% in the first quarter of fiscal 2003.
Net interest income, as a percentage of net sales, decreased by 0.1% compared to
the first quarter of fiscal 2003. The decrease was due to lower average interest
rates earned on investments which was impacted by increasing the liquidity of
our short-term investments partially offset by higher average cash balances.
Our effective tax rate was 38.3% in the first quarter of fiscal 2004 and 38.0%
in the first quarter of fiscal 2003. The higher rate in the first quarter of
fiscal 2004 was principally attributable to lower tax-exempt interest income as
a percentage of pre-tax income in the first quarter of fiscal 2004 as compared
to the first quarter of fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
Historically, as well as during the first quarter of fiscal 2004, our primary
uses of cash have been to finance store openings and purchase merchandise
inventories as well as periodic repurchases of our common shares. In recent
years, we have satisfied our cash requirements principally from cash flows from
operations and to a lesser extent proceeds from the exercise of stock options.
We maintain a $5.0 million unsecured credit agreement for the purpose of issuing
letters of credit, primarily for inventory purchases. At May 1, 2004, we had
$0.6 million of outstanding letters of credit under the credit agreement.
Cash flows provided by operating activities were $1.3 million in the first
quarter of fiscal 2004 compared to $4.4 million used in operating activities in
the first quarter of fiscal 2003. The increase of $5.7 million in cash flows
from operating activities in the first quarter of 2004 compared to the first
quarter of 2003 resulted primarily from an increase in accounts payable and
income tax payable, somewhat offset by a decrease in accrued liabilities.
Cash flows provided by investing activities were $28.0 million in the first
quarter of fiscal 2004 compared to $2.2 million used in the first quarter of
fiscal 2003. The $30.2 million increase in net cash provided by investing
activities is due to an increase ($34.4 million) in the proceeds from the sale
of short-term investments (net of purchases) partially offset by an increase
($4.2 million) in purchases of property and equipment. Cash flows used in the
purchases of property and equipment during the first quarter of fiscal 2004
relate primarily to store openings and purchases of computer hardware and
software.
Cash flows used in financing activities were $30.1 million in the first quarter
of fiscal 2004 compared to cash flows provided by financing activities of $1.3
million in the first quarter of fiscal 2003. The $31.4 million decrease in cash
flows from financing activities is principally the result of repurchasing
1,280,000 shares of our common stock for $31.3 million in the first quarter of
2004.
We believe our current cash balances and cash generated from operations will be
sufficient to fund our operations and planned expansion through at least the
next 12 months.
11
The following table summarizes our contractual obligations as of May 1, 2004,
and the timing and effect that such commitments are expected to have on our
liquidity and capital requirements in future periods:
PAYMENTS DUE BY PERIOD ($ IN THOUSANDS)
--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL WITHIN 1 YEAR 2-3 YEARS 4-5 YEARS MORE THAN 5 YEARS
- ----------------------- ----- ------------- --------- --------- -----------------
OPERATING LEASES $310,020 $40,129 $79,951 $74,202 $115,738
PURCHASE OBLIGATIONS 53,072 53,072 - - -
LETTERS OF CREDIT AND OTHER
OBLIGATIONS 1,352 1,352 - - -
--------------------------------------------------------------------------------
TOTAL CONTRACTUAL OBLIGATIONS $364,444 $94,553 $79,951 $74,202 $115,738
================================================================================
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of Hot Topic, Inc.'s financial condition
and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities. On an ongoing basis, we evaluate
estimates, including those related primarily to inventories, long-lived assets
and contingencies. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. For a further discussion about the application of these
and other accounting policies, refer to the notes included in our Annual Report
on Form 10-K for the year ended January 31, 2004.
