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Five Things You Need to Know: The Wrong Company for the Wrong Times


Whatever you don't need, whenever you don't need it, at prices you couldn't care less about.


Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. The Wrong Company for the Wrong Times

There are perhaps few companies more directly associated with positive social mood and the long-running bull market than Sharper Image (SHRP). Yesterday the company filed for bankruptcy protection, citing declining sales and profitability.

With more than 180 retail stores, half of which the company will close, it would be easy to dismiss the company's descent into bankruptcy as simply another case of a company failing to adapt to a shifting retail environment fueled by changing consumer shopping behavior and online sales functionality; a sign of the times. Indeed, it may yet be a "sign of the times," but what sign, and of which times?

Sharper Image was born in San Francisco in 1977 as a catalog company selling jogging watches. Within 10 years the company emerged as a publicly traded pioneer in catalog shopping.

Now there is a good chance the company will forever rest beneath a granite-engraved epitaph portraying it as an iconic retailer of nothing but bull market frivolity; automatic massage chairs, vacuuming robots, turbo-charged nosehair trimmers, digital breath alcohol analyzers, whatever you don't need, whenever you don't need it, at prices you couldn't care less about because, hey, if you need to ask how much an electric peppermill that you don't need or want costs, you probably can't afford it anyway.

Sharper Image stores and products have always been busy, frenetic, mirroring a busy and frenetic social experience and the happy optimism of a bright social mood. Of course we need turbo-charged nosehair trimmers; or more precisely, of course we want turbo-charged nosehair trimmers. They're nosehair trimmers. And they're turbo.

Unfortunately, those days of consumer gadget frivolity are quickly fading, a victim of darkening social mood; confusion, lack of control and insecurity force changes in our perceptions that manifest externally as spacial reductions, limitations, the stripping away of clutter and excess that feels heavy, like a weight, like debt.

The new Sharper Image, the right company for the right time, would likely be a company devoted to a single product sold with a minimalist aesthetic via an old-fashioned medium, like, perhaps a company that sells jogging watches through magazine ads. Sounds familiar.

2. Inside the Consumer Price Index

Consumer prices in the U.S. rose more than forecast in January, 0.4% for the headline number according to the Labor Department's Bureau of Labor Statistics. The "core" Consumer Price Index, which excludes food and energy, rose 0.3%. Economists had expected an increase of 0.3% for the headline and 0.2% for the core.

Year-over-year the core CPI rise to 2.5% from 2.4%, above the Federal Reserve's stated comfort zone.

Inside the numbers, the largest increase was in the Food and Beverages category, up 0.7% versus a 0.1% increase in December, the largest monthly increase since February of last year. As well, the index for Food At Home rose 0.9% after showing no change in December. The index for Apparel rose 0.4% in January, its fifth consecutive monthly advance. Prior to seasonal adjustment, however, Apparel prices declined 2.1% , largely as a result of post-holiday discounting.

There is no question that the CPI increases were broad and spread across many categories, but there are seasonal adjustment issues to be aware of because the Federal Reserve is most certainly aware of the changes. For that reason, the Fed will continue to focus on economic weakness over inflation and if necessary continue to pursue a path of lower interest rates.

3. Wall Street Abandons "Neediest" Clients

In case you are wondering, "Wall Street Abandons Neediest Clients" is a Bloomberg headline we saw this morning. The hilarious part is what passes for "neediest" on Wall Street. Rest assured it is a far cry from what passes for "neediest" on Main Street.

Just who are these "neediest cases"? For one, investors and hedge funds that use borrowed money to purchase securities. Also, companies such as auto parts maker Delphi and Solutia Inc., a nylon and plastics maker looking to emerge from bankruptcy.

Last week JP Morgan (JPM) and Citigroup (C) reported having trouble syndicating the $6.1 billion in loans Delphi needs to emerge from bankruptcy protection. Solutia has gone so far as to take Citigroup to court to try and force CEO Virkam Pandit to answer questions as to why the bank decided to walk away from the company's $2 billion financing plan to emerge from bankruptcy.

And then there's Luminent Mortgage (LUM), a company that as recently as a year ago could access $640 million for a price tag of just $20 million, but today finds that $20 million only buys $80 million worth of credit.

The bottom line is that banks have little choice in the matter. They have been forced to take so many assets back onto their balance sheets that they simply no longer have the flexibility to offer credit to borrowers that only a year ago would have had little trouble raising capital.

The Neediest Cases

4. Tapping the 401k

Ran across an article from the Associated Press observing that some of the nation's largest retirement plan administrators are seeing double-digit spikes in hardship withdrawals and increases in loan requests.

Administrators say consumers are using retirement savings to pay for unmanageable mortgages, maxed-out credit cards, and costly utilities and groceries, according to the article.

Great-West Retirement Services said hardship withdrawals jumped 14% last year, with a dramatic increase occurring in the fourth quarter. Fidelity Investments said it saw withdrawals surge 17% in 2007, with record withdrawals in December. Vanguard, however, saw no change.

5. Speaking of Declining Massage Chair Sales...

La-Z-Boy (LZB) reported results that might have exceeded some analysts most grim estimates - probably why the stock is up 6% today - but the company didn't leave those on the conference call with any warm and fuzzy feelings. They slashed their dividend 67%. They reported sales were down 7.8%. They cut 20% of their sales force. And they noted "the industry is facing greater challenges as the consumer postpones financial purchases." Postponing financial purchases is deflationary, pure and simple.

Then again, maybe this is something far more easily rectified than Sharper Image. Perhaps La-Z-Boy is just a wrongly named company for the wrong times, nothing a name change and product makeover can't fix.

Minyanville recommends the following corporate re-engineering makeover.

Old Name: La-Z-Boy
New Name: Cra-Z-Boy

Old Product: Leather Recliner
New Product: Exer-Cliner, an HGH-Fortified Muscle-Building Chair with Steroid Injecting Gluteal Cushions

"With the Cra-Z-Boy Exer-Cliner you can REALLY be an armchair quarterback!"

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