Heely’s Net Sales Sink in Q2

Heelys, Inc. reported the following financial results for the second quarter ended June 30, 2010.

Year-over-Year Quarterly Comparisons

Net sales for the second quarter of 2010 were $8.8 million compared to net sales of $12.4 million in the corresponding period a year ago. Gross profit was $3.7 million, or 42.2%, compared to gross profit of $4.1 million, or 32.9%, for the second quarter of 2009. Selling, general and administrative expenses, excluding litigation settlements and related costs, were $3.8 million compared to $4.5 million in the second quarter of last year. Litigation settlements and related costs were $3.1 million for the second quarter of 2009. Litigation settlements and related costs incurred during the second quarter of 2009 were related to the class action lawsuit (filed in August 2007), the shareholders' derivative lawsuit (filed in October 2007) and the individual lawsuit (filed in May 2008). These lawsuits, which were related to the Company's initial public offering, were settled during the third and fourth quarters of 2009. In April 2010, the Company settled a potential patent and trademark lawsuit, in the Company's favor, in the amount of $750,000. This settlement amount is reported as other income in the Company's statement of operations. The Company reported net income of $473,000, or $0.02 per fully diluted share, versus a net loss of $1.6 million, or ($0.06) per fully diluted share in the second quarter of 2009.

Sequential Quarterly Comparisons

Net sales for the second quarter of 2010 were $8.8 million compared to net sales of $6.7 million in the first quarter of 2010. Gross profit was $3.7 million, or 42.2%, compared to $3.2 million, or 47.9%, for the first quarter of this year. Selling, general and administrative expenses were $3.8 million compared to $4.2 million in the first quarter of 2010. In April 2010, the Company settled a potential patent and trademark lawsuit, in the Company's favor, in the amount of $750,000. This settlement amount is reported as other income in the Company's statement of operations. The Company reported net income of $473,000, or $0.02 per fully diluted share in the second quarter of 2010 versus a net loss of $1.2 million, or ($0.04) per fully diluted share in the first quarter of this year.

Balance Sheet

As of June 30, 2010, the Company had combined cash and investments totaling $69.1 million compared with cash and investments of $66.5 million as of December 31, 2009.

Tom Hansen, chief executive officer of the Company, commented, “We've added top talent to our management team in the first half of the year; Rick Groesch as VP Brand, Craig Storey as COO/CFO and Rene Trevino leading our sales effort. Even so, the retail environment continues to be very difficult. We find that retailers are still hesitant about taking significant inventory positions with all of the uncertainty around a possible double-dip and continued weak jobs reports. However, results at the retailers who have proactively engaged with the brand are encouraging. We expect our relationships there to continue to improve as we introduce Nano and HX2 into the marketplace. We also believe that these two new products will rekindle consumer interest in the Heelys brand. Our international business, though down some from original expectations, continues to perform consistently. And, as always, we continue to look for more efficiencies in our operations cutting costs where we can and investing in areas that will help us grow the business.”