Sharper Image Looks to Brighten Up

Wilson, who maintained his hold rating on the company, advised investors to be cautious about the new CEO.

"Mr. Lightman may need to make some painful decisions if he is to rescue the company," Wilson wrote. "This may include potential store closings as well as the closing of one of its three distribution centers, or at least the restructuring of the usage of those [centers]."

One-Product Focus

Analysts say Sharper Image's troubles stem from the company's relying too heavily on its Ionic Breeze air purifier. Wilson says that as much as 40% of the company's sales are tied up in the product, which has been hurt by increased competition and heavy criticism from Consumer Reports.

"It's a one-product company," says Scott Rothbort, founder of LakeView Asset Management and a contributor to StreetInsight. "It's one of those places that are great to visit, but people don't want to live there, so to speak. People like to go in there and play, but they don't buy. They can probably find the same stuff on the Internet, only cheaper."

Wilson says that the purifiers were a high-margin item and that the company's lower-margin items don't have the same inventory turnover, resulting in what he calls a "double-whammy."

"When the Ionic Breeze came out, they hit the jackpot," Wilson says. "It was high in margin, high in average ticket and high in inventory. They have good stuff that would actually sell well under normal circumstances. It's just that none of these products can replace the Ionic Breeze."