10-Q

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 4, 2013

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 o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Accelerated filer  x
Non-accelerated filer    o   (Do not check if a smaller reporting company)	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                      No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  May 22, 2013  – 40,756,274 shares of common stock, no par value.

1

HOT TOPIC, INC.

INDEX TO FORM 10-Q

		Page No.
PART I.  FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income and Comprehensive Income for the three months ended May 4, 2013 and April 28, 2012		3
Consolidated Balance Sheets – May 4, 2013 and February 2, 2013		4
Consolidated Statements of Cash Flows for the three months ended May 4, 2013 and April 28, 2012		5
Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	44
SIGNATURES		45

2

PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

Hot Topic, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	May 4, 2013			April 28,  2012
Net sales	$	174,846		$	171,544
Cost of goods sold, including buying,
distribution and occupancy costs		114,077			109,859
Gross margin		60,769			61,685
Selling, general and administrative expenses		54,613			55,603
Income from operations		6,156			6,082
Interest and other income, net		(5	)		62
Income before provision for
income taxes		6,151			6,144
Provision for income taxes		2,049			2,309
Net income	$	4,102		$	3,835
Earnings per share:
Basic	$	0.10		$	0.09
Diluted	$	0.10		$	0.09
Cash dividends declared and paid per share	$	-		$	0.08
Shares used in computing earnings per share:
Basic		40,545			42,139
Diluted		41,663			42,821
Comprehensive  income:
Net income	$	4,102		$	3,835
Other comprehensive loss:
Foreign currency translation adjustment		(14	)		(58	)
Unrealized gain (loss) on short-term and long-term  investments, net of taxes of $2 and $0 for the three-month periods		2			(2	)
Total other comprehensive loss		(12	)		(60	)
Comprehensive income	$	4,090		$	3,775

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Hot Topic, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
	May 4, 2013			February 2, 2013
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	51,951		$	43,833
Short-term investments		4,125			6,158
Inventory		79,435			80,844
Prepaid expenses and other		13,768			13,716
Deferred tax assets		9,905			10,664
Total current assets		159,184			155,215
Property and equipment, net		107,277			107,347
Deposits and other		8,688			8,039
Long-term investments		1,684			1,730
Deferred tax assets		3,178			2,614
Total assets	$	280,011		$	274,945
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	31,523		$	23,211
Accrued liabilities		39,477			48,065
Income taxes payable		1,001			5,143
Total current liabilities		72,001			76,419
Deferred rent and other		19,722			19,627
Income taxes payable		657			657
Deferred compensation		6,089			5,488
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;
40,673,674 and 40,246,247 shares issued and
outstanding at May 4, 2013 and February 2, 2013, respectively		140,274			135,567
Retained earnings		41,569			37,476
Accumulated other comprehensive loss		(301	)		(289	)
Total shareholders’ equity		181,542			172,754
Total liabilities and shareholders’ equity	$	280,011		$	274,945

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Hot Topic, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
	Three Months Ended
	May 4, 2013			April 28, 2012
OPERATING ACTIVITIES
Net income	$	4,102		$	3,835
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		7,800			8,489
Stock-based compensation		960			1,001
Loss on disposal of property and equipment		21			901
Impairment of long-lived assets		52			306
Deferred taxes		(566	)		(341	)
Gift card breakage		(192	)		(145	)
Foreign currency translation gain		38			(8	)
Changes in operating assets and liabilities:
Inventory		1,382			5,067
Prepaid expenses and other current assets		(52	)		4,287
Deposits and other assets		(649	)		(192	)
Accounts payable		8,313			804
Accrued liabilities		(7,828	)		(6,592	)
Deferred rent and other		95			(972	)
Income taxes payable		(4,143	)		(86	)
Net cash provided by operating activities		9,333			16,354
INVESTING ACTIVITIES
Purchases of property and equipment		(7,818	)		(9,183	)
Proceeds from sale of short-term and long-term investments, net of purchases		2,083			689
Net cash used in investing activities		(5,735	)		(8,494	)
FINANCING ACTIVITIES
Excess tax benefit from stock-based compensation		907			273
Proceeds from employee stock purchases and exercise of stock options		3,648			649
Payment of cash dividends		-			(3,377	)
Net cash provided by (used in) financing activities		4,555			(2,455	)
Increase in cash and cash equivalents		8,153			5,405
Effect of foreign currency exchange rate changes on cash		(35	)		12
Cash and cash equivalents at beginning of period		43,833			49,615
Cash and cash equivalents at end of period	$	51,951		$	55,032
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	1		$	-
Cash paid (received) during the period for income taxes	$	5,904		$	(3,804	)

See accompanying Notes to Condensed Consolidated Financial Statements.
 

5

HOT TOPIC, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.  Organization and Basis of Presentation

Description of Business  We are a mall and web-based specialty retailer of apparel, accessories, music and gift items for young men and women whose lifestyles reflect a passion for music, fashion and pop culture.  We primarily operate under two concepts: Hot Topic and Torrid.  We launched a new test retail concept, Blackheart, during the fourth quarter of fiscal 2012.  Music and pop culture are the overriding inspirations at Hot Topic, and Torrid is focused on providing the best in fashion to young plus-size women.  At our Hot Topic stores and our website hottopic.com, we sell a selection of licensed and non-licensed apparel, accessories and gift items that are influenced by popular music artists and pop culture trends, designed to appeal to young men and women.  We also sell a limited assortment of music CDs/vinyl LPs and DVDs at Hot Topic.  At our Torrid stores and on our website torrid.com, we sell on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears a size 12 and up.  We generate revenues primarily through our retail stores in the United States of America, Puerto Rico and Canada, and online through our websites.  We were incorporated in California in 1988 and opened our first Hot Topic store the following year in fiscal 1989.  We opened our first Torrid store in fiscal 2001.

References to Hot Topic, Inc.  Throughout this report, the terms “we,” “us,” “our,” “company” and similar references refer to Hot Topic, Inc. and its wholly-owned subsidiaries.

Merger  On March 6, 2013, we entered into an Agreement and Plan of Merger, or the Merger Agreement, providing for our acquisition by an affiliate of Sycamore Partners Management, L.L.C., or Sycamore. Under the terms of the Merger Agreement, which was unanimously approved by our Board of Directors, or the Board, Sycamore will acquire all of the outstanding shares of our common stock for $14.00 per share in cash. The transaction, which is structured as a one-step merger with the company as the surviving corporation, or the Merger, is subject to customary closing conditions, including receipt of regulatory approvals and the approval of the holders of a majority of our outstanding shares. If the Merger is approved and is consummated, we will no longer be a publicly-traded company, and our shares will cease to be traded on NASDAQ. We will account for the merger by applying the acquisition method as described in ASC 805, Business Combinations.  For more information, see our Current Report on Form 8-K filed with the Securities and Exchange Commission, or the SEC, on March 8, 2013.

Fiscal Year  Our fiscal year ends on the Saturday nearest to January 31.  References to the first quarter of fiscal 2013 and 2012 refer to the thirteen week periods ended May 4, 2013 and April 28, 2012, respectively.  References to fiscal 2014 and 2013 refer to the 52-week periods ending January 31, 2015 and February 1, 2014, respectively.  References to fiscal 2012 refer to the 53-week period ended February 2, 2013.  References to fiscal 2011 and 2010 refer to the 52-week periods ended January 28, 2012 and January 29, 2011, respectively.

Segment Information We currently have one reportable segment given the similarities of the economic characteristics among the Hot Topic and Torrid concepts and the relatively immaterial business operations of our Blackheart test concept.

6

Interim Financial Information  The information set forth in these condensed consolidated financial statements is unaudited except for the February 2, 2013 consolidated balance sheet data.  These statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America for complete financial statements.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed on March 22, 2013.

In the opinion of management, all adjustments necessary for a fair presentation have been included in these condensed consolidated financial statements.

NOTE 2.  Business Events

Strategic Business Changes  In March 2011, our Board approved certain strategic business changes to better position the company for growth.  The business changes involved discontinuing the operations of ShockHound, an online digital music website launched in fiscal 2008; writing down inventory due to a change in management’s inventory strategy; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the strategic business changes.

Cost Reduction Plan  In November 2010, our Board approved a cost reduction plan, designed to meet the challenges of the environment at that time, which involved closing approximately 50 underperforming stores, a majority of which closed by the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 relative to fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

7

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012		-			(140	)		-			-			-			(140	)
Cash payments		-			133			-			-			-			133
Non-cash adjustments		-			7			-			-			-			7
Balance at October 27, 2012    and May 4, 2013	$	-		$	-		$	-		$	-		$	-		$	-

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

8

NOTE 3.  Stock-Based Compensation

Stock Plan Activity

Under our 1996 Equity Incentive Plan, or the 1996 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 14, 2006, the 1996 Plan expired and was replaced with the 2006 Equity Incentive Plan, or the 2006 Plan.  Upon the expiration of the 1996 Plan, no shares had been granted to consultants and 732,456 shares out of an aggregate of 18,300,000 shares of common stock were authorized and available for grant.

Under our 2006 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 2006 Plan was terminated and replaced with the 2012 Equity Incentive Plan, or the 2012 Plan.  The 2012 Plan was approved by the Board on March 16, 2012 and by our shareholders on June 5, 2012.  There were 942,602 shares out of an aggregate of 3,082,456 shares of common stock authorized and available for grant upon the termination of the 2006 Plan.

The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation to our employees, consultants and directors as deemed appropriate by the Board.  Both incentive and non-statutory stock options granted by us under the 2012 Plan must carry an exercise price of at least 100% of the fair market value of our common stock on the date of grant.  Incentive stock options must carry an exercise price of at least 110% of the fair market value of our common stock on the date of grant for persons possessing 10% or more of the total combined voting power of all classes of stock.  Options granted may be subject to different vesting terms as determined by the Board and the maximum term of options granted is 8 years.  In addition, the maximum number of shares of common stock available for future issuance may not exceed the sum of (a) 942,602 and 34,976 shares of common stock remaining available for issuance under the 2006 Plan and the 1996 Non-Employee Directors’ Stock Option Plan, or the 1996 NEDSOP, respectively, as of June 5, 2012, (b) an additional 3,100,000 shares and (c) the number of shares subject to stock awards as of June 5, 2012 under the 2006 Plan and the 1996 NEDSOP pursuant to the terms of the 2006 Plan and the 1996 NEDSOP.  As of the end of the first quarter of fiscal 2013, 4,676,349 shares were available for future grants under the 2012 Plan.  All awards to date under the 2012 Plan have been granted to our employees and directors, and none have been granted to consultants.

Under the 1996 NEDSOP, we granted stock options to non-employee directors.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 1996 NEDSOP was terminated.  Upon the termination of the 1996 NEDSOP, no shares had been granted to anyone for their role as a consultant to the company and 34,976 shares out of an aggregate of 720,000 shares of common stock were authorized and available for grant.

In June 1996, the Board adopted the Employee Stock Purchase Plan, or the Stock Purchase Plan.   The Stock Purchase Plan provides for the issuance of up to 1,350,000 shares of common stock to our employees.  All eligible employees are granted identical rights to purchase common stock for each Board authorized offering under the Stock Purchase Plan.  Rights granted pursuant to any offering under the Stock Purchase Plan terminate immediately upon cessation of an employee’s employment for any reason.  In general, an employee may reduce their contribution or withdraw from participation in an offering at any time during the purchase period for such offering.  Employees receive a 15% discount on shares purchased under the Stock Purchase Plan.  Rights granted under the Stock Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted.  The initial offering under the Stock Purchase Plan commenced October 24, 1996 and terminated December 31, 1996.  Subsequent offerings have occurred every six months commencing January 1, 1997.  As of the end of the first quarter of fiscal 2013, 652,254 shares could still be sold to employees under the Stock Purchase Plan.  Compensation expense for the first quarter of fiscal 2013 and 2012 was $89,000 and $42,000, respectively, related to the fair value of the rights granted to participants under the plan.

9

In June 2012, we granted non-employee directors an aggregate of 21,008 shares of restricted common stock under the 2012 Plan.  In March 2012 and June 2011, we granted non-employee directors an aggregate of 515 and 25,387 shares of restricted common stock, respectively, under the 2006 Plan.  Restricted shares generally vest in one installment in the year subsequent to the grant year.  All awarded common shares remain restricted (i.e., not transferable by the holders) until such time as the recipient is no longer a member of our Board.  The value of these grants is expensed over the vesting period.  During the first quarter of fiscal 2013 and 2012, $50,000 and $49,000, respectively, was expensed.

In April 2012, we granted an independent consultant 2,525 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above except that vesting occurred in full after providing six months of continuous service to the company.  As of the end of the third quarter of fiscal 2012, we had recorded the entire $25,000 charge related to this grant.  

In March 2012, we granted Lisa Harper an option to purchase 100,000 shares of our common stock under the 2006 Plan.  This 100,000 share option is subject to a service condition as well as a performance condition that the company achieves a defined earnings target in fiscal year 2012.  The defined earnings target was achieved and certified by the Compensation Committee of the Board on March 4, 2013.

In March 2011, in connection with her appointment as Chief Executive Officer, we granted Lisa Harper an option to purchase 500,000 shares of our common stock under the 2006 Plan.  This 500,000 share option vested only upon a vesting determination which was made by the Compensation Committee of the Board on May 23, 2013.  The option would have terminated on the day following the third anniversary of the date of grant if the vesting determination had not been made.   The vesting determination had to be made at any time on or before the third anniversary of the date of grant when the Compensation Committee of the Board certified that the weighted average per share closing price of the company’s common stock for any trailing 90 trading days equaled or exceeded twice the closing price per share on the date of grant.

In March 2011, we granted certain employees the option to purchase an aggregate of 214,000 shares of our common stock, net of forfeitures, under the 2006 Plan.  These share options were subject to four-year vesting, but vesting occurred in full upon the occurrence of the vesting determination by the Compensation Committee of the Board on May 23, 2013, as described above.  As of the end of the first quarter of fiscal 2013, we had recorded the entire $1.1 million charge related to this grant, including $0.1 million related to the accelerated option vesting.  

10

Prior to and effective as of the effective time of the proposed Merger with Sycamore discussed in more detail in “NOTE 1 – Organization and Basis of Presentation” referred to as the "Effective Time", we will take all necessary action to accelerate the vesting of each outstanding option under our 1996 Plan, 1996 NEDSOP, 2006 Plan and 2012 Plan, collectively referred to as the "Stock Plans". At the "Effective Time", each outstanding option under a Stock Plan will vest and be cancelled and converted into the right to receive the excess, if any, of the per share Merger consideration over the exercise price of the option, multiplied by the number of shares subject to such option, less all applicable tax withholdings.  Prior to the Effective Time, we will take all necessary action to accelerate the vesting of each share of restricted stock granted and outstanding under the Stock Plans, and each such share of restricted stock will be treated as a share of common stock for purposes of the Merger Agreement. We will terminate our Employee Stock Purchase Plan prior to the Effective Time and will not permit any new offering period to begin prior to the Effective Time.  All statements below that refer to compensation expense expected to be recognized over weighted average periods do not consider the anticipated vesting acceleration related to the proposed Merger.

The following table summarizes stock options outstanding under all of our plans as of the end of the first quarter of fiscal 2013:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at February 2, 2013		6,219,394		$	9.37
Granted		20,000		$	11.06
Exercised		(427,427	)	$	8.53
Forfeited or expired		(485,554	)	$	11.10
Outstanding at May 4, 2013		5,326,413		$	9.29		6.85	$	28,245,565
Exercisable at May 4, 2013		2,741,704		$	10.29		5.63	$	13,505,605

The total fair value of shares vested during the first quarter of fiscal 2013 and 2012 is $1.4 million and $0.9 million, respectively.

11

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the first quarter of fiscal 2013 and 2012 are provided in the following table (in thousands):

	Three Months Ended
	May 4, 2013		April 28, 2012
Proceeds from stock options exercised	$	3,648	$	649
Tax benefit related to stock options exercised	$	907	$	216
Intrinsic value of stock options exercised	$	2,268	$	540

Accounting for Stock-Based Compensation Expense  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that are subject to the vesting determination described above, using the Black-Scholes option-pricing formula and a single option award approach.  The fair value is then amortized over the requisite vesting periods of the awards.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

We estimate the fair values of the share options granted in March 2011, that were subject to the vesting determination, using a Monte Carlo simulation valuation model.  Prior to full vesting that occurred upon the vesting determination on May 23, 2013, the fair values of the options to purchase the aggregate of 214,000 shares, net of forfeitures, were amortized over the vesting period determined by this model.  The entire fair value of the 500,000 share option was recognized as compensation expense during fiscal 2011.

The effect of recording stock-based compensation for the first quarter of fiscal 2013 and 2012 was as follows (in thousands):

	Three Months Ended
	May 4, 2013			April 28, 2012
Stock-based compensation by type of award:
Employee and director stock options and awards	$	871		$	955
Non-employee stock award		-			4
Employee stock purchase plan		89			42
Total stock-based compensation expense		960			1,001
Tax effect on stock-based compensation expense		(328	)		(362	)
Net effect on net income or loss	$	632		$	639

For the first quarter of fiscal 2013 and 2012, $248,000 and $161,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $0.7 and $0.8 million, respectively, was charged to selling, general and administrative expense.

As of the end of the first quarter of fiscal 2013 and 2012, we had $5.3 million and $8.0 million, respectively, of unrecognized expense related to non-vested stock option grants (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that were subject to the performance condition, and the aggregate of 214,000 stock options granted in March 2011 that were subject to the vesting determination), which are expected to be recognized over weighted average periods of 2.36 years and 2.95 years, respectively.

