Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Heelys' Wheels Are Falling Off

Heelys (Nasdaq: HLYS  ) just did a revised-expectations face-plant.

The roller-shoe specialist actually just completed a very good quarter -- earnings zoomed ahead to $0.45 per diluted share, from $0.17 a year earlier, and sales kept pace, too, by growing 140% to $74.3 million. But nothing good happens when you're rolling along and the bearings seize up. That's what happened then the Street got news of an anticipated second-half slowdown. The stock dropped more than 40% this morning. The fad is apparently over.

As you probably know, the company makes sneakers with removable wheels -- shoes that can double as roller skates. You stop by leaning your foot back. These were very popular about a year ago, but I haven't seen many kids at all using them lately. It probably hasn't helped that many stores and schools have banned kids from wearing Heelys on their premises.

Company guidance confirms my personal observations. For the third quarter, management now expects sales of $55 million to $58 million and diluted earnings per share in a range from $0.28 to $0.30. The consensus estimate had been for $68 million in sales and per-share earnings of $0.38. The company also lowered its expectations for the full year, with net sales and net income growth now projected to be 10% to 15% in 2007. Given a higher share count, earnings-per-share growth should come in lower than the above growth. Retailers have an overstock of the company's products, too, so look for margins to contract as well.

This company clearly needs to expand its product line. The latest figures aren't available, but as of March 31, 98% of its sales was from the core roller-shoe product. Now that the fad seems to have diminished, the company has no other products -- to speak of -- that it can sell. The situation reminds me of Coleco, when it produced the Cabbage Patch collection. The success of that one product wasn't enough, and when the fad diminished, it filed for bankruptcy protection.

As a standalone company, Heelys, too, may continue to struggle with a reliance on a product that's a passing fad. The Cabbage Patch line was later manufactured by Hasbro (NYSE: HAS  ) and Mattel (NYSE: MAT  ) , where it became just one part of some broad product offerings. Similarly for Heelys, salvation may have to come in the form of a sale to a bigger footwear company, such as Nike (NYSE: NKE  ) . Investors need to hope that if that happens, it happens quickly, before the company crashes completely.

Related Foolishness:

Hasbro is aMotley Fool Stock Advisor selection. See what other stocks make up Tom and David Gardner's list of recommendations with a free, 30-day trial.

Mattel is a former Inside Value pick.

Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. He doesn't have any positions in the companies mentioned.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 533528, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:04:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
HAS $82.81 Up +0.34 +0.41%
Hasbro CAPS Rating: ****
MAT $32.75 Up +0.29 +0.89%
Mattel CAPS Rating: ****
NKE $51.77 Down -0.12 -0.23%
Nike CAPS Rating: *****