Sharper Image Rides Into The Sunset (SHRP)

There was a time when Sharper Image (NASD:SHRP) had the hot hand. The company's stock traded near $40 in early 2004. It is now at $14.75.

Revenue rose nicely for the last three fiscal years (which end on January 31) hitting $760 million last year. But, for the year ending January 31, 2006, the top line dropped to $669 million and operating income swung to a loss of $26.9 million compared to a operating profit of $25.7 million the year before. For the last quarter of the fiscal, revenue dropped from $301 million last year to $263.7 million. Operating profit dropped from $28.6 million to $10.5 million. The holidays were rough for Sharper Image as the company's popular Ionic Breeze air cleaning product (in photo) took a beating in the press for causing health problems.

Then, the news got worse. April sales for Sharper Image dropped to $33.1 million from $47.2 million a year ago. While catalog sales were fairly flat, sales in the companies stores plummeted 30% to $16.3 million. Investors have to ask why they even keep them open.

For the quarter ending April 30, 2006, total sales for Sharper Image fell 26% to $104 million. For reasons that seem hard to understand, the company plans to open as many as eight more stores in 2006. The company had 190 stores at the end of the last fiscal year.

Richard Thalheimer, the CEO, founded Sharper Image in 1977, and, for investors, he has probably overstayed his welcome. The market is still showing some goodwill toward the company. At $14.75 it is much nearer its 52-week high of $16.21 than the low of $8.75. But, given the trends, that could change very quickly.

SHRP 2-yr Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].