12

As of the end of the first quarter of fiscal 2013 and 2012, we had $132,000 and $319,000, respectively, of unrecognized expense related to Lisa Harper’s option to purchase 100,000 shares of our common stock granted in March 2012 that were subject to the performance condition, which are expected to be recognized over weighted average periods of 2.92 years and 3.92 years, respectively.  This option to purchase 100,000 shares has a $3.44 weighted average fair value at grant date.

As of the end of the first quarter of fiscal 2013, we did not have any unrecognized expense related to the options to purchase an aggregate of 214,000 shares of our common stock granted in March 2011 that were subject to the vesting determination made by the Compensation Committee of the Board on May 23, 2013.  As of the end of the first quarter of fiscal 2012, we had $0.4 million of unrecognized expense related to these options which were expected to be recognized over a weighted average period of 2.92 years.

As of the end of the first quarter of fiscal 2013 and 2012, we had $17,000 and $38,000, respectively, of unrecognized expense related to restricted stock grants, which are expected to be recognized over weighted average periods of 0.09 years and 0.13 years, respectively.

Calculation of Fair Value of Options  The Black-Scholes option valuation model used to determine the fair value of stock-based compensation for all options, except for those granted in March 2011 that were subject to the vesting determination, incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield.  The expected term of an award is generally no less than the option vesting period and is based on our historical experience.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended
	May 4, 2013			April 28, 2012
Risk free interest rate		1	%		1	%
Expected life	5 years			5 years
Expected volatility		56	%		57	%
Expected dividend yield		3	%		4	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that were subject to the performance condition)	$	4.23		$	3.43

A Monte Carlo simulation was used to determine the fair value of stock-based compensation for the stock options granted in March 2011 that were subject to the vesting determination.  This risk neutral model is based on projections of stock price paths and incorporates various assumptions including the early exercise behavior, volatility of stock price, risk-free rates of return and dividend yield.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s contractual life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

13

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that were subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$	2.60

NOTE 4. Cash Dividends

On March 6, 2013, we entered into an agreement and plan of merger with Sycamore, discussed in more detail in “NOTE 1 - Organization and Basis of Presentation”.  In connection with the transaction contemplated by the agreement, we have suspended the payment of our regular quarterly dividend.  Total dividends paid during the first quarter of fiscal 2012 amounted to $3.4 million, consisting of an $0.08 per share regular quarterly cash dividend.

NOTE 5. Earnings  Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted earnings per share is applicable only in periods of net income and is computed by dividing net income by the weighted average number of common shares outstanding for the period and potentially dilutive common stock equivalents outstanding for the period.  Periods of net loss require the diluted computation to be the same as the basic computation.  During the first quarter of fiscal 2013 and 2012, options to purchase 0.9 million and 3.2 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.

14

A reconciliation of the numerator and denominator of basic and diluted earnings per share is as follows (in thousands, except per share amounts):

	Three Months Ended
	May 4, 2013		April 28, 2012
Basic and diluted earnings per share computation:
Numerator	$	4,102	$	3,835
Denominator:
Weighted average common shares outstanding		40,545		42,139
Incremental shares from assumed exercise/issuance of options and awards		1,118		682
Total shares		41,663		42,821
Basic earnings per share	$	0.10	$	0.09
Diluted earnings per share	$	0.10	$	0.09

NOTE 6.  Short-Term and Long-Term Investments

Our short-term investments consist of highly-rated interest-bearing municipal bonds that have maturities that are less than one year and are accounted for as available for sale.  As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, short-term investments consisted of municipal bonds of $4.1 million and $6.2 million, respectively.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our short-term investments.  The associated unrealized net gains in both the first quarter of fiscal 2013 and in the full year of fiscal 2012 were immaterial and have been recorded in the consolidated statements of comprehensive income.

As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, our long-term investment comprised of an auction rate security.  Our auction rate security is a AAA/A3-rated debt instrument with a maturity of 24 years.  It is accounted for as available for sale and backed by pools of student loans guaranteed by the U.S. Department of Education.  Its interest rate is reset through an auction process, most commonly at intervals of approximately 4 weeks.  This same auction process is designed to provide a means by which this security can be sold and prior to 2008 had provided a liquid market for it.  There continues to be uncertainty in the global credit and capital markets, which has resulted in the failure of auctions representing the auction rate security we hold as the amount of securities submitted for sale in those auctions exceed the amount of bids.  While we have continued to earn and receive interest on our auction rate security through the date of this report, we concluded that its estimated fair value no longer approximates par value.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been based on a valuation model using current assumptions.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our auction rate security investment.

As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, the fair value of our auction rate security remained the same at $1.7 million.  The fair value of our auction rate security as of the end of the first quarter of fiscal 2013 reflects a cumulative decline of $0.4 million from the par value.  This cumulative $0.4 million decline ($0.2 million net of tax) is deemed temporary as we have the ability to hold this security and we do not have the intent to sell it below par value.  Furthermore, it is not likely that we will be required to sell the security before the recovery of its amortized cost basis.  If uncertainties in the credit and capital markets continue, we may incur additional losses, some of which may be other-than-temporary, which could negatively affect our financial condition or results of operations.  In addition, in the event that we decide to sell this security and it becomes likely that we will be required to sell the security before the recovery of its amortized cost basis, we may be required to recognize impairment charges against income.  We have classified our auction rate security as a non-current asset on our consolidated balance sheet, as we do not expect it to successfully auction and recover its full or par value within the next 12 months.

As of the end of the first quarter of fiscal 2013 and 2012, we recorded immaterial unrealized gains for our auction rate securities in the consolidated statements of comprehensive income.

15

NOTE 7.  Impact of Recently Issued Accounting Pronouncements

In February 2013, the FASB issued new guidance requiring entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  It requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive incomeby the respective line items of net income.  This disclosure is required only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, a cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts is required.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2012, with early adoption permitted.  There were no reclassification adjustments for the period ended May 4, 2013 and our adoption of this new guidance on February 3, 2013 did not have a material impact on our financial condition or results of operations.

In June 2011, the FASB issued a final standard requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income.  The new standard eliminates the option to present items of other comprehensive income in the statement of changes in equity.  The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income.  Also, earnings per share computations do not change.  The new requirements were effective for interim and fiscal years beginning after December 15, 2011, with early adoption permitted.  Full retrospective application is required.  As this standard relates only to the presentation of other comprehensive income, our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

In May 2011, the FASB issued new guidance that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards, or IFRS.  The new guidance changes some fair value measurement principles and disclosure requirements under U.S. GAAP.  Several new disclosures about Level 3 measurements are required, including quantitative information about the significant unobservable inputs used in the measurement, a qualitative discussion about the sensitivity of recurring measurements to changes in the unobservable inputs disclosed and a description of the valuation processes used by us.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2011, with early adoption prohibited.  Our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

16

NOTE 8.  Fair Value Measurements

Our financial assets and liabilities are valued at the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  We determine fair value based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, we prioritize the inputs used in measuring fair value into a three-tier fair value hierarchy, which are as follows:

Level 1: Observable inputs such as quoted prices in active markets (the fair value hierarchy gives the highest priority to Level 1 inputs);

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions (the fair value hierarchy gives the lowest priority to Level 3 inputs).

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the first quarter of fiscal 2013 consisted of the following (in thousands):

	Balance at May 4, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	44,374	$	44,374	$	-	$	-
Municipal bonds (short-term)		4,125		-		4,125		-
Auction rate security (long-term)		1,684		-		-		1,684
Total assets	$	50,183	$	44,374	$	4,125	$	1,684
Liabilities:
Deferred compensation plan (long-term)	$	6,089	$	-	$	6,089	$	-

The fair value of our short-term municipal bonds is based on market prices for similar assets from third-party pricing services using observable market information.  The money market funds fair value is determined based on quoted prices in active markets.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been determined based on an internal valuation model which incorporates primarily management’s own current assumptions.  The model values the securities by estimating the present value of future principal and interest payments discounted at rates considered to reflect current market conditions.  Significant assumptions used in the valuation include those made about the liquidity horizon which we currently estimate to be approximately five years and the net trading yield rate which we currently estimate to be approximately 5%.  The fair value measurement of our auction rate security has an inverse relationship with our liquidity horizon assumption and changes in this assumption may cause the fair value to be significantly impacted.  Other factors that impact our valuation include changes to credit ratings of our auction rate security as well as to the underlying assets supporting these securities and the ongoing strength and quality of the credit markets.  Our valuation is subject to uncertainties that are difficult to predict and could change significantly based on future market conditions.  The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active markets.  The fair value of the deferred compensation plan liability is determined based on quoted prices of similar assets that are traded in observable markets.

17

The activity of our auction rate security through the first quarter of fiscal 2013, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

	Non-current
Carrying value as of  February 2, 2013	$	1,730
Redemptions1		(50	)
Total gains
Included in earnings		-
Included in other comprehensive income 2		4
Carrying value as of  May 4, 2013	$	1,684

1 Redemptions of $50,000 occurred during the first quarter of fiscal 2013.

2 Unrealized losses of $6,000 and a recovery in fair value of $10,000 occurred during the first quarter of fiscal 2013.

NOTE 9.  Deferred Compensation Plan

In August 2006, we adopted the Hot Topic Inc. Management Deferred Compensation Plan, or the Deferred Compensation Plan, for the purpose of providing highly compensated employees and members of our Board a program to meet their financial planning needs.  The Deferred Compensation Plan provides participants with the opportunity to defer up to 80% of their base salary and up to 100% of their annual earned bonus, or, in the case of members of our Board, 100% of their earned cash fees, all of which, together with the associated investment returns, are 100% vested from the outset.  The Deferred Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally funded by us in order to preserve the tax-deferred savings advantages of a non-qualified plan.  As such, all deferrals and associated earnings are general unsecured obligations of Hot Topic, Inc. held within a “rabbi trust” on our consolidated balance sheet.  We may at our discretion contribute certain amounts to eligible employees’ accounts.  In January 2009, to the extent participants were ineligible to receive such contributions from participation in our 401(k) Plan, we began to contribute 50% of the first 4% of participants’ eligible contributions into their Deferred Compensation Plan accounts.  As of the end of the first quarter of fiscal 2013, assets and associated liabilities of the Deferred Compensation Plan were $5.8  million and $6.1 million, respectively, and are included in other non-current assets and non-current liabilities, respectively, in our consolidated balance sheets.  As of the end of fiscal 2012, assets and associated liabilities of the Deferred Compensation Plan were $5.2 million and $5.5 million, respectively.

NOTE 10.  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.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations 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 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 aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate, which we currently estimate to be approximately 13%, determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.”  Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future 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 store impairment charges.

For the first quarter of fiscal 2013 and 2012, we recorded store impairment charges of $0.1 million and $0.3 million, respectively, which are included in selling, general and administrative expenses in our consolidated statements of income.

18

NOTE 11.  Bank Credit Agreement

We maintain an unsecured bank credit agreement of $5.0 million that will expire on September 1, 2013.  Letters of credit, which are primarily used for inventory purchases, are issued under the credit agreement.  There were no letters of credit as of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012.

NOTE 12.  Income Taxes

As ofthe end of the first quarter of fiscal 2013, the total liability for income tax associated with unrecognized tax benefits was $1.5 million ($0.8 million net of federal benefit), of which $0.1 million ($0.1 million net of federal benefit) related to interest and $0.1 million related to penalties.  Our effective tax rate will be affected by any portion of this liability we may recognize.  As of the end of fiscal 2012, the total liability for income tax associated with unrecognized tax benefits was $1.9 million ($0.8 million net of federal benefit), of which $0.1 million ($0.1 million net of federal benefit) related to interest and $0.2 million related to penalties.

We believe that it is reasonably possible that $0.9 million ($0.5 million net of federal benefit) of our liability for unrecognized tax benefits of which interest is not material and $0.1 million related to penalties  may be recognized in the next 12 months due to the settlement of audits and the expiration of statutes of limitations.  As such, we have classified these amounts as current liabilities.

Our continuing practice is to recognize interest and penalties related to unrecognized tax benefits as a tax expense.  Tax expense during the first quarter of fiscal 2013 and 2012 related to interest and penalties was not material.  As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, we had accrued $0.2 million and $0.3 million, respectively, of interest and penalties related to uncertain tax positions.

We operate stores throughout the United States as well as in Canada and Puerto Rico, and as a result, we file income tax returns in the United States federal jurisdiction and various states, local and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities.  With few exceptions, we are no longer subject to United States federal, state, local or foreign income tax examinations for years before fiscal 2008.  While it is often difficult to predict the final outcome or the timing or resolution of any particular uncertain tax position, we believe our reserves for income taxes represent the most probable outcome.  We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances.

19

NOTE 13.  Commitments and Contingencies

In March 2013, we were named as a defendant in class action lawsuits challenging the plan of merger with Sycamore.  These lawsuits allege general various wrongdoings such as breach of our fiduciary duty to our shareholders. We may be named as a defendant in other similar lawsuits in the future. While we believe that all of the allegations are without merit and that we have valid defenses to all potential claims, our litigation exposure could have a material adverse effect on our financial condition and results of operations in the event the claims are not settled in our favor.

From time to time, we are involved in other matters of litigation that arise in the ordinary course of business.  Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect any of this litigation to have a material adverse effect on our overall financial condition.

NOTE 14.  Share Repurchase

During fiscal 2012, we repurchased 2,535,370 shares of our common stock for approximately $25 million (excluding expenses), which represents an average price of $9.86 per share.

We did not repurchase any shares of our common stock during the first quarter of fiscal 2013.  All share repurchase programs have since expired.

20

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

From time to time, in both written reports (such as this report) and oral statements, we make “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  We intend that such forward-looking statements be subject to the “safe harbors” created by these sections.  Generally, the words “believes,” “anticipates,” “expects,” “continue,” “intends,” “will,” “may,” “plans” and similar expressions identify such forward-looking statements, although not all forward-looking statements contain these identifying words.  These statements include, for example, statements regarding our expectations, beliefs, intentions or strategies regarding the future, such as the extent and timing of future revenues and expenses, economic conditions affecting consumer demand, ability to realize anticipated benefits of cost reduction plans and business changes, ability to grow or maintain comparable sales, response to new concepts and other expected financial results and information.  All forward-looking statements included in this report are based on information available to us as of the date of this report and we assume no obligation to update or revise any forward-looking statements to reflect events or circumstances that occur after such statements are made.  Readers are cautioned not to place undue reliance on these forward-looking statements as they involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements.  These risks, as well as other risks and uncertainties, are located, among other places, in this Part I, Item 2 and in Part II, Item 1A under the caption “Risk Factors.”

OVERVIEW

Business  We are a specialty retailer of apparel, accessories and gift items operating under the Hot Topic and Torrid concepts.  We launched a new test retail concept, Blackheart, during the fourth quarter of fiscal 2012.  Our business is discussed in more detail in “NOTE 1 – Organization and Basis of Presentation” contained in the accompanying financial statements.  

Merger  On March 6, 2013, we entered into the Merger Agreement with Sycamore. The Merger is discussed in more detail in “NOTE 1 – Organization and Basis of Presentation” contained in the accompanying financial statements.

Strategic Business Changes  We have completed the implementation of all planned initiatives related to the strategic business changes approved by the Board in fiscal 2011 to improve our operating results and to better position us for growth.  The business changes involved discontinuing the operations of ShockHound; writing down inventory; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had incurred all charges related to the strategic business changes.

Cost Reduction Plan  The cost reduction plan, which was designed to meet the challenges of the environment at that time, involved closing approximately 50 underperforming stores, a majority of which closed at the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The implementation of the cost reduction plan was expected to improve annual income of approximately $13 million.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 to approximately $25 million from $31 million in fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

21

The following table details charges related to the strategic business changes and the cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012		-			(140	)		-			-			-			(140	)
Cash payments		-			133			-			-			-			133
Non-cash adjustments		-			7			-			-			-			7
Balance at October 27, 2012 and May 4, 2013	$	-		$	-		$	-		$	-		$	-		$	-

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

22

Comparable Sales and Store Count  We consider a store comparable after it has been open for 15 full fiscal months.  If a store is closed during a fiscal year, it is only included in the computation of comparable sales for full fiscal months in which it was open.  Partial fiscal months are excluded from the computation of comparable sales.  During the first quarter of fiscal 2012, we began including our internet sales in the computation of comparable sales.  The following table shows our comparable sales results, including internet, by division for the first quarter of fiscal 2013 and 2012:

	Comparable Sales
	% Change
First Quarter	2013			2012
Hot Topic		(2.4	)%		9.5	%
Torrid		1.0	%		2.5	%
Total Company		(1.6	)%		7.5	%

During the first quarter of fiscal 2013, the comparable sales decrease in the Hot Topic division resulted primarily from decreases in the music, apparel and fashion accessories categories, partially offset by increases in the license apparel and fashion apparel categories.  During the same period, the comparable sales increase in the Torrid division was due to an increase in apparel, partially offset by a decrease in accessories.

The following table shows our comparable sales results, excluding internet, by division for the first quarter of fiscal 2013 and 2012:

	Comparable Sales
	% Change
First Quarter	2013			2012
Hot Topic		(2.6	)%		10.5	%
Torrid		0.7	%		1.9	%
Total Company		(1.9	)%		8.4	%

23

We continue to evaluate the need to open, remodel, relocate or close stores.  The following table shows our store expansion and closure activity during the first quarter of 2013 and 2012.   Our planned store expansion and closure activity in fiscal 2013 is also reflected in the table.

