1017712--3/28/2007--HOT_TOPIC_INC

related topics

{customer, product, revenue}

{acquisition, growth, future}

{stock, price, operating}

{system, service, information}

{personnel, key, retain}

{cost, regulation, environmental}

{product, market, service}

{financial, litigation, operation}

{operation, natural, condition}

{condition, economic, financial}

{provision, law, control}

{regulation, change, law}

Our growth strategy could create challenges we may not be able to adequately meet. This growth strategy requires improving our operations, and we may not be able to do this sufficiently to effectively prevent negative impact on our operations and financial results. Expanding our operations to include an increasing number of Torrid stores and any other new concepts presents risks we have faced with the Hot Topic concept but also new risks due to differences in concept objectives and strategies. The success of our business depends on establishing and maintaining good relationships with mall operators and developers, and problems with those relationships could make it more difficult for us to expand to certain sites or offer certain products. Our comparable store sales are subject to fluctuation resulting from factors within and outside our control, and lower than expected comparable store sales could impact our business and our stock price. Our success relies on popularity with young people of music, pop culture, and fashion trends, and we may not be able to react to trends in a way to prevent declining popularity and sales of our products. Economic conditions could change in ways that reduce our sales or increase our expenses. Recording impairment charges for certain underperforming Hot Topic and Torrid stores may negatively impact our future financial condition or results of operations, and closing stores might not have positive impact. 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. Timing and seasonal issues could negatively impact our financial performance for given periods. We have many important vendor relationships, and our ability to get merchandise could be hurt by changes in those relationships and events harmful to our vendors could impact our results of operations. Technology and other risks associated with our Internet sales could hinder our overall financial performance. System security risk issues could disrupt our internal operations or information technology services provided to customers, and any such disruption could harm our revenue, increase our expenses, and harm our reputation and stock price. We have made and plan to continue to make significant changes to information systems and software used in operation of our business, and we may not be able to effectively adopt changes in a way to prevent failures in our operations or negative impact on our financial performance and reporting. Loss of key people or an inability to hire necessary and significant personnel could hurt our business. Decreased effectiveness of stock-based compensation could adversely affect our ability to attract and retain employees. Our reliance on United Parcel Service, temporary employees and other mechanics of shipping of our merchandise creates distribution risks and uncertainties that could hurt our sales and business. There is a risk we could acquire merchandise without full rights to sell it, which could lead to disputes or litigation and hurt our financial performance and stock price. We face intense competition, and an inability to adequately address it, or the success of our competitors, could limit or prevent our business growth and success. War, terrorism and other catastrophes could negatively impact our customers, places where we do business, and our expenses, all of which could hurt our business. There are numerous risks that could cause our stock price to fluctuate substantially. Our charter documents and other circumstances could prevent a takeover or cause dilution of our existing shareholders, which could be detrimental to existing shareholders and hinder business success. We incur costs associated with regulatory compliance, and this cost could be significant. 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. Recent accounting regulation changes require the expensing of stock options.

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