Sharper Image Shares Plummet After Lowered Estimates

Specialty retailer Sharper Image Corp. (SHRP) lowered its earnings estimates on Monday on weaker-than-expected holiday sales, sending its shares down more than 18 percent.

Sharper Image shares fell $4.18, or 18.06 percent, to $18.96 on the Nasdaq (search).

The company said its total sales from Dec. 1 to 24 increased about 4 percent, below the 15 percent to 18 percent that had been expected. In addition, margins were hurt by higher freight costs, a slight change in the merchandise mix to selected lower-margin items and other factors.

Sharper Image said it now expects fourth-quarter earnings of 94 to 99 cents per share, down from $1.40 per share a year ago. For the full year, it forecast earnings between 90 and 95 cents per share, down from $1.65 per share a year ago.

Analysts currently expect the retailer to earn 96 cents to $1.59 per share in the fourth quarter, with a mean target of $1.31, according to Reuters Estimates.

For the fiscal year, which ends in January, analysts have a mean target forecast of $1.25 per share.

Sharper Image said it was doing a "critical review" of its expense structure and reviewing its new store plans for 2005, targeting 15 percent to 20 percent new store unit growth.

The company said comparable-store sales, those at stores open at least a year, fell as expected. Its in-stock position in some key holiday items was less than optimal, however, and it lost some potential sales as a result.

"The shortage of iPods, the biggest seller at (Sharper Image), was the primary source of the weakness in our view," as the company ran out in mid-December, Monarch Research said in a note, referring to Apple Computer Inc.'s (AAPL) popular digital music players.

Monarch, which has a "hold" rating on Sharper Image, also said that due to the company's "'just-in-time' nature of inventory shipments, it was impacted by the West Coast port slowdown more than its competitors."

Sharper Image also said store traffic was lighter than expected, with softer Internet sales and a lower-than-expected response to its catalogs and direct-response advertising.

The company said the fourth-quarter earnings outlook assumes total company revenue increased 7 to 9 percent and sales at stores open at least one year decreased in the mid- to high-single digit range.