	Number of Stores
	Actual				Estimate
	Three Months Ended		Three Months Ended
	May 4, 2013		April 28, 2012		Fiscal 2013
Hot Topic
Beginning of Period		618		628		618
Open		4		1		15
Close		(1)		(5)		(5)
End of Period		621		624		628
Remodel/relocate		4		13		50
Torrid
Beginning of Period		190		148		190
Open		7		17		53
Close		(2)		(1)		(10)
End of Period		195		164		233
Remodel/relocate		2		1		18
Blackheart
Beginning of Period		5		-		5
Open		4		-		4
Close		-		-		-
End of Period		9		-		9
Remodel/relocate		-		-		-

Share RepurchaseOur recent share repurchase activity is discussed in more detail in “NOTE 14 – Share Repurchase” contained in the accompanying financial statements.

Cash Dividends  In connection with the transaction contemplated by the Merger Agreement, we have suspended the payment of our regular quarterly dividend. Cash dividends are discussed in more detail in “NOTE 4 – Cash Dividends” contained in the accompanying financial statements.

Segment Information  We currently have one reportable segment given the similarities of the economic characteristics among the Hot Topic and Torrid concepts and the relatively immaterial business operations of our Blackheart test concept.

Seasonality  Our business, particularly at Hot Topic, is subject to seasonal influences.  Refer to “Item 1 – Business” included in our annual report on Form 10-K filed on March 22, 2013, for further discussion about the seasonality of our business.

Key Performance Indicators  There are several key indicators that we use to help us evaluate the financial condition and operating performance of our business, including:

Store Sales Productivity is used to assess the operational performance of each of our stores.  Store productivity metrics include year over year store sales comparisons (or comparable sales results), net store sales per average square foot, number of transactions per store, dollars per transaction, number of units sold per store and number of units per transaction.

24

Merchandise Margin is used to allocate a variety of resources to each of our concepts, determine initial mark-ups, mark-downs, inventory reserves, freight costs, etc. for both concepts and to measure the general performance of each of our stores.  We consider merchandise margin to be the difference between net sales and certain costs associated with our merchandise, such as product costs, markdowns, freight, vendor allowances and inventory reserves.

Gross Margin is the difference between merchandise margin and buying, distribution and store occupancy costs.

Income from Operations is primarily driven by net sales, gross margin, our ability to control selling, general and administrative expenses, and our level of capital expenditures that affect depreciation expense.

Other  During the first quarter of fiscal 2013, six stores were tested for impairment as part of our long-lived asset impairment review.  Three of these stores were impaired and the remaining three, although not impaired, were considered ‘at risk’ of impairment, with an aggregate net book value of $0.1 million and undiscounted cash flows that ranged from approximately 106% to 225% of their net book values.  We do not expect material changes in the near term to the assumptions underlying our impairment calculations as of the end of the first quarter of fiscal 2013.  However, if changes in these assumptions do occur, and should those changes be significant, they could have a material impact on our determination of whether or not impairment exists.  We continue to closely monitor these stores and other assets that potentially have carrying values that may not be recoverable.

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 condensed consolidated financial statements and the notes related thereto.

25

Three Months Ended May 4, 2013 Compared to the Three Months Ended April 28, 2012

The following table shows, for the periods indicated, certain selected statement of income data expressed as a percentage of net sales.  The discussion that follows should be read in conjunction with this table:

For the three months ended:	May 4, 2013			April 28, 2012
Net sales		100.0	%		100.0	%
Cost of goods sold, including buying, distribution and occupancy costs		65.2			64.0
Gross margin		34.8			36.0
Selling, general and administrative expenses		31.3			32.4
Income before provision for income taxes		3.5			3.6
Provision for income taxes		1.2			1.4
Net income		2.3	%		2.2	%

Net sales increased $3.3 million, or 1.9%, to $174.8 million during the first quarter of fiscal 2013, from $171.5 million during the first quarter of fiscal 2012.  The components of this $3.3 million increase in net sales are as follows:

Amount
(in millions)			Description
$	5.6		Increase in sales from Torrid comparable and non-comparable stores.
	0.6		Increase in sales from Internet and other.
	(0.1	)	Decrease in sales due to store closures.
	(2.8	)	Decrease in sales from Hot Topic comparable and non-comparable stores.
$	3.3		Total

Gross margin decreased $0.9 million, which includes a $0.3 million decrease from the internet, or 1.5%, to $60.8 million during the first quarter of fiscal 2013, from $61.7 million during the first quarter of fiscal 2012.  As a percentage of net sales, gross margin decreased to 34.8% during the first quarter of fiscal 2013, from 36.0% in the first quarter of fiscal 2012.  The significant components of this 1.2 percentage point decrease in gross margin as a percentage of net sales are as follows:

%			Description
	(1.0	)	Decrease in merchandise margin as a percentage of sales as a result of higher markdowns, partially offset by higher realized markup.
	(0.3	)	Increase in store occupancy expenses primarily due to higher rent expense as a result of an increase in the number of stores.
	(0.3	)	Increase in buying payroll expenses.
	0.1		Decrease in store depreciation expenses.
	0.3		Decrease in distribution expenses primarily due to lower freight and payroll and related costs.
	(1.2	)%	Total

26

Selling, general and administrative expenses decreased $1.0 million, or  1.8%, to $54.6 million during the first quarter of fiscal 2013, from $55.6 million during the first quarter of fiscal 2012.  As a percentage of net sales, selling, general and administrative expenses decreased to 31.3% in the first quarter of fiscal 2013, from 32.4% in the first quarter of fiscal 2012.  The significant components of the 1.1 percentage point decrease in selling, general and administrative expenses as a percentage of net sales are as follows:

%			Description
	(0.8	)	Decrease in software assets write off, travel/meeting expenses, and store asset impairment write-offs.
	(0.7	)	Decrease in performance based bonuses.
	(0.3	)	Decrease in depreciation on computer hardware and software.
	(0.1	)	Decrease in preopening expenses as a result of a fewer number of new, relocated and remodeled stores in the first quarter of fiscal 2013 as compared to the same period in the prior fiscal year.
	0.8		Professional fees related to the Merger with Sycamore.
	(1.1	)%	Total

Income from operations increased $0.1 million to $6.2 million during the first quarter of fiscal 2013, from $6.1 million during the first quarter of fiscal 2012.  As a percentage of net sales, income from operations was 3.5% in the first quarter of fiscal 2013 compared to 3.6% in the first quarter of fiscal 2012.

Provision for income taxes was $2.0 million in the first quarter of fiscal 2013, compared to $2.3 million in the first quarter of fiscal 2012.  The effective tax rate was 33.3% for the first quarter of fiscal 2013, compared to 37.6% for the first quarter of fiscal 2012.  The effective tax rate decrease is primarily due to a reduction in the liability for income tax associated with the unrecognized tax benefits in the first quarter of fiscal 2013.

LIQUIDITY AND CAPITAL RESOURCES

Historically and during the first quarter of fiscal 2013, uses of cash have been to purchase merchandise inventories, improve our information technology infrastructure and fund new store openings, store remodels and relocations.  While we have not made any cash dividend payments during the first quarter of fiscal 2013, we made cash dividend payments totaling $13.4 million in fiscal 2012.  Our cash dividends are discussed in more detail in “NOTE 4 – Cash Dividends” contained in the accompanying financial statements.  We have typically satisfied our cash requirements principally from cash flows from operations.  We also maintain a $5 million unsecured credit agreement (discussed in more detail in “NOTE 11 – Bank Credit Agreement” contained in the accompanying financial statements).  During the first quarter of fiscal 2013, we did not repurchase any of our common stock, however, one of our primary uses of cash during fiscal 2012 was to repurchase an aggregate of $25 million of our common stock (discussed in more detail in “NOTE 14 – Share Repurchase” contained in the accompanying financial statements).

27

Cash, cash equivalents and short-term and long-term investments, including an auction rate security, held by us were $57.8 million and $51.7 million as of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, respectively, and are discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements.  We believe our current cash balances and cash generated from operations will be sufficient to fund our operations through at least the next 12 months.  Auctions representing the auction rate security we hold have continued to fail and will limit our ability to liquidate this investment for some period of time.  However, we do not believe the auction failures will impact our ability to fund our working capital needs, capital expenditures or other business requirements.

Net cash flows provided by operating activities were $9.3 million and $16.4 million during the first quarter of fiscal 2013 and 2012, respectively.  The $7.1 million decrease in net cash provided by operating activities in the first quarter of fiscal 2013 as compared to the first quarter of fiscal year 2012 was primarily attributable to increases in inventory and prepaid expenses and other current assets, and a decrease in income tax payable, partially offset by an increase in accounts payable.

Net cash flows used in investing activities were $5.7 million and $8.5 million during first quarter of fiscal 2013 and 2012, respectively.  The $2.8 million decrease in net cash used in investing activities in the first quarter of fiscal 2013 as compared to the first quarter of fiscal 2012 was primarily attributable to a $1.4 million decrease in purchases of property and equipment and a $1.4 million increase in proceeds from sale of short-term and long-term investments, net of purchases.

Net cash flows provided by financing activities were $4.6 million during the first quarter of fiscal 2013 and net cash flows used in financing activities were $2.5 million during the first quarter of fiscal 2012.  The increase in cash flows provided by financing activities was primarily attributable to the non-payment of cash dividends in the first quarter of fiscal 2013 as well as an increase in the proceeds from the exercise of stock options.

The following table summarizes our contractual obligations as of the end of the first quarter of 2013 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		Less Than  1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases	$	237,870	$	52,923	$	78,893	$	50,375	$	55,679
Purchase obligations		31,949		31,949		-		-		-
Other obligations		3,001		2,741		260		-		-
Income tax audit settlements¹		260		260		-		-		-
Total contractual obligations	$	273,080	$	87,873	$	79,153	$	50,375	$	55,679

1. The $260,000 of income tax audit settlements relate to certain open audits we expect to be fully settled in fiscal 2013 and to gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal 2013.  Due to the uncertainty regarding the timing of future cash outflows associated with other noncurrent unrecognized tax benefits of $489,000, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amount in the contractual obligations table above.

28

In fiscal 2013, we anticipate we will spend approximately $31 million on capital expenditures for store construction and other improvements for new and existing stores, including remodels and relocations.  We also plan to spend approximately $16 million on capital expenditures for various improvements in our information technology infrastructure, including technological improvements at the store level, further development and improvement of our eCommerce and logistic operations.  We may make additional capital expenditures for other strategic and operational purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of our 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 condensed 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 filed on March 22, 2013.

Inventories  Inventories are valued at the lower of average cost or market, on a weighted average cost basis, using the retail method.  Under the retail method, inventory is stated at its current retail selling value and then is converted to a cost basis by applying an average cost factor that represents the average cost-to-retail ratio based on beginning inventory and the purchase activity for the month.  Throughout the year, we review our inventory levels in order to identify slow-moving merchandise and use permanent markdowns to sell through selected merchandise.  We record a charge to cost of goods sold for permanent markdowns.  Inherent in the retail method are certain significant management judgments and estimates including initial merchandise markup, future sales, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost and the resulting gross margins.  To the extent our estimated markdowns at period-end prove to be insufficient, additional future markdowns will need to be recorded.  Physical inventories are conducted during the year to determine actual inventory on hand and shrinkage.  We accrue our estimated inventory shrinkage for the period between the last physical count and current balance sheet date.  Thus, the difference between actual and estimated shrink amounts may cause fluctuations in quarterly results, but not for the full fiscal year results.

Valuation of Long-Lived AssetsWe assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations 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 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 aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate, which we currently estimate to be approximately 13%, determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.” Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future 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.

29

Revenue Recognition  Revenue is generally recognized at our retail store locations at the point at which the customer receives and pays for the merchandise at the register.  For online sales, revenue is recognized upon delivery to the customer.  Sales are recognized net of merchandise returns, which are reserved for based on historical experience.  Revenue from gift cards, gift certificates and store merchandise credits is recognized at the time of redemption.  Shipping and handling revenues from our websites are included as a component of net sales.

We recognize estimated gift card breakage as a component of net sales in proportion to actual gift card redemptions over the period that remaining gift card values are redeemed.  Gift card breakage is income recognized due to the non-redemption of a portion of gift cards sold by us for which liability was recorded in prior periods.  During the fourth quarter of fiscal 2012, we performed an analysis of historical customer redemption patterns and based on the results of this analysis, we revised our estimated gift card breakage rate to 6% from the previous 5% to 6% range.  In addition, the results of our analysis led us to conclude that customer redemption of our oldest gift cards was remote.  These changes to our gift card breakage estimate resulted in additional gift card breakage income of $0.8 million recognized in net sales during the fourth quarter of fiscal 2012.  While customer redemption patterns result in estimated gift card breakage, changes in our customers’ behavior could impact the amount that ultimately is unused and could affect the amount recognized as a component of net sales.

Stock-Based Payments  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that were subject to the vesting determination described in “NOTE 3 – Stock-Based Compensation” contained in the accompanying financial statements, using the Black-Scholes option-pricing formula and a single option award approach.  We estimated the fair value of the stock options granted in March 2011 that were subject to the vesting determination using a Monte Carlo simulation valuation model.  Both of the option-pricing models used require the input of highly subjective assumptions, including the option’s expected life, price volatility of the underlying stock, risk free interest rate, early exercise behavior and expected dividend rate.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Forfeitures are estimated based on historical experience.

30

Self-Insurance  We are self-insured for certain losses related to medical and workers compensation claims although we maintain stop loss coverage with third party insurers to limit our total liability exposure.  The estimate of our liability for these claims involves uncertainty since we must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date.  When estimating our self-insurance liability, we consider a number of factors, which include historical claim experience and valuations provided by independent third party actuaries.  As claims develop, the actual ultimate losses may differ from actuarial estimates.  Therefore, an analysis is performed quarterly to determine if modifications to the accrual are required.

Rent Expense  Rent expense under our operating leases typically provides for fixed non-contingent rent escalations.  We recognize rent expense on a straight-line basis over the non-cancelable term of the lease, commencing when we take possession of the property.  Construction allowances are recorded as a deferred rent liability, which we amortize as a reduction of rent expense over the non-cancelable term of each lease.

Income Taxes  We account for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  Deferred tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized.

We prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.  The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  We include interest and penalties related to uncertain tax positions in income tax expense.

INFLATION

We do not believe that inflation has had a material adverse effect on our net sales or results of operations in the past.  However, we cannot assure that our business will not be affected by inflation in the future.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We are not a party to any derivative financial instruments.  Our exposure to market risk primarily 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 and long-term investments with maturities in excess of three months.  A 100 basis point change in interest rates over a three-month period would not have a material impact on the fair value of our investment portfolio as of the end of the first quarter of fiscal 2013.  Cash, cash equivalents and short-term and long-term investments, including an auction rate security, are discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements.

31

Item 4.  Controls and Procedures

Our management maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure.

We have carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our most recent fiscal quarter.  Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective as of the end of our most recent fiscal quarter.  There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Between March 2013 and May 2013, seven putative class action complaints were filed in the Superior Court of California, County of Los Angeles and three putative class action complaints were filed in the United States District Court for the Central District of California, each in connection with the proposed acquisition of the company by an affiliate of Sycamore.  Each lawsuit names the company, its board of directors, Sycamore and related entities as defendants. The lawsuits generally allege that the company’s directors breached their fiduciary duties by engaging in a flawed sales process, by approving an inadequate price, by agreeing to provisions that would allegedly preclude another interested buyer from making a financially superior proposal to acquire the company, and by disseminating misleading proxy disclosures. The lawsuits also allege that one or more of the company, Sycamore and related entities aided and abetted the alleged breaches of fiduciary duties by the directors. The federal complaints also allege that the Company and the directors violated Section 14 of the Securities Exchange Act of 1934 by omitting material facts from the preliminary proxy statement and failing to provide all material information necessary for shareholders to cast an informed vote in connection with the proposed transaction.  Among other things, plaintiffs seek an injunction (to prevent consummation of the transaction), damages, declaratory relief, and attorneys’ fees. The company believes these lawsuits are without merit and intends to defend against them vigorously.

Item 1A.  Risk Factors

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 this Quarterly Report on Form 10-Q and in our other filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statement on Form DEFM14A filed on May 10, 2013 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.  The risks described below include certain changes to the “Risk Factors” set forth in our Annual Report on Form 10-K filed on March 22, 2013.

RISKS RELATED TO THE PROPOSED MERGER

There are risks and uncertainties associated with the Merger

There are a number of risks and uncertainties relating to the Merger. For example:

• the Merger may not be consummated (including as a result of a legal injunction) or may not be consummated as currently anticipated;  

32

• there can be no assurance that approval of our shareholders and the requisite regulatory approvals will be obtained;  

• there can be no assurance other conditions to the closing of the Merger will be satisfied or waived or that other events will not intervene to delay or result in the termination of the Merger;  

• if the Merger is not completed, the share price of our common stock may change to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed;  

• failure of the Merger to close, or a delay in its closing, may have a negative impact on our ability to pursue alternative strategic transactions or our ability to implement alternative business plans;  

• under certain circumstances, if the Merger Agreement is terminated, we will be required to pay Sycamore a $21 million termination fee or reimburse Sycamore for up to $4.5 million of expenses;  

• pending the closing of the Merger, the Merger Agreement restricts us from engaging in certain actions without Sycamore’s approval, which could prevent us from pursuing opportunities that may arise prior to the closing of the Merger;  

• any delay in completing, or the failure to complete, the Merger could have a negative impact on our business, stock price and our relationships with our customers or suppliers; and  

• the attention of our management may be directed to transaction-related considerations and may be diverted from the day-to-day operations of our business and pursuit of our strategic initiatives.

