Heelys Third Quarter Sales and Income Drop

Heelys net sales declined 31.1% for the third quarter of 2007 to $49.9 million compared to net sales of $72.5 million in the corresponding period a year ago. Net income was $6.6 million, or 24 cents per diluted share versus net
income of $11.8 million, or 48 cents per diluted share last year.

Gross profit was $15.9 million, or 31.9% of net sales, compared to $24.9 million, or 34.4% of net sales for the third quarter of 2006. Total selling, general and administrative expenses were $6.3 million, or 12.7% of net sales, compared to $6.5 million, or 9.0% of net sales in the third quarter of last year. Operating income was $9.6 million, or 19.2% of net sales for the third quarter of 2007 versus operating income of $18.4 million, or 25.4% of net sales in the year ago period.

Mike Staffaroni, president and CEO of Heelys commented, “As we previously announced, our third quarter results were lower than we had originally forecasted due to a combination of factors. We are working hard to improve the recent trends in our business and better position the company for the future. This includes introducing new and innovative wheeled footwear, opening new channels of distribution, increasing our international presence, and diversifying our business with the launch of new products and categories. We move ahead committed to successfully executing our long-term growth strategy.”

Outlook

Heely's now expects 2007 net sales to be flat compared to 2006 and net income for the fourth quarter to be roughly breakeven as it more aggressively increases its marketing and product development efforts and works with its retail partners to clear inventory in an effort to return to normalized supply-demand conditions in 2008.