INVENTORIES: Inventories and related cost of sales are accounted for by
the retail method. The cost of inventory is valued at the lower of average cost
or market, on a first-in, first-out basis, utilizing the retail method. Each
month, slow moving or seasonally obsolete merchandise is marked down. The first
markdown is typically to 50% of the original retail price. In cases where the
merchandise does not sell after the first markdown, an additional markdown is
made in a subsequent month. Any marked down merchandise that does not sell is
typically marked down to a zero value and removed from the store, approximately
three months after the original markdown. In determining the lower of average
cost or market value of period ending inventories, consistently applied
valuation criteria are used. Consideration is given to a number of quantitative
factors, including anticipated subsequent permanent markdowns and aging of
inventories. To the extent our estimated markdowns at period-end prove to be
insufficient, additional future markdowns will need to be recorded.
VALUATION OF LONG-LIVED ASSETS: We assess the impairment of long-lived
assets whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors considered important that could trigger an
impairment review include a significant underperformance relative to expected
historical or projected future operating results, a significant change in the
manner of the use of the asset or a significant negative industry or economic
12
trend. When we determine that the carrying value of long-lived assets may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, we will measure any impairment based on a projected discounted cash
flow method using a discount rate determined by management. To date, we have not
recorded any significant impairment of a long-lived asset. In the event future
store performance is lower than forecasted results, future cash flows may be
lower than expected, which could result in future impairment charges. While we
believe recently opened stores will provide sufficient cash flow, material
changes in results could result in future impairment charges.
REVENUE RECOGNITION: Sales are recognized upon the purchase by
customers at our retail store locations and websites, less merchandise returned
by customers. We provide a reserve for projected merchandise returns based on
historical experience. As the reserve for merchandise returns is based on
estimates the actual returns could differ from the reserve, which could impact
sales. Revenue from gift cards, gift certificates and store merchandise credits
is recognized at the time of redemption.
SELF-INSURANCE: We are self-insured for medical insurance coverage and
workers compensation insurance coverage, up to maximum exposure limits, above
which we are covered by insurance policies. We maintain a liability for
estimated claims based on historical claims experience and other actuarial
assumptions.
INFLATION
We do not believe that inflation has had a material adverse effect on our net
sales or results of operations. We have generally been able to pass on increased
costs related to inflation through increases in selling prices.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This Quarterly Report on Form 10-Q contains various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the "safe harbor" created by these sections, including statements
regarding our expectations, beliefs, intentions or strategies regarding the
future. Forward-looking statements include, without limitation, statements
regarding the extent and timing of future revenues and expenses and customer
demand, expected financial results, the profitability of future sales of our
products, new store openings and new store concepts. All forward-looking
statements included in this report are based on information available to us as
of the date hereof and we assume no obligation to update any forward-looking
statements. Forward-looking statements involve known or unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include
but are not limited to the items discussed under the captions "Certain Risks
Related to the Our Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this Item 2.
CERTAIN RISKS RELATED TO OUR BUSINESS
Before deciding to invest in Hot Topic, Inc. or to maintain or increase an
investment in Hot Topic, Inc., readers should carefully consider the risks
described below, in addition to the other information contained in our Annual
Report on Form 10-K and in other filings with the SEC, including our Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K. The risks described below
are not the only risks we face. Additional risks that are not presently known to
us or that we currently deem immaterial may also affect our business. If any of
these known or unknown risks actually occur, our business, financial condition
and results of operations could be seriously harmed, and our stock price could
decline.
13
OUR AGGRESSIVE GROWTH STRATEGY ANTICIPATES A SIGNIFICANT NUMBER OF NEW STORE
OPENINGS AND WILL REQUIRE EFFECTIVE MANAGEMENT OF BOTH THE STORE OPENINGS AND AN
INCREASINGLY LARGER ORGANIZATION, WHICH COULD CREATE FINANCIAL, OPERATIONS AND
MERCHANDISING CHALLENGES WE MAY NOT BE ABLE TO ADEQUATELY MEET.
