The American supplier of wheeled footwear had more bad news at the end of the fourth quarter, reporting a loss of $5.5 million as revenues fell by no less than 86 percent to a mere $9.8 million, compared with $71.1 million in the year-ago period. Heelys said that part of the decline was the result of a $3 million increase in its reserve for so-called “marketing discretionary fund assistance” and an additional $2.7 million increase in its reserve for product returns. Without these items it would have reach net sales of $15.5 million, still way below its former peaks.
The net loss of $5.5 million compares with net income of $11.5 million for the same quarter in 2006. Without the adjustments related to reserve expenses, Heelys reported a net loss of $1.2 million.
For the full year, net sales were $183.5 million, down from $188.2 million in 2006. The gross profit margin for the year was 31.6 percent of net sales, down from 34.9 percent the year before. Net income was $22.3 million, versus $29.2 million in the 2006 fiscal year.
Heelys has seen some changes in management, probably in relation to its recent boom-bust situation. The chief executive since 2001, Michael G. Staffaroni, resigned and was replaced by Ralph T. Parks as interim CEO; Parks had been president and CEO of Footaction USA. Staffaroni will remain at the company as a consultant for the rest of the year. Don Carroll, the former chief marketing officer for Radio Shack, is the new senior vice president for marketing. Heelys’ senior vice president for global sales, Charles D. Beery, resigned effective Feb. 29. The company also named Jerry R. Edwards, former president and CEO of Pearl Izumi, to its board.
In its 10-K statement to the U.S. Securities & Exchange Commission, Heelys reported that its advertising and promotion expenses raised by 149 percent to $7.89 million last year. It sold 6.5 million pairs of its shoes in the fiscal year, compared with 6.2 million in 2006; 1.4 million in 2005; and 697,000 in 2004. At the end of the year it had 55 full-time employees and was using four independent manufacturers for all of its footwear products, including the one that had been its exclusive manufacturer, Bu Kyung Industrial. It had more than 75 patents, issued or pending, in 75 countries, 25 of them related to wheeled footwear.
As partial consolation for its awful fourth-quarter results, Heelys won a few days ago $1.4 million in a settlement of a patent and trademark infringement case against Elan-Polo, the American trading company based in St. Louis. Elan-Polo, additionally, struck a three-year licensing deal with Heelys to sell certain kinds of wheeled shoes to a list of specific North American retail clients.
Heelys’ management pointed out that its sales outside the USA increased by 13 percent last year, and that they grew also in the latest quarter, with gains in the UK, Germany, Spain, France and Belgium.
However, Heelys is getting new competition in some European and Middle East markets from a new Belgium-based company, Skaterunner International, which has registered patents for similar wheeled footwear in many countries in the region. It won last May a suit against Heelys in Belgium, forcing the American company to retract a statement, also on its website, that it was the only one entitled to market shoes with a removable wheel.
Skaterunner first introduced its Chinese-made wheeled shoes in Belgium and Luxembourg a year ago, marketing them at 20-25 percent lower prices than Heelys. They are now carried by major accounts such as Brantano, Intersport, Go Sport and Macintosh Retail Group. The line is now distributed also in Switzerland, the Netherlands, Greece, Turkey, Hungary and Morocco.
Company executives are targeting sales of 150,000 pairs of Skaterunner shoes this year, compared with 50,000 pairs in 2007. They are also launching a new line of customizable basketball shoes, similar to those of Converse. Called Tryka, it consists of 40 styles decorated by a snap that is offered in many different variants.
