Heelys, Inc. 2008 sales continued their downfall for the second fiscal quarter as net sales plummeted more than 400% as compared to the same period last year. Gross margins, down 12% from the second quarter of 2007, were significantly impacted by “aggressive markdowns on older inventory and non-core categories.” Domestically, Heelys gross margin for the second quarter was 13.2%, compared to a 31.1% gross margin internationally.
Don Carroll, newly appointed CEO of Heelys, addressed the decline in a conference call. “There are really two stories behind our gross margins in the quarter,” Carroll said. “One is the improving margins of our core business, which consist primarily of a new in-season wheeled product that is selling close to full retail prices the other one is deep markdowns on older products across the apparel, non-wheeled and even some wheeled categories.”
Likewise, the company has targeted a range from 31 to 35 points for gross margins as it continues to clear out old products. Currently, 25% of Heelys $19 million inventory applies to old products.
Regionally, Heelys reported that sell-through rates for the Heelys footwear were solid in the Mid-West and South but lagged in the West and Northeast. As concerns the outlook for the backend of 2008, Heelys assures that it will focus on managing inventory, raising margins, and generating demand for its products to initiate a resurgence in sales.
“Strategically, we continued to work successfully with our account base to reduce the level of inventory on select merchandise in the channel while at the same time increase retail price points and margins on more recent product introductions,” said Carroll.
