This hot American brand is suffering from a sudden drop in demand in the U.S. market following reports of injuries caused by wearing its wheeled shoes and claims by some leading retail chains that the brand is over-distributed. U.S. retailers have reportedly been sitting on large inventories of unsold Heelys shoes, leading the company’s management to predict a rise in sales and profits of only 10-15 percent for this year.

Major declines are evidently expected for the balance of this year as company has reported a sales increase of 140 percent to $74.3 million for the 2nd quarter ended June 30, with domestic sales up by 151 percent to $68.1 million and foreign sales up by 66 percent to $6.2 million. Net profit rose by 204.9 percent to $12.8 million for the period.

The prediction has lowered Heelys’ share price to a level of around $9, after trading as high as $40.09, and this has prompted some shareholders to file class action suits, generally claiming that the management had made false or misleading statements in connection with its initial public offering last December.

In an apparent attempt to counter the bad publicity and to revive its brand image, Heelys is launching a line of T-shirts, hooded sweaters, caps and backpacks under its own brand for the back-to-school season in the USA. Made in the USA, these highly creative items were sketched by two former designers of Quiksilver and Disney. The line is available for purchase by the brand’s foreign distributors, but the company is looking for a European licensee to make them and market them in this part of the world.

Close to the Christmas holidays, U.S. consumers will also be able to buy the first styles of a new line of non-wheeled footwear, designed for video game enthusiasts. These models will be available in Europe in the Spring of 2008.

Meanwhile Gary Martin, 61, has been elected as non-executive chairman of Heelys. He is president and chief executive of Capital Southwest Corporation, the largest shareholder of Heelys with a stake of 34.4 percent.