Stoning Brookstone

Shares of eclectic luxury retailer Brookstone (Nasdaq: BKST  ) were trading in the teens last night after the company provided a grim look at its current state of affairs. With comps off by a sharp 10.8% over the past eight weeks and the company now expecting to post a loss of at least $0.20 a share, something's not right here. Can you figure it out?

No, it's not comps. Yes, a double-digit dip appears devastating at first glance, but that came after a 14.5% spike in comps during the same May and June period of 2004. So, as bad as things may seem at the store level, Brookstone is actually selling better today than it was two years ago.

No, it's not the $0.20 to $0.22 projected deficit. This is a seasonal retailer. It's supposed to lose money this time of year, only to make up for it, and then some, with a robust holiday quarter.

Give up? Well, what isn't right is that a stock that closed at $20.10 yesterday was beaten down to $19 after last night's news. Maybe the drubbing could have been expected under normal circumstances, but this stock was set to be taken private in a $20.50-per-share cash offer, as announced back in April.

Should the fundamentals matter for a lame duck? Apparently so. In this case, investors are voting with their feet. Creating a bigger gap between the current price and the eventual buyout price indicates that the market perceives a bigger risk to the completion of this deal -- under the current terms -- than it did before.

Brookstone's shares were at $15.60 when the buyout was first announced. If this deal falls through, it could get ugly now that Brookstone is in sorrier shape than it was back then.

After a healthy fiscal 2004 showing, the retailer has stumbled this year. Its closest match in the retail space, Sharper Image (Nasdaq: SHRP  ) , has also fallen out of favor with its underperformance lately.

It's hard to pinpoint exactly why this is happening. While Sharper Image's focus is more on electronic gadgets for the home and Brookstone often leans toward travel and outdoors products, an improving economy should be the time to shine for these stores that cater to relatively affluent males.

Brookstone is also looking to unload its smaller Gardeners Eden concept, which was operating at a loss. That may seem like an odd announcement, especially since the potential buyer should be making that kind of call.

What's an investor to do? Maybe you should follow the example that Brookstone and Sharper Image shoppers have set lately: Just gawk and fiddle with the merchandise without plunking down your hard-earned money.

Other headlines that may catch your window-shopping interest:

• The company seemed to be on track back in March.
• Last month, Sharper Image was also losing focus.

Longtime Fool contributor Rick Munarriz has done a fair deal of window shopping at Brookstone but can't recall ever actually buying anything there. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.