They say the most opportune time to purchase a stock is when virtually no one else seems the least bit interested in the company. I'm not entirely sure who "they" are, but the advice itself has been sound on more than one occasion. Devotees of this school of thought may want to take a look at Sharper Image (NASDAQ:SHRP), since the eclectic novelty item retailer has fallen more than a little out of favor. Today, the company's shares have slipped below the $15 mark, extending Friday's double-digit pummeling that sent the stock reeling to a new two-year low.
The latest bloodletting stems from a decidedly weak fiscal 2006 forecast, which left not a glimmer of hope that a short-term rebound was on the horizon. The company warned that first-quarter same-store sales are expected to fall in the low teens, a sharp turnaround from the 8% rise a year ago. On the earnings front, management is anticipating a $0.28 to $0.32 loss as gross margins contract somewhere on the order of 400 basis points. For the full year, earnings are expected to top out between $0.60 and $0.95 -- well short of the $1.12 outlook that analysts had set -- on sales growth straddling either side of zero.
This latest round of bleak news doesn't exactly arrive via left field; the company has been struggling for a while. Last week's grim forecast came on the heels of the company's total January sales results, which registered a 4% drop. The month closed out a difficult fourth quarter, where sales were kept in check by a poor holiday showing. Christmas-related sales managed to climb only 4% (vs. expectations of 15%-18%) as retail store traffic was light and both Internet and catalog operations posted disappointing revenues.
Online sales did advance 11% during the quarter, but that growth rate is only about one-third of last year's gain and looks meager considering overall Internet sales industry-wide rose more than twice as fast during the peak shopping season. Other retailers such as Overstock.com (NASDAQ:OSTK) and Amazon.com (NASDAQ:AMZN) reported record results. The problems didn't originate there, however. In fact, Sharper Image spent much of last year ratcheting down its fiscal 2005 (which ended Jan. 31, 2004) earnings guidance.
The bottom-line total, which stood at $1.82 last August, was reduced to $1.65, and then cut to $1.29, and finally slashed to $0.90. Those figures represent the low end of each of the company's earnings ranges, since the high end doesn't appear to be particularly relevant. There is one prediction, though, that is set in stone: There will be a sharp falloff from the $1.65 earned last year.
Sharper Image hasn't given shareholders many reasons to be optimistic lately, and the company hasn't had much success pushing its broad assortment of upscale gadgets through any of its sales channels. Worse still, the Ionic Breeze air purifier, which represents a large chunk of the company's revenues and earnings, is seeing its market share slip.
Investors who have the courage to climb aboard Sharper Image when so many other passengers are jumping ship may ultimately be rewarded. Though, given the company's falling comps, flat revenues, earnings shortfall, and negative cash flows, that would seem to take a leap of faith at this point.
Amazon.com is a Motley Fool Stock Advisor selection and Overstock.com is a Motley Fool Rule Breakers pick. Take a free trial to Rule Breakers today to learn more.
Fool contributor Nathan Slaughter owns none of the companies mentioned.
