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Can Heelys Stop Skid the Way Fad Footwear Firm Crocs Did?

News flash: Silly wheeled sneakers aren't cool anymore


When Heelys Inc. (NASDAQ:HLYS) had its 2006 IPO, financial commentators were united in their opinion that the maker of wheeled sneakers would fade away into oblivion. That was even as shares of the Texas-based Heelys Inc. stock soared 85% on their first day of trading. Heelys has defied skeptics — at least for now — and managed to survive, though HLYS stock is a shadow of its former self.

But hey, if Crocs Inc. (NASDAQ:CROX) could rebound, maybe Heelys could too … right? Maybe not. Shares of the Carrollton, Texas, footwear company recently traded for $2.07, well under the $33.60 high they reached on their first day of trading.  Heely’s shares have plunged more than 30% this year alone.

The reasons for the Heelys struggles are many. First, there were the safety concerns.  The wheeled sneakers soon became the toy parents loved to hate — with good reason.   A 2007 medical study from Ireland documented cases of 67 children being treated for Heelys-related injuries.  Schools forbade students from wearing Heelys and malls and other public venues cracked down on “heeling” out of a justifiable fear of attracting lawsuits.

Then there is the issue of practicality. Unlike Crocs Inc. (NASDAQ:CROX) shoes, Heelys are of limited use. Crocs too were considered a fad but its brand has endured because the shoes are comfortable, durable and practical.   Shares of the maker of the plastic sandals that some consider ugly have climbed more than 46% this year.  Net income for the first quarter of 2011 at the Niwot, Colo. company increased 276.1% to $21.5 million, or 24 cents a share.  Revenue increased 35.9% to $226.7 million.

Uggs and Tevas, two trendy footwear brands, are also faring well during these uncertain economic times.  Deckers Outdoors Corp. (NASDAQ:DECK), which makes both brands, reported record first quarter profit of $19.2 million, or 49 cents a share, beating Wall Street expectations.  Uggs brand sales rose 42.2% while Teva gained 16.8%. Its shares, which have pulled back lately, are up 4% this year.

Heelys, where business development company Capital Southwest Corp. (NASDAQ:CWSC) was an early backer and remains a significant shareholder, have faltered as its rivals have soared.  Everything that could have gone wrong for Heelys seems to have done so.  In the company’s latest earnings release, CEO Tom Hansen cast a wide net to blame for Heelys’ bad luck including the natural disasters in Japan.  He didn’t hold an earnings conference call.

At the end of the last quarter, Heelys had $62.6 million in cash and investments.  Yahoo Finance indicates that the company has no total debt, which offers a rare bit of good news for investors.  The company’s market cap of $56 million makes it an easy acquisition for either Crocs or Deckers Outdoor.  Capital Southwest, which acquired its stake in Heelys in May 2000 for $103,490 that’s worth about $17 million today, may take the company private and re-IPO it later.  Gary L. Martin, Southwest’s CEO, is the Independent Chairman of Heelys.  He may be looking for an exit strategy.

Without a sale there are fewer reasons for investors to get excited about Heelys than ever.  It reported a net loss of $1.18 million, or 4 cents a share, in the three months ending March 31, 2011, little changed from a year earlier.  Revenue fell $549,000 to $6.1 million. Consolidated net sales in 2010 were $30.4 million, down from $43.8 million a year earlier.   At the time of its IPO, Heelys had been profitable for at least three straight years. Revenue was $117 million in the nine months ended Sept. 30, 2006, up from $29 million in the year-ago period.

Article printed from InvestorPlace Media,

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