Heelys, Inc. continued to swirl deeper into insignificance in the third quarter as domestic sales plummeted nearly 83% and the company came close to losing money on every pair it sold in the U.S. as gross margins approached zero percent of sales.
Overall net sales were $10.8 million for the third quarter ended Sept. 30, a 55.6% decrease from net sales of $23.8 million in the year-ago period. Gross margins declined 330 basis points to 30.1% of sales, thanks to gains in the international business that offset the U.S. weakness. SG&A expenses increased 800 basis points to 36.7% of sales. HLYS reported a net loss of $1.1 million, or 4 cents per diluted share for Q3, compared to net income of $0.8 million, or 3 cents per fully diluted share in Q3 2008.
Domestic net sales decreased 82.6% to $2.5 million in the third quarter from $14.4 million in Q3 last year. The decrease in unit sales was said to be partially offset by increased average selling price for new back-to-school product. U.S. gross margins fell nearly 30 full points to just 0.4% of net sales for the period, which led to an operating loss of $1.9 million for the period versus operating income of $438,000 in the year-ago period.
International net sales decreased 12.1% to $8.2 million in Q3, compared to $9.4 million in Q3 2008. Management said they saw improvement in direct sales in the German and French markets and completed a significant sale during the third quarter to their Japanese distributor, but the European distributor business declined. International gross margins improved 180 basis points to 38.4% of net sales and operating profit was down 1.1% to $1.9 million for the third quarter. The company’s European distributor made up 7.8% of sales in the third quarter versus 2.2% of the total last year, while the company’s Japanese distributor comprised 20.8% of net sales in Q3, compared to 3.9% in the year-ago period.
