By Gene G. Marcial
While most retailers posted soggy sales in 2002, Sharper Image (SHRP) had a bang-up year. The specialty shop was firing "on all cylinders," says Roger Lipton of RHL Associates, which increased its stake in mid-December, when Sharper stock hit 15, down from 23 in November. The drop was due in part to rumors that Sharper would issue a secondary equity offering, confirmed on Jan. 8 when it filed to sell 2.5 million shares through a group led by J.P. Morgan and Lehman Brothers--a chance to buy at a bargain, Lipton says.
Sharper, with 127 U.S. stores, is debt-free--so why the need to raise capital? "Sharper sees strong growth of 30% to 40% ahead, and it wants to be financially able to put up more stores and introduce more products," says Lipton. He notes that robust December sales prompted analysts to lift their earnings forecasts. Internet sales surged 67%, to $18 million, catalog sales leaped 40%, to $24 million, and retail store sales rose 22%, to $80 million. Sharper's proprietary items--such as Ionic Breeze air purifiers and Austin Powers pinball machines--have helped the company avoid cutting prices. He figures the stock will double in 12 months, based on his increased earnings estimate of $1.10 a share for the year ending on Jan. 31, 2003, and $1.25 to $1.30 for next year. Kristine Koerber of WR Hambrecht, who rates Sharper a buy, says the stock, now at 16, is attractive at 12 times her fiscal 2003 estimate. Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.