We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger, and many of these fees and costs are payable by us whether or not the Merger is consummated.

Our executive officers and directors may have interests that are different from, or in addition to, those of our shareholders generally

Our executive officers and directors may have interests in the Merger that are different from, or are in addition to, those of our shareholders generally. These interests include direct or indirect ownership of our common stock and stock options, the acceleration of stock options and restricted stock upon consummation of the Merger, certain arrangements between certain of our executive officers and Parent, and other interests.  In addition, our executive officers may have certain rights to severance and other payments in the event that their employment is terminated following the consummation of the Merger. The interests of our director and executive officers in the proposed Merger are described in more detail in the proxy statement regarding the proposed Merger that we filed with the SEC on May 10, 2013.

The Merger Agreement limits our ability to pursue alternative transactions to the Merger

The Merger Agreement contains “no shop” provisions that, subject to limited exceptions, limit our ability to discuss, facilitate or commit to third-party acquisition proposals to acquire all or a significant part of the company. In addition, we are required to pay a $21 million termination fee if we terminate the Merger Agreement under certain circumstances. These provisions place conditions on our ability to pursue offers from third parties that could result in greater value to our shareholders. The obligation to make the termination fee payment also could discourage a third party from pursuing an alternative acquisition proposal.

33

Hot Topic will no longer exist as a public company following the Merger and its shareholders will forego any increase in its value

If the Merger is completed, we will no longer exist as a public company and our shareholders will forego any increase in the Company’s value that might have otherwise resulted from our possible future growth.

We are subject to litigation initiated in connection with the Merger, which could be time consuming and divert our resources and the attention of our management

As described in “NOTE 13 – Commitment and Contingencies” in the accompanying financial statements and in "Item 1 - Legal Proceedings," we and the individual members of our board of directors have been named as defendants in certain lawsuits relating to the Merger Agreement and the proposed Merger. The lawsuits generally allege that the our directors breached their fiduciary duties by engaging in a flawed sales process, by approving an inadequate price, and by agreeing to provisions that would allegedly preclude another interested buyer from making a financially superior proposal to acquire the company. The lawsuits also allege that the company, Sycamore and related entities aided and abetted the alleged breaches of fiduciary duties by the directors. Plaintiffs seek to enjoin the proposed transaction, declaratory relief, and attorneys’ fees. Although we believe that these suits are without merit, the defense of these suits may be expensive and may divert management’s attention and resources, which could adversely affect our business.

CERTAIN OTHER RISKS TO OUR BUSINESS

Our success relies on popularity of music, pop culture and fashion trends, and our ability to react to them

Our financial performance is largely dependent upon the continued popularity of apparel, accessories and other merchandise inspired by music, film, television, pop culture, and fashion trends, particularly among teenagers and young adults.  The popularity of such products is influenced by the internet; music videos and music television networks; the emergence of new artists; the success and timing of music releases, movies and television shows; music/pop culture-related products and fashion trends.  The popularity of particular types of music, movies, television shows, artists, actors, styles, trends and brands is constantly changing.  Our failure to anticipate, identify and react appropriately to changing trends and preferences of our customers could lead to, among other things, excess inventories and higher markdowns.  There can be no assurance that the products we sell will be accepted by our customers which may cause us to lose customers and market share to those of our competitors who are better able to anticipate and respond to such trends and preferences.

Our business largely depends on a strong brand image, and if we are not able to maintain and enhance our brands, particularly in new markets or with new concepts where we have limited brand recognition, we may be unable to increase or maintain our level of sales

We believe that our brands’ image and awareness has contributed significantly to the success of our business. We also believe that maintaining and enhancing our brands’ image, particularly in new markets where we have limited brand recognition, or developing new brands through new concepts, is important to maintaining and expanding our customer base. Maintaining and enhancing our brands’ image and developing brands through new concepts may require us to make substantial investments in areas such as merchandising, marketing, store operations, community relations, store graphics, catalog distribution and employee training, which could adversely affect our cash flow and which may not ultimately be successful. Failure to successfully market our brands in new and existing markets, and to develop new brands or concepts, could harm our business, results of operations and financial condition.

We depend on a small number of key licensed products for a portion of our earnings and lower than expected sales of those products or the inability to obtain new licensed products could adversely affect our revenues

We license from others the rights to produce and/or sell certain products that contain a third party’s trademarks, designs and other intellectual property.  If the popularity of those licensed products diminishes or if we are unable to obtain new licensed products with comparable consumer demand, our sales could decline.  Furthermore, if we are unable to obtain favorable terms from licensors, our operational results may suffer.  We may not be able to prevent a licensor from choosing not to renew a license with us and/or from licensing a product to one of our competitors.

34

Our access to merchandise could be hurt by changes in vendors’ business condition

Our financial performance depends on our ability to obtain our merchandise in sufficient quantities at competitive prices.  We depend on independent contractors and vendors to manufacture much of our merchandise.  Substantially all of our music/pop culture-licensed products are available from vendors that have exclusive license rights.  In addition, we rely on small, specialized vendors who generally have limited resources, production capacities and operating histories.  Lack of access to capital, as a result of the current economic conditions or otherwise, and changes in vendors’ compliance and certification procedures may cause our vendors to delay, reduce or eliminate shipment of products we otherwise would sell in our stores.  We generally do not have 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.

We may be unable to obtain, maintain and protect the intellectual property rights necessary to operate our business, and may be subject to claims that we are infringing, misappropriating or otherwise violating the intellectual property rights of third parties

We rely on a combination of trademark, trade secret, copyright and domain name law to protect our intellectual property.  In particular, we believe our trademarks, trade names and domain names are valuable assets.  However, there can be no assurance that our intellectual property rights will be sufficient to distinguish our products and services from those of our competitors and to provide us with a competitive advantage. From time to time, third parties may use names and logos similar to ours, may apply to register trademarks or domain names similar to ours, and may infringe or otherwise violate our intellectual property rights.  There can be no assurance that our intellectual property rights can be successfully asserted against such third parties or will not be invalidated, circumvented or challenged.  If we are unable to prevent our competitors from using names, logos and domain names similar to ours, consumer confusion could result, the perception of our brand and products could be negatively affected, and our business and reputation could be damaged as a result.  We may also be subject to claims that our activities or the products we sell infringe, misappropriate or otherwise violate the intellectual property rights of others.  Any such claims can be time consuming and costly to defend, even if the claims are without merit.  Such claims may also require us to enter into costly settlement or license agreements (which could, for example, prevent us from using our trademarks in certain geographies or in connection with certain products and services), pay costly damage awards, and face a temporary or permanent injunction prohibiting us from marketing or providing the affected products and services.

Opening, remodeling, relocating and closing stores may not achieve the anticipated benefits and could create challenges we may not be able to adequately meet

We depend on our ability to open new stores, manage our existing store base, ensure that the performance of our remodeled and relocated stores is at acceptable levels, and close underperforming stores.  In order to open, remodel and relocate stores, among other things, we 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 or relocated stores into our existing operations and maintain adequate distribution center space and information technology systems.  Moving or expanding store locations and operating stores in new markets, especially markets outside the continental United States, present competitive, merchandising and regulatory challenges we do not have experience in or know how to face.  There can be no assurance that moving or expanding store locations and operating stores in new markets will not adversely affect the individual financial performance of our existing stores or our overall results of operations.  In the event that the number of our stores increases, we may face risks associated with market saturation of our products and concepts.  Similarly, there can be no assurance that remodeling or relocating existing stores will not adversely affect either the individual financial performance of the store prior to the change or our overall results of operations.  Furthermore, there can be no assurance that we will successfully achieve our remodel or expansion targets or, if achieved, that planned remodel or expansion will result in profitable operations.

Expanding our operations to include new concepts presents risks

We have expanded our business beyond the Hot Topic and Torrid concepts to include, in fiscal 2012, our Blackheart test concept.  We may implement other new concepts in the future. Starting and operating new concepts presents new and challenging risks and uncertainties, including, among others, unanticipated operational problems, lack of experience, lack of customer acceptance, the inability to market a new concept effectively, new vendor relationships, competition from existing and new retailers, and diversion of management’s attention from our existing concepts.  If we do not operate Blackheart or any new concept effectively, it could materially impact our business.

35

Our business strategy requires innovating and improving our operations, and we may not be able to do this sufficiently to effectively prevent a negative impact on our business and financial results

To be successful we must innovate our products, our stores, and the shopping experience for our customers.  Such innovation involves risks, including that we will not properly anticipate the need for or rate of change, that we are not able to successfully bring about such change, that we will not be able to produce anticipated results, and that our customers will not be receptive to the change.  Such innovation also involves significant capital expenditures and other costs that we may not be able to recover if the innovation is not favorably received by our customers.

Failure of our vendors to use acceptable ethical business practices could negatively impact our business

We require and expect our vendors and manufacturers to operate in compliance with applicable laws, rules and regulations regarding working conditions, employment practices, the environment and intellectual property.  However, we do not control their labor and other business practices.  Further, we do not inspect our manufacturers’ operations and would not be immediately aware of any noncompliance by our vendors with applicable domestic or international laws and standards, including our internal standards.  If one of our vendors or manufacturers violates labor or other laws or implements labor or other business practices that are regarded as unethical, the shipment of merchandise to us could be interrupted, orders could be canceled, relationships could be terminated and our reputation could be damaged.

Technology and other risks associated with our internet sales could hinder our overall financial performance

We sell merchandise over the internet through websites we control and affiliated websites controlled by others.  Our internet sales generate a significant portion of our total sales and are dependent on our ability to drive internet traffic to our websites.  Our internet operations are subject to numerous risks and pose risks to our overall business, including the inability to successfully establish partnerships that are instrumental in driving traffic to our websites; diversion of sales from our stores; liability for online content; computer and consumer privacy concerns; rapid technological changes; the need to invest in additional computer hardware and software to support sales; hiring, retention and training of personnel; failure of computer hardware and software, including computer viruses, telecommunication failures, online security breaches and similar disruptions; governmental regulations; 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 materially rely on eCommerce, information and other technology systems, including such technology provided by third parties

We believe our dependence on eCommerce, information and other technology systems, including technology provided by third parties, will increase in the future, and it is possible we may not be able to obtain, maintain or use such systems as quickly or as effectively as needed.  Implementing new systems, modifying existing systems, and restoring such systems and technology following a shut-down could present technological and operational challenges which we are unprepared for.  We continue to evaluate the adequacy of the eCommerce, information and other technology systems we use to operate our business.  Our failure to adapt to changing technological needs could have a material adverse effect on our results of operations and financial condition.  We have agreements with third-party providers to maintain eCommerce and information technology systems, including content.  We would be negatively impacted if such third parties fail to provide such services, including by way of malfunction of third-party sites, hardware, software and other equipment; service outages of third-party sites; third-party claims of data privacy violations, security breaches and intellectual property infringement; and poor integration of our technology into their software and services.

36

System security risk issues and system failures could disrupt our internal operations or information technology services provided to customers

Computer hacking attacks, as well as computer malware, denial-of-service attacks and viruses, have become increasingly prevalent in recent years.  Using such methods and others, experienced computer programmers, hackers and other users may be able to penetrate our network security and misappropriate our confidential information or that of third parties, create system disruptions or cause shutdowns.  As a result, we could incur significant expenses addressing problems created by security breaches of our network.  Moreover, we could incur significant loss of revenue and increased expenses in connection with system failures.  In addition, hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system.  The costs to us to eliminate or alleviate security problems, viruses and bugs could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that may impede our sales, distribution or other critical functions.  In addition, our systems are not fully redundant and could be subject to failure.  Our disaster recovery planning may not be sufficient, and we may not have adequate insurance coverage to compensate us for any significant casualty loss.

We are responsible for maintaining the privacy of personally identifiable information of our customers

Through our sale transactions, loyalty programs and other methods, we obtain personally identifiable information about our customers which is subject to federal, state and international privacy laws.  These laws are constantly changing.  If we fail to comply with these laws, we may be subject to fines, penalties or other adverse actions.  We are highly dependent on the use of credit cards to complete sale transactions in our stores and through our websites, and if we fail to comply with Payment Card Industry (PCI) Data Security Standards, we may become subject to limitations on our ability to accept credit cards.  Moreover, third parties may seek to access this information through improper means such as computer hacking, malware and viruses.  Any incidents involving unauthorized access or improper use of our customers’ personally identifiable information could damage our reputation and brand and result in legal or regulatory action against us.

Our performance is dependent on attracting and retaining a large and growing number of qualified team members

Many of those team members are in entry-level or part-time positions with historically high rates of turnover. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, minimum wage legislation, health care legislation and changing demographics. In addition, our labor costs are influenced by health care and workers’ compensation costs, both of which have been rising in recent years. If we cannot hire enough qualified employees, or if there is a disruption in the supply of personnel we hire from third-party providers, especially during our peak season or certain high-volume events, our customer service levels and our operations could be negatively impacted.

We may be subject to unionization, work stoppages, slowdowns or increased labor costs

Currently, none of our employees are represented by a union. However, our employees have the right under the National Labor Relations Act to form or affiliate with a union. If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations.

Loss of key people or an inability to hire necessary and significant personnel could hurt our business

Our ability to achieve and maintain operating efficiency and to anticipate and effectively respond to changing trends and consumer preferences depends in part on our ability to retain and attract senior management and other key personnel in our operations, merchandising, music and other departments.  Competition for these personnel is intense, and we cannot be sure that we will be able to retain or attract qualified personnel as needed.  The sudden loss of the services of key people could have a material adverse effect on our business, results of operations and financial condition. 

37

Our supply chain has risks and uncertainties that could affect our sales and business

The merchandise we sell is obtained from vendors and manufacturers in the United States and outside of the country.  Generally, this product is shipped to our distribution centers in California and Tennessee, and from our distribution centers to our stores or directly to our customers using Federal Express and the United States Postal Service.  Certain products we sell are imported and subject to delivery delays based on availability and port capacity.  Our reliance on Federal Express and the United States Postal Service for shipments is subject to risks associated with their ability to provide delivery services that meet our shipping needs and our ability to obtain such services at an affordable cost.  We are also dependent upon the ability to hire temporary associates to adequately staff our distribution centers, particularly during busy periods such as the holiday season.  We may not be able to achieve or maintain operating efficiencies using two distribution centers that are located approximately 2,000 miles apart.

In addition, if we encounter difficulties associated with our distribution centers or if they were to shut down for any reason, including fire, hurricanes or other natural disaster, we could face inventory shortages resulting in “out-of-stock” conditions in our stores, and delays in shipments to our customers, resulting in significantly higher costs and longer lead times associated with distributing our merchandise.  Also, most of our computer equipment and senior management, including critical resources dedicated to merchandising, financial and administrative functions are located at our corporate headquarters. Our management and our operations and distribution staff would need to find an alternative location if our corporate headquarters were shut down for any reason, causing further disruption and expense to our business and operations.  Our disaster recovery planning may not be sufficient, and our critical systems, operations and information may not be restored in a timely manner, or at all, which could have an adverse effect on our business.

Risks associated with contracting directly with manufacturers for merchandise could hinder our financial performance

We are sourcing a greater percentage of our merchandise directly from manufacturers.  We have limited experience in sourcing and importing merchandise directly from manufacturers.  We may encounter administrative challenges and operational difficulties with the manufacturers from which we may source our merchandise.  Operational difficulties could include reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control and failures to meet production deadlines.  A manufacturer’s failure to ship merchandise to us on a timely basis or to meet the required quality standards could cause supply shortages that could result in lost sales.  If a manufacturer conducts its operations in a manner that is illegal or regarded as unethical, it could affect our business and our reputation could be damaged.

We could acquire merchandise without full rights to sell it, which could inhibit sales and lead to disputes or litigation

We purchase licensed merchandise from vendors who represent that they hold manufacturing and distribution rights to such merchandise.  We also contract directly with licensors to obtain the manufacturing and distribution rights.  We do not independently verify whether these vendors legally hold adequate rights to the licensed properties they are manufacturing, distributing or licensing.  If we license merchandise that we have not legally obtained the rights to sell, we could be obligated to remove such merchandise from our stores, incur costs associated with destruction of merchandise and be subject to liability under various civil and criminal causes of action, including actions to recover unpaid royalties and other damages.  As we expand our efforts to contract directly with manufacturers and licensors for licensed merchandise, we may incur difficulties securing the necessary manufacturing and distribution rights.  Even when we have secured the rights needed to sell such products in the United States, we may not be able to secure the rights to sell the products outside of the United States.

There are litigation and other claims against us from time to time, which could distract management from our business activities and could lead to adverse consequences to our business and financial condition

We are involved from time to time with litigation and other claims against us.  Often these cases can raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time.  Although we do not currently believe that the outcome of any current matter of litigation or claim against us will have a material adverse effect on our overall financial condition, we have, in the past, incurred unexpected expense in connection with litigation matters.  In the future, adverse settlements, judgments or resolutions may negatively impact earnings.  Injunctions against us could have an adverse effect on our business by requiring us to do or prohibiting us from doing certain things.  We may in the future be the target of material litigation, including class-action and securities litigation, which could result in substantial costs and divert our management’s attention and resources.