Our net sales and net income have grown significantly during the past several
years, primarily as a result of the opening of new stores and, to a lesser
extent, the introduction of new products. We intend to continue to pursue an
aggressive growth strategy for the foreseeable future, and our future operating
results will depend largely upon our ability to open and operate stores
successfully and to profitably manage a larger business. We currently anticipate
opening approximately 105 stores, consisting of 80 Hot Topic and 25 Torrid
stores, during fiscal 2004, which will result in a significant increase in the
number of stores we operate. Operation of a greater number of new stores and
expansion into new markets may present competitive and merchandising challenges
that are different from those currently encountered by us in our existing stores
and markets. In addition, as the number of stores increases, we may face risks
associated with market saturation of our products and concepts. There can be no
assurance that our expansion will not adversely affect the individual financial
performance of our existing stores or our overall results of operations, or that
new stores will achieve sales and profitability levels consistent with existing
stores.
In order to manage our planned expansion, among other things, we will need to
locate suitable store sites; negotiate acceptable lease terms; obtain or
maintain adequate capital resources on acceptable terms; source sufficient
levels of inventory; hire and train store managers and sales associates;
integrate new stores into our existing operations; and obtain adequate
distribution center space. We are evaluating the distribution center space
needed to support our planned growth. Among other things, we will expand our
distribution operations to an additional distribution center facility. We will
also need to continually evaluate the adequacy of our management information and
distribution systems. There can be no assurance that we will anticipate all of
the changing demands that our expanding operations will impose on our business,
systems and procedures, and our failure to adapt to such changing demands could
have a material adverse effect on our results of operations and financial
condition. Further, there can be no assurance that we will successfully achieve
our expansion targets or, if achieved, that planned expansion will result in
profitable operations.
EXPANDING OUR OPERATIONS TO INCLUDE AN INCREASING NUMBER OF TORRID STORES AND
ANY OTHER NEW CONCEPTS PRESENTS RISKS WE HAVE FACED WITH THE HOT TOPIC CONCEPT
BUT ALSO NEW RISKS DUE TO DIFFERENCES IN CONCEPT OBJECTIVES AND STRATEGIES.
Our ability to expand into new concepts, and in particular our Torrid concept,
has not been fully tested. Accordingly, the operation of Torrid stores and the
sale of Torrid merchandise over the Internet are subject to numerous risks,
including unanticipated operating problems; lack of experience; lack of customer
acceptance; new vendor relationships; competition from existing and new
retailers; and diversion of management's attention from the Hot Topic concept.
The Torrid concept involves implementation of a retail apparel concept which is
subject to most of the same risks as the Hot Topic concept, as well as
additional risks inherent in a concept that concentrates on apparel and fashion,
including risks of difficulty in merchandising, uncertainty of customer
acceptance, fluctuations in fashion trends and customer tastes, extreme
competition with a less differentiated product offering, and attendant mark-down
risks. We may not be able to generate continued customer interest in Torrid
stores and products, and the Torrid concept may not be able to support the store
or Internet sales formats. Risks inherent in any new concept are particularly
acute with respect to Torrid, because this is our first significant new venture,
and the nature of the Torrid business differs in certain respects from that of
the Hot Topic business. There can be no assurance that the Torrid stores or
website will achieve sales and profitability levels that justify our investment.
14
THE SUCCESS OF OUR BUSINESS DEPENDS ON ESTABLISHING AND MAINTAINING GOOD
RELATIONSHIPS WITH MALL OPERATORS AND DEVELOPERS, AND PROBLEMS WITH THOSE
RELATIONSHIPS COULD MAKE IT MORE DIFFICULT FOR US TO EXPAND TO CERTAIN SITES OR
OFFER CERTAIN PRODUCTS.
Any restrictions on our ability to expand to new store sites or to offer a broad
assortment of merchandise could have a material adverse effect on our business,
results of operations and financial condition. If our relations with mall
operators or developers become strained, or we otherwise encounter difficulties
in leasing store sites, we may not grow as planned and may not reach certain
revenue levels and other operating targets.
OUR COMPARABLE STORE SALES ARE SUBJECT TO FLUCTUATION RESULTING FROM FACTORS
WITHIN AND OUTSIDE OUR CONTROL, AND LOWER THAN EXPECTED COMPARABLE STORE SALES
COULD IMPACT OUR BUSINESS AND OUR STOCK PRICE.
