Heelys Inc. has completed a strategic review of its options and has decided to continue to go at it alone in the market.  The Board of Directors reportedly looked at alternatives to acquire other brands-or to be acquired-and decided to stay focused on turning around the business as the originator of wheeled footwear.  The decision not to pursue a sale of the company probably makes sense as well, since multiples are already far lower-even for healthy brands.  Still, that $68 million in cash available at quarter-end makes it an attractive take-over target, even with all the baggage.


Net sales declined 29.4% to $9.2 million for the first quarter from $13.1 million in the year-ago period, but that picture was actually a bit rosier than the state of the domestic business.  Domestic sales fell nearly 55% in Q1 to just $2.5 million from $5.5 million in the year-ago quarter, comprising just 27.1% of total sales compared to 41.7% in Q1 last year.  International sales declined about 12% for the period to $6.7 million compared to $7.6 million in the prior year period.


First quarter gross margin improved 930 basis points to 30.8% of net sales from 21.5% of net sales in the year-ago period. 
Gross margin benefited from a higher international average selling price due to a conversion to more direct sales versus distributor sales, but was partially offset by a decline in domestic margin due to “sales of older inventory at discounted prices.”  SG&A expenses, while reduced for the period, still made up a higher percentage of sales for the period due to shrinking sales volume.  The resulting net loss rose a bit to $1.3 million, or a loss of 5 cents per diluted share, compared to a loss of $1.0 million, or a loss of 4 cents per diluted share, in the year-ago period.


Total inventories declined 4.3% to $11.6 million at quarter-end versus the comp period last year, but domestic inventories were down 29.0% from Q1 of last year. This was partially offset by a $2.7 million build in international inventory due to the international expansion.


Mike Hessong, the company’s interim CEO, said they have a “decent amount of orders” in for new back-to-school product, and added that the company “expects to have a reasonable second quarter,” but retailers are still taking a wait and see attitude on booking future orders and will “chase it as the product moves off the shelf.”