38

Uncertainty in the global capital and credit markets may materially impair the liquidity of a portion our cash and investment portfolio

We hold cash, cash equivalents and short-term and long-term investments, including an auction rate security (discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements).  Continued failures of auctions for the auction rate security we hold limit our ability to liquidate this investment and is expected to continue failing for some period of time.  Although the money market funds and municipal bonds we hold are highly rated and are comprised of high-quality, liquid instruments, if the financial markets trading the underlying assets experience a disruption, we may need to temporarily rely on other forms of liquidity.  In addition, a risk exists that our cash and investments may not always be optimally managed and this may affect our profitability and results of operations.

Our charter documents and other circumstances could prevent a takeover or cause dilution of our existing shareholders, which could be detrimental to existing shareholders

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 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.  The issuance of these shares could have a dilutive effect on 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.  The issuance of these shares could result in dilution to our shareholders.

We are required to make significant lease payments for our store leases and corporate offices and one of our distribution centers, which may strain our cash flow

We lease all of our retail store locations as well as our corporate headquarters and one of distribution centers. We do not own any real estate except for our distribution center in LaVergne, Tennessee.  The leases for most of the existing stores are for approximately ten-year terms and provide for minimum rent payments as well as contingent rent based upon a percentage of sales in excess of the specified minimums.  Our costs under these leases are a significant amount of our expenses.  In fiscal 2012, 2011 and 2010, our total rent expense was $54.7 million, $52.3 million and $52.6 million, respectively. In addition, rent expenses could escalate when multi-year leases are renewed at the expiration of their lease term. These expenses are significant and recurring, which places a consistent strain on our cash flow.  Additional sites that we lease are likely to be subject to similar long-term leases. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term.  We depend on cash flows from operations to pay our rent expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flows from operating activities, and sufficient funds are not otherwise available to us from borrowings under our available revolving credit facility or from other sources, we may not be able to service our rent expenses, respond to competitive challenges or to fund our other liquidity and capital needs, which would harm our business.

We are dependent upon shopping malls, strip centers and outlet centers remaining popular as shopping destinations, and maintaining good relationships with shopping mall, strip center and outlet center operators

The global economic downturn and other factors have diminished the ability of shopping mall, strip center and outlet center operators to operate profitably and, in some cases, forced them to declare bankruptcy or cease operations entirely.  The ongoing slowdown in the United States economy, uncertain economic outlook, and other factors could continue to curtail shopping mall, strip center and outlet center development, decrease customer traffic, reduce the number of hours landlords keep their shopping malls, strip centers and outlet centers open, cause landlords to lower their operational standards and negatively impact our lease contracts.  Consolidation of ownership of shopping malls, strip centers and outlet centers may give landlords more leverage in negotiations and adversely affect our ability to negotiate favorable lease terms.  Such consolidation may result in increased lease costs.  We believe we have favorable relationships with landlords and developers, however if this changes it could inhibit our ability to negotiate with them and may make it more difficult for us to manage our leases, including for us to expand, remodel or relocate to certain sites.  If our relations with landlords or developers become strained, or we otherwise encounter difficulties in leasing store sites, we may not be able to open stores in malls, strip centers and outlet centers we would otherwise be interested in maintaining stores; we may not be able to negotiate lease terms favorable to the company; and we may be inhibited in our ability to close underperforming stores.

39

We face intense competition

The apparel, music and accessory categories within the retail industry in which we operate are highly competitive.  Increased competition could have a material adverse effect on our business, results of operations and financial condition.  Our competitors, particularly big-box retailers, may have the ability to sell merchandise at substantially lower prices than we are able to sell such merchandise.  This may cause us to incur greater than anticipated price reductions and unanticipated increases in our inventories for such products.  It may also cause us to elect not to sell such products, despite the fact the products would otherwise attract customers and sell well in our stores.

Furthermore, many of our competitors have greater financial, marketing and other resources than we currently do, and therefore may be able to devote greater resources to the marketing and sale of their products, generate national brand recognition or adopt more aggressive pricing policies than we can, which would put us at a competitive disadvantage. Moreover, we do not possess exclusive rights to many of the elements that comprise our in-store experience and product offerings. Our competitors may seek to emulate facets of our business strategy and in-store experience, which could result in a reduction of any competitive advantage or special appeal that we might possess. In addition, most of our products are sold to us on a non-exclusive basis. As a result, our current and future competitors may be able to duplicate or improve on some or all of our in-store experience or product offerings that we believe are important in differentiating our stores and our customers’ shopping experience. If our competitors were to duplicate or improve on some or all of our in-store experience or product offerings, our competitive position and our business could suffer.

Timing, seasonal issues and other fluctuations outside of our control could negatively impact our financial performance for given periods

Our business, particularly our Hot Topic division, is subject to seasonal influences that affect our comparable sales.  There are 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.  Our 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 sales; timing, popularity of and our ability to obtain, certain pop culture-related licenses, including on an exclusive basis; releases of new music, movies and television shows; releases of new music/pop culture-related products; our ability to efficiently source and distribute products; changes in our merchandise mix and the challenges involved in getting the right mix into stores at the right time; shifts in timing of certain holidays; weather conditions; and overall economic conditions.

Our profitability could be adversely affected by volatile commodity prices, including petroleum and cotton

The profitability of our business depends to a certain degree upon the price of certain commodities, including petroleum and cotton products.  We are affected by changes in such prices to the extent that such commodities are part of the costs of delivery of merchandise to our stores and to the extent that the commodities are used in the production of our merchandise.  Higher gasoline prices may also affect the willingness of consumers to drive to our stores.

Significant fluctuation in the value of the United States dollar or foreign exchange rates may affect our profitability

Substantially all of our foreign purchases of merchandise have been negotiated and paid for in United States dollars.  As a result, our sourcing operations may be adversely affected by significant fluctuation in the value of the United States dollar against foreign currencies, restrictions on the transfer of funds and other trade disruptions.  A portion of our revenues come from foreign markets.  Changes in foreign exchange rates applicable to these markets may adversely affect our revenues, even if the volume of sales remains the same.  We may not be able to repatriate revenues earned in foreign markets.

40

Recording impairment charges for certain underperforming stores may negatively impact our future financial condition or results of operations, and closing stores might not have a positive impact on our operating results

We are required to assess, and where appropriate, record a charge for, the impairment of underperforming assets.  This may negatively impact our reported and future financial condition and results of operations.  In addition, we continue to close stores that do not meet our expectations of profitability which may cause us to impair or accelerate the depreciation of certain store assets and incur additional amounts for lease termination, severance and other closing costs.  There can be no assurance that we will not incur future impairment charges and store closure expenses for underperforming assets or that store closures will have a significant positive impact on our operating results.

Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or change the way we do business

Changes in laws and any future changes could make our operations more expensive or require us to change the way we do business.  Changes in federal and state minimum wage laws could require us to change our entire wage structure for stores.  Other laws related to treatment of employees, including laws related to employee benefits and privacy, could also negatively impact us, such as by increasing medical insurance costs and related expenses.  Changes in product safety or other consumer protection laws, and private-party enforcement of existing laws, could lead to increased costs to us for certain merchandise, additional labor costs associated with readying merchandise for sale, or serve as the basis for litigation.  Changes in laws affecting our supply chain, including the effect of the California Transparency in Supply Chain Act of 2012 and portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to conflict minerals, may adversely affect the sourcing, availability and pricing of certain materials which may be used in the manufacture of  some of our products.  In addition, we may incur additional legal and other costs to comply with the annual disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals which may be used in our products. For example, in March 2010, the Patient Protection and Affordable Care Act, or the Affordable Care Act, and the Health Care Education Reconciliation Act of 2010, or the Reconciliation Act, were signed into law. The Affordable Care Act and the Reconciliation Act include a number of health care provisions taking effect over several years, including expanded dependent coverage, incentives for business to provide health care benefits, a prohibition on denial of coverage and denial of claims on pre-existing conditions, a prohibition on limiting essential benefits, and other expansion of health care benefits and coverage. Some of the associated taxes and fees, as well as certain health care changes required by these acts, are expected to result in increased health care costs for us. The costs of such legislation may adversely impact our results of operations.

A disruption of imports may increase our costs and reduce our supply of merchandise

We receive apparel and other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources.  As a result of our reliance on international vendors and manufacturers, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign and domestic laws and regulations, political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which our merchandise is manufactured.  In addition, disease outbreaks, terrorist acts or military conflicts could increase the risks of doing business with suppliers who rely on foreign markets.  Trade restrictions in the form of tariffs or quotas, or both, that are applicable to the merchandise we sell also could affect the importation of the merchandise and increase the cost and reduce the supply of products available to us.  Further, changes in tariffs or quotas for merchandise imported from individual foreign countries could lead us to shift our sources of supply among various countries.  Any shift we might undertake in the future could result in a disruption of our sources of supply and lead to a reduction in our revenues and earnings.  Supply chain security initiatives undertaken by the United States or foreign governments that impede the normal flow of product could also negatively impact our business.

41

We incur costs associated with regulatory compliance, and this cost could be significant

There are numerous regulatory requirements for public companies that we comply with or may be required to comply with in the future and compliance with these rules could result in the diversion of management’s time and attention, which could be disruptive to normal business operations.  These regulations may include more stringent accounting standards, taxation requirements (including changes in applicable income tax rate, new tax laws and revised tax law interpretations), trade restrictions, regulations regarding financial matters, privacy and data security, environmental regulations, advertising, safety and product liability.  We may in the future be required to adopt International Financial Reporting Standards, and doing so could be time-consuming and cause us to incur significant expense.  If we do not satisfactorily or timely comply with these requirements, possible consequences could include sanction or investigation by regulatory authorities such as the SEC or the NASDAQ Stock Market; fines and penalties; incomplete or late filing of our periodic reports, including our annual report on Form 10-K or quarterly reports on Form 10-Q or civil or criminal liability. 

Government or consumer concerns about product safety could result in regulatory actions, recalls or changes to laws, which could harm our reputation, increase costs or reduce sales

We are subject to regulation by the Consumer Product Safety Commission and similar state and international regulatory authorities, and our products could be subject to involuntary recalls and other actions by these authorities.  We purchase merchandise from suppliers domestically as well as outside the United States.  One or more of our suppliers might not adhere to product safety requirements or our quality control standards, and we might not identify the deficiency before such merchandise is received by our customers.  Issues of product safety could result in a recall of products we sell.  Additionally, regulatory authorities, including the Consumer Product Safety Commission, have undertaken reviews of product safety and are in the process of enacting or are considering various proposals for more stringent laws and regulations.  In particular, the Consumer Product Safety Improvement Act of 2008, which imposes significant requirements on the sale of consumer products and enhanced penalties for noncompliance.  Such regulations contain provisions which have uncertain applicability to products we sell, and such lack of certainty may inhibit our willingness carry products or cause us to carry product we otherwise would not.  These regulations could result in delays in getting products to our stores, lost sales, the rejection of our products by consumers, damage to our reputation or material increases in our costs, and may have a material adverse effect on our business.  Moreover, individuals and organization may assert legal claims for our non-compliance with consumer product rules and regulations, and we may be subject to lawsuits relating to these claims.  There is a risk that these claims or liabilities may exceed or fall outside the scope of indemnities provided by third parties or outside the coverages of our insurance policies.

Economic conditions could decrease consumer spending and reduce our sales

Certain economic conditions could affect the level of consumer spending on merchandise we offer, including, among others, employment levels; salary and wage levels, particularly of teens and college-age adults; interest rates; availability of consumer credit; taxation; and consumer confidence in future economic conditions.  For example, the global economic downturn has significantly reduced consumer spending levels and mall customer traffic in general.  The ongoing slowdown in the United States economy and uncertain economic outlook could continue to cause lower consumer spending levels and mall customer traffic which could adversely affect our sales results and financial performance.  In addition, we are highly dependent on a significant level of teenage and college-age spending on music/pop culture-licensed and music/pop culture-influenced products, and we likely would be adversely affected if economic conditions limited such spending.

42

War, terrorism and other catastrophes could negatively impact our customers, places where we do business and our expenses

The continued threat of terrorism, heightened security and military action in response to this threat, any future acts of terrorism, and significant natural disasters or other catastrophic events may cause disruptions and create uncertainties that affect our business.  To the extent that such disruptions or uncertainties negatively impact shopping patterns and/or shopping 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.  A significant natural disaster or other catastrophic event affecting our facilities could materially affect our supply chain, our information system and other aspects of our operations.

Our stock price could fluctuate substantially for reasons outside of our control

Our common stock is quoted on the NASDAQ Stock 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 sales; announcements by other apparel, accessory, music and gift item retailers; the trading volume of our stock; changes in estimates of our performance by securities analysts; litigation; overall economic and political conditions, including the global economic downturn; the condition of the financial markets, including the credit crisis; and other events or factors outside of our control could cause our stock price to fluctuate substantially. 

Environmental risks associated with the retail industry may result in significant costs and decreased sales

We are exposed to risks arising out of environmental matters and existing and potential laws relating to the protection of the environment.  Adverse and unexpected weather conditions, including such conditions caused by the global climate change phenomena, earthquakes and other natural disasters could affect our supply chain, mall traffic and customer interest in our products.  We receive apparel and other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources.  Stricter global and domestic greenhouse gas emission requirements may cause our vendors to incur higher costs, including increased transportation costs.  There is a risk that we may occupy retail space that may require remediation to comply with environmental laws.  In addition to potential liability for remediation costs, the cleanup process may cause our stores to be closed for an extended period of time, resulting in loss of sales.

43

Item 6.  Exhibits

Exhibit Number	Description of Document
3.1	Amended and Restated Articles of Incorporation.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
3.2	Certificate of Amendment of Amended and Restated Articles of Incorporation.  (Filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
3.3	Amended and Restated Bylaws, as amended.  (Filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen stock certificate.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
10.1	Agreement and Plan of Merger, dated as of March 6, 2013, by and among 212F Holdings LLC, HT Merger Sub Inc. and Hot Topic, Inc. (Filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on March 8, 2013 and incorporated herein by reference.)
10.2	Form of Support Agreement entered into between 212F Holdings LLC, HT Merger Sub Inc. and the following shareholders of Hot Topic, Inc.: Lisa Harper; Becker Drapkin Partners (QP), L.P.; BD Partners I, L.P.; Becker Drapkin Management, L.P.  (Filed as Exhibit 2.2 to Registrant’s Current Report on Form 8-K filed on March 8, 2013 and incorporated herein by reference.)
31.1	Certification, dated May28, 2013 of Registrant’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification, dated May 28, 2013, of Registrant’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications, dated May 28, 2013, of Registrant’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

44

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:	May 28, 2013	/s/ Lisa Harper
		Lisa Harper
		Chief Executive Officer
		(Principal Executive Officer)
Date:	May 28, 2013	/s/ George Wehlitz Jr.
		George Wehlitz Jr.
		Chief Financial Officer
		(Principal Financial
		And Accounting Officer)

45

Exhibit Index

Exhibit Number	Description of Document
3.1	Amended and Restated Articles of Incorporation.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
3.2	Certificate of Amendment of Amended and Restated Articles of Incorporation.  (Filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
3.3	Amended and Restated Bylaws, as amended.  (Filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen stock certificate.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
10.1	Agreement and Plan of Merger, dated as of March 6, 2013, by and among 212F Holdings LLC, HT Merger Sub Inc. and Hot Topic, Inc. (Filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on March 8, 2013 and incorporated herein by reference.)
10.2	Form of Support Agreement entered into between 212F Holdings LLC, HT Merger Sub Inc. and the following shareholders of Hot Topic, Inc.: Lisa Harper; Becker Drapkin Partners (QP), L.P.; BD Partners I, L.P.; Becker Drapkin Management, L.P.  (Filed as Exhibit 2.2 to Registrant’s Current Report on Form 8-K filed on March 8, 2013 and incorporated herein by reference.)
31.1	Certification, dated May 28, 2013, of Registrant’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification, dated May 28, 2013, of Registrant’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications, datedMay 28, 2013, of Registrant’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document        a           Denotes management contract or compensatory plan or arrangement.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Lisa Harper,certify that:

1.	I have reviewed this quarterlyreport on Form 10-Q of Hot Topic, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 28, 2013

/s/ Lisa Harper

Lisa Harper

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, George Wehlitz, Jr.,certify that:

1.	I have reviewed this quarterlyreport on Form 10-Q of Hot Topic, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 28, 2013

/s/ George Wehlitz, Jr.

George Wehlitz, Jr.

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted).

I, Lisa Harper, Chief Executive Officer of Hot Topic, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hot Topic, Inc.;

2. Based on my knowledge, this quarterly report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

3. Based on my knowledge, the financial statements, and other information included in this quarterly report, fairly present in all material respects the financial condition and results of operations of the registrant as of, and for, the periods presented in this quarterly report.

Date: May 28, 2013

/s/ Lisa Harper

Lisa Harper

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Hot Topic, Inc. and will be retained by Hot Topic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

I, George Wehlitz, Jr., Chief Financial Officer of Hot Topic, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hot Topic, Inc.;

2. Based on my knowledge, this quarterly report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

3. Based on my knowledge, the financial statements, and other information included in this quarterly report, fairly present in all material respects the financial condition and results of operations of the registrant as of, and for, the periods presented in this quarterly report.

Date: May 28, 2013

/s/ George Wehlitz, Jr.

George Wehlitz, Jr.

Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Hot Topic, Inc. and will be retained by Hot Topic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Short-Term and Long-Term Investments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	May 04, 2013	Feb. 02, 2013
Schedule of Available-for-sale Securities [Line Items]
Short term investment in municipal bonds	$ 4.1	$ 6.2
Auction rate securities, fair value	1.7	1.7
Decline from par value	(0.4)
Auction rate securities, par value	$ (0.2)
Auction rate securities
Schedule of Available-for-sale Securities [Line Items]
Auction rate securities maturity period	24 years
Auction rate securities interest rate reset duration	Interest rate is reset through an auction process, most commonly at intervals of approximately 4 weeks.

