Heelys, Inc., which recently agreed to sell itself to a private equity firm, reported sales in the third quarter were unchanged at approximately $6.6 million for the three months ended September 30, 2012 and 2011.
On Oct. 22,
Heelys said it agreed to sell itself for $13.9 million in cash to Evergreen Group Ventures LLC, a private-equity firm.
Domestic net sales increased $398,000, or 17.3%, during the three months ended September 30, 2012, when compared to the same period last year, primarily as result of sales during the three months ended September 30, 2012 of our Sidewalk Sports(TM) wheeled footwear which we began to sell during the fourth quarter of 2011. Internationally, our net sales decreased $366,000, or 8.5%, for the three months ended September 30, 2012, when compared to the same period last year, which was the result of decreased sales of our HEELYS-wheeled footwear in France, Germany and Italy; offset by increased sales of our HEELYS-wheeled footwear in Japan and to third-party distributors and sales of our third party scooter and skateboard lines in France and Germany.
Consolidated gross profit margin decreased to 32.3% for the three months ended September 30, 2012, from 36.8% for the three months ended September 30, 2011. The decrease in gross profit margin from the same quarter in the prior year was primarily the result of $238,000 in inventory markdowns of finished goods and materials related to our Nano(TM) inline footboard and another $67,000 of markdowns of non-current HEELYS-wheeled footwear in the U.S. and Europe. Gross profit margin was also affected by changes in product and customer mix from the prior year, with a larger percentage of global sales coming from lower priced shoes sold at smaller product margins, including $482,000 in sales of our lower margin Sidewalk Sports(TM) wheeled footwear products during the three months ended September 30, 2012. In addition, our gross margins were negatively impacted by sales to certain European retail customers that are provided larger discounts than domestic customers and sales at discounted prices of certain of our older, excess and slower moving inventories, particularly in Japan and Germany.
Selling, general and administrative expenses, excluding restructuring charges and goodwill impairment (discussed below), decreased $839,000, primarily as a result of decreased consumer marketing and advertising and decreased commissions, primarily as a result of decreased sales in our international markets, and decreased payroll and payroll related costs, primarily as a result of the closing of our office in Brussels, Belgium effective as of June 30, 2012.
Loss from operations increased $988,000, from a loss of $1.9 million for the three months ended September 30, 2011, to a loss of $2.9 million for the three months ended September 30, 2012, primarily as a result of the decrease in gross margins and the goodwill impairment charge of $1.5 million we recognized during the third quarter of 2012.
The Company reported a net loss of $2.4 million, or $(0.09) per fully diluted share, for the three months ended September 30, 2012, versus a net loss of $1.5 million, or $(0.05) per fully diluted share for the three months ended September 30, 2011.
The Company began taking steps in the first quarter of 2012 to close its office in Brussels, Belgium and transition the business operations conducted through that office to its French, German and U.S. offices. As part of this initiative, the Company eliminated its workforce in Belgium effective as of June 30, 2012. These workforce reductions primarily came from the elimination of certain finance, supply chain and customer service functions. The work performed by these people was absorbed by our employees in France, Germany and the United States. We hired limited personnel to assist with accounting and logistical support in those offices. Financial management and reporting for the Company's Belgian subsidiary was transitioned to our headquarters in the United States. In connection with these initiatives, we have recorded $445,000 in severance and one-time termination benefit costs, $96,000 in contract termination costs and $209,000 in other costs, including, but not limited to, costs to close the Company's office in Belgium, transfer the business operations to the Company's French, German and U.S. offices, and repatriate the Company's Vice President, International back to the United States. In addition, we recognized $34,000 in fixed asset impairment charges related to these initiatives.
During 2008, the Company entered into agreements with our former distributors in Germany and France, whereby their rights to distribute HEELYS-wheeled footwear in their specified markets was terminated allowing the Company, through its Belgian subsidiary, to market its products directly in those markets. In connection with the termination of these distributor agreements goodwill was recorded. Goodwill is not amortized but is instead measured for impairment at least annually, or when events, including when a portion of goodwill has been allocated to a business to be disposed of, indicate that impairment might exist. On October 22, 2012, the Company entered into an agreement to, among other things, sell substantially all of its assets (discussed below). Management assessed various qualitative factors, including the aggregate purchase price, the carrying value of the reporting units (domestic and international), the origin of the recorded goodwill and the anticipated allocation of the purchase price, and determined that it was more likely than not that the fair value of the reporting unit at which the goodwill was recorded was less than its carrying amount. As a result, a goodwill impairment charge of $1.5 million was recognized as of September 30, 2012.