Hot Topic's SEC correspondence

Michelle Leder from footnoted.org comes across a nifty back and forth between the SEC and Hot Topic about how the City of Industry-based teen retailer characterized certain statements in its filings. The statements concerned, among other things, revenue recognition on Web sales and not differentiating its Hot Topic and Torrid stores, even though they have different profit margins and a different product mix. After the SEC began asking questions last August, lawyers for Hot Topic came back with all kinds of explanations - and then laid them out in revised filings. SEC examiners have an important (and often impossible) job in combing through all that tiny print, and some of the questions deserve full-fledged timely responses (Leder notes that investors first learned of the long-running back-and-forth on Friday). Of course, there are times when they remind me of health inspectors dinging a restaurant owner for having a saute pan on the wrong burner. Here's one of the citations in the Hot Topic letter:

2. We note your statement that "a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met." Please revise to state clearly, if true, that your disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and that your principal executive officer and principal financial officer concluded that your disclosure controls and procedures are effective at that reasonable assurance level. In the alternative, remove the reference to the level of assurance of your disclosure controls and procedures. Please refer to Section II.F.4 of Management`s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, SEC Release No. 33-8238, available on our website at http://www.sec.gov/rules/final/33-8238.htm. Please revise the disclosures in your Form 10-Q for the quarters ended April 29, 2006 and July 29, 2006 as well. You should also revise your Form 10-Q disclosures to state that you evaluated the effectiveness of your disclosure controls and procedures at the end of the most recent quarter rather than at the end of the most recent fiscal year.