Can Sharper Image Recover From Its Dull Image?

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Sharper Image (SHRP-NASDAQ) had a brief pop on Friday because of a filing that sort of shows how the company’s Ionic Breeze(R) and Oze Guard(TM) products were as effective as Pixie Dust.  The company has reached a settlement over the controversial device, and thankfully we don’t have to watch the commercial with the founder and his daughter trying to sell the systems any longer now that he is mostly out of the company.

The agreement provides, among other things: (i) that the Company will sell Ozone Guard(TM) attachments for floor models of Ionic Breeze(R) at a price of $7.00 per unit for 180 days and the Company will design an Ozone Guard(TM) attachment for any Ionic Breeze(R) model which is not compatible with current Ozone Guard(TM) models; (ii) that the Company will test all current and future Ionic Breeze(R) models for ozone emissions using the UL 867 test protocol as conducted through an independent testing laboratory and will not sell any Ionic Breeze(R) model that has not passed the UL 867 standard; and (iii) for certain restrictions with respect to the Company’s advertisements for the Ionic Breeze(R) line of indoor air purifiers. 

Sharper Image will issue a non-transferable $19.00 merchandise credit, valid for one year, to each member of the Settlement Class to be used exclusively to purchase Sharper Image Design(R) and Sharper Image(R) branded products, subject to one merchandise credit per household. The Company estimates that there are approximately 3.2 million members of the settlement class.  It is probably expected that only a small portion of the class will ever get around to using their credit, but that may be because there is such little interest in their stores now.  Many companies have won from consumers not even getting around to mailing in rebates, and Sharper Image isn’t exactly a go-to destination anymore.

Sharper Image used to be cool.  Now they have been ousted by the likes of Best Buy and other specialty retailers.  Have you seen their stores in the last couple of years?  To say they have only seen thinner traffic and lighter sales would be a compliment.  This settlement doesn’t really do anything except maybe get the Pixie Dust product taken care of.  They still have an image issue, and the ‘cool factor’ is by and large gone.  There is a real need to do some soul searching better products, and that is undeniable.

The analysts expect Sharper Image to lose money as far as the horizon goes and the balance sheet is "probably" in disarray compared to the past when it had timely financial SEC filings.  At $9.50, SHRP shares are at the lower rungs of its $8.81 to $16.21 trading range over the last 52-weeks.  In early 2004, this was almost a $40.00 stock.  Jerry Levin was hired for one year to help this with branding and a turnaround, and he has about 8 months left on his contract.  Calling the next 8-months ‘critical’ might be an understatement.

Jon C. Ogg
January 22, 2007