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Sharper Image CEO, Founder Is Ousted

September 27, 2006|Alana Semuels | Times Staff Writer

In a boardroom coup, upscale San Francisco-based retailer Sharper Image Corp. said Tuesday that it had ousted company founder and Chief Executive Richard Thalheimer amid lower sales and share prices.

The board replaced the 58-year-old Thalheimer, who led the company for nearly 30 years, with one of its own, Jerry W. Levin, as interim chief executive. Levin had helped engineer sweeping changes on the board this year.

Sharper Image -- known for its 191 stores and glossy catalog selling massage chairs, nose-hair trimmers and Ionic Breeze air purifiers -- has had a rough year financially. Investors seemed happy with the change Tuesday. Shares of Sharper Image jumped 96 cents to $10.33.

"Investors are saying it is time for a change," said Ivan Feinseth, director of research at Matrix USA, an institutional research and brokerage firm. "They're looking for new leadership to take the company in a different direction."

The board's decision followed months of corporate turmoil.

Sharper Image narrowly avoided a proxy battle in May with Knightspoint Group, which then owned 12.8% of the company. It contended that Sharper Image was plagued by misdirected advertising, a lack of product development and problems with financial discipline, according to an SEC filing.

To avoid a proxy battle, the company agreed to a board shake-up, in which four board members, including Thalheimer's father, were ousted. Six new members were added, including Levin and two other representatives of Knightspoint Group. Levin was named board chairman this week.

Even after the changes, share prices continued to fall.

The company has experienced six straight quarters of declining sales, posting a net loss of $15.6 million for the fiscal year that ended Jan. 31, contrasted with earnings of $14.7 million the previous year.

Other industry analysts say the company needs a better product mix. "They just haven't really brought anything into the stores that people overwhelmingly feel like they really need to own," said Joan Storms, an analyst with Wedbush Morgan Securities in Los Angeles.

"People like to go in and try out the chairs and other fun stuff, but there's a lack of purchasing going on."

The company also announced Sept. 18 that it would restate results for a three-year period that ended in January 2006. The company began a review of its option practices after disclosures that scores of companies may have backdated option grants to boost their value.

The company declined to comment further Tuesday about the stock options or Thalheimer's role in them, saying it would be inappropriate to comment before the probe was completed.

In making Tuesday's announcement, the company stressed that Levin had experience in turning companies around. He was previously CEO at American Household Inc. (formerly Sunbeam Corp.), and CEO at Revlon Inc. and Coleman Co.

Although Tuesday's announcement did not surprise analysts, it marked a big change for the company whose brand is synonymous with Thalheimer. His face graces its catalogs, he appears in its infomercials and his founding story is painstakingly detailed on its website, which also sells his audio book, "Creating Your Own Sharper Image."

Thalheimer was paid $990,000 during the fiscal year that ended Jan. 31. He took a 50% pay cut for the current fiscal year.

As part of a severance agreement, the company said he would receive at least $5 million and retain a 21% stake in the company, meaning he would still have a seat on the board.

Thalheimer's role will unavoidably change, analysts said. "His role has been as a relatively active CEO -- very hands-on as I understand it," said Richard Weinhart, an analyst at BMO Capital Markets in New York. "But I would assume that he was at least sharing some responsibility" since the board shake-up, which was approved in July.

Thalheimer, a Yale graduate and native of Arkansas, started a stationer's shop when he was 24, which he named Sharper Image.

After getting a law degree from UC Berkeley, he returned to merchandising, breaking into the market in 1977 with a waterproof runner's watch, which he advertised in a magazine. Since then, the company added a mail-order catalog, a website and hundreds of funky gadgets such as the FresherLonger Miracle Food Storage container. The company went public in 1987.

Analysts say the company was more successful from 2001 to 2004 but has slid significantly because of problems involving the store product line.

One of its biggest problems has been its reliance on the Ionic Breeze air purifier, which analysts say probably accounts for 30% to 45% of the company's sales. The 2005 version of the product was panned as ineffective by Consumer Reports, and analyst Storms said sales of the purifier and the company's other big product, the massage chair, were declining.

The reliance on these two products kept the company from innovating and developing a pipeline for new products, Storms said.

"They've become nothing but the franchise for Father's Day gifts," said David Brody, a Sharper Image customer and a managing partner in North Venture Partners, a Los Angeles-based company that helps early- and mid-stage companies. Brody, who owns one of the company's nose-hair trimmers, was given a $50 gift certificate to the store last year but could not find anything there that he wanted to spend it on.

"A $50 umbrella? A plug-in car charger coffee warmer?" he said. "They have nothing that you need in there."

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alana.semuels@latimes.com

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Begin text of infobox

A tough stretch

Company at a glance

Founded: 1972

Headquarters: San Francisco

Employees: 2,500

Retail operations: 175 U.S. stores, plus catalog and online sales

Sample products: Touchless Trashcan ($99.95), LoveHandler abdominal exercise device ($249.95), i-Dog Musical Companion for iPod ($34.95), Roomba robotic floor vacuum ($279.95)

Market capitalization: $154.5 million

2005 revenue: $669 million

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