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Hot Topic gets Hunger Games lift but may not last

/ Source: Reuters

Teen retailer Hot Topic Inc said it has sold out some of its merchandise for "The Hunger Games" even before the highly anticipated, post-apocalyptic film opens in theaters on Friday.

The movie, based on the book by author Suzanne Collins, is about children forced into a fight to the death and is touted to be one of the year's biggest hits.

Companies like eBay Inc and Toys R Us Inc are also selling related merchandise but Hot Topic, which makes most of its money from such licenses, has the broadest assortment including T-shirts, wallets, bags, jewelry, watches and even nail polish.

Shares of Hot Topic have risen over 50 percent so far this year, though retail experts warned investors not to bank on a sustainable boost from "The Hunger Games," pointing to the company's experience in licensing another teen blockbuster, the "Twilight" series.

California-based Hot Topic, known for its band and movie merchandise, got an unprecedented boost in 2009 from selling "Twilight" merchandise, making it one of the best performers in the teen retail segment. The stock more than doubled in the six months from November to April that year.

But - as with "The Hunger Games" - Hot Topic did not have exclusive licensing rights for the teen vampire dramas. The company lost its edge when others, including Wal-Mart Stores Inc and Target Corp started selling "Edward", "Bella" and "Jacob" T-shirts as well.

Hot Topic's shares are down more than 20 percent from the highs of 2009, and comparable sales have been laboring under the high expectations set by the gains from "Twilight".

"In the case of Twilight, it gave Hot Topic an injection ... They shot up and then shot down, like someone who got a sugar rush," said Marshal Cohen, chief industry analyst at market research firm NPD.

Exclusive licenses are extremely costly, and companies the size of Hot Topic usually cannot afford them. The retailer had sales of $697.9 million in the fiscal year ended in January.

"They have to find a way to de-emphasize that this (the Hunger Games license) is their only way to grow. If you do it right, you can then turn these customers loyal. Remember, this is the most fickle of all consumer bases so you have to keep doing something new," said Cohen.

Hot Topic said sales of merchandise related to the movie have been "brisk," with many items selling out.

"Bottom line, we're the destination for the Hunger Games merchandise," the company said in a statement.

On a conference call earlier this month, Chief Executive Lisa Harper said strong demand for "The Hunger Games" souvenirs was driving a mid-single digit percentage rise at Hot Topic's namesake chain of retail stores in the first five weeks of the current quarter.

But the company was being more cautious this time, she said, noting that Hot Topic had overbought movie-inspired merchandise for films like "Twilight" only to see a steep drop in demand after the initial weeks of their release.

With "The Hunger Games," Hot Topic plans to re-stock only after evaluating demand post the release on so that it can avoid getting stuck with merchandise that won't sell.

Hot Topic's stock price has roughly doubled from a year ago, when poor sales and a lack of hot licenses led to write-downs and the departure of the merchandising chief of its namesake division.

But the company has underperformed its peers, with sales falling each year since 2009 - a trend that worries some analysts.

"The company's been doing poorly," said Nikoleta Panteva, senior retail analyst at IBISWorld. "As to how big 'Hunger Games' will be, it is still up in the air. It does have more appeal for the male audience, but I don't think the merchandise will turn the company around at all."

Retail consultant Rahul Sharma of Neev Capital said, "They'll get a nice little boost from it and in the short term even the stock could reflect it, but once the product becomes more common, they'll have the same old story."

Shares of Hot Topic rose 0.7 percent to close at $10.21 on Nasdaq.