Heelys, Inc. recorded a 140% increase in net sales for the second quarter to $74.3 million from $30.9 million a year ago. Net income jumped 205% to $12.8 million from $4.2 million for the year-ago quarter, while diluted earnings per share increased to 45 cents from 17 cents last year.


Mike Staffaroni, president and CEO of Heelys, Inc. commented, “We experienced another strong quarter of domestic sales growth driven by demand for our spring / summer line combined with early deliveries of fall product. We also continued to witness growing demand in our international markets, namely Europe. Importantly, we were able to leverage our operating platform and translate a top-line increase of 140% into a 205% gain in net income while at the same time heightening our brand awareness through additional investments in marketing and advertising.”

For the second quarter ended June 30, 2007, gross profit was $26.3 million, or 35.4% of net sales, compared to $10.7 million, or 34.6% of net sales for the second quarter ended June 30, 2006. Total selling, general and administrative expenses for the second quarter of 2007 were $7.2 million, or 9.8% of net sales, compared to $4.2 million, or 13.5% of net sales in the second quarter of last year. Operating income was $19.1 million, or 25.7% of net sales for the second quarter of 2007 versus operating income of $6.5 million, or 21.1% of net sales in the corresponding period a year ago.


Outlook


For the third quarter of fiscal 2007, the company currently expects net sales to range from $55 million to $58 million and diluted earnings per share to range from 28 cents and 30 cents.


The company also updated its full year outlook. The company noted that it is experiencing challenges at retail related primarily to an over-inventoried position of product at many of the company's domestic accounts which will have a significant adverse affect on its fourth quarter 2007 results. Based on these factors, the company now expects net sales and net income growth of 10% to 15% in 2007 versus 2006. It should be noted that the company's fully diluted outstanding share count is projected to be 28.3 million shares for the full year 2007, compared with 25.1 million for 2006.


Mr. Staffaroni concluded, “The first half of 2007 was filled with many important financial, operational, and strategic accomplishments that have enhanced our brand equity and strengthened our infrastructure in order to better support our future growth strategy. Our entire organization is focused on successfully executing our business plan, which includes introducing new and innovative products in our core business, further penetrating the international marketplace, selectively increasing our domestic distribution, and developing additional footwear and non-footwear categories under the Heelys brand. We remain optimistic about the company's future long-term growth prospects and the opportunities that lie ahead.”



                  HEELYS, INC. AND SUBSIDIARIES

           Condensed Consolidated Statements of Operations

                             (Unaudited)

          (amounts in thousands, except for per share data)


               Three-month period ended      Six-month period ended

                June 30,     June 30,        June 30,      June 30,

               ———– ————-   ————  ————-

                  2006        2007             2006          2007

               ———–  ———-     ————  ————-


Net sales      $  30,927       74,310      $    44,596        123,738

Cost of sales     20,237       47,983           28,986         79,935

                ——–    ———-      ———-    ————

 Gross profit     10,690       26,327           15,610         43,803


Selling,

 general

 and

 administrative

 expenses          4,174        7,249            6,486         12,488

                ——–    ———-      ———-    ————

 Income from

  operations       6,516       19,078            9,124         31,315


Other expense

 (income), net        77         (734)              78         (1,500)

                ——–    ———-      ———-    ————

Income before

 income taxes      6,439       19,812            9,046         32,815


Income taxes       2,254        7,054            3,166         11,606

                ——–    ———-      ———-    ————


Net income     $   4,185   $   12,758      $     5,880   $     21,209

                ========    ==========      ==========    ============


Net income per

 share:

 Basic         $    0.27   $     0.47      $      0.40   $       0.78

 Diluted       $    0.17   $     0.45      $      0.24   $       0.75

                ========    ==========      ==========    ============


Weighted-

 average

 shares:

 Basic            15,435       27,055           14,716         27,050

 Diluted          24,501       28,328           24,924         28,338

                ========    ==========      ==========    ============