A variety of factors affects our comparable store sales including, among others,
the timing of new music releases and music/pop culture-related products; music
and fashion trends; the general retail sales environment and the effect of the
overall economic environment; our ability to efficiently source and distribute
products; changes in our merchandise mix; and our ability to execute our
business strategy efficiently. Our comparable store sales results have
fluctuated significantly in the past and we believe that such fluctuations may
continue. Our comparable store sales results for fiscal 2000, 2001, 2002 and
2003 were 16.7%, 3.9%, 5.0% and 7.4%, respectively. Our comparable store sales
results were 4.0% for the first quarter of fiscal 2004; 2.6%, 5.2%, 10.8%, and
8.5% for the first, second, third and fourth quarters, respectively, of fiscal
2003 and (0.5%), 0.6%, 6.3% and 9.7% for the first, second, third and fourth
quarters, respectively, of fiscal 2002. Past comparable store sales results are
not an indicator of future results, and there can be no assurance that our
comparable store sales results will not decrease in the future. Changes in our
comparable store sales results could cause our stock price to fluctuate
substantially.
OUR SUCCESS RELIES ON POPULARITY WITH YOUNG PEOPLE OF MUSIC, POP CULTURE, AND
FASHION TRENDS, AND WE MAY NOT BE ABLE TO REACT TO TRENDS IN A WAY TO PREVENT
DECLINING POPULARITY AND SALES OF OUR PRODUCTS.
Our financial performance is largely dependent upon the continued popularity of
alternative and rock music, the Internet, music videos, and MTV and other music
television networks among teenagers and college age adults; the emergence of new
artists and the success of music releases and music/pop culture-related
products; the continuance of a significant level of teenage spending on
music/pop culture-licensed and music/pop culture-influenced products; and our
ability to anticipate and keep pace with the music, fashion and merchandise
preferences of our customers. The popularity of particular types of music,
artists, styles, trends and brands is subject to change. Our failure to
anticipate, identify and react appropriately to changing trends could lead to,
among other things, excess inventories and higher markdowns, which could have a
material adverse effect on our results of operations and financial condition,
and on our image with customers. There can be no assurance that our new products
will be met with the same level of acceptance as in the past or that the failure
of any new products will not have an adverse material effect on our business,
results of operations and financial condition.
15
ECONOMIC CONDITIONS, INCLUDING MINIMUM WAGES AND OTHER WAGE-RELATED ISSUES,
COULD CHANGE IN WAYS THAT REDUCE OUR SALES OR INCREASE OUR EXPENSES.
Certain economic conditions affect the level of consumer spending on merchandise
we offer, including, among others, employment levels; salary and wage levels;
interest rates; taxation; and consumer confidence in future economic conditions.
We are also dependent upon the continued popularity of malls as a shopping
destination, the ability of mall anchor tenants and other attractions to
generate customer traffic, and the development of new malls. A slowdown in the
United States economy as well as an uncertain economic outlook could lower
consumer spending levels and cause a decrease in mall traffic or new mall
development, each of which would adversely affect our growth, sales results and
financial performance.
Changes in federal and state minimum wage laws or statutory employment
regulations could raise wages above current wage rates or change the wage
structure of certain of our associates, and competitive factors could require
corresponding increases in higher associate wage rates. These factors, as well
as significant increased benefits costs such as medical expenses, would increase
our expenses and adversely affect our results of operations.
TIMING AND SEASONAL ISSUES COULD NEGATIVELY IMPACT OUR FINANCIAL PERFORMANCE FOR
GIVEN PERIODS.
Our quarterly results of operations may fluctuate materially depending on, among
other things, the timing of store openings and related pre-opening and other
startup expenses, net sales contributed by new stores, increases or decreases in
comparable store sales, releases of new music and music/pop culture-related
products, shifts in timing of certain holidays, changes in our merchandise mix
and overall economic and political conditions.
