Specialty retailer Sharper Image (NASDAQ:SHRP) called 2005 a "transition year" when it reported fiscal-year 2004 results. The meaning of that phrase became clear today when the company reported first-quarter results and said that fiscal-year earnings would be $0.00 to $0.30 a share -- a big fall from $0.90 a share in 2004. The high-end 2005 guidance is $0.27 a share below analyst estimates. Investors don't need a sharper image than that to realize 2005 is going to be a downer.

First-quarter revenue fell 7% compared to the year-ago quarter and the company registered sales declines in all its reporting categories. Looking at the holy grail of retail measures says it all -- comparable same-store sales fell 16% from last year's first quarter. Even worse, last year's $0.12 in first-quarter earnings was replaced by a net loss of $0.30 a share this year.

The weight of the bad news helped the stock collapse 19.9% in early morning trading to a new 52-week low. The stock is down 47.6% over the last 52 weeks.

Today's news is not the first whiff of trouble. Annual same-store sales climbed 15% in 2003, then declined 1% last year. Earnings in 2003 were $1.51 a share, and last year's $0.90 a share performance was burdened by West Coast port congestion that led to shortages during the key holiday season (and higher freight costs too). The company also labeled some 2004 new product introductions "less popular than anticipated."

When I wrote about the stock last August, full-year earnings guidance was $1.82 to $1.87 -- more than double actual year-end earnings. On a forward price-to-earnings basis the stock looked cheap then, at 11 times earnings. Ah, how expensive it looks now at 37 times high-end guidance.

There are two ways to look at Sharper Image. There is the debt-free company with $59.4 million in cash that is touting its iPod and MP3 player accessories and promising new merchandise starting in the third quarter. Or, there is the company that is experiencing declining sales in all its reporting categories and has seen its cash resources reduced by $15.3 million over the last year (although, to be fair, the company has spent $11 million to purchase 710,000 of its own shares over the last eight months -- though those shares have lost $3.1 million in value as of this morning's new all-time low).

What should you believe? Try these comparisons. Motley Fool Stock Advisor recommendation Amazon (NASDAQ:AMZN) saw its sales increase 24% in the latest quarter while Sharper Image's Internet sales fell 12%. Store/catalog/Internet retailer Williams-Sonoma (NYSE:WSM) has seen catalog sales fall but its overall sales, earnings, and same-store sales have increased. Most telling, Brookstone (NASDAQ:BKST), a direct competitor to Sharper Image, saw its latest quarter's same-store sales decline a much more modest 3.9%.

Sharper Image is having big problems -- and past customers are not flocking to any of its retail formats. There is enough cash to sustain operations while the company tries to regain its footing, but for now, the company has lost its focus and investors would be wise to look elsewhere.

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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned, but is breathing cleaner air thanks to a Sharper Image Ionic Breeze. Click here to see the Fool's disclosure policy.