Heelys Inc. swings to Q4 loss, hits 52-week low

Shares Heelys Inc. (Nasdaq: HLYS) fell to a 52-week low on news the designer and distributor of sports-inspired products swung to a fourth-quarter loss.

The Carrollton, Texas-based company announced after the close on Tuesday that net loss for the three months ended $5.5 million, or $0.20 per share, compared with net income of $11.5 million, or $0.44 per share, a year earlier. Three analysts polled by Thomson Financial were expecting Heelys to break even.

Net sales fell a breathtaking 86% to $9.8 million from $71.1 million in the fourth quarter of 2006.
“Our fourth-quarter results reflect the ongoing challenge to bring retail inventories more in line with consumer demand,” said CEO Ralph Parks in a statement.

“Due to a glut of inventory at retail, we believe that Heelys’s 4Q07 sales consisted primarily of some at-once orders as well as sales to new customers in the family footwear channel,” wrote David Meyer, an analyst with investment bank Brean Murray & Co., in a research note released today.

For the entire 2007 year, net income was $22.3 million, or $0.79 per share, compared with $29.2 million, or $1.16 per share, in 2006. Revenues fell 2.5% to $183.5 million from $188.2 million in 2006.

“We began 2007 with a lot of positive momentum in our business which translated into a very strong first half of the year,” said Parks. “Despite the slowdown we experienced over the past six months, we continue to be very confident about our long-term potential.”

“Despite the extremely cheap valuation, we remain highly cautious on the stock,” wrote Meyer. “Until management proves that it can successfully reinvigorate demand, we would advise investors to steer clear of this stock.”
The analyst has a “hold’ rating and projects 2008 revenues of $181.7 million for a net income of $0.85 per share.

At close, shares of Heelys Inc. (HLYS) shares had declined $0.27, or 6%, to $4.32. The previous 52-week low of $4.57 was established on March 4, while the 52-week high of $38.68 was touched on May 7.

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