Our business is also subject to seasonal influences, with heavier concentrations
of sales during the back-to-school, Halloween and Holiday (defined as the week
of Thanksgiving through the first few days of January) seasons, and other
periods when schools are not in session. The Holiday season has historically
been our single most important selling season. We believe that the importance of
the summer vacation and back-to-school seasons (which affect operating results
in the second and third quarters, respectively) and to a lesser extent, the
spring break season (which affects operating results in the first quarter) as
well as Halloween (which affects operating results in the third quarter), all
reduce our dependence on the Holiday selling season, but this may not always be
the case to the same degree. As is the case with many retailers of apparel,
accessories and related merchandise, we typically experience lower net sales in
the first fiscal quarter relative to other quarters.
WE HAVE MANY IMPORTANT VENDOR RELATIONSHIPS, AND OUR ABILITY TO GET MERCHANDISE
COULD BE HURT BY CHANGES IN THOSE RELATIONSHIPS AND EVENTS HARMFUL TO OUR
VENDORS COULD IMPACT OUR RESULTS OF OPERATION.
Our financial performance depends on our ability to purchase current music/pop
culture-related merchandise in sufficient quantities at competitive prices.
Although we have many sources of merchandise, substantially all of our music/pop
culture-licensed products are available only from vendors that have exclusive
license rights. In addition, many of our music/pop culture-influenced products
are supplied by small, specialized vendors that create unique products primarily
for us. Our smaller vendors generally have limited resources, production
capacities and operating histories, and some of our vendors have restricted the
distribution of their merchandise in the past. We generally have no long-term
purchase contracts or other contractual assurances of continued supply, pricing
or access to new products. There can be no assurance that we will be able to
acquire desired merchandise in sufficient quantities on acceptable terms in the
future. Any inability to acquire suitable merchandise, or the loss of one or
more key vendors, may have a material adverse effect on our business, results of
operations and financial condition.
16
TECHNOLOGY AND OTHER RISKS ASSOCIATED WITH OUR INTERNET SALES COULD HINDER OUR
OVERALL FINANCIAL PERFORMANCE.
We sell merchandise over the Internet through the websites hottopic.com and
torrid.com. Our Internet operations are subject to numerous risks and pose risks
to our overall business, including, among other things, hiring, retention and
training of personnel to conduct the Internet operations; diversion of sales
from our stores; rapid technological change and the need to invest in additional
computer hardware and software; liability for online content; failure of
computer hardware and software, including computer viruses, telecommunication
failures, online security breaches and similar disruptions; governmental
regulation; and credit card fraud. There can be no assurance that our Internet
operations will achieve sales and profitability levels that justify our
investment in them.
WE HAVE MADE AND PLAN TO CONTINUE TO MAKE SIGNIFICANT CHANGES TO INFORMATION
SYSTEMS AND SOFTWARE USED IN OPERATION OF OUR BUSINESS, AND WE MAY NOT BE ABLE
TO EFFECTIVELY ADOPT CHANGES IN A WAY TO PREVENT FAILURES IN OUR OPERATIONS OR
NEGATIVE IMPACT ON OUR FINANCIAL PERFORMANCE AND REPORTING.
Over the past several years, we have made improvements to existing hardware and
software systems, as well as implemented new systems. For example, we have
invested approximately $5 million to enhance the functionality of our current
GERS Retail Systems software and to implement new financial system software from
Lawson. In addition, we are investing approximately $6 million in the
implementation of a new warehouse management software system, a new Internet
order management software system, and a new customer loyalty software system. We
expect to begin relying heavily on these systems in fiscal 2004. If these
information systems and software do not work effectively, we may experience
delays or failures in our operations. These delays or failures could adversely
impact the promptness and accuracy of our transaction processing, financial
accounting and reporting and ability to properly forecast earnings and cash
requirements. To manage growth of our operations and personnel, we may need to
continue to improve our operational and financial systems, transaction
processing, and procedures and controls, and in doing so, we could incur
substantial additional expenses.
