Heelys Q3 loss widens as markdowns impact margins

US: Heelys Q3 loss widens as markdowns weigh on margins

By Katie Smith | 14 November 2012

Q3 loss widened to $2.4m from $1.5m last year
Sales edged up to $6.7m from $6.6m
Gross margin down to 32.3% against 36.8% last year

Wheeled footwear maker Heelys, which is to be sold to private equity firm Evergreen Group in a US$13.9m cash deal, has seen its third-quarter losses widen.

Losses came to US$2.4m during the three months ended 30 September, compared to $1.5m last year, as markdowns and changes to the product mix weighed on profit margins.

Net sales edged up slightly to $6.7m, compared to $6.6m the same period last year. Domestic sales rose 17.3%, helped by the launch of its Sidewalk Sports wheeled footwear. But international sales fell 8.5%, with declines in France, Germany and Italy.

Gross margin slipped to 32.3% against 36.8% last year, mainly due to inventory markdowns related to the Nano inline footboard and non-current Heelys-wheeled footwear in the US and Europe.

It was also hurt by changes in the product and customer mix, with more global sales coming from lower-priced shoes sold at smaller margins. Larger discounts to European customers and slower moving inventories in Japan and Germany also contributed to the gross margin decline.

Heelys restructuring efforts generated costs of $445,000 in severances, $96,000 in contract terminations and $209,000 related to the closure of the company's office in Belgium in June.

Once the sale to Evergreen Group is completed, it plans to liquidate its assets and operate the shoemaker as a private company.

Sectors: Finance, Footwear, Manufacturing

Companies: Heelys