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Focusing The Microscope On Shaper Image

Posted: Sep 19, 2007 15:01 PM by Glenn Curtis

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Tickers in this Article: RSH, SHRP

Have you looked at Sharper Image (Nasdaq:SHRP) lately? The stock is in the tank.

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It's trading right near its 52-week low and the company's market cap is only about $76 million. So, what happened to this one-time high flier and retailer of hi-tech gadgetry and luxury items?

Very simply, low same store sales results and paltry earnings have sent the stock tumbling over the last several years.

However, I think there were certainly signs that the company was experiencing serious trouble. In this article I'm going to go back and look at the Sharper Image's symptoms, so they can be avoided in the future. Losses make for important learning experiences.

Read The Press Releases
My first tip is always read those quarterly releases in their entirety. It's a pain, but it's often worth it. Shaper Images June 2, 2005 press release shows that serious issues were already beginning to surface (To read the release for yourself, see "Sharper Image Reports May Sales"). May 2005 comparable store sales were down some 15%. The stock was trading for $13.89 back then, or almost 3-times what it trades for now, so it would have been an ideal time to get out! (To get started, check out The Flow Of Company Information.)

Shop 'Til You Drop
Next, shop the stores. Sharper Image is still a pretty cool store, but I don't think it's as cool as it was say back in the mid-'80s when it was a must visit when I was in my local mall.

Since that time, a number of other retailers that sell hi-tech gadgetry have emerged and have likely lured foot traffic away from the company. Also, what have Sharper Image come out with that's truly revolutionary lately? Radio Shack (NYSE:RSH) and Brookstone offer similar gadgets. Frankly, I think that they are giving Sharper Image a real run for its money. In my mind, the store lost its luster probably just after the turn of millennium.

Losing Institutional Interest
It seems very few investors realize this, but sometimes when a stock goes below $10, and definitely below $5, institutional investors will start to shy away. They see it (rightly or wrongly) as a potentially risky stock, or they are afraid that their investors will see it as that. In any case, when a stock punches through those benchmarks, think about that possibility. Very often soon afterward you'll see buying dry up, and selling begin. (To learn more, read The Pros And Cons Of Institutional Ownership.)

The Holiday Must Be Jolly
Pay particular attention to the holidays. If stores like Sharper Image don't do well during the usually lucrative Christmas season, it doesn't bode well for the following year. The retailer could be stuck with inventory that it must markdown heavily to unload.

Bottom Line
I am not picking on Sharper Image. In fact, I think that the company has a chance to turn things around. However, my hope is that investors can learn from the lessons at Sharper Image and prevent heavy losses in their own accounts in the future.

For an extended discussion, see Analyzing Retail Stocks.

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By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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