LOSS OF KEY PEOPLE OR AN INABILITY TO HIRE NECESSARY AND SIGNIFICANT PERSONNEL
COULD HURT OUR BUSINESS.
Our financial performance depends largely on the efforts and abilities of senior
management, especially Elizabeth McLaughlin, our Chief Executive Officer, who
has been with us since 1993. We have a $2,000,000 key-person life insurance
policy on Ms. McLaughlin. However, the sudden loss of Ms. McLaughlin's services
or the services of other members of our management team could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, there can be no assurance that Ms. McLaughlin and our existing
management team will be able to manage Hot Topic, Inc. or our growth or that we
will be able to attract and retain additional qualified personnel as needed in
the future.
OUR RELIANCE ON UNITED PARCEL SERVICE, TEMPORARY EMPLOYEES AND OTHER MECHANICS
OF DISTRIBUTION OF OUR MERCHANDISE CREATES DISTRIBUTION RISKS AND UNCERTAINTIES
THAT COULD HURT OUR SALES AND BUSINESS.
We rely upon United Parcel Service for our product shipments, including
shipments to and from a significant number of our stores. Our reliance on this
source for shipments is subject to risks, including employee strikes and
inclement weather, associated with United Parcel Service's ability to provide
17
delivery services that adequately meet our shipping needs. We are also dependent
upon temporary associates to adequately staff our distribution facility,
particularly during busy periods such as the Holiday season and while multiple
stores are opening. There can be no assurance that we will continue to receive
adequate assistance from our temporary associates, or that there will continue
to be sufficient sources of temporary associates.
THERE IS A RISK WE COULD ACQUIRE MERCHANDISE WITHOUT FULL RIGHTS TO SELL IT,
WHICH COULD LEAD TO DISPUTES OR LITIGATION AND HURT OUR FINANCIAL PERFORMANCE
AND STOCK PRICE.
We purchase licensed merchandise from a number of suppliers who hold
manufacturing and distribution rights under the terms of certain licenses. We
generally rely upon vendors' representations concerning manufacturing and
distribution rights and do not independently verify whether these vendors
legally hold adequate rights to licensed properties they are manufacturing or
distributing. If we acquire unlicensed merchandise, we could be obligated to
remove such merchandise from our stores, incur costs associated with destruction
of merchandise if the distributor is unwilling or unable to reimburse us, and be
subject to liability under various civil and criminal causes of action,
including actions to recover unpaid royalties and other damages. Any of these
results could have a material adverse effect on our business, results of
operations and financial condition.
WE FACE INTENSE COMPETITION, AND AN INABILITY TO ADEQUATELY ADDRESS IT, OR THE
SUCCESS OF OUR COMPETITORS, COULD LIMIT OR PREVENT OUR BUSINESS GROWTH AND
SUCCESS.
The retail apparel and accessory industry is highly competitive. We compete with
other retailers for vendors, teenage and young adult customers, suitable store
locations and qualified associates and management personnel. Hot Topic currently
competes with street alternative stores located primarily in metropolitan areas;
with other mall-based teenage-focused retailers such as Abercrombie & Fitch,
Aeropostale, American Eagle Outfitters, Anchor Blue (Millers Outpost), Charlotte
Russe Inc., Claire's Stores, Inc., Forever 21, Old Navy (a division of Gap
Inc.), Pacific Sunwear of California, Inc., Spencer Gifts, Inc., The Buckle, The
Wet Seal, Inc., Urban Outfitters, Inc.; and, to a lesser extent, with music
stores and mail order catalogs and websites. Torrid has additional competitors,
such as Alloy, Inc., Deb Shops, Delia's Corp., Lane Bryant, and plus-size
departments in department stores and discount stores as well as numerous
potential competitors who may begin or increase efforts to market and sell
products competitive with Torrid's products. Some of our competitors are larger
and have substantially greater financial, marketing and other resources. Direct
competition with these and other retailers may increase significantly in the
future, which could require us, among other things, to lower our prices.
