Sure, this sounds like good news to Heelys' long-suffering shareholders, who have certainly had a dearth of good news since the stock tanked from its once-heady highs near $40 a share in early 2007, shortly after its IPO. The stock's up more than 10% in today's trading.
Honestly, though, if Heelys rejects the offer, which looks likely, I kind of think maybe Skechers should just drop the whole idea.
But what about Skechers?
I'm not sure I view this as good news for Skechers, even if buying a beleaguered peer with a proprietary brand and a specific schtick might seem logical. (And of course, the rough patch of road has made Heelys' stock look a lot more reasonable.)
However, this kind of deal strikes me as similar to the problems we investors face when we're trying to figure out if "cheap" is "cheap enough." One of Heelys' biggest problems has been a product that looks like it has become a fast-fading fad. Maybe Skechers -- which, granted, is adept in following shoe trends -- sees something I don't about the long-term prognosis for Heelys. Be sure to read the letters Skechers disclosed, which may tell us a bit more about the story, though -- Skechers may have wanted to acquire Heelys (it "carefully considered a potential transaction") before its December 2006 IPO.
Skechers must really adore Heelys, warts and all, since troubles looked pretty clear when Heelys reported its most recent quarterly results. In its Form 10-Q, Heelys did say it has begun selling directly to retail customers in Europe. However, some major ugly changes on a quarter-over-quarter basis include having lost major customer Finish Line
And of course, the overall picture was bleak, given how Heelys' quarterly net revenue plunged 75.5% to $18.2 million, even with the addition of some new customers overseas, and of course gross margin fell as some retailers reduced prices on the wheeled shoes due to their burgeoning inventories. All of this clearly looks like a fading fad to me.
The shoe's on the other foot … ouch
Back in February, I gave Skechers kudos as a Stock of the Week, but it has since stubbed its toe (not exactly unusual in the current environment). And of course, for the shoe companies that lose the trend, the economy's doldrums become a double whammy. However, I've been of the opinion that Skechers has a heck of a lot more long-term staying power than some other trendy footwear stocks.
Speaking of which, another beleaguered shoe retailer, Crocs
Obviously, today's euphoria seems way premature to me. News reports say Heelys will likely blow off Skechers' overtures (as it obviously has a history of doing, although if there's no sweetened offer it may cause some shareholder ire -- ask Yahoo!
At some point, I'm sure Talbots'
Maybe Skechers has it all figured out, though -- it's obviously been coveting some kind of relationship with Heelys for long enough. On the other hand, I can't help but wonder if pursuit of Heelys may just be force of habit after all this time. After all -- in investing, business, or life -- it can be difficult for any of us to admit that some of our long-standing "great ideas" may have been wrong.