Still, the report noted that "while the shares may lack a near-term catalyst in our view, we remain optimistic about management's increasing focus on expense control, and we see limited downside at current valuation levels."
In December, the Sharper Image reported that sales were disappointing, because management expected fourth quarter sales to be up 7% to 9%, compared with a previous guidance of a 15% to 18% increase. Also, same-store sales in December declined 7%, versus a tough comparison of 21% in last year's period.
"In the late '90s, the Razor Scooter phenomenon drove substantial growth in sales," Nesson continued. "Even more impressive, in our opinion, was the sustained benefit to sales driven by demand for the Ionic Breeze air purifiers, which supported a 21% CAGR in revenue from 1999 to 2003, and helped drive 13.6% and 15.0% same-store sales growth in 2002 and 2003 respectively."
More recently, however, there hasn't been a bit of star merchandise for the retailer, which is known for its upscale lifestyle assessories. "While the latest Professional Series Ionic Breeze air purifier has been generally well-received by customers, it has not had as significant an impact as its predecessors," said Nesson. "We can also speak positively about the company's other new products, such as the proprietary "Bright As Day!" floor and table lamps, and iJoy Turbo 2 Massage Chair—but same-store sales throughout 2004 have clearly been challenged by difficult comparisons and sluggish traffic trends."
Looking ahead, the Lehman report forecasts roughly 15% unit growth over the next few years, coupled with low-to-mid-single-digit comps. "Assuming growth in catalog circulation in the 5-10% range, and mid-to-high-single-digit growth across the company's wholesale and Internet sales channels, we look for total catalog/direct marketing, wholesale, and Internet revenue growth in the 9-10% range longer-term, versus management's current guidance of 12-15%.
After reporting its December sales and comp figures, Sharper Image chairman and CEO Richard Thalheimer stressed that the company was responding to the sluggish numbers. "While our product assortment was well received by shoppers, our in-stock position in some key holiday items was less than optimal, and our store traffic in December was lighter than anticipated," he said. "I would like to emphasize again that we remain confident in the soundness of [our] strategy. As we evaluate and respond to these lower sales gains, we will aggressively seek to control discretionary spending and to raise our direct advertising's return-on-investment on TV, in print and in the mail."
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