Increased competition could have a material adverse effect on our business,
results of operations and financial condition.
WAR, TERRORISM AND OTHER CATASTROPHES COULD NEGATIVELY IMPACT OUR CUSTOMERS,
PLACES WHERE WE DO BUSINESS, AND OUR EXPENSES, ALL OF WHICH COULD HURT OUR
BUSINESS.
The effects of war or acts of terrorism could have a material adverse effect on
our business, operating results and financial condition. The terrorist attacks
in New York and Washington, D.C. on September 11, 2001 disrupted commerce and
intensified the uncertainty of the U.S. economy, a condition which has persisted
due to recent military actions in Afghanistan and Iraq. The continued threat of
terrorism and heightened security and military action in response to this
threat, or any future acts of terrorism, may cause further disruptions and
create further uncertainties. To the extent that such disruptions or
uncertainties negatively impact shopping patterns and/or mall traffic, or
adversely affect consumer confidence or the economy in general, our business,
operating results and financial condition could be materially and adversely
affected.
18
In addition, a few years ago, California experienced substantially increased
costs of electricity and gas caused by, among other things, disruption in energy
supplies. Our principal executive offices, distribution center and a significant
number of our stores are located in California. If we experience a sustained
disruption in energy supplies, or if electricity and gas costs in California
fluctuate dramatically, our results of operations could be materially and
adversely affected. California is also subject to natural disasters such as
earthquakes and floods. A significant natural disaster or other catastrophic
event affecting our facilities could have a material adverse impact on our
business, financial condition and operating results.
THERE ARE NUMEROUS RISKS THAT COULD CAUSE OUR STOCK PRICE TO FLUCTUATE
SUBSTANTIALLY.
Our common stock is quoted on the Nasdaq National Market, which has experienced
and is likely to experience in the future significant price and volume
fluctuations, which could adversely affect our stock price without regard to our
financial performance. In addition, we believe that factors such as quarterly
fluctuations in our financial results and comparable store sales; announcements
by other apparel, accessory and gift item retailers; the trading volume of our
stock; changes in estimates of our performance by securities analysts; overall
economic and political conditions; the condition of the financial markets; and
other events or factors outside of our control could cause our stock price to
fluctuate substantially.
OUR CHARTER DOCUMENTS AND OTHER CIRCUMSTANCES COULD PREVENT A TAKEOVER OR CAUSE
DILUTION OF OUR EXISTING SHAREHOLDERS, WHICH COULD BE DETRIMENTAL TO EXISTING
SHAREHOLDERS AND HINDER BUSINESS SUCCESS.
Our Articles of Incorporation and Bylaws contain provisions that may have the
effect of delaying, deterring or preventing a takeover of Hot Topic, Inc. For
instance, our Articles of Incorporation include certain "fair price provisions"
generally prohibiting business combinations with controlling or significant
shareholders unless certain minimum price or procedural requirements are
satisfied, and our Bylaws prohibit shareholder action by written consent.
Additionally, our Board of Directors has the authority to issue, without
shareholder approval, up to 10,000,000 shares of "blank check" preferred stock
having such rights, preferences and privileges as designated by the Board of
Directors. The issuance of these shares could have a dilutive effect on certain
shareholders, and potentially prohibit a takeover of Hot Topic, Inc. by
requiring the preferred shareholders to approve such a transaction.
We also have a significant number of authorized and unissued shares of our
common stock available under our Articles of Incorporation. These shares provide
us with the flexibility to issue our common stock for future business and
financial purposes including stock splits, raising capital and providing equity
incentives to employees, officers and directors. However, the issuance of these
shares could result in dilution to our shareholders.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not a party to any derivative financial instruments. Our exposure to
market risk relates to changes in interest rates on our investments with
maturities of less than three months (which are considered to be cash and cash
equivalents) and short-term investments with maturities in excess of three
months. Changes in interest rates affect the investment income earned on those
investments.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Based on our evaluation of our disclosure controls and
procedures conducted prior to the date of filing this report
on Form 10-Q, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934) are
effective as of the end of the period covered by this report.
