A RedEnvelope Redemption?

Not so long ago, all the color seemed to drain out of snazzy online retailer RedEnvelope (Nasdaq: REDE) after a failure to execute during the crucial holiday season. However, today RedEnvelope gave a more upbeat forecast for its upcoming fourth quarter. It gives investors the gift of hope that the company might be overcoming its struggles in time to take advantage of a very promising climate for upscale retailers.

To refresh your memory, in January, RedEnvelope, a Motley Fool Hidden Gems pick, said that it wouldn't meet previous forecasts due to a variety of factors, including distribution center snafus related to product personalization (one of the company's big hooks), and not enough product to meet demand.

However, at that time, it was arguable that despite a number of order cancellations, there were still signs that RedEnvelope's products were hits -- judging by the lack of supply. Meanwhile, RedEnvelope owned up to its shortfalls, and while that led to cancellations of gifts that wouldn't be on time, it's possible good customer service added up to customers who forgave the service and remained loyal.

Whether those factors come into play is uncertain, but today's upbeat forecast implies that things are going right again. RedEnvelope said it now expects revenues of $16.9 million to $17.3 million; the consensus estimate looked for revenues of $16.5 million, and the company had previously forecast revenues of $16 million to $17 million.

Back in February, RedEnvelope implied improvements when it said Valentine's Day orders went without a hitch, giving the impression the company ironed out some of its distribution problems. At the time, RedEnvelope said that it processed 95% of its Valentine's orders within eight hours, with every order shipped within 24 hours.

If RedEnvelope is indeed pulling itself together, it's definitely none too soon -- it's a good time for upscale retailers. Consumers have a little bit more confidence and a little bit more fun money. So, we have companies like Brookstone (Nasdaq: BKST) and Sharper Image (Nasdaq: SHRP), that are pulling in encouraging profits as shoppers shop again. RedEnvelope fits into the same upscale niche of gift giving, while likely appealing to shoppers' perceptions that it's a more affordable option than super-lux names like Tiffany (NYSE: TIF).

Despite the good news, after January's missteps, continued caution isn't out of line -- indeed, May 11, when RedEnvelope releases earnings, should be a red-letter day. That's when there should be more insight on the company's prospects.

Discuss RedEnvelope's future with other Fools on the RedEnvelope discussion board.

Alyce Lomax does not own shares of any of the companies mentioned.