Mad Money

How Hot is HOTT?


“Teenagers are once again doing what they do best,” Cramer said Tuesday, “spending their parents money like there’s no tomorrow.”

Off the Charts

Hence the big run in teen retailers lately, with bellwether names like Aeropostale and American Eagle reporting strong same-store sales growth for March. Not that this is an undiscovered trend, though, considering that Quicksilver (up 314% in the last year) and Pacific Sunwear (up 243%) are two of a group that have seen triple-digit returns. But one stock in particular has lagged the rest – Hot Topic , down 34% in the same period – and Cramer thinks the mall-based chain could be ready for a turn.

The charts seem to be saying as much. One of Cramer’s favorite technical analysts said there’s new demand for the stock that could take HOTT much higher. And Cramer thinks the fundamentals back that up.

Not only did Hot Topic last week declare a $1 special dividend, but the company also regular dividend large enough to yield 3.3% for shareholders. Management wouldn’t do that if it didn’t have full confidence in the future, Cramer said, and he thinks the move “reflects a genuine turn in the company.”

Plus, Hot Topic has taken measures to change parts of the business that haven’t been working. Once a place where kids went to get their favorite band’s T-shirt, now HOTT is differentiating its products. And the focus on selling CDs has switched to MP3s, with ShockHound site and a new partnership with formed in the fourth quarter. The company also sells a plus-sized line for young women – the Torrid line—which showed a 9% same-store sales increase in March.

Hot Topic is doing its best to move away from its dependence on movie releases, too. Sales spiked when Twilight opened last year, but in 2010 the company has decided not to sell the sequel’s DVD. Rather than rely on Hollywood, a new chief merchandising officer is trying to build sustainable growth by focusing on HOTT’s core brands. And the company looks strong in all of the most important metrics: lower inventories, a strong balance sheet and lots of cash per share on the books.

Hot Topic is finally turning around, Cramer said. He’s bullish on the stock because “this laggard’s ready to catch up with the rest of teen retail.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?