(b) Changes in Internal Controls
There were no changes in our internal control over financial
reporting that occurred during the period covered by this
report, that have materially affected, or are reasonably
likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEMS 1 AND 3 - 5 ARE NOT APPLICABLE.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Issuer Purchases of Equity Securities
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES MAXIMUM NUMBER OF
PURCHASED AS PART OF SHARES THAT MAY YET BE
TOTAL NUMBER OF SHARES AVERAGE PRICE PAID PER PUBLICLY ANNOUNCED PURCHASED UNDER THE
FISCAL PERIOD PURCHASED SHARE PLANS OR PROGRAMS (1) PLANS OR PROGRAMS
- -------------------- -------------- --------------- -------------- --------------
February 29, 2004 -
April 3, 2004 106,500 $25.94 2,000,000 1,893,500
April 4, 2004 -
May 1, 2004 1,173,500 $24.30 2,000,000 720,000
-------------- --------------- -------------- --------------
Total 1,280,000 $24.44 2,000,000 720,000
============== =============== ============== ==============
(1) On March 19, 2004, we announced that our Board of Directors approved a stock
repurchase program, authorizing repurchase of up to 2,000,000 shares of our
common stock. The repurchase program is expected to be effective until January
29, 2005, or until earlier terminated by the Board. We are authorized to make
repurchases from time to time in the open market pursuant to existing rules and
regulations and other parameters set by the Board.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
Number Description of Document
------ -----------------------
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Amended and Restated Bylaws. (2)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen stock certificate. (1)
10.1 Third Amendment to Industrial Real Estate Lease, dated
February 25, 2004, by and among Majestic-Fullerton Road, LLC,
PFG Fullerton Limited Partnership, and Hot Topic
Administration, Inc.
10.2a Employment Offer Letter dated March 15, 2004, between the
Registrant and Christopher J. Kearns.
31.1 Certification, dated June 1, 2004, of Registrant's Chief
Executive Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification, dated June 1, 2004, of Registrant's Chief
Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certifications, dated June 1, 2004, of Registrant's Chief
Executive Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C ss.
1350, as adopted).
__________________
(1) Filed as an exhibit to Registrant's Registration Statement on
Form SB - 2 (No. 333-5054-LA) and incorporated herein by
reference.
(2) Filed as an exhibit to Registrant's Annual Report on Form 10-K
for the year ended February 3, 2001 and incorporated herein by
reference.
a. Denotes management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
On February 4, 2004, we filed a report on Form 8-K furnishing, under
Item 12, information related to our sales for the fourth quarter of fiscal 2003
(quarter ended January 31, 2004). On March 3, 2004, we filed a report on Form
8-K furnishing, under Item 12, information related to our overall financial
results for the fourth quarter of fiscal 2003.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOT TOPIC, INC.
(Registrant)
Date: June 1, 2004 /s/ Elizabeth McLaughlin
------------------------
Elizabeth McLaughlin
Chief Executive Officer
(Principal Executive Officer)
Date: June 1, 2004 /s/ James McGinty
-----------------
James McGinty
Chief Financial Officer and Secretary
(Principal Financial Officer)
22
EXHIBIT INDEX
Exhibit No. Document
----------- --------
10.1 Third Amendment to Industrial Real Estate Lease, dated
February 25, 2004, by and among Majestic-Fullerton Road, LLC,
PFG Fullerton Limited Partnership, and Hot Topic
Administration, Inc.
10.2 Employment Offer Letter dated March 15, 2004, between the
Registrant and Christopher J. Kearns.
31.1 Certification, dated June 1, 2004, of Registrant's Chief
Executive Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification, dated June 1, 2004, of Registrant's Chief
Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certifications, dated June 1, 2004, of Registrant's Chief
Executive Officer and Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.Css.1350, as adopted).
23