XML

Share Repurchase - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Feb. 02, 2013
Stockholders Equity Note [Line Items]
Stock repurchased during period, shares	2,535,370
Stock repurchased during period, value	$ 25
Stock Repurchased During Period, Average Price	$ 9.86

XML

Bank Credit Agreement - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	May 04, 2013
Debt Instrument [Line Items]
Unsecured loan facility	$ 5.0
Unsecured bank credit agreement, expiration date	Sep. 01, 2013

XML

Weighted Average Assumptions used in Black-Scholes Option Valuation Model for Stock Options Granted (Detail) (Black-Scholes Option Valuation Model, USD $)	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Black-Scholes Option Valuation Model
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Risk free interest rate	1.00%	1.00%
Expected life	5 years	5 years
Expected volatility	56.00%	57.00%
Expected dividend yield	3.00%	4.00%
Weighted average fair value at grant date (with the exception of Lisa Harper's 100,000 stock options granted in March 2012 that were subject to the performance condition)	$ 4.23	$ 3.43

XML

Organization and Basis of Presentation - Additional Information (Detail) (USD $)	3 Months Ended
	May 04, 2013 Segment	Mar. 06, 2013 Sycamore Partners Management, L.L.C
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Company incorporated date	1988
Company incorporated place	California
Business acquisition purchase price per share		$ 14.00
Number of reportable segment	1

XML

Activity of Auction Rate Securities, Fair Value Measured using Level Three Inputs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Carrying value beginning balance	$ 1,730
Redemptions	(50)	[1]
Total gains
Included in earnings
Included in other comprehensive income	4	[2]
Carrying value ending balance	$ 1,684

[1] Redemptions of $50,000 occurred during the first quarter of fiscal 2013.

[2] Unrealized losses of $6,000 and a recovery in fair value of $10,000 occurred during the first quarter of fiscal 2013.

XML

Earnings Per Share - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Earnings Per Share Disclosure [Line Items]
Number of Anti-dilutive options to purchase shares excluded from computation of earnings per share amount	0.9	3.2

XML

Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	May 04, 2013	Feb. 02, 2013
Income Taxes [Line Items]
Income tax liability associated with unrecognized tax benefits, gross	$ 1.5	$ 1.9
Income tax liability associated with unrecognized tax benefits, net of federal benefits	0.8	0.8
Income tax liability associated with unrecognized tax benefits, interest	0.1	0.1
Income tax liability associated with unrecognized tax benefits, interest net of federal benefit	0.1	0.1
Income tax liability associated with unrecognized tax benefits, penalties	0.1	0.2
Accrued interest and penalties related to uncertain tax positions	0.2	0.3
Unrecognized Tax Benefits, which may be Recognized in 12 Months
Income Taxes [Line Items]
Income tax liability associated with unrecognized tax benefits, gross	0.9
Income tax liability associated with unrecognized tax benefits, net of federal benefits	0.5
Income tax liability associated with unrecognized tax benefits, penalties	$ 0.1

XML

Stock-Based Compensation

3 Months Ended

May 04, 2013

Stock-Based Compensation

NOTE 3.  Stock-Based Compensation

Stock Plan Activity

Under our 1996 Equity Incentive Plan, or the 1996 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 14, 2006, the 1996 Plan expired and was replaced with the 2006 Equity Incentive Plan, or the 2006 Plan.  Upon the expiration of the 1996 Plan, no shares had been granted to consultants and 732,456 shares out of an aggregate of 18,300,000 shares of common stock were authorized and available for grant.

Under our 2006 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 2006 Plan was terminated and replaced with the 2012 Equity Incentive Plan, or the 2012 Plan.  The 2012 Plan was approved by the Board on March 16, 2012 and by our shareholders on June 5, 2012.  There were 942,602 shares out of an aggregate of 3,082,456 shares of common stock authorized and available for grant upon the termination of the 2006 Plan.

The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation to our employees, consultants and directors as deemed appropriate by the Board.  Both incentive and non-statutory stock options granted by us under the 2012 Plan must carry an exercise price of at least 100% of the fair market value of our common stock on the date of grant.  Incentive stock options must carry an exercise price of at least 110% of the fair market value of our common stock on the date of grant for persons possessing 10% or more of the total combined voting power of all classes of stock.  Options granted may be subject to different vesting terms as determined by the Board and the maximum term of options granted is 8 years.  In addition, the maximum number of shares of common stock available for future issuance may not exceed the sum of (a) 942,602 and 34,976 shares of common stock remaining available for issuance under the 2006 Plan and the 1996 Non-Employee Directors’ Stock Option Plan, or the 1996 NEDSOP, respectively, as of June 5, 2012, (b) an additional 3,100,000 shares and (c) the number of shares subject to stock awards as of June 5, 2012 under the 2006 Plan and the 1996 NEDSOP pursuant to the terms of the 2006 Plan and the 1996 NEDSOP.  As of the end of the first quarter of fiscal 2013, 4,676,349 shares were available for future grants under the 2012 Plan.  All awards to date under the 2012 Plan have been granted to our employees and directors, and none have been granted to consultants.

Under the 1996 NEDSOP, we granted stock options to non-employee directors.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 1996 NEDSOP was terminated.  Upon the termination of the 1996 NEDSOP, no shares had been granted to anyone for their role as a consultant to the company and 34,976 shares out of an aggregate of 720,000 shares of common stock were authorized and available for grant.

In June 1996, the Board adopted the Employee Stock Purchase Plan, or the Stock Purchase Plan.   The Stock Purchase Plan provides for the issuance of up to 1,350,000 shares of common stock to our employees.  All eligible employees are granted identical rights to purchase common stock for each Board authorized offering under the Stock Purchase Plan.  Rights granted pursuant to any offering under the Stock Purchase Plan terminate immediately upon cessation of an employee’s employment for any reason.  In general, an employee may reduce their contribution or withdraw from participation in an offering at any time during the purchase period for such offering.  Employees receive a 15% discount on shares purchased under the Stock Purchase Plan.  Rights granted under the Stock Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted.  The initial offering under the Stock Purchase Plan commenced October 24, 1996 and terminated December 31, 1996.  Subsequent offerings have occurred every six months commencing January 1, 1997.  As of the end of the first quarter of fiscal 2013, 652,254 shares could still be sold to employees under the Stock Purchase Plan.  Compensation expense for the first quarter of fiscal 2013 and 2012 was $89,000 and $42,000, respectively, related to the fair value of the rights granted to participants under the plan.

In June 2012, we granted non-employee directors an aggregate of 21,008 shares of restricted common stock under the 2012 Plan.  In March 2012 and June 2011, we granted non-employee directors an aggregate of 515 and 25,387 shares of restricted common stock, respectively, under the 2006 Plan.  Restricted shares generally vest in one installment in the year subsequent to the grant year.  All awarded common shares remain restricted (i.e., not transferable by the holders) until such time as the recipient is no longer a member of our Board.  The value of these grants is expensed over the vesting period.  During the first quarter of fiscal 2013 and 2012, $50,000 and $49,000, respectively, was expensed.

In April 2012, we granted an independent consultant 2,525 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above except that vesting occurred in full after providing six months of continuous service to the company.  As of the end of the third quarter of fiscal 2012, we had recorded the entire $25,000 charge related to this grant.  

In March 2012, we granted Lisa Harper an option to purchase 100,000 shares of our common stock under the 2006 Plan.  This 100,000 share option is subject to a service condition as well as a performance condition that the company achieves a defined earnings target in fiscal year 2012.  The defined earnings target was achieved and certified by the Compensation Committee of the Board on March 4, 2013.

In March 2011, in connection with her appointment as Chief Executive Officer, we granted Lisa Harper an option to purchase 500,000 shares of our common stock under the 2006 Plan.  This 500,000 share option vested only upon a vesting determination which was made by the Compensation Committee of the Board on May 23, 2013.  The option would have terminated on the day following the third anniversary of the date of grant if the vesting determination had not been made.   The vesting determination had to be made at any time on or before the third anniversary of the date of grant when the Compensation Committee of the Board certified that the weighted average per share closing price of the company’s common stock for any trailing 90 trading days equaled or exceeded twice the closing price per share on the date of grant.

In March 2011, we granted certain employees the option to purchase an aggregate of 214,000 shares of our common stock, net of forfeitures, under the 2006 Plan.  These share options were subject to four-year vesting, but vesting occurred in full upon the occurrence of the vesting determination by the Compensation Committee of the Board on May 23, 2013, as described above.  As of the end of the first quarter of fiscal 2013, we had recorded the entire $1.1 million charge related to this grant, including $0.1 million related to the accelerated option vesting.  

Prior to and effective as of the effective time of the proposed Merger with Sycamore discussed in more detail in “NOTE 1 – Organization and Basis of Presentation” referred to as the "Effective Time", we will take all necessary action to accelerate the vesting of each outstanding option under our 1996 Plan, 1996 NEDSOP, 2006 Plan and 2012 Plan, collectively referred to as the "Stock Plans". At the "Effective Time", each outstanding option under a Stock Plan will vest and be cancelled and converted into the right to receive the excess, if any, of the per share Merger consideration over the exercise price of the option, multiplied by the number of shares subject to such option, less all applicable tax withholdings.  Prior to the Effective Time, we will take all necessary action to accelerate the vesting of each share of restricted stock granted and outstanding under the Stock Plans, and each such share of restricted stock will be treated as a share of common stock for purposes of the Merger Agreement. We will terminate our Employee Stock Purchase Plan prior to the Effective Time and will not permit any new offering period to begin prior to the Effective Time.  All statements below that refer to compensation expense expected to be recognized over weighted average periods do not consider the anticipated vesting acceleration related to the proposed Merger.

The following table summarizes stock options outstanding under all of our plans as of the end of the first quarter of fiscal 2013:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at February 2, 2013		6,219,394		$	9.37
Granted		20,000		$	11.06
Exercised		(427,427	)	$	8.53
Forfeited or expired		(485,554	)	$	11.10
Outstanding at May 4, 2013		5,326,413		$	9.29		6.85	$	28,245,565
Exercisable at May 4, 2013		2,741,704		$	10.29		5.63	$	13,505,605

The total fair value of shares vested during the first quarter of fiscal 2013 and 2012 is $1.4 million and $0.9 million, respectively.

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the first quarter of fiscal 2013 and 2012 are provided in the following table (in thousands):

	Three Months Ended
	May 4, 2013		April 28, 2012
Proceeds from stock options exercised	$	3,648	$	649
Tax benefit related to stock options exercised	$	907	$	216
Intrinsic value of stock options exercised	$	2,268	$	540

Accounting for Stock-Based Compensation Expense  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that are subject to the vesting determination described above, using the Black-Scholes option-pricing formula and a single option award approach.  The fair value is then amortized over the requisite vesting periods of the awards.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

We estimate the fair values of the share options granted in March 2011, that were subject to the vesting determination, using a Monte Carlo simulation valuation model.  Prior to full vesting that occurred upon the vesting determination on May 23, 2013, the fair values of the options to purchase the aggregate of 214,000 shares, net of forfeitures, were amortized over the vesting period determined by this model.  The entire fair value of the 500,000 share option was recognized as compensation expense during fiscal 2011.

The effect of recording stock-based compensation for the first quarter of fiscal 2013 and 2012 was as follows (in thousands):

	Three Months Ended
	May 4, 2013			April 28, 2012
Stock-based compensation by type of award:
Employee and director stock options and awards	$	871		$	955
Non-employee stock award		-			4
Employee stock purchase plan		89			42
Total stock-based compensation expense		960			1,001
Tax effect on stock-based compensation expense		(328	)		(362	)
Net effect on net income or loss	$	632		$	639

For the first quarter of fiscal 2013 and 2012, $248,000 and $161,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $0.7 and $0.8 million, respectively, was charged to selling, general and administrative expense.

As of the end of the first quarter of fiscal 2013 and 2012, we had $5.3 million and $8.0 million, respectively, of unrecognized expense related to non-vested stock option grants (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that were subject to the performance condition, and the aggregate of 214,000 stock options granted in March 2011 that were subject to the vesting determination), which are expected to be recognized over weighted average periods of 2.36 years and 2.95 years, respectively.

As of the end of the first quarter of fiscal 2013 and 2012, we had $132,000 and $319,000, respectively, of unrecognized expense related to Lisa Harper’s option to purchase 100,000 shares of our common stock granted in March 2012 that were subject to the performance condition, which are expected to be recognized over weighted average periods of 2.92 years and 3.92 years, respectively.  This option to purchase 100,000 shares has a $3.44 weighted average fair value at grant date.

As of the end of the first quarter of fiscal 2013, we did not have any unrecognized expense related to the options to purchase an aggregate of 214,000 shares of our common stock granted in March 2011 that were subject to the vesting determination made by the Compensation Committee of the Board on May 23, 2013.  As of the end of the first quarter of fiscal 2012, we had $0.4 million of unrecognized expense related to these options which were expected to be recognized over a weighted average period of 2.92 years.

As of the end of the first quarter of fiscal 2013 and 2012, we had $17,000 and $38,000, respectively, of unrecognized expense related to restricted stock grants, which are expected to be recognized over weighted average periods of 0.09 years and 0.13 years, respectively.

Calculation of Fair Value of Options  The Black-Scholes option valuation model used to determine the fair value of stock-based compensation for all options, except for those granted in March 2011 that were subject to the vesting determination, incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield.  The expected term of an award is generally no less than the option vesting period and is based on our historical experience.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended
	May 4, 2013			April 28, 2012
Risk free interest rate		1	%		1	%
Expected life	5 years			5 years
Expected volatility		56	%		57	%
Expected dividend yield		3	%		4	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that were subject to the performance condition)	$	4.23		$	3.43

A Monte Carlo simulation was used to determine the fair value of stock-based compensation for the stock options granted in March 2011 that were subject to the vesting determination.  This risk neutral model is based on projections of stock price paths and incorporates various assumptions including the early exercise behavior, volatility of stock price, risk-free rates of return and dividend yield.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s contractual life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that were subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$	2.60

XML

Activity of Auction Rate Securities, Fair Value Measured using Level Three Inputs (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Redemptions	$ 50	[1]
Unrealized gains (losses) included in other comprehensive (loss) income	(6)
Recovery in fair value occurred	$ 10

[1] Redemptions of $50,000 occurred during the first quarter of fiscal 2013.

XML

Stock-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended							1 Months Ended		1 Months Ended			3 Months Ended		1 Months Ended	3 Months Ended		1 Months Ended	9 Months Ended	1 Months Ended		3 Months Ended		1 Months Ended	3 Months Ended			1 Months Ended	3 Months Ended				1 Months Ended	3 Months Ended	1 Months Ended	3 Months Ended
	May 04, 2013	Apr. 28, 2012	May 04, 2013 Cost of goods sold	Apr. 28, 2012 Cost of goods sold	May 04, 2013 Selling, General and Administrative Expense	Apr. 28, 2012 Selling, General and Administrative Expense	Jun. 14, 2006 1996 Equity Incentive Plan	Jun. 14, 2006 1996 Equity Incentive Plan Maximum	Jun. 05, 2012 2006 Equity Incentive Plan	Jun. 05, 2012 2006 Equity Incentive Plan Maximum	Mar. 31, 2012 2006 Equity Incentive Plan Chief Executive Officer	Mar. 31, 2011 2006 Equity Incentive Plan Chief Executive Officer	May 04, 2013 2006 Equity Incentive Plan Chief Executive Officer	Apr. 28, 2012 2006 Equity Incentive Plan Chief Executive Officer	May 23, 2013 2006 Equity Incentive Plan Subsequent Event Chief Executive Officer	May 04, 2013 2006 Equity Incentive Plan Restricted Stock	Apr. 28, 2012 2006 Equity Incentive Plan Restricted Stock	Apr. 30, 2012 2006 Equity Incentive Plan Restricted Stock Independent consultant	Oct. 27, 2012 2006 Equity Incentive Plan Restricted Stock Independent consultant	Mar. 31, 2012 2006 Equity Incentive Plan Restricted Stock Non Employee Director	Jun. 30, 2011 2006 Equity Incentive Plan Restricted Stock Non Employee Director	Apr. 28, 2012 2006 Equity Incentive Plan Restricted Stock Non Employee Director	Apr. 28, 2012 2006 Equity Incentive Plan Employee Stock Option	Mar. 31, 2011 2006 Equity Incentive Plan Employee Stock Option Employees	May 04, 2013 2006 Equity Incentive Plan Employee Stock Option Employees	May 04, 2013 2006 Equity Incentive Plan Employee Stock Option Accelerated Vesting of Stock Options Employees	Jun. 05, 2012 1996 NEDSOP	Jun. 05, 2012 1996 NEDSOP Maximum	May 04, 2013 2012 Equity Incentive Plan	May 04, 2013 2012 Equity Incentive Plan Maximum	May 04, 2013 2012 Equity Incentive Plan Minimum	May 04, 2013 2012 Equity Incentive Plan Minimum Persons possessing 10% or more of voting power	Jun. 30, 2012 2012 Equity Incentive Plan Restricted Stock Non Employee Director	May 04, 2013 2012 Equity Incentive Plan Restricted Stock Non Employee Director	Jun. 30, 1996 ESPP	May 04, 2013 ESPP	Apr. 28, 2012 ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for grant							732,456		942,602																		34,976		4,676,349							652,254
Aggregate number of shares authorized for grant							18,300,000		3,082,456																		720,000								1,350,000
Options, expiration period								10 years		10 years																		10 years		8 years
Exercise price percentage on fair market value of common stock on date of grant																															100.00%	110.00%
Number of additional shares authorized for grant																													3,100,000
Stock Purchase Plan discount																																			15.00%
Stock-based compensation expense	$ 960,000	$ 1,001,000	$ 248,000	$ 161,000	$ 700,000	$ 800,000													$ 25,000			$ 49,000			$ 1,100,000	$ 100,000								$ 50,000		$ 89,000	$ 42,000
Award grants in period																		2,525		515	25,387												21,008
Vesting period																								4 years										1 year
Number of options granted	20,000										100,000	500,000												214,000
Number of options vested															500,000
Total fair value of shares vested	1,400,000	900,000
Unrecognized expense	$ 5,300,000	$ 8,000,000											$ 132,000	$ 319,000		$ 17,000	$ 38,000						$ 400,000
Unrecognized expense, weighted average recognition period	2 years 4 months 10 days	2 years 11 months 12 days											2 years 11 months 1 day	3 years 11 months 1 day		1 month 2 days	1 month 17 days						2 years 11 months 1 day
Weighted average fair value at grant date													$ 3.44

