Novice Investing - Blurring Image at Sharper Image

Date: Tuesday 13th 2008f May 2008 06:48:41 AM

Blurring Image at Sharper Image - 02/22/2008

By: Hari Wibowo

After string of unprofitable year, Sharper Image Corp. (SHRP) finally called it quit. Unable to refinance and under its debt burden, Sharper Image filed for bankruptcy protection Chapter 11 from its creditors. Back in September 2007, Sharper Image is expected to incur cumulative losses of $ 6.22 since 2005. That doesn't bode well for the company. While Sharper Image spotted a $ 3.75 positive net cash in 2005, after this string of losses, you can expect Sharper Image's net cash to be negative now. This is ain't good in a slowing economy. Sharper Image had been reporting double digit same store losses since 2005 when the economy is doing great. Now, approaching the tough 2008, it will be even harder for Sharper Image to report positive same store sales.

If same store sales trend is negative, there is very little chance Sharper Image ever turned a profit and that is part of the big reason they are filling for Chapter 11 bankruptcy. Sharper Image is also a classic case of relying too much of a single product, which is Ionic Breeze air purifier. At one time, this single product makes up as much as 35% of Sharper Image's revenue. With class-action law suit claiming that Ionic Breeze is ineffective, sales at Sharper Image plummeted. This leads to Sharper Image's bankruptcy.

What happened to shareholder of Sharper Image now that they are in bankruptcy? As of late, the shares is trading at $ 0.50 and it is mostly traded within speculators. In most probability, Sharper Image shares will trade close to zero and current shareholders will get nothing in the bankruptcy process.

It is a sad but necessary process. We are reminded of the fact that even company with positive net cash can go bankrupt if they can't turn around their business quickly enough. With economies in the doldrum, you may expect future bankruptcies of similar reason.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Sharper Image Inc. (SHRP) or any other securities.

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