A Less-Than-Sharper Image

Attention, retail shoppers. Shares of specialty retailer Sharper Image (Nasdaq: SHRP  ) dropped 24% yesterday.

Last quarter, the slick and impressive results had the company upbeat about the second quarter. The stock, at $27 a share, was a mere 16 times earnings -- before the deep discounters on Wall Street took over. The stock is now $20 and change.

If you have children in the room, make sure they do not see these words: July sales were up 18%. The horror.

To be fair, the growth in sales is slipping. July's sales growth was 2% below last year's growth, and the second quarter's sales growth of 20% was 4% lower than last year's 24% increase. Same-store sales, the best way to measure retail store strength, were flat this quarter. And Internet sales, which jumped 57% a year ago, were up just 14% this quarter.

Revel in rival Brookstone's (Nasdaq: BKST  ) 13.3% increase in same-store sales if you will, but note that the company is going to lose money this quarter. That is not good.

Sharper Image made a dramatic cut to its late-May second-quarter earnings guidance of $0.09 to $0.11 per share -- which had indicated a 100% increase in earnings was coming. The new guidance, at $0.03 to $0.05 a share, leaves open the door for earnings to actually decline from last year's $0.05 a share. The crystal ball must need a high-tech microfiber wipe.

The company also lowered full-year guidance to $1.82 to $1.87 a share -- roughly a 12% increase in profits. But, the debt-free company, selling at 11 times forward earnings, has a bargain-basement price that reflects its dimming prospects.

Retail, in general, has been weaker than analysts had expected. Pier 1 (NYSE: PIR  ) , Sears (NYSE: S  ) , and Kohl's (NYSE: KSS  ) have all reported lower July same-store sales. Even Internet stars eBay (Nasdaq: EBAY  ) and Amazon (Nasdaq: AMZN  ) -- both Motley Fool Stock Advisor recommendations -- have been trying to rein in expectations.

Retail is a tough business. Sharper Image did lower expectations. Although the company is profitable, the trends in profitability and same-store sales bear watching.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.