Heelys Posts Strong Q1; Outlook Fuels Concerns…

While Heelys, Inc. reported another triple-digit increase in sales and earnings for the first quarter, with earnings growth easily outpacing the revenue jump, a shift in the order book going forward and a proposed share sell-off by existing shareholders may have spooked Wall Street last week. HLYS shares were down 10.2% to close at $33.19 per share on Friday. The company also laid out plans to penetrate new or under-penetrated geographic markets like the Southwest and Upper Midwest, and demographic markets like the girls business and the urban market.

To continue to feed growth, Heelys now has a sixth independent factory online versus just one factory at this time last year. They are now able to produce 1.3 million to 1.5 million pairs of Heelys shoes per month, enabling the company to fill 98% of their Q1 orders.

Looking ahead, HLYS sees Q2 revenues in the $65 million to $70 million range, which would be an increase of 110% to 126% versus Q2 last year. However, management also warned that second and third quarter sales trends should be taken as a whole this year since there was about $20 million in revenues that shifted out of Q2 last year and into the third quarter. Based on the company’s total growth projection of 20% to 25% for the two quarters combined, it would appear that Heelys expects to see a sales decline for Q3. Second quarter earnings are expected to come in between 37 cents and 40 cents per diluted share, compared to 17 cents per diluted share in Q2 last year.

One other tidbit involved the launch of Heelys non-wheeled footwear for Spring ’08. It will debut at the WSA show in July. Management felt rather strongly that their brand had enough strength to play in the regular footwear market.

>>> Non-wheeled Heelys? Kind of like Under Armour without performance, isn’t it? Is this the right time to put your brand to the test of whether the kids consumer is really attached to your brand – or just the cool wheels in the heel of your shoes…