XML

Charges Related to Strategic Business Changes and Cost Reduction Plan (Parenthetical) (Detail)	Nov. 30, 2010 Store
Restructuring Cost and Reserve [Line Items]
Number of underperforming stores to be closed	50

XML

Deferred Compensation Plan - Additional Information (Detail) (USD $)	1 Months Ended
	Jan. 31, 2009	Aug. 31, 2006	May 04, 2013	Feb. 02, 2013
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, vesting percentage		100.00%
Percentage of employer contribution based on the first 4% eligible employee contribution	50.00%
Percentage of eligible contributions by employee	4.00%
Deferred compensation plan, asset			$ 5,800,000	$ 5,200,000
Deferred compensation plan, liability			$ 6,089,000	$ 5,488,000
Base Salary Compensation
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		80.00%
Annual earned Bonus
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		100.00%
Earned cash fees
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		100.00%

XML

Summary of Stock Options Outstanding under All Plans (Detail) (USD $)	3 Months Ended
	May 04, 2013
Options Outstanding
Outstanding at beginning of period	6,219,394
Granted	20,000
Exercised	(427,427)
Forfeited or expired	(485,554)
Outstanding at end of period	5,326,413
Exercisable at end of period	2,741,704
Weighted-Average Exercise Price
Outstanding at beginning of period	$ 9.37
Granted	$ 11.06
Exercised	$ 8.53
Forfeited or expired	$ 11.10
Outstanding at end of period	$ 9.29
Exercisable at end of period	$ 10.29
Weighted-Average Remaining Contractual Term
Outstanding at end of period	6 years 10 months 6 days
Exercisable at end of period	5 years 7 months 17 days
Aggregate Intrinsic Value
Outstanding at end of period	$ 28,245,565
Exercisable at end of period	$ 13,505,605

XML

Cash Proceeds, Tax Benefits and Intrinsic Values Related to Stock Options Exercised (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from stock options exercised	$ 3,648	$ 649
Tax benefit related to stock options exercised	907	216
Intrinsic value of stock options exercised	$ 2,268	$ 540

XML

Business Events

3 Months Ended

May 04, 2013

Business Events

NOTE 2.  Business Events

Strategic Business Changes  In March 2011, our Board approved certain strategic business changes to better position the company for growth.  The business changes involved discontinuing the operations of ShockHound, an online digital music website launched in fiscal 2008; writing down inventory due to a change in management’s inventory strategy; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the strategic business changes.

Cost Reduction Plan  In November 2010, our Board approved a cost reduction plan, designed to meet the challenges of the environment at that time, which involved closing approximately 50 underperforming stores, a majority of which closed by the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 relative to fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012		-			(140	)		-			-			-			(140	)
Cash payments		-			133			-			-			-			133
Non-cash adjustments		-			7			-			-			-			7
Balance at October 27, 2012    and May 4, 2013	$	-		$	-		$	-		$	-		$	-		$	-

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

XML

Effect of Recording Stock-Based Compensation (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 960	$ 1,001
Tax effect on stock-based compensation expense	(328)	(362)
Net effect on net income or loss	632	639
Employee and director stock options and awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	871	955
Non-employee stock award
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		4
Employee stock purchase plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 89	$ 42

XML

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	May 04, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	$ 50,183
Deferred compensation plan (long-term)	6,089
Money market funds (cash equivalent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	44,374
Municipal Bonds | Short-term Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	4,125
Auction rate securities | Long-term
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	1,684
Quoted Prices in Active Markets for Identical Items (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	44,374
Quoted Prices in Active Markets for Identical Items (Level 1) | Money market funds (cash equivalent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	44,374
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	4,125
Deferred compensation plan (long-term)	6,089
Significant Other Observable Inputs (Level 2) | Municipal Bonds | Short-term Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	4,125
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	1,684
Significant Unobservable Inputs (Level 3) | Auction rate securities | Long-term
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	$ 1,684

XML

Consolidated Statements of Income and Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Net sales	$ 174,846	$ 171,544
Cost of goods sold, including buying, distribution and occupancy costs	114,077	109,859
Gross margin	60,769	61,685
Selling, general and administrative expenses	54,613	55,603
Income from operations	6,156	6,082
Interest and other income, net	(5)	62
Income before provision for income taxes	6,151	6,144
Provision for income taxes	2,049	2,309
Net income	4,102	3,835
Earnings per share:
Basic	$ 0.10	$ 0.09
Diluted	$ 0.10	$ 0.09
Cash dividends declared and paid per share		$ 0.08
Shares used in computing earnings per share:
Basic	40,545	42,139
Diluted	41,663	42,821
Comprehensive income:
Net income	4,102	3,835
Other comprehensive loss:
Foreign currency translation adjustment	(14)	(58)
Unrealized gain (loss) on short-term and long-term investments, net of taxes of $2 and $0 for the three-month periods	2	(2)
Total other comprehensive loss	(12)	(60)
Comprehensive income	$ 4,090	$ 3,775

XML

Valuation of Long - Lived Assets - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Impaired Long-Lived Assets Held and Used [Line Items]
Valuation of long-lived assets, estimated discount rate	13.00%
Store Related Closure Costs
Impaired Long-Lived Assets Held and Used [Line Items]
Impairment of long-lived assets	$ 0.1	$ 0.3

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
OPERATING ACTIVITIES
Net income	$ 4,102	$ 3,835
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,800	8,489
Stock-based compensation	960	1,001
Loss on disposal of property and equipment	21	901
Impairment of long-lived assets	52	306
Deferred taxes	(566)	(341)
Gift card breakage	(192)	(145)
Foreign currency translation gain	38	(8)
Changes in operating assets and liabilities:
Inventory	1,382	5,067
Prepaid expenses and other current assets	(52)	4,287
Deposits and other assets	(649)	(192)
Accounts payable	8,313	804
Accrued liabilities	(7,828)	(6,592)
Deferred rent and other	95	(972)
Income taxes payable	(4,143)	(86)
Net cash provided by operating activities	9,333	16,354
INVESTING ACTIVITIES
Purchases of property and equipment	(7,818)	(9,183)
Proceeds from sale of short-term and long-term investments, net of purchases	2,083	689
Net cash used in investing activities	(5,735)	(8,494)
FINANCING ACTIVITIES
Excess tax benefit from stock-based compensation	907	273
Proceeds from employee stock purchases and exercise of stock options	3,648	649
Payment of cash dividends		(3,377)
Net cash provided by (used in) financing activities	4,555	(2,455)
Increase in cash and cash equivalents	8,153	5,405
Effect of foreign currency exchange rate changes on cash	(35)	12
Cash and cash equivalents at beginning of period	43,833	49,615
Cash and cash equivalents at end of period	51,951	55,032
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	1
Cash paid (received) during the period for income taxes	$ 5,904	$ (3,804)

XML

Weighted Average Assumptions used in Monte Carlo Simulation Valuation Model for Stock Options Granted (Detail) (Monte Carlo Simulation Valuation Model, USD $)	3 Months Ended
	May 04, 2013
Monte Carlo Simulation Valuation Model
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Risk free interest rate	4.00%
Contractual life	10 years
Expected volatility	58.00%
Expected dividend yield	5.00%
Weighted average fair value at grant date	$ 2.60

XML

Stock-Based Compensation (Tables)

3 Months Ended

May 04, 2013

Summary of Stock Options Outstanding under All Plans

The following table summarizes stock options outstanding under all of our plans as of the end of the first quarter of fiscal 2013:

	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at February 2, 2013		6,219,394		$	9.37
Granted		20,000		$	11.06
Exercised		(427,427	)	$	8.53
Forfeited or expired		(485,554	)	$	11.10
Outstanding at May 4, 2013		5,326,413		$	9.29		6.85	$	28,245,565
Exercisable at May 4, 2013		2,741,704		$	10.29		5.63	$	13,505,605

Cash Proceeds, Tax Benefits and Intrinsic Values Related to Stock Options Exercised

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the first quarter of fiscal 2013 and 2012 are provided in the following table (in thousands):

	Three Months Ended
	May 4, 2013		April 28, 2012
Proceeds from stock options exercised	$	3,648	$	649
Tax benefit related to stock options exercised	$	907	$	216
Intrinsic value of stock options exercised	$	2,268	$	540

Effect of Recording Stock-Based Compensation

The effect of recording stock-based compensation for the first quarter of fiscal 2013 and 2012 was as follows (in thousands):

	Three Months Ended
	May 4, 2013			April 28, 2012
Stock-based compensation by type of award:
Employee and director stock options and awards	$	871		$	955
Non-employee stock award		-			4
Employee stock purchase plan		89			42
Total stock-based compensation expense		960			1,001
Tax effect on stock-based compensation expense		(328	)		(362	)
Net effect on net income or loss	$	632		$	639

Black-Scholes Option Valuation Model

Weighted Average Assumptions used for Stock Options Granted

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended
	May 4, 2013			April 28, 2012
Risk free interest rate		1	%		1	%
Expected life	5 years			5 years
Expected volatility		56	%		57	%
Expected dividend yield		3	%		4	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that were subject to the performance condition)	$	4.23		$	3.43

Monte Carlo Simulation Valuation Model

Weighted Average Assumptions used for Stock Options Granted

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that were subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$	2.60

XML

Cash Dividends - Additional Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Apr. 28, 2012
Dividends [Line Items]
Dividend paid, per share	$ 0.08
Payment of cash dividends	$ 3,377

XML

Fair Value Measurements (Tables)

3 Months Ended

May 04, 2013

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the first quarter of fiscal 2013 consisted of the following (in thousands):

	Balance at May 4, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	44,374	$	44,374	$	-	$	-
Municipal bonds (short-term)		4,125		-		4,125		-
Auction rate security (long-term)		1,684		-		-		1,684
Total assets	$	50,183	$	44,374	$	4,125	$	1,684
Liabilities:
Deferred compensation plan (long-term)	$	6,089	$	-	$	6,089	$	-

Activity of Auction Rate Securities, Fair Value Measured using Level Three Inputs

The activity of our auction rate security through the first quarter of fiscal 2013, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

	Non-current
Carrying value as of  February 2, 2013	$	1,730
Redemptions1		(50	)
Total gains
Included in earnings		-
Included in other comprehensive income 2		4
Carrying value as of  May 4, 2013	$	1,684

1 Redemptions of $50,000 occurred during the first quarter of fiscal 2013.

2 Unrealized losses of $6,000 and a recovery in fair value of $10,000 occurred during the first quarter of fiscal 2013.

XML

Organization and Basis of Presentation

3 Months Ended

May 04, 2013

Organization and Basis of Presentation

NOTE 1.  Organization and Basis of Presentation

Description of Business  We are a mall and web-based specialty retailer of apparel, accessories, music and gift items for young men and women whose lifestyles reflect a passion for music, fashion and pop culture.  We primarily operate under two concepts: Hot Topic and Torrid.  We launched a new test retail concept, Blackheart, during the fourth quarter of fiscal 2012.  Music and pop culture are the overriding inspirations at Hot Topic, and Torrid is focused on providing the best in fashion to young plus-size women.  At our Hot Topic stores and our website hottopic.com, we sell a selection of licensed and non-licensed apparel, accessories and gift items that are influenced by popular music artists and pop culture trends, designed to appeal to young men and women.  We also sell a limited assortment of music CDs/vinyl LPs and DVDs at Hot Topic.  At our Torrid stores and on our website torrid.com, we sell on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears a size 12 and up.  We generate revenues primarily through our retail stores in the United States of America, Puerto Rico and Canada, and online through our websites.  We were incorporated in California in 1988 and opened our first Hot Topic store the following year in fiscal 1989.  We opened our first Torrid store in fiscal 2001.

References to Hot Topic, Inc.  Throughout this report, the terms “we,” “us,” “our,” “company” and similar references refer to Hot Topic, Inc. and its wholly-owned subsidiaries.

Merger  On March 6, 2013, we entered into an Agreement and Plan of Merger, or the Merger Agreement, providing for our acquisition by an affiliate of Sycamore Partners Management, L.L.C., or Sycamore. Under the terms of the Merger Agreement, which was unanimously approved by our Board of Directors, or the Board, Sycamore will acquire all of the outstanding shares of our common stock for $14.00 per share in cash. The transaction, which is structured as a one-step merger with the company as the surviving corporation, or the Merger, is subject to customary closing conditions, including receipt of regulatory approvals and the approval of the holders of a majority of our outstanding shares. If the Merger is approved and is consummated, we will no longer be a publicly-traded company, and our shares will cease to be traded on NASDAQ. We will account for the merger by applying the acquisition method as described in ASC 805, Business Combinations.  For more information, see our Current Report on Form 8-K filed with the Securities and Exchange Commission, or the SEC, on March 8, 2013.

Fiscal Year  Our fiscal year ends on the Saturday nearest to January 31.  References to the first quarter of fiscal 2013 and 2012 refer to the thirteen week periods ended May 4, 2013 and April 28, 2012, respectively.  References to fiscal 2014 and 2013 refer to the 52-week periods ending January 31, 2015 and February 1, 2014, respectively.  References to fiscal 2012 refer to the 53-week period ended February 2, 2013.  References to fiscal 2011 and 2010 refer to the 52-week periods ended January 28, 2012 and January 29, 2011, respectively.

Segment Information We currently have one reportable segment given the similarities of the economic characteristics among the Hot Topic and Torrid concepts and the relatively immaterial business operations of our Blackheart test concept.

Interim Financial Information  The information set forth in these condensed consolidated financial statements is unaudited except for the February 2, 2013 consolidated balance sheet data.  These statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 of America for complete financial statements.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed on March 22, 2013.

In the opinion of management, all adjustments necessary for a fair presentation have been included in these condensed consolidated financial statements.

XML

Consolidated Statements of Income and Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Unrealized gain (loss) on short-term and long-term investments, taxes	$ 2	$ 0

XML

Bank Credit Agreement

3 Months Ended

May 04, 2013

Bank Credit Agreement

NOTE 11.  Bank Credit Agreement

We maintain an unsecured bank credit agreement of $5.0 million that will expire on September 1, 2013.  Letters of credit, which are primarily used for inventory purchases, are issued under the credit agreement.  There were no letters of credit as of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012.

XML

Document and Entity Information	3 Months Ended
	May 04, 2013	May 22, 2013
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	May 04, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Trading Symbol	HOTT
Entity Registrant Name	HOT TOPIC INC /CA/
Entity Central Index Key	0001017712
Current Fiscal Year End Date	--02-01
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		40,756,274

XML

Income Taxes

3 Months Ended

May 04, 2013

Income Taxes

NOTE 12.  Income Taxes

As ofthe end of the first quarter of fiscal 2013, the total liability for income tax associated with unrecognized tax benefits was $1.5 million ($0.8 million net of federal benefit), of which $0.1 million ($0.1 million net of federal benefit) related to interest and $0.1 million related to penalties.  Our effective tax rate will be affected by any portion of this liability we may recognize.  As of the end of fiscal 2012, the total liability for income tax associated with unrecognized tax benefits was $1.9 million ($0.8 million net of federal benefit), of which $0.1 million ($0.1 million net of federal benefit) related to interest and $0.2 million related to penalties.

We believe that it is reasonably possible that $0.9 million ($0.5 million net of federal benefit) of our liability for unrecognized tax benefits of which interest is not material and $0.1 million related to penalties  may be recognized in the next 12 months due to the settlement of audits and the expiration of statutes of limitations.  As such, we have classified these amounts as current liabilities.

Our continuing practice is to recognize interest and penalties related to unrecognized tax benefits as a tax expense.  Tax expense during the first quarter of fiscal 2013 and 2012 related to interest and penalties was not material.  As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, we had accrued $0.2 million and $0.3 million, respectively, of interest and penalties related to uncertain tax positions.

