SAN FRANCISCO-Sales at the Sharper Image rose 4% in December, but the increase in holiday sales fell far short of the 15% to 18% improvement that had been hoped for, disappointing analysts and company officials.

Richard Thalheimer, the founder, chairman and CEO of Sharper Image termed the results “disappointing” but said that comparable store sales were “in line with our guidance of negative mid-single digits.” The company “lost some potential sales gains” by not having enough of some key holiday items in stock, Thalheimer said, adding that store traffic was lighter than officials had anticipated, especially in the 10 days leading up to Christmas Day. Other contributing factors to the holiday sales results included higher freight costs and a slight change in the merchandise mix to lower-margin items, Thalheimer said.

While the company lowered its earnings expectations on the basis of the sales report, it said it is confident in its overall strategy and plans to increase the number of new stores in its 177-unit chain by 15% to 20% in 2005. Thalheimer said the company will undertake “a critical review of our expense structure” and will control discretionary spending while continuing to develop new products to introduce in the summer and the fall.

The Sharper Image sales report followed a November report in which the company’s sales increased 17% to $78.9 million in November, compared with $67.3 million in November 2003 but comparable store sales decreased 3% in the same period. The lowered earnings guidance for the fourth quarter now estimates net profit at 94 cents to 99 cents per share, compared with $1.40 in last year’s fourth quarter. For the full year, the estimate is now 90 cents to 95 cents per share, compared to last year’s earnings of $1.65 per share.

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