Sharper Image Issues Disappointing Outlook
Sharper Image Corp., known for its robotic vacuum cleaners and massage chairs, said Thursday it expected a fiscal first-quarter loss of 28 cents to 32 cents a share, greater than analysts had forecast.
The disappointing report, which came after markets closed, caused shares of the San Francisco-based retailer to fall as much as 14% in after-hours trading, to their lowest level since 2003.
The news came the same day that Consumers Union, which owns Consumers Reports magazine, said Sharper Image agreed to pay it $525,000 and drop a 2003 lawsuit over critical reviews of the Ionic Breeze air purifier. The payment will cover the magazine’s legal expenses, Consumers Union said.
Sharper Image’s suit accused Consumer Reports of using unreliable test criteria in its 2002 and 2003 reviews of the Ionic Breeze Quadra air purifier, one of the retailer’s best-selling products.
In dismissing the suit last November, U.S. District Judge Maxine Chesney in San Francisco ruled that Sharper Image’s complaint was an attempt to chill free speech in connection with a public issue.
Consumer Reports in February 2002 ranked the Ionic Breeze last among 16 portable room air cleaners, with an overall score of “poor.”
Robert Wallach, a lawyer for Sharper Image, said the company’s decision to drop the appeal was a business one -- “in recognition that the Ionic Breeze is the dominant indoor air filter on the market today. Its sales continue at a brisk pace, which we believe is the best response to Consumer Reports’ article of almost three years ago.”
As for the company’s earnings forecast for 2005, the outlook was not bright.
“We expect to have a net loss in the first three quarters of 2005,” said Tracy Wan, president of Sharper Image, in a conference call. “We will work through inventory left over from the holiday as sales moderate and will focus on running the company in a very lean way and keep costs down.”
The first-quarter forecast compares with earnings of 13 cents a year earlier, the company said. It expects same-store sales to decrease by “the low teens,” compared with a gain in sales at stores open at least a year of 8% in the same quarter last year.
Sharper Image suffered from disappointing holiday sales because of merchandise shortages and higher shipping costs. It was expected to have a loss of 4 cents a share in the period ended April 30, the average forecast of seven analysts surveyed by Thomson First Call.
Richard Thalheimer, Sharper Image’s founder and chief executive, said the company would introduce as many as 30 products within the next few months, including items for personal care and new home stereo and music systems.
The move comes at a time when the company expects sales of the Ionic Breeze air purifier, one of its best-selling products, to plateau, in part because the product is facing more competition in the category.
“It will be a smaller portion of our business ... so we need to focus on new innovative products,” Wan said.
Shares of Sharper Image, which operates 175 stores in the U.S., rose 17 cents to $16.94 on Nasdaq in regular trading, then slid to $14.76 after hours. The price has tumbled from a peak of nearly $40 in February 2004.