We operate stores throughout the United States as well as in Canada and Puerto Rico, and as a result, we file income tax returns in the United States federal jurisdiction and various states, local and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities.  With few exceptions, we are no longer subject to United States federal, state, local or foreign income tax examinations for years before fiscal 2008.  While it is often difficult to predict the final outcome or the timing or resolution of any particular uncertain tax position, we believe our reserves for income taxes represent the most probable outcome.  We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	May 04, 2013	Feb. 02, 2013
Current assets:
Cash and cash equivalents	$ 51,951	$ 43,833
Short-term investments	4,125	6,158
Inventory	79,435	80,844
Prepaid expenses and other	13,768	13,716
Deferred tax assets	9,905	10,664
Total current assets	159,184	155,215
Property and equipment, net	107,277	107,347
Deposits and other	8,688	8,039
Long-term investments	1,684	1,730
Deferred tax assets	3,178	2,614
Total assets	280,011	274,945
Current liabilities:
Accounts payable	31,523	23,211
Accrued liabilities	39,477	48,065
Income taxes payable	1,001	5,143
Total current liabilities	72,001	76,419
Deferred rent and other	19,722	19,627
Income taxes payable	657	657
Deferred compensation	6,089	5,488
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; 40,673,674 and 40,246,247 shares issued and outstanding at May 4, 2013 and February 2, 2013, respectively	140,274	135,567
Retained earnings	41,569	37,476
Accumulated other comprehensive loss	(301)	(289)
Total shareholders' equity	181,542	172,754
Total liabilities and shareholders' equity	$ 280,011	$ 274,945

XML

Short-Term and Long-Term Investments

3 Months Ended

May 04, 2013

Short-Term and Long-Term Investments

NOTE 6.  Short-Term and Long-Term Investments

Our short-term investments consist of highly-rated interest-bearing municipal bonds that have maturities that are less than one year and are accounted for as available for sale.  As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, short-term investments consisted of municipal bonds of $4.1 million and $6.2 million, respectively.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our short-term investments.  The associated unrealized net gains in both the first quarter of fiscal 2013 and in the full year of fiscal 2012 were immaterial and have been recorded in the consolidated statements of comprehensive income.

As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, our long-term investment comprised of an auction rate security.  Our auction rate security is a AAA/A3-rated debt instrument with a maturity of 24 years.  It is accounted for as available for sale and backed by pools of student loans guaranteed by the U.S. Department of Education.  Its interest rate is reset through an auction process, most commonly at intervals of approximately 4 weeks.  This same auction process is designed to provide a means by which this security can be sold and prior to 2008 had provided a liquid market for it.  There continues to be uncertainty in the global credit and capital markets, which has resulted in the failure of auctions representing the auction rate security we hold as the amount of securities submitted for sale in those auctions exceed the amount of bids.  While we have continued to earn and receive interest on our auction rate security through the date of this report, we concluded that its estimated fair value no longer approximates par value.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been based on a valuation model using current assumptions.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our auction rate security investment.

As of the end of the first quarter of fiscal 2013 and as of the end of fiscal 2012, the fair value of our auction rate security remained the same at $1.7 million.  The fair value of our auction rate security as of the end of the first quarter of fiscal 2013 reflects a cumulative decline of $0.4 million from the par value.  This cumulative $0.4 million decline ($0.2 million net of tax) is deemed temporary as we have the ability to hold this security and we do not have the intent to sell it below par value.  Furthermore, it is not likely that we will be required to sell the security before the recovery of its amortized cost basis.  If uncertainties in the credit and capital markets continue, we may incur additional losses, some of which may be other-than-temporary, which could negatively affect our financial condition or results of operations.  In addition, in the event that we decide to sell this security and it becomes likely that we will be required to sell the security before the recovery of its amortized cost basis, we may be required to recognize impairment charges against income.  We have classified our auction rate security as a non-current asset on our consolidated balance sheet, as we do not expect it to successfully auction and recover its full or par value within the next 12 months.

As of the end of the first quarter of fiscal 2013 and 2012, we recorded immaterial unrealized gains for our auction rate securities in the consolidated statements of comprehensive income.

XML

Earnings Per Share

3 Months Ended

May 04, 2013

Earnings Per Share

NOTE 5. Earnings  Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.  Diluted earnings per share is applicable only in periods of net income and is computed by dividing net income by the weighted average number of common shares outstanding for the period and potentially dilutive common stock equivalents outstanding for the period.  Periods of net loss require the diluted computation to be the same as the basic computation.  During the first quarter of fiscal 2013 and 2012, options to purchase 0.9 million and 3.2 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.

A reconciliation of the numerator and denominator of basic and diluted earnings per share is as follows (in thousands, except per share amounts):

	Three Months Ended
	May 4, 2013		April 28, 2012
Basic and diluted earnings per share computation:
Numerator	$	4,102	$	3,835
Denominator:
Weighted average common shares outstanding		40,545		42,139
Incremental shares from assumed exercise/issuance of options and awards		1,118		682
Total shares		41,663		42,821
Basic earnings per share	$	0.10	$	0.09
Diluted earnings per share	$	0.10	$	0.09

XML

Earnings Per Share (Tables)

3 Months Ended

May 04, 2013

Reconciliation of Numerator and Denominator of Basic and Diluted Earnings Per Share

A reconciliation of the numerator and denominator of basic and diluted earnings per share is as follows (in thousands, except per share amounts):

	Three Months Ended
	May 4, 2013		April 28, 2012
Basic and diluted earnings per share computation:
Numerator	$	4,102	$	3,835
Denominator:
Weighted average common shares outstanding		40,545		42,139
Incremental shares from assumed exercise/issuance of options and awards		1,118		682
Total shares		41,663		42,821
Basic earnings per share	$	0.10	$	0.09
Diluted earnings per share	$	0.10	$	0.09

XML

Commitments and Contingencies

3 Months Ended

May 04, 2013

Commitments and Contingencies

NOTE 13.  Commitments and Contingencies

In March 2013, we were named as a defendant in class action lawsuits challenging the plan of merger with Sycamore.  These lawsuits allege general various wrongdoings such as breach of our fiduciary duty to our shareholders. We may be named as a defendant in other similar lawsuits in the future. While we believe that all of the allegations are without merit and that we have valid defenses to all potential claims, our litigation exposure could have a material adverse effect on our financial condition and results of operations in the event the claims are not settled in our favor.

From time to time, we are involved in other matters of litigation that arise in the ordinary course of business.  Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect any of this litigation to have a material adverse effect on our overall financial condition.

XML

Deferred Compensation Plan

3 Months Ended

May 04, 2013

Deferred Compensation Plan

NOTE 9.  Deferred Compensation Plan

In August 2006, we adopted the Hot Topic Inc. Management Deferred Compensation Plan, or the Deferred Compensation Plan, for the purpose of providing highly compensated employees and members of our Board a program to meet their financial planning needs.  The Deferred Compensation Plan provides participants with the opportunity to defer up to 80% of their base salary and up to 100% of their annual earned bonus, or, in the case of members of our Board, 100% of their earned cash fees, all of which, together with the associated investment returns, are 100% vested from the outset.  The Deferred Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally funded by us in order to preserve the tax-deferred savings advantages of a non-qualified plan.  As such, all deferrals and associated earnings are general unsecured obligations of Hot Topic, Inc. held within a “rabbi trust” on our consolidated balance sheet.  We may at our discretion contribute certain amounts to eligible employees’ accounts.  In January 2009, to the extent participants were ineligible to receive such contributions from participation in our 401(k) Plan, we began to contribute 50% of the first 4% of participants’ eligible contributions into their Deferred Compensation Plan accounts.  As of the end of the first quarter of fiscal 2013, assets and associated liabilities of the Deferred Compensation Plan were $5.8  million and $6.1 million, respectively, and are included in other non-current assets and non-current liabilities, respectively, in our consolidated balance sheets.  As of the end of fiscal 2012, assets and associated liabilities of the Deferred Compensation Plan were $5.2 million and $5.5 million, respectively.

XML

Impact of Recently Issued Accounting Pronouncements

3 Months Ended

May 04, 2013

Impact of Recently Issued Accounting Pronouncements

NOTE 7.  Impact of Recently Issued Accounting Pronouncements

In February 2013, the FASB issued new guidance requiring entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  It requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive incomeby the respective line items of net income.  This disclosure is required only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, a cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts is required.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2012, with early adoption permitted.  There were no reclassification adjustments for the period ended May 4, 2013 and our adoption of this new guidance on February 3, 2013 did not have a material impact on our financial condition or results of operations.

In June 2011, the FASB issued a final standard requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income.  The new standard eliminates the option to present items of other comprehensive income in the statement of changes in equity.  The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income.  Also, earnings per share computations do not change.  The new requirements were effective for interim and fiscal years beginning after December 15, 2011, with early adoption permitted.  Full retrospective application is required.  As this standard relates only to the presentation of other comprehensive income, our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

In May 2011, the FASB issued new guidance that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards, or IFRS.  The new guidance changes some fair value measurement principles and disclosure requirements under U.S. GAAP.  Several new disclosures about Level 3 measurements are required, including quantitative information about the significant unobservable inputs used in the measurement, a qualitative discussion about the sensitivity of recurring measurements to changes in the unobservable inputs disclosed and a description of the valuation processes used by us.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2011, with early adoption prohibited.  Our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

XML

Fair Value Measurements

3 Months Ended

May 04, 2013

Fair Value Measurements

NOTE 8.  Fair Value Measurements

Our financial assets and liabilities are valued at the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  We determine fair value based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, we prioritize the inputs used in measuring fair value into a three-tier fair value hierarchy, which are as follows:

Level 1: Observable inputs such as quoted prices in active markets (the fair value hierarchy gives the highest priority to Level 1 inputs);

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions (the fair value hierarchy gives the lowest priority to Level 3 inputs).

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the first quarter of fiscal 2013 consisted of the following (in thousands):

	Balance at May 4, 2013		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	44,374	$	44,374	$	-	$	-
Municipal bonds (short-term)		4,125		-		4,125		-
Auction rate security (long-term)		1,684		-		-		1,684
Total assets	$	50,183	$	44,374	$	4,125	$	1,684
Liabilities:
Deferred compensation plan (long-term)	$	6,089	$	-	$	6,089	$	-

The fair value of our short-term municipal bonds is based on market prices for similar assets from third-party pricing services using observable market information.  The money market funds fair value is determined based on quoted prices in active markets.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been determined based on an internal valuation model which incorporates primarily management’s own current assumptions.  The model values the securities by estimating the present value of future principal and interest payments discounted at rates considered to reflect current market conditions.  Significant assumptions used in the valuation include those made about the liquidity horizon which we currently estimate to be approximately five years and the net trading yield rate which we currently estimate to be approximately 5%.  The fair value measurement of our auction rate security has an inverse relationship with our liquidity horizon assumption and changes in this assumption may cause the fair value to be significantly impacted.  Other factors that impact our valuation include changes to credit ratings of our auction rate security as well as to the underlying assets supporting these securities and the ongoing strength and quality of the credit markets.  Our valuation is subject to uncertainties that are difficult to predict and could change significantly based on future market conditions.  The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active markets.  The fair value of the deferred compensation plan liability is determined based on quoted prices of similar assets that are traded in observable markets.

The activity of our auction rate security through the first quarter of fiscal 2013, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

	Non-current
Carrying value as of  February 2, 2013	$	1,730
Redemptions1		(50	)
Total gains
Included in earnings		-
Included in other comprehensive income 2		4
Carrying value as of  May 4, 2013	$	1,684

1 Redemptions of $50,000 occurred during the first quarter of fiscal 2013.

2 Unrealized losses of $6,000 and a recovery in fair value of $10,000 occurred during the first quarter of fiscal 2013.

XML

Valuation of Long-Lived Assets

3 Months Ended

May 04, 2013

Valuation of Long-Lived Assets

NOTE 10.  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.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations 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 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 aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate, which we currently estimate to be approximately 13%, determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.”  Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future 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 store impairment charges.

For the first quarter of fiscal 2013 and 2012, we recorded store impairment charges of $0.1 million and $0.3 million, respectively, which are included in selling, general and administrative expenses in our consolidated statements of income.

XML

Weighted Average Assumptions used in Black-Scholes Option Valuation Model for Stock Options Granted (Parenthetical) (Detail) (2006 Equity Incentive Plan, Chief Executive Officer)	1 Months Ended
	Mar. 31, 2012
2006 Equity Incentive Plan | Chief Executive Officer
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Stock options granted that are subject to performance condition	100,000

XML

Business Events (Tables)

3 Months Ended

May 04, 2013

Charges Related to Strategic Business Changes and Cost Reduction Plan

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012		-			(140	)		-			-			-			(140	)
Cash payments		-			133			-			-			-			133
Non-cash adjustments		-			7			-			-			-			7
Balance at October 27, 2012    and May 4, 2013	$	-		$	-		$	-		$	-		$	-		$	-

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

XML

Business Events - Additional Information (Detail)		3 Months Ended
	Nov. 30, 2010 Store	Jul. 28, 2012 Hot Topic stores Store	Jul. 28, 2012 Torrid stores Store
Restructuring Cost and Reserve [Line Items]
Number of underperforming stores to be closed	50
Number of underperforming stores closed		41	7

XML

Fair Value Measurements - Additional Information (Detail)	3 Months Ended
	May 04, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value measurement, estimated liquidity horizon	5 years
Fair value measurement, estimated net trading yield rate	5.00%

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	May 04, 2013	Feb. 02, 2013
Preferred shares, no par value
Preferred shares, shares authorized	10,000,000	10,000,000
Preferred shares, shares issued
Preferred shares, shares outstanding
Common shares, no par value
Common shares, shares authorized	150,000,000	150,000,000
Common shares, shares issued	40,673,674	40,246,247
Common shares, shares outstanding	40,673,674	40,246,247

XML

Cash Dividends

3 Months Ended

May 04, 2013

Cash Dividends

NOTE 4. Cash Dividends

On March 6, 2013, we entered into an agreement and plan of merger with Sycamore, discussed in more detail in “NOTE 1 - Organization and Basis of Presentation”.  In connection with the transaction contemplated by the agreement, we have suspended the payment of our regular quarterly dividend.  Total dividends paid during the first quarter of fiscal 2012 amounted to $3.4 million, consisting of an $0.08 per share regular quarterly cash dividend.

XML

Charges Related to Strategic Business Changes and Cost Reduction Plan (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Oct. 27, 2012	Jul. 28, 2012		Apr. 28, 2012		Jan. 28, 2012		Oct. 29, 2011		Jul. 30, 2011		Apr. 30, 2011		Jan. 29, 2011
Restructuring Cost and Reserve [Line Items]
Beginning Balance	$ (140)	$ (498)		$ (1,157)		$ (1,934)		$ (3,085)		$ (6,316)		$ (1,352)
Strategic Business Changes charges/Cost Reduction Plan charges										(4,317)		(12,794)		(9,757)
Cash payments	133	318		476		702		1,134		1,891		3,233		1,078
Non-cash adjustments	7	40		183		75		17		5,483		4,232		7,327
Ending Balance		(140)		(498)		(1,157)		(1,934)		(3,085)		(6,316)		(1,352)
Cost Reduction Plan recovery										174		365
Store Related Closure Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance								(219)	[1]	(82)	[1]	(487)	[1]
Strategic Business Changes charges/Cost Reduction Plan charges														(7,077)	[1]
Cash payments								197	[1]	144	[1]	699	[1]	93	[1]
Non-cash adjustments								22	[1]	(455)	[1]	(659)	[1]	6,497	[1]
Ending Balance										(219)	[1]	(82)	[1]	(487)	[1]
Cost Reduction Plan recovery										174	[1]	365	[1]
Non-Store Related Severance and Outplacement Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance	(140)	(481)		(974)		(1,656)		(2,077)		(1,559)		(865)
Strategic Business Changes charges/Cost Reduction Plan charges										(1,330)		(1,583)		(1,850)
Cash payments	133	318		476		682		464		812		889		985
Non-cash adjustments	7	23		17				(43)
Ending Balance		(140)		(481)		(974)		(1,656)		(2,077)		(1,559)		(865)
Inventory and Asset-Related Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance		(17)	[2]	(85)	[2]	(180)	[2]	(198)	[2]	(4,714)	[2]
Strategic Business Changes charges/Cost Reduction Plan charges										(532)	[2]	(9,605)	[2]	(830)	[2]
Cash payments						20	[2]			182	[2]
Non-cash adjustments		17	[2]	68	[2]	75	[2]	18	[2]	4,866	[2]	4,891	[2]	830	[2]
Ending Balance				(17)	[2]	(85)	[2]	(180)	[2]	(198)	[2]	(4,714)	[2]
Consulting Fees
Restructuring Cost and Reserve [Line Items]
Beginning Balance				(98)		(98)		(591)		39
Strategic Business Changes charges/Cost Reduction Plan charges										(1,383)		(1,606)
Cash payments								473		753		1,645
Non-cash adjustments				98				20
Ending Balance						(98)		(98)		(591)		39
Stock Option Expense
Restructuring Cost and Reserve [Line Items]
Strategic Business Changes charges/Cost Reduction Plan charges										(1,072)
Non-cash adjustments										$ 1,072

[1] Store related closure costs represent charges for the closure of approximately 50 underperforming stores. Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

[2] Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

XML

Reconciliation of Numerator and Denominator of Basic and Diluted Earnings Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	May 04, 2013	Apr. 28, 2012
Basic and diluted earnings per share computation:
Numerator	$ 4,102	$ 3,835
Denominator:
Weighted average common shares outstanding	40,545	42,139
Incremental shares from assumed exercise/issuance of options and awards	1,118	682
Total shares	41,663	42,821
Basic earnings per share	$ 0.10	$ 0.09
Diluted earnings per share	$ 0.10	$ 0.09

XML

Share Repurchase

3 Months Ended

May 04, 2013

Share Repurchase

NOTE 14.  Share Repurchase

During fiscal 2012, we repurchased 2,535,370 shares of our common stock for approximately $25 million (excluding expenses), which represents an average price of $9.86 per share.

We did not repurchase any shares of our common stock during the first quarter of fiscal 2013.  All share repurchase programs have since expired.