Heelys, Inc. reported Q1 sales tumbled 73.5% to $13.1 million from $49.4 million a year ago. But Ralph Parks, Heelys CEO, said the company has witnessed improving trends in several key areas, including lower inventory levels in the channel, a modest increase in average selling prices, and a reduction in markdown assistance.
Parks said that while most of its retail customers did not make acceptable margins off Heelys product in 2007, they are looking for this to improve in the second half of '08 because of more manageable inventory levels and higher selling prices. HLYS is also seeing many retailers beginning to increase the average selling price back closer to more normalized levels.
“Most of our retailers have been very supportive and have begun to place future orders earlier than I originally anticipated,” said Parks. “Ultimately, the end consumer will determine the appropriate inventory level and with that in mind we're encouraging each retailer to only book and order what they feel they can sell during the back-to-school season and then fill in with at once orders.”
Parks said he remains confident about Heelys' prospects overseas, especially in Europe.
While a shift in timing of deliveries resulted in lower sales in the quarter, the company continues to expect international sales to be up double-digits in 2008. Overseas, Heelys established a subsidiary based in Brussels that will serve as its European headquarters. It also reached an agreement with its distribution partner for Germany and Austria to begin selling direct in both countries.
Gross margins in the quarter eroded to 21.5% from 35.4% due to lower sales and lower average selling prices partly to reduce inventories. SG&A expenses were 46.4% of sales, compared to 10.6%, a year ago. Costs included approximately $900,000 associated with the transition of its CEO during the quarter.
The net loss came to $1 million, or 4 cents a share, compared to net income of $8.5 million, or 30 cents, a year ago. Excluding the costs for the CEO change, Heelys lost 2 cents a share.
