Sharper Image's Huge Hit

Nothing succeeds like excess. At least, that's what many Americans seem to think, while sitting in their Foot Massage Chairs, as their Roomba Pro robotic vacuum cleaners handle the dirty work.

While the entire retail sector has posted some big gains lately, luxury goods purveyors have seen their fortunes rise even higher. Last week, Sharper Image (Nasdaq: SHRP  ) reported a huge January, with comps up 21%, Internet sales up 51%, and catalog sales up 40% compared to last year. Naturally, that drove Q4 numbers way up, and led to a full-year sales increase of 26%, Profits are expected to come in at roughly $1.64 per share, up 33% from last year's $1.21.

Gadget-peddling peer Brookstone (Nasdaq: BKST  ) and Motley Fool favoriteCoach (NYSE: COH  ) also turned in impressive holiday seasons, while online gift shop Red Envelope (Nasdaq: REDE  ) was sunk by its own popularity.

Retail watchers have watched January rise in sales, leading us to wonder whether the increased new year spending is a result of higher consumer confidence, a general economic upturn, or simply a post-holiday binge fueled by easy credit, gift cards, and bargain hunting.

Whatever the impetus, The Sharper Image thinks the trend will continue into the rest of the year. Today, it outlined its view for fiscal 2004's first quarter and full year. The retailer is looking for sales growth of 20% or better, and earnings between $0.07 and $0.09 per share for Q1. That's less than the $0.10 analysts were expecting, but it's better than the red ink that typically flows for this and the other non-holiday quarters each year.

Management's full 2004 guidance tops out at $2 per share, pricing The Sharper Image today at around 20 times forward estimates. That doesn't look too bad if the company can execute on the 21% earnings growth the estimate represents.

But Americans are a fickle bunch, and a bet on trendy nonessentials is always something to weigh carefully, especially when so much of the spending spree is funded by plastic.

Happy days returning, or are American consumers headed for heck in a borrowed hand basket? Discuss it on the Retail discussion board.

Seth Jayson owns shares of Red